Starting Up in the Worst of Times

By Todd R. G. Hill | February 23, 2010
Opening-on the verge of closing. Some batches are good. Some batches go awry. Some go terribly awry. When we started, there was a federal credit in place. Now, there is not. There are decisions to be made: change the business form to raise more capital, or maintain the cooperative to stay true to the spirit of community-based energy production.

Our scheduled February grand opening of Promethean Biofuels Cooperative Corp. is just around the corner. We have invited a slew of city, state and federal officials, plus the local media and press to attend our symbolic ribbon-cutting ceremony and invitational for the community to participate in making an on-spec batch of biodiesel. Finishing the construction of a plant and planning a grand opening both seem to me to verge on the miraculous in a time like this. Our days are long, and the tasks needing attention seem endless.

Promethean is a formal cooperative centrally located in Temecula, Calif., between Los Angeles and San Diego. The past 14 months have been spent designing, building and permitting our community-scale biodiesel plant. Although initially the idea was to produce a 3 MMgy plant, certain logistic and technical realities limit production of the as-built system to about 1.2 MMgy. The plant is multi-feedstock, with the ability to pretreat a wide range of virgin and used vegetable oils.

Since we focus on lower quality used kitchen oils and the occasional batch of animal fat, we have to process much more oil than 1.2 MMgy to make that much biodiesel. So far we haven't come close to producing an amount that would even put us on the trajectory of meeting our nameplate production targets. Like many producers, we are trying to change that in a time when a majority of producers are idle, waiting for the termination of an asset sale or the reinstatement of a tax credit.
Promethean is not feeling the effects of the lack of a tax credit yet; when I first wrote the cooperative's business plan, I felt it was better not to include it. I wanted to build something based fully on the fundamentals, and realized early on that the existence of the credit worked to assist feedstock suppliers and not necessarily the producer. In fact, it can be argued that that was the purpose of the credit all along; it assists in providing a floor to those who grow, manufacture, or in some other way supply feedstock to our beloved and beleaguered industry.

Nevertheless, some might say that for someone who is concerned purely with the fundamentals, I chose the wrong state to start a biodiesel cooperative in. Although I firmly believe that California is the most environmentally aggressive state in the union, it is not particularly biodiesel friendly. In fact, it is against the law for municipalites and small fleet owners in our region of Southern California to purchase diesel buses and trucks, even if they are purchasing a replacement vehicle.

I realize the credit was a blender, not a producer or feedstock supplier credit. Some might feel this system worked flawlessly, allowing for something akin to the infamous "trickle down effect" where money theoretically flows from the top to the bottom of an industry, passing through many hands, lingering long enough to benefit every participant.

My personal experience is that trickle-down economics simply do not apply. The majority of the money we have spent has gone towards contractors, employees and suppliers. The credit, ostensibly set up to allow for us to produce biodiesel profitably at competitive pricepoint compared to conventional diesel, may have in part led us to the condition of the industry that exists today, with plant capacities overbuilt in a market where access and availabilty of feedstock is seriously constrained. Lest we forget, even prior to the expiration of the credit, the majority of plants stood idle.
I cannot speak for the industry as a whole, but I believe the few that may have been happy with the credit were far outnumbered by those longing for something that offered investor certainty in the form of a fixed and longer timeframe.
Speaking solely for myself, I prefer the opportunity presented by Renewable Identification Number credits, and I look forward to the implementation of RFS2.

All things being equal, I believe those who can suffer through this dark period and survive will arise leaner, faster and stronger. We will be ready to take hold of all the opportunities a growing marketplace, rising from its bottom, has to offer. Those opportunities will include plants transferred to new owners for pennies on the dollar, lower cost production technologies, lobbying for stability in the credit structure, and states creating their own policies in support of biofuels.The last year has been a trying time. It may be the worst of times for our industry, but I hope in hindsight it is the best of times for starting up. Good luck to us all.

Todd R. G. Hill is the managing principal and founder of Promethean Biofuels. Reach him at (626) 232-7608 or [email protected].
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