June BRM 2011

INSIDE: ESTABLISHING BIOREFINING BUSINESS OPERATIONS IN JAPAN JUNE 2011

7 Associations, 1 Goal Bioenergy Industry Leaders Collaborate to Present Congress a United Front Page 32

Plus

Using Mixed Cultures to Produce Carboxylates

Page 20

And

Bond Financing for Biorefining Projects

Page 26

www.biorefiningmagazine.com

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contents |

June issue 2011 VOL. 02 ISSUE 06

features

20

26

32

PROCESS An Anaerobic Alternative

FINANCE Transforming Financial Reform

EVENT Gateway to Cooperation and Parity

Less methane, more carboxylates

By Erin Voegele

Bond financing for the industry

By LUKE GEIVER

Seven leaders, one purpose

By ERIN VOEGELE

Contents DEPARTMENTS 4

Editorâ&#x20AC;&#x2122;s Note

10 Business Briefs

Memorable Gathering

By Ron Kotrba

6

Advanced Advocacy

Taking It to the Hill

By Michael McAdams

7

Industry Events

Upcoming Conferences & Trade Shows

INSIDE: ESTABLISHING BIOREFINING BUSINESS OPERATIONS IN JAPAN JUNE 2011

People, Partnerships & Deals

12 Startup Biorefining News & Trends

7 Associations, 1 Goal Bioenergy Industry Leaders Collaborate to Present Congress a United Front Page 32

36 Contribution Plus

Using Mixed Cultures to Produce Carboxylates

Page 20

And

Bond Financing for Biorefining Projects

Page 26

www.biorefiningmagazine.com

8

Talking Point

Cellulosic Fuel Production: One Step Closer to Standard Refining

By ED OLSON

9

Legal Perspectives

Understanding Indemnities

By DREW D. Larson

INTERNATIONAL Establishing Business Operations in Japan

What to expect if setting up a business

By RICHARD WEINER

ON THE COVER: RFA President Bob Dinneen, left, and NBB CEO Joe Jobe, middle, listen as ABFA President Michael McAdams calls the audience to action during the general session panel at the International Biomass Conference & Expo in St. Louis.

JUNE 2011 | Biorefining Magazine | 3

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editor’s note

The leaders of seven renewable energy industry trade groups lined the stage at the general session of BBI’s International Biomass Conference & Expo in early May in downtown St. Louis.

MEMORABLE GATHERING Ron Kotrba, Editor rkotrba@bbiinternational.com

The seven panelists were Mary Rosenthal, executive director of the Algal Biomass Organization; Joe Jobe, CEO of the National Biodiesel Board; Bob Dinneen, president and CEO of the Renewable Fuels Association; Michael McAdams, president of the Advanced Biofuels Association; Charlie Neibling, chairman of the Biomass Thermal Energy Council; Robert Cleaves, president and CEO of the Biomass Power Association; and Norm McDonald, chair of external affairs for the American Biogas Council.

The gathering of these individuals together all under one roof to discuss policy, energy, markets and the futures of their respective industries was truly impressive. I couldn’t help but think, 50 years into the future when a majority of our energy will (we hope) come from renewable sources, that these seven individuals—and their constituency—could be thanked. It was almost historic, or at least it felt that way to me.

Biorefining Magazine Associate Editor Erin Voegele was on scene to capture the discussion and provides us with a feature article, “Gateway to Cooperation and Parity,” on page 32 of this issue. Voegele writes, “St. Louis is not only the Gateway to the West, it also acted as the gateway to the future of the biomass industry in May as nearly 1,400 professionals representing all aspects of the sector descended upon the city’s America’s Center to network, conduct business and learn about recent technological and agronomic breakthroughs. A highlight of the event was the Tuesday morning plenary session, titled Association Executive Roundtable: Our Industry in a Changed Political Landscape. … While different segments of the biomass industry have, at times, unintentionally worked against rather than with each other, the tide seems to be shifting.”

This changing tide is evidenced by recent cooperation between organizations such as the Advanced Biofuels Association, National Biodiesel Board, the Algal Biomass Organization, the Renewable Fuels Association and BIO, on areas of common policy and objectives.

for more news, information and perspective, visit biorefiningmagazine.com/BLOG/READ/BIOREFINING

ASSOCIATE EDITORS Erin Voegele writes “An Anaerobic Alternative” on page 20, a story that covers a higher-valued use for AD gas: carboxylates.

4 | Biorefining Magazine | JUNE 2011

Bryan Sims took a temporary leave of absence to fight floodwaters in the Upper Midwest as a soldier in the National Guard.

Luke Geiver covers a leading-edge financial topic for biorefining projects—bond financing—in “Transforming Financial Reform” on page 26.

EDITORIAL EDITOR Ron Kotrba rkotrba@bbiinternational.com ASSOCIATE EDITORS Erin Voegele evoegele@bbiinternational.com Luke Geiver lgeiver@bbiinternational.com Bryan Sims bsims@bbiinternational.com COPY EDITOR Jan Tellmann jtellmann@bbiinternational.com

ART ART DIRECTOR Jaci Satterlund jsatterlund@bbiinternational.com graphic designer Lindsey Noble lnoble@bbiinternational.com

PUBLISHING CHAIRMAN Mike Bryan mbryan@bbiinternational.com CEO Joe Bryan jbryan@bbiinternational.com VICE PRESIDENT Tom Bryan tbryan@bbiinternational.com

SALES VICE PRESIDENT, SALES & MARKETING Matthew Spoor mspoor@bbiinternational.com EXECUTIVE ACCOUNT MANAGER Howard Brockhouse hbrockhouse@bbiinternational.com SENIOR ACCOUNT MANAGER Jeremy Hanson jhanson@bbiinternational.com ACCOUNT MANAGERS Chip Shereck cshereck@bbiinternational.com Marty Steen msteen@bbiinternational.com Bob Brown bbrown@bbiinternational.com Andrea Anderson aanderson@bbiinternational.com Dave Austin daustin@bbiinternational.com Nick Jensen njensen@bbiinternational.com CIRCULATION MANAGER Jessica Beaudry jbeaudry@bbiinternational.com SUBSCRIBER ACQUISITION MANAGER Jason Smith jsmith@bbiinternational.com ADVERTISING COORDINATOR Marla DeFoe mdefoe@bbiinternational.com Senior Marketing Manager John Nelson jnelson@bbiinternational.com

Customer Service Please call 1-866-746-8385 or email us at service@bbiinternational.com. Subscriptions to Biorefining Magazine are free of charge to everyone with the exception of a shipping and handling charge of $49.95 for any country outside the United States, Canada or Mexico. To subscribe, visit www.biorefiningmagazine.com or you can send your mailing address and payment (checks made out to BBI International) to: Biorefining Magazine Subscriptions, 308 Second Ave. N., Suite 304, Grand Forks, ND 58203. You can also fax a subscription form to (701) 746-5367. Back Issues, Reprints and Permissions Select back issues are available for $3.95 each, plus shipping. Article reprints are also available for a fee. For more information, contact us at (701) 746-8385 or service@bbiinternational.com. Advertising Biorefining Magazine provides a specific topic delivered to a highly targeted audience. We are committed to editorial excellence and high-quality print production. To find out more about Biorefining Magazine advertising opportunities, please contact us at (701) 746-8385 or service@bbiinternational.com. Letters to the Editor We welcome letters to the editor. Send to Biorefining Magazine Letters to the Editor, 308 2nd Ave. N., Suite 304, Grand Forks, ND 58203 or e-mail to rkotrba@bbiinternational.com. Please include your name, address and phone number. Letters may be edited for clarity and/or space.

Please recycle this magazine and remove inserts or samples before recycling TM

COPYRIGHT Š 2011 by BBI International

JUNE 2011 | Biorefining Magazine | 5

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advanced advocacy

Taking It to the Hill Making the case for advanced biofuels to Congress

BY Michael mcadams

I

recently had the privilege of testifying before the Energy and Power Subcommittee of the U.S. House Committee on Energy and Commerce and share with its members the incredible progress the advanced biofuels industry is making in moving our nation closer to energy independence while creating jobs right here at home. As I wrote in last month’s magazine, I emphasized the importance of providing stable, long-term, common sense public policies that allow the various renewable and alternative energy sources to compete to achieve our national policy goals.

I also urged the government to resist the temptation in their public policy efforts of attempting to pick a winner. Specifically I called for a technology-neutral, feedstockneutral approach while providing a level playing field in terms of grants, tax credits and loan guarantees.

I told the members of the House Committee that recent developments in advanced biofuels technologies enable our companies to make significant contributions in diversifying our transportation fuels pool.

One of the most noteworthy developments I recounted was the ability of many of our companies to manufacture gasoline, jet, diesel, heating oil and crude oil from renewable sources. It is essential that lawmakers know these “drop-in fuels” are fungible in today’s planes, trains, boats and automobiles.

No changes to the current infrastructure or transportation fleets are required and they provide economically competitive alternatives with current products on the market.

I thought you would be interested in reading other points I shared with lawmakers as I have been writing about the vital role all of us play in helping educate Washington on our progress as an industry and the work ahead of us.

6 | Biorefining Magazine | JUNE 2011

I told the Committee, there are some who would like Washington to believe that advanced and cellulosic biofuels are a long way off, but nothing could be further from the truth. These fuels are being commercially produced today, with many more gallons on the way. In fact, Dynamic Fuels, a joint venture between Tyson Foods of Arkansas and Syntroleum of Oklahoma, is currently producing 75 million gallons of renewable diesel and jet fuel in Louisiana. This plant makes diesel and jet fuels as if they were made in a refinery out of a traditional barrel of oil.

In addition, I am pleased to report that several advanced biofuels companies have recently gone public with great success.

Gevo, as a result of its recent $127 million offering, has begun its plans to retrofit a traditional corn ethanol plant to produce 18 million gallons of isobutanol next year. It has also announced plans to develop over 350 million gallons of production by 2015.

Similarly, Amyris completed a successful IPO and plans to deploy 75 million gallons of renewable diesel in 2012, while Solazyme and Kior, companies that also plan to produce fungible drop-in fuels also announced their intentions to go public this year.

