Producers press on amid absent tax credit

By Bryan Sims | September 01, 2010
The biodiesel industry brimmed with optimism when the biodiesel tax credit extension was included in H.R. 4213, or the Unemployment Extension Act of 2010. Then in July, to the dismay of the majority of producers in the industry, the tax credit carve-out was subsequently stripped, deflating industry confidence and leaving some to wonder if it was the proverbial "straw that broke the camel's back."

Until Congress considers the inclusion of a biodiesel tax credit in a legislative package, disdain will be resonating throughout the industry, particularly from undercapitalized small to mid-sized producers. Commodity price swings, high operational costs and low to nonexistent demand are a few of the factors that have caused many plants to scale back production or shut down operations altogether.

"When [the tax credit] was stripped from the jobs bill we were discouraged, no doubt," said Barry Jones, production manager for Triangle Biofuels Industries, a 5 MMgy multifeedstock plant in Wilson, N.C. Jones said the plant is one of a handful in North Carolina that are operating well under maximum capacity. "We're still operating under the assumption that we'll get [the tax credit] back retroactively."

AZ BioDiesel, a 500,000-gallon-per-year facility in Gilbert, Ariz., that operates under its cooperative operating entity Performance BioFuels LLC, is building a 10 MMgy plant expected to be open next year. President Dan Rees said his company likely won't survive if the tax credit isn't reenacted. He said the company is adapting with investor funding it received this year to build the new plant.

"We have been selling our fuel as if the fuel credit still exists," he said. "I think a lot of us [in the industry] took a gamble. Now I'm not sure if we can hold out until the end of the year. We're playing a dangerous game where you're actually playing Russian roulette with the government."

As a secondary means of breaking even, some producers believe the high price of renewable identification number (RIN) credits during biodiesel distribution could offset the need for a tax credit in the interim. "I think it could create a different market independent of the tax credit," said one southern producer who asked to remain anonymous, given how volatile prices would be once registered at the end of the year, "although there's no silver lining here," he added.

Some companies might be better structured to survive through this period without a major federal subsidy. "Our demonstrated capability of managing upstream feedstock supply and providing downstream product services to our customers is what I think helps us get through these tough times," said Daniel Oh, president and chief operating officer for the nation's largest biodiesel company, Renewable Energy Group Inc. REG bulked up its national multifeedstock procurement network in July when it acquired Restaurant Technologies Inc. With more than 16,000 used cooking oil collection systems spread throughout the U.S., along with 36 collection depots, REG gains broader access of yellow grease as feedstock for its production facilities. Included in the RTI cooking oil purchase agreement, REG also acquired Tellurian Biodiesel Inc., a California-based company and marketer, and American BDF LLC, a joint venture owned by Golden State Service Industries, a wholly-owned subsidiary of Golden State Foods.

Zachary Shelton, director of sales for General Biodiesel Inc., which operates a 15 MMgy multifeedstock plant in Seattle, said the company is doing its best to adapt without the tax credit. "It's not a solid part of our business model to expect subsidies," he told Biodiesel Magazine prior to the tax credit being stripped out of the unemployment extension bill. "I think the industry still has wide hope that a credit will still be passed."

Shelton's optimism notwithstanding, some producer confidence is waning with each passing month. "I'm starting to lose hope," Rees said. "To go, in hindsight, and rely on the federal government that was committed to an industry for so long and then for it to turn its back on us baffles me."
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