Oil prices are rising, and the world is anything but secure when it comes to political unrest, says Sandra Robnett, president and CEO of Syntek Resource Corp. “Especially in the Middle East, where a significant portion of U.S. energy comes from. We, in the United States, and, frankly, the rest of the free world, need to take a very serious look at how we energize and globalize, and really move forward. We need to put our money where our mouths are, and recognize we’d like to have alternative energy. We’d like to have biodiesel.” While Americans hold firm the idea of energy independence and security, Robnett says investors in the U.S. market seem less willing to take the risks associated with a long-term investment in new, alternative energy technologies. “They see an advantage to putting their money in the stock market, where it is more liquid,” she says.

As those investors Robnett alludes to wait and gauge the rebounding biodiesel markets, the world’s finite supply of precious crude grows smaller, scientists tell us the climate is getting warmer, and toxic city smog becomes a little thicker. And Arab sheiks, along with other modern-day oil barons who hold much of the developed world hostage, grow wealthier, more powerful. “The oil price spikes just point out the underlying problem,” says Wayne Lee, head of Arkansas-based biodiesel consulting firm Lee Enterprises Inc. “This is a national security issue, and an environmental issue, to be sure. But in the very short term, it is most importantly an economic issue. Can you imagine what the national deficit would do if we just replaced 25 percent of the oil we import with domestically produced biofuels? Not only would we breathe a bit easier when oil spikes or problems occurred in the Middle East, but our economy would turn around very rapidly. We have a renewable fuel standard. We have a public that is finally demanding that elected officials do something. Is it a good time to be in biodiesel? It is a great time.”   

Joe Furando, senior vice president of sales and marketing for Cima Green Energy, says, “Unlike in the 1970s when biofuels were unavailable, we should look at countries like Spain and its recent biodiesel mandate increases, to lead and champion biodiesel to drive energy independence and hedge against the volatility of the current energy market.” Spain recently upped its allowable biodiesel concentration from 5.7 to 7 percent to help curb the economic impact borne by rapidly increasing oil prices.

“I think the most important thing driving investment in biodiesel is the continuing belief that energy prices are going to remain volatile, which really drives the need for energy security,” says Daniel Oh, Renewable Energy Group’s president and chief operating officer. “Supporting that, of course, is the low carbon fuel standard and RFS2.”

Do the Right Thing

Despite recent favorable court rulings, a federal mandate, various state directives and incentive packages, and the (short-term) return of the dollar tax credit, some, however, still wonder why the biodiesel industry is worth investing in today, especially after all it has been through.
Why invest in biodiesel? Well, for someone looking to get rich quick, biodiesel would not be the answer. But for those looking to invest in the future, and their local community, biodiesel represents jobs, energy independence, community involvement, diversity, innovation, environmental stewardship and social responsibility. Ultimately, biodiesel is about doing the right thing, leaving an important legacy—and teaching an important lesson—to the children of our children’s kids. And if that’s not enough, there is money to be made too, given a sound business model and smart planning.

“Those who educated themselves about high-tech investing in the ’90s, and carefully weighted their grasp of the industry, its supply chains, and each business’ product and marketing strengths, gave themselves the advantage of knowledge,” says Robert Bailey, a capital broker with Trusted Advisory. “There is no reason to doubt that a nascent industry like biodiesel investment will undergo the same sort of expansion, competition, merger and acquisition cycles that all other industries do. Those willing to do the necessary brain work should do very well financially.”

Idle with Reason

Oh says a lot of the biodiesel capacity that is idled right now—an unprecedented time when both the tax credit and an implemented, court-upheld RFS2 coexist—will likely stay that way. “As we’re moving ahead, the industry is following typical value-added commodity pathways, and logistics positioning with respect to feedstock and customers is extremely important,” he says. “Not everything that was built in the past had that in mind. Some of the idle capacity out there right now would require as much investment to bring online as building a new plant would.”

REG’s Keith Olson, executive director of corporate finance and investment banking, says distressed assets lack the strategic characteristics necessary to be financially successful in the biodiesel industry of today—and tomorrow. “From a location standpoint, technology or otherwise, those plants will have a tough time,” he says. “It really boils down to the strategic advantages.”

In 2010, REG acquired the bankrupt assets of Nova Biosource in Illinois. “Since then, we’ve brought it back to be a very productive facility,” Oh says, adding that he’s more optimistic today than he has been for the past three years. “I think the paradigm has changed,” Oh tells Biodiesel Magazine. “I think you’ll find integrated companies like REG, and maybe some small individual companies on the regional side, but what is really driving business is customer adoption and volumes that customers and obligated parties now want to buy and use.”

Due Diligence

One companymaking biodiesel headlines recently, a company that knows about investing in biodiesel, is Enervation Advisors LLC. It’s an Axis Group Company that just recently purchased a couple of distressed biodiesel production facilities, both in Iowa, and also has bids out on others, including a biodiesel refinery in Michigan. Paul Tantillo, director of operations and managing member of Enervation Advisors, says one reason his company anticipates success in its biodiesel investments is that its strategy of purchasing distressed assets allows the company to enter the biodiesel space free of the massive debt, which was an encumbrance to many companies that entered the sector in 2007 and 2008. “Without that debt component to consider, you change the matrix and change the business model,” Tantillo says. “You don’t have those massive payments to make and you can then make money with a tighter margin.”