Several of our members including Rentech, Kior, Coskata, Sundrop Fuels, Honeywell, and LS9 are currently negotiating financing for future commercial facilities; while many others, such as BP, DuPont and Virent, are moving forward rapidly in demonstrating their fuels and building or operating their pilot or demonstration plants with commercialization in their future plans.

These developments would simply not be occurring if it were not for the vision of this committee in the House and the Congress to enact a framework to expedite the development of advanced and cellulosic biofuels.

Our association and member companies strongly believe the current RFS2 is the most important federal policy in supporting the development of a biofuels industry in this country. We would specifically urge this committee and Congress to not tinker with the statute at this time.

As most of you are aware, the chief challenge of the advanced and cellulosic industries has been acquiring the necessary funding to build the next generation of facilities.

One of the primary reasons for the disappointing lack of commercial funding has been our biofuels tax policy. The current code is inconsistent in what it rewards according to the molecule, or feedstock or process used. Advanced and cellulosic biofuels tax policy does not provide parity and in many cases the credit is not in the right form to enable companies to monetize their value.

Depending on your size and scale as a company, many in the advanced or cellulosic industry believe they would have been more successful if they had a similar Investment Tax Credit to the solar and wind industries rather than the production credits afforded under current law.

I told the committee the system of loan guarantees has been challenging at best.

However, pulling the plug on the money in the middle of the game for those companies that have expended significant monies to apply was simply wrong.

I urged the Congress to help the industry on the procurement side of the equation by extending the period of time in which the military could purchase advanced biofuels similar to the long-term electric power purchase agreements. This would afford an offtake agreement enhancing the ability to secure financing.

As the bells rang out loudly calling the members of Congress to cast votes on the House floor, I concluded my remarks by pointing out that a significant amount of progress has been made over the past two years by the advanced biofuels sector. Much more is on the way as these fuels continue to make significant contributions towards diversifying America’s and the world’s transportation fuels in the future.

Author: Michael McAdams President, Advanced Biofuels Association (202) 469-5140 Michael.McAdams@hklaw.com

events calendar |

International Biorefining Conference & Trade Show

September 14-16, 2011

Hilton Americas – Houston | Houston, Texas The International Biorefining Conference & Trade Show brings together agricultural, forestry, waste, and petrochemical professionals to explore the value-added opportunities awaiting them and their organizations within the quickly maturing biorefining industry. Register by August 3rd and save $200 off registration rate.

(866) 746-8385 | www.biorefiningconference.com

Northeast Biomass Conference & Trade Show

October 11-13, 2011

Westin Place Hotel | Pittsburgh, Pennsylvania

Houston: Epicenter of the Refining World 9/14

Mark your calendars and get ready, the No. 1 biorefining event in the world is coming. For three days, Sept. 14-16, the 2011 International Biorefining Conference & Trade Show to be held in Houston will bring together hundreds of industry professionals to discuss all things advanced. Produced by Biorefining Magazine, the unprecedented event will offer a comprehensive look into advanced biomass refining including technology scaleup, project finance, policy, feedstock use and more. Geared towards industrial, petroleum and agribusiness ventures, the program will highlight advanced biofuels development and distribution, biobased platform chemicals, polymers and other renewable molecules.

The conference will be held at Hilton Americas. The educational sessions will appeal to those in finance (venture, private and institutional equity), petroleum and petrochemical refining, pulp and paper milling, biofuels and biobased products manufacturing and project development, agricultural processing and waste management, and will also be of interest to professionals from auto manufacturing, aviation, government/military, and research and academia.

Starting with industry tours of the region’s most innovative bioprojects and facilities, the conference will cover the biggest issues in the biorefining sector today. Included in the discussion will be petroleum industry perspectives on biorefining, converting existing industrial assets into next-generation biorefineries; forging symbiotic relationships; aviation and military perspectives on biobased jet fuel; and among others, the global market outlook for biobased fuels and chemicals. For those startups seeking a foothold in the global industry, the conference will also cover venture capital and private equity viewpoints and overcoming the barriers to market entry.

In 2011, there’s one place and one event that will usher in the next phase of the surging biorefinery industry, and for three days in September, you could be there, at the 2011 International Biorefining Conference & Trade Show, along with the team from Biorefining Magazine, to listen and learn how the next generation of advanced biofuels and biobased chemicals is succeeding now.

With an exclusive focus on biomass utilization in the Northeast—from Maryland to Maine—the Northeast Biomass Conference & Trade Show will connect current and future producers of biomass-derived electricity, industrial heat and power, and advanced biofuels, with waste generators, aggregators, growers, municipal leaders, utilities, technology providers, equipment manufacturers, investors and policymakers. Speaker abstracts are being accepted online through June 24th.

(866) 746-8385 | www.biomassconference.com/northeast

Algae Biomass Summit

October 25-27, 2011

Hyatt Regency Minneapolis | Minneapolis, Minnesota Organized by the Algal Biomass Organization and coproduced by BBI International, this event brings current and future producers of biobased products and energy together with algae crop growers, municipal leaders, technology providers, equipment manufacturers, project developers, investors and policy makers. It’s a true one-stop shop—the world’s premier educational and networking junction for all algae industries.

(866) 746-8385 | www.algaebiomasssummit.org

Southeast Biomass Conference & Trade Show

November 1-3, 2011

Hyatt Regency Atlanta | Atlanta, Georgia With an exclusive focus on biomass utilization in the Southeast—from the Virginias to Gulf Coast—the Southeast Biomass Conference & Trade Show will include more than 60 speakers within four tracks: Electricity Generation; Industrial Heat and Power; Biorefining; and Biomass Project Development and Finance.

(866) 746-8385 | www.biomassconference.com/southeast JUNE 2011 | Biorefining Magazine | 7

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talking point

Cellulosic Fuel Production: One Step Closer to Standard Refining The new biorefinery will resemble an old, familiar model

By Ed Olson

T

he advanced renewable fuel standard (RFS2) requires aggressively increasing amounts of cellulosic biofuels to be included in the fuel pool each year, and it is likely that there will be a strong market demand from obligated parties for this type of fuel as blend requirements increase. The current federal RFS2 requires that 36 million gallons of biofuels must be used in transportation fuel by 2022, including at least 21 billion gallons of advanced biofuels such as cellulosic biofuels, creating a gigantic market.

The U.S. DOE has identified a small number of potential intermediates obtainable from cellulosic biomass resources. Levulinic acid, a breakdown product from the acid hydrolysis of cellulose, is one such intermediate and has been studied by the Energy & Environmental Research Center and other laboratories.

One of the biggest challenges to utilizing levulinic acid as a biofuel intermediate is its costly separation out of the product mix. The EERC in partnership with Mercurius Biofuels has shown in the laboratory that cellulosic biomass in an alcohol medium can be catalytically converted to levulinate esters instead (ethanolysis).

These chemicals are also useful for fuels and chemical intermediates. However, a major advantage of forming levulinate

8 | Biorefining Magazine | JUNE 2011

esters, as opposed to levulinic acid, is that the ester form is much easier to extract using a simple condensation reaction. Experiments were performed by the EERC using laboratory-scale batch reactors.

Tests were done using laminated particleboard, cellulosic municipal solid waste, shredded paper and pineapple waste; all of which successfully were decomposed to ethyl levulinate. Further processing was done to create higher molecularweight compounds.

A major push will now be made to create a pilot-scale version of a biorefinery based on this technology. The biorefinery, in very simple terms, will run in a sustainable mode using common agricultural feedstocks such as wheat straw and corn stover. The process will include three steps: 1) ethanolysis, 2) condensation, and 3) hydrotreatment to stabilize the fuel products. Final products from this biorefinery will include advanced fuel additives in the form of cyclic ethers and hydrocarbons. This technology will ultimately be used to improve engine performance using a renewable product, both in gasoline and diesel engines. In the case of diesel fuel, the additives will boost the cetane levels, improve flow properties and, most importantly, reduce particulate emissions.

Subsequent product-upgrading steps will also be conducted in continuous

reactor systems, and sufficient volumes of the desired fuel products will be produced so that more extensive fuel testing can be done. The data collected from these continuous production runs will be used to further assess process economics and will also be used for the future design and construction of a larger pilot plant facility. Calculations at this time show that this type of three-step biorefinery will have a lower cost than competing technologies. Capital costs will be lower because residence times are measured in minutes compared to hours or even days for fermentation-based technologies.

Also, operating conditions are moderate compared to gasification or pyrolysis.

In summary, this biorefinery technology is superior to other technologies because it does not depend on enzymes and fermentation or extreme operating conditions. This technology is more in line with the petroleum refining model and will benefit from many of the same efficiencies.

The technology is patent pending for the EERC Foundation and licensed to Mercurius Biofuels on a global, exclusive basis.

Author: Ed Olson Senior Research Advisor, EERC (701) 777-5155 eolson@undeerc.org

LEGAL PERSPECTIVE |

Understanding Indemnities When acquiring assets, indemnities enforce the deal’s various obligations

By Drew D. Larson

A

well-structured indemnity provision is critical to ensuring both parties are protected in relation to breaches of an asset or stock purchase agreement.

When negotiating an acquisition, the parties carefully allocate the risks between them through the use of warranties, representations and covenants. Indemnity provisions provide the mechanism by which those obligations are enforced and limit the parties’ exposure to delayed claims.

This article will discuss the key terms of an indemnity provision and the considerations that go into negotiating such provisions.

Survival provisions serve as a statute of limitations for claims related to the breach of an agreement. Obligations under the agreement are usually divided into two sets, one set which lasts indefinitely and a second set that lapses within one to three years of the closing date.

The indefinite set usually includes obligations related to corporate authority, government authorization, environmental matters, taxes, employee benefits, related party transactions, and similar matters that could have large liability, could completely unwind the deal, or are completely within the seller’s control.

The second set of obligations usually lapses within one to three years of the closing date. These obligations generally include all business related representations and warranties, including those related to financial statements, the sufficiency of assets, the condition of assets, any material

adverse changes, and litigation. The time lapse provides certainty to the seller, and breaches are generally discoverable before the time period lapses. The time period is generally set to match the term of an escrow, discussed below.

Almost every party to an acquisition agreement recognizes that there will be small breaches that do not materially impact the operation of the business. Therefore, the parties often create a minimum threshold that must be crossed before the seller will be required to pay damages for a breach. The seller also desires to limit its potential liability. The primary mechanisms used to manage these risks are a “basket” and/or a “cap.”

A basket is a threshold amount of damages that must be reached before a party is liable to pay any claims. There are two primary types of baskets, deductible baskets and first-dollar baskets. With a deductible basket, the seller only pays for indemnity claims that exceed the deductible basket threshold. In contrast, a firstdollar basket provides that once the basket threshold is reached, the seller is responsible for all claims, including those used to reach the threshold. Through negotiation, a party can also craft a hybrid of these approaches with different basket thresholds and deductible levels.

A cap is a flat dollar limit on the claims that the seller and/or the buyer may be liable for under the agreement. A seller’s liability is often limited to at least the purchase price, though it may be negotiated to a lower amount as well. While the cap may be as high as the purchase price, the ability to collect may be functionally limited to the

escrow amount, discussed below. Often, cap is inapplicable to the certain obligations due to the magnitude of the liabilities that may be covered, like environmental liability.

A buyer may also seek to limit their liability for damages, though the focus is usually on the seller.

The parties should also consider how damages should be measured. While terms like materiality and knowledge are carefully negotiated in various representations and warranties, sellers often seek to ignore such limitations when calculating indemnity claims. This increases the likelihood that a basket threshold will be reached. Both parties should carefully consider whether such a provision is appropriate in their particular deal.

All the promises in the world are not worth anything if the seller distributes the purchase price and the buyer has to chase down every shareholder to recover the funds. For this reason, the parties often place a portion of the purchase price into escrow as security for indemnity claims.

A common escrow amount is 10 percent of the purchase price, though the actual escrowed amount will depend on the risks involved in the transaction and the bargaining power of the parties.

This summary merely scratches the surface of the complexity related to indemnity provisions. Any party to an acquisition should question their attorney about the risks associated with indemnity provisions and the ways in which indemnity provisions can serve that party’s interests.

Author: Drew D. Larson Attorney, BrownWinick (515) 242-2485 larson@brownwinick.com

JUNE 2011 | Biorefining Magazine | 9

business briefs People, Partnerships & Deals

Elevance Renewable Sciences Inc. and Royal DSM N.V. have signed a letter of intent for a collaboration to evaluate Elevance’s unique monomers for the production of specialty biobased high-performance thermoplastic materials for DSM’s engineering plastics portfolio. Specifically under the proposed partnership, Elevance will provide natural monomers produced from plant oils along with its proprietary metathesis technology to enable the production of various polymers. DSM will provide expertise on polymer research, application development and commercialization. DSM, along with BP, also recently invested an undisclosed amount in biotech firm Verdezyne from the closing of a new investment round. Previous investors OVP Venture Partners and Monitor Ventures also participated in the new round.

In other company news, DSM and Francebased starch and polyols producer Roquette Freres plan to jointly build a 10,000 metric ton per year commercial-scale biobased succinic acid facility near a Roquette starch manufacturing site in Cassano Spinola, Italy. The proposed production plant, scheduled to come online by second quarter 2012, would be Europe’s largest biobased succinic acid production facility.

Los Angeles-based Rentech Inc. has received approval by the Province of Ontario, Canada, to obtain a long-term supply of up to 1.3 million tons per year of Crown timber for the company’s planned biobased jet fuel project, Project Olympiad, located in the Township of White River, Ontario.

The proposed wood allotment for Rentech’s planned project is the largest ever awarded in the Provincial Wood Supply Competitive Process administered by the Ontario Ministry 10 | Biorefining Magazine | JUNE 2011

of Northern Development, Mines and Forestry. Scheduled to be operational by 2015, Project Olympiad is expected to produce approximately 23 million gallons annually of RenJet fuel—Rentech’s trademarked renewable and certified low-carbon jet fuel—via a proprietary process based on Fisher-Tropsch chemistry that, together with gasification and upgrading, is capable of converting syngas from biomass and fossil sources into hydrocarbons that are subsequently upgraded utilizing technology from an alliance with UOP, a Honeywell company. The project will also produce 13 MMgy of biobased naphtha, an intermediate hydrocarbon that can be used for the production of polyethylene for plastics, along with other applications.

Cobalt Technologies and American Process Inc. have announced an agreement to build an industrial-scale cellulosic biobutanol refinery. The companies have also agreed to jointly market a joint biorefining solution to biomass power facilities and other customers. API is developing and commercializing lignocellulosic sugar production and bioenergy process technologies. The company is currently working to construct a facility in Alpena, Mich., which will demonstrate the conversion of hemicelluloses extracted from woody biomass into fermentable sugars. The project, funded in part by an $18 million U.S. DOE grant and a $4 million grant from the state of Michigan, will initially produce cellulosic ethanol. API’s technology, known as GreenPower+, is a patent-pending proprietary process for extracting hemicelluloses sugars from woody biomass using steam or how water. The sugars are then converted to fermentable sugars. The extracted biomass is returned to a boiler and used to produce steam and electricity. The sugars are further processed into end products.

The Chempolis Biorefining Park has been a busy place over the past month, hosting energy commissioners and prime ministers. Gunther Oettinger, the EU energy

commissioner, took a tour of the facility that puts the 3G formico biorefining technology to use. Members of Chempolis, including Paivi Rousu, vice president of R&D, spoke to the commissioner on the company’s ability to make biofuels and biobased chemicals from nonfood raw materials during his visit.

Along with Oettinger, Esa Hamala, the director general for the ministry of employment and the economy, also toured the facility in Oulu, Finland. Nearly a month earlier, Farooq Abdullah, Indian minister of new and renewable energy, also visited the park to discuss Chempolis’ technology. The prime minister was on a four-day tour across Finland that aimed to “promote cooperation in the exchange of renewable energy know-how and technology between the countries.” Earlier this year Chempolis signed with a Chinese company to build a biorefining facility similar to the Oulu facility. The company has already appointed a managing director for the joint-venture, Esa Niemi, to oversee the company’s operations in its Asia Pacific pulp and biofuels businesses. Chempolis has invested roughly $20 million in R&D, resulting in a portfolio of more than 100 patents.

Roughly 20,000 biobased products are made in North America, according to the USDA, but how many consumers are familiar with the term biobased? A leading enzyme maker based out of California might have a fairly good estimate. Through the company’s study “Household Sustainability Index,” Genencor now has a better guess at how many people in the U.S. and Canada know about some of the products its enzymes help to produce. According to the study, four out of 10 American consumers “have heard of the term ‘biobased’ to describe products or product ingredients used in cleaning and personal care products, clothing and fuels such as ethanol and biodiesel.” For Canadians, the number is roughly one-third of the population.

Fortunately, the number of both Americans

business briefs |

and Canadians that said they would “definitely,” or “likely” buy a biobased household product in place of a non-biobased product (if the cost and effectiveness of the products were the same) was much higher, totaling eight out of 10. Genencor currently provides enzymes for nearly 400 products, and Tjerk de Ruiter, CEO of Genencor, says that the findings of the study show that consumers are prepared to choose biobased products, “especially those consumers who are familiar with green products and are generally confident about their environmental claims.”

Sapphire Energy has signed with the Linde Group in an effort to collaborate on a commercial-scale system that could deliver CO2 to open-pond algae systems like those currently being used by Sapphire. Linde is currently the leading supplier of CO2 in the U.S., providing CO2 for processes like drycleaning to cooling food products. The goal of the project is cut the costs of delivering anthropogenic CO2 to the open ponds, and before the multiyear agreement is able to develop a commercial-scale system, Linde will provide CO2 at Sapphire’s Columbus, N.M., demonstration facility. In the Netherlands, Linde has already created a CO2 delivery system that supplies 550 greenhouses with the gas through a 100-kilometer pipeline from a nearby refinery. “Producing fuel by algae using CO2 from large emitters like power stations and chemical plants is a very promising way of reducing greenhouse gas emissions,” says Aldo Belloni, a member of the executive board of Linde AG. According to Linde, a single commercial algae-fuel facility will require roughly 10,000 metric tons of CO2 per day.

A program in St. Louis is offering citizens the opportunity to become involved with algae biofuel development by collecting algae samples that will be analyzed for oil content at the Donald Danforth Plant Science Center. The second annual Backyard Biofuels Citizen Science Project kicked off May 7 with AlgaePalooza. The event was held in the Life Science Lab at the St. Louis Science Center, and is co-hosted by the Center for Advanced Biofuel Systems at the Donald Danforth Plant Science Center.

Members of the public who attended the AlgaePalooza had the opportunity to talk with the research scientists behind the Backyard Biofuels Citizen Science Project and learn why algae has the potential to be a sustainable source of fuel used to power cars, trucks and airplanes. Attendees also learned how to identify various types of algae and participate in hands-on experiments and activities like painting with algae and making algae ball necklaces.

Genomatica and Mitsubishi Chemical Corp., the eighth largest chemical maker in the world, signed a broad memorandum of understanding (MOU) outlining multiple potential areas of collaboration. Mitsubishi and Genomatica will explore forming a joint venture to build the first commercial plant in Asia for Bio-BDO. This plant would use Genomatica’s direct, one-step technology and leverage Mitsubishi’s leadership in BDO applications and sales, as well as their manufacturing expertise. The companies will also discuss collaborating to develop several major chemicals, which are strategic to both companies. Mitsubishi also made an equity investment in Genomatica as part of Genomatica’s recently-announced $45 million Series C-1 funding. “We respect and share Genomatica’s vision of the importance of sustainability for the chemical industry, and we recognize their achievements with C4 chemicals, which are strategic to us,” says Hiroaki Ishizuka, representative director of Mitsubishi Chemical.

“Asia is the fastest-growing chemicals market

in the world and we see great potential to deliver biobased chemicals to this market as a growing complement to our current conventionally sourced chemicals. We believe that a strategic partnership with Genomatica will provide market-leading economics and quality that will benefit both parties.”

Evonik is helping to expand the bioenergy industry, and nearly every place from Argentina to Nebraska is reaping the benefits.