Enervation Advisors is also working in a very deliberate manner to identify the best projects to invest in. “The difference between us and some of the other opportunist funds,” Tantillo says, “is that we’re staying in this space. We’ve brought along engineers who are going to change the front ends to process multiple feedstocks. We’re also looking at technology changes at these plants, and have focused on working with outstanding professionals in the biodiesel industry who have a keen understanding of the technological landscape of the industry and what Enervation has to do to bring a more effective solution to the table.”

Before entering the biodiesel space, the Enervation team spent nearly a year and a half, and $250,000, on due diligence activities. “We moved very slowly into this space, with a lot of due diligence and a lot of research,” Tantillo says.

Tax Credit, RFS2

Regarding the tax credit and its return, REG's Oh says whether it continues as a blender credit or is revised and extended as a production credit, it’s important for the industry’s success. “The blenders credit today supports the economics for every aspect of the value chain,” Oh says, including the development of infrastructure. “We’re very supportive of it. We think it should be there, and it’s important when you think about continuing incentives to get to a critical mass, where biodiesel is just an everyday normal part of the fuel system.” Oh and REG are in favor of the credit but Tantillo says he feels otherwise. “While the extension of the biodiesel tax credit is helpful to some, Enervation’s goal is to be economically sustainable without subsidy,” he says.

CEO of Benefuel Inc. Robert Tripp runs a biodiesel technology company in Chicago that makes solid catalysts to convert low-grade fats and oils into biodiesel. He says what’s more important than the return of the credit is implementation of RFS2, creating a domestic market for the fuel. “Having a billion gallons of production (the mandate is based on blending, not production) on the books is probably more substantial than the credit itself,” Tripp says.

The National Biodiesel Board’s senior advisor Alan Weber says RFS2 represents a long-term policy framework for the biodiesel industry. One way the mandate will help foster growth in the industry, Olson points out, is through the impact it will have on infrastructure development.  He says, “The biodiesel industry has had a couple of flat years, but it is now rebounding, in part due to some of the rationalization that has happened in the industry. We do have improved economics in light of near-term rising oil prices and regulatory support. RFS2 creates infrastructure development, and that is going to be critical.” He adds that he’s seeing investment opportunities both in the U.S. and internationally. “The rationale for future investments,” he says, “would be opportunities that either pop up on a geographical basis, or ones that fit into our footprint here in the United States—or from a strategic standpoint in terms of participating in a vertically integrated business model.” Olson also says that as infrastructure comes online, it would give rise to investment opportunity on a geographical basis.

State Policies

Not only is the federal mandate, specifically the biomass-based diesel and advanced biofuel carve-outs nestled under RFS2, an important market and investment driver for the industry, but state policy will continue to play a big role in keeping industry alive and growing it at a responsible rate. Minnesota, Pennsylvania, Massachusetts, Illinois, Washington and Oregon all have biodiesel mandates (or in Illinois’ case, an incentive that in effect acts as a B11 mandate) on the books. “From a policy perspective, state policies have always been both beneficial and important,” says Weber. In addition to the existing state policies that provide good reasons to invest in biodiesel on geographical bases, there are the future policies to consider, mainly low carbon fuel standards in the two most-populated, fuel-using regions of the world’s greatest fuel-consuming nation, California and the Northeastern U.S. Eric Bowen, chairman of the California Biodiesel Alliance and recently appointed member for the low carbon fuel standard advisory panel in California, says, “I really believe the low carbon fuel standard has enormous potential to be a very large market driver and source of demand for biodiesel.” Biodiesel from waste, he says, achieves the largest carbon reduction of any fuels scored to date by the state’s air resources board. “All my analysis,” he says, “tells me that biodiesel—today and for the foreseeable future—will be the lowest cost of compliance.”

Author: Biodiesel Magazine Editorial Staff
(701) 738-4942
rkotrba@bbiinternational.com

 

13 Reasons to Invest in Biodiesel

1. Rising oil prices and political tumult strengthen biodiesel’s already strong appeal through its offering of energy security and independence.

2. Federal and international mandates create long-term policy and markets, and will only increase in time.

3. Biodiesel is a globally produced, globally traded fuel.

4. Biodiesel is the only advanced biofuel with significant commercial capacity.

5. In the U.S., a growing number of state mandates and incentives help drive biodiesel’s financial and market stability.

6. Low carbon fuel standards, under development in California and the Northeast, will create more opportunity for biodiesel, especially product derived from waste.

7. Capital costs are relatively low compared to other advanced biofuel production facilities.

8. In the U.S., the 7 billion gallon oilheat industry is moving more towards biodiesel blends, creating a big, free methyl ester market.

9. Hard work has made biodiesel a drop-in fuel, and every serious vehicle OEM and pipeline and terminal operator has invested in biodiesel, in one way or another.

10. A feedstock-flexible fuel, biodiesel can be made from any fat, oil or grease, and the already broad range of available feedstock is widening.

11. Investment in biodiesel is an investment in local communities.

12. Biodiesel creates green-collar jobs.

13. Investment in biodiesel is an investment in the children of your children’s kids’ future.