Nearly a month after announcing that the German-based company would expand its global position in biodiesel catalyst production by building an alcoholate catalyst plant in Argentina, Evonik has ensured its business ventures in Iowa will also expand. Through a $50,000 donation, the company will “help prepare individuals for work in the biotechnology and milling industries,” according to the company. The money will be used to operate the Washington County Technology Center at the Cargill-owned Blair, Neb., BioRefinery Campus for five years. The hope is to train future employees for technical jobs within the campus. Alan Brewer, vice president of Evonik’s Health and Nutrition Business Unit in North America, notes the critical need for highly trained, highly qualified people to work at the Evonik plant in Blair, which produces lysine, an amino acid used as a feed additive in the swine and poultry industry. “In the past,” Brewer says, “Evonik has hired people and trained them.

Now, graduates of the Technology Center program will have a leg up on qualifying for jobs offered by Evonik and other businesses.”

During a two-year program, students will develop skills in chemistry and other processes used at the facility on the way to earning an associate degree in applied technology.

Share your industry briefs To be included in Business Briefs, send information (including photos and logos if available) to: Industry Briefs, Biorefining, 308 Second Ave. N., Suite 304, Grand Forks, ND 58203.

You may also fax information to (701) 746-8385, or e-mail it to rkotrba@bbiinternational.com. Please include your name and telephone number in all correspondence.

JUNE 2011 | Biorefining Magazine | 11

startup

Biorefining News & Trends

Price Differential Gustafson says the wheat straw left in the field brings $15 a ton, but collected, bailed and delivered straw gets $35 more a ton.

What Unemployment Rates Tell Project Developers Don’t forget that no two projects are alike The process formula being used successfully by Inbicon in its Danish biorefinery has not yet seen the same success in wheatstraw biorefining tests in North Da­kota.

Cole Gustafson, professor from North Dakota State University, says that “the bottom line is yes, it can be commercially done” in North Dakota. But for that to happen, the biorefinery will have to overcome some common, and not so common, hurdles to get there.

Collection of wheat-straw biomass is already happening, Gustafson says. “We have a cabinet manufacturer who is collecting wheat straw to make a composite panel that is used for cabinetry,” he points out, and the cabinet maker is paying $15 a ton for the biomass if it is left in the field and an additional $35 a ton if it is baled and delivered to the facility. But, like most projects, even though the collection of the feedstock may be possible, there is still a density versus distance issue. In this case, the areas of

12 | Biorefining Magazine | JUNE 2011

the greatest wheat straw density are further away than the desired distance.

Another common issue that could affect the success of the biorefinery is some basic agronomic information that Gustafson thought would be readily available: plant matter left standing after initial harvesting.

Because the information didn’t exist, he spent a week driving through North Dakota collecting information and determined that the average height of the wheat straw farmers are leaving is seven inches.

But issues such as density versus distance or the amount of biomass typically left in the field after a harvest will affect every project. It’s the state’s unemployment rate though that shows why every project really is different.

“When we looked at their (farmers) preferences, they are interested in leaving the straw in the field and not doing much more than that,” he explains. Why? Because the state has one of the lowest unemployment rates in the nation at roughly 2 to 3

percent, meaning that farmers don’t have access to labor in rural areas. “So,” he said, “they were very hesitant to committing any additional field operations to bale, collect or store because they didn’t have a labor source.”

But the labor force dilemma isn’t the only hurdle that shows why a project developer can’t base a project strictly off past projects. In North Dakota, he explains, there is a question of who to negotiate with to purchase biomass crop residues. “It turns out that in most cases the tenant has a say in terms of what can be done with the crop stovers.” But, he adds, “the tenant has to leave the land in the same condition as he acquired it at the beginning of the production period,” noting that this can be another dilemma in feedstock contracts.

Even with state-specific challenges, however, Gustafson says, “everything at this point looks very positive.”

—Luke Geiver

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Innovation by Design

PHOTO: LIGNOL ENERGY CORP.

How forward-thinking cellulosic development is key to achieving commercial-scale

Biorefining Baron Recognized as a leading biorefining expert and reputable biochemical professor, Lignol Chief Scientific Officer E. Kendall Pye developed Lignol’s core pretreatment technology while with an affiliate of General Electric.

The goal for any cellulosic ethanol developer is to perform the necessary due diligence at pilot and demonstration scale before making the leap to commercialization. That’s exactly what Canadian cellulosic ethanol developer Lignol Energy Corp. did when, with its Vancouver-based engineering contractor Poyry Inc., it completed an engineering design package for a commercial-scale biorefinery that could potentially produce up to 80 MMly (21 MMgy) of cellulosic ethanol and 55,000 metric tons of lignin, trademarked HP-L, derivatives annually.

In its design calculations, Lignol took into account the recent price of crude oil, incentives for the construction of biorefineries and the production of advanced biofuels along with pricing indications received from key suppliers and customers.

Additionally, the company intends to perform ongoing studies at its 100,000 liter per year pilot-scale cellulosic ethanol facility on the campus of the British Columbia Institute of Technology in Burnaby, British Columbia, to refine the design basis and equipment selection needed to scale up its proposed commercial plant.

“Completing this milestone is a significant step forward in our plan to develop a financially viable, commercial-scale biorefinery and market our technology worldwide,” says Ross MacLachlan, president and CEO of Lignol. —Bryan Sims

How the investment window is opening in the biorefining sector Despite a recovering economy, a number of biorefining firms are obtaining the necessary capital to take their technologies to the next level. Mountain View, Calif.-based biobutanol developer Cobalt Technologies, for example, landed $20 million in Series D financing in April. The deal was led

by The Whittemore Collection Ltd., the investment vehicle of Getting Funds Cobalt Technologies, a biorefining company developing cellulosic ethanol Parsons & Whittemore, formerly one of the world’s largest and biobutanol projects, just received $20 million in funding. manufacturers of pulp.

“Many data points indicate a greater belief in the biorefining Chief financial officer Steve Shevick says the added capital will enable Cobalt, in collaboration with American Process industry, not just our Series D, but also the successful IPOs of Inc., to build a 470,000-gallon-per-year demonstration facility in Amyris and Gevo, the pending IPOs of Solazyme and KiOR, Alpena, Mich., which is currently under construction. The plant, and a growing number of strategic relationships being formed anticipated to be the nation’s first cellulosic ethanol and biobutanol between startup biorefining companies and major fuel, chemical, production plant utilizing biomass sources, is scheduled to be agriculture and consumer projects companies,” Shevick says. “As [investors] have emerged from the recession they are now taking operational by second quarter 2012.

Shevick wouldn’t disclose how much of the $20 million would a look at the products and technologies of the future, and that’s be going toward financing the Alpena project, but admits that the biorefining.” —Bryan Sims funding Cobalt received is an indication that investor confidence may be mounting to aid commercial development.

JUNE 2011 | Biorefining Magazine | 13

PHOTO: COBALT TECHNOLOGIES

Capital Infusion

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startup

Taking Stock in Bark While an increasing number of biorefining firms are focusing on converting wood biomass—logs or chips—into biofuels, biochemicals and other bioproducts, scientists are also exploring how best to extract value-added bioproducts from the abundant, yet underuti­lized, fraction of the wood: the bark. Among these is the Bark Biorefinery Consortium, a team of world-class experts in biomaterial, adhesive and polymer sciences, chemistry and chemical engineering, seven industrial partners and several government research organizations engaged in a four-year collaboration led by researchers from the University of Toronto and Lakehead University, in Ontario, Canada.

According to Ning Yan, principal investigator at the University of Toronto, the BBC is focused on producing two major industrial bioproducts from tree bark. One, she says, is to exploit the inherent aromatic compositional properties within tree bark and produce a substitute for phenolic-based adhesives. The other platform is to break down bark components, either through extraction or chemical conversion, to produce biobased intermediates in polyurethanes or foams, such as isocyanate, which is commonly found in bark-derived foams.

“We hope to be able to produce a more environmentally friendly counterpart and hopefully at a lower cost from a forest residue like bark,” Yan says.

She adds that while the majority of the research is being conducted in the lab, the goal is to demonstrate the processes at pilot scale and envisions existing saw mills integrating the process as a complimentary utilization effort with bark used as hog fuel.

PHOTO: CAZ ZYVATKAUSKAS, MANAGER, DESIGN AND PRODUCTION, STRATEGIC COMMUNICATIONS, UNIVERSITY OF TORONTO

Wood biomass utilization is taking on a whole new shape in Canada

Barking up the Right Tree Professor Ning Yan holds tree bark in her right hand and bark-derived foam in her left at the Advanced Composite Characterization Laboratory at the Faculty of Forestry, University of Toronto.

“We already have promising results for the feasibility of an integrated bark biorefinery that could convert the aromatic portions for biobased adhesives and cellulosic fractions that could be converted into foams,” Yan says. “We have demonstrated promise in the lab, but optimization efforts are ongoing to perfect the process.”

—Bryan Sims

Positive Results for Biojet A team of researchers at NASA’s Dryden Flight Research Center recently tested renewable jet fuel in a DC-8 aircraft. According to information released by the administration, the biobased jet fuel used in the test was manufactured from chicken and beef tallow.

Information released by NASA states that the research team ran one engine using hydrotreated renewable jet fuel (HRJ), another using JP-8, and a third using a 50/50 blend of the two fuels.

The testing, referred to as the Alternative Aviation Fuels Experiment, occurred with the plane on the ground. The research team evaluated both the fuel’s performance and resulting emissions. According to NASA, the evaluation included measurements of nitrogen oxide and particulate emissions. Data 14 | Biorefining Magazine | JUNE 2011

released by the organization notes that black carbon emissions were 90 percent less at idle in the engine that burned the HRJ, and nearly 60 percent less at takeoff thrust. According to Bruce Anderson, the experiment’s chief scientist, the biofuel also produce significantly lower sulfate, organic aerosol, and hazardous emissions than the standard, fossil-based jet fuel.

“The test results seem to support the idea that biofuels for jet engines are indeed cleaner-burning, and release fewer pollutants into the air. That benefits us all,” says Ruben Del Rosario, a researcher at NASA’s Glenn Research Station in Ohio who manages the organization’s Subsonic Fixed Wing Project, which sponsored the experiment through the Fundamental Aeronautics Program.

PHOTO: NASA

NASA tests renewable fuel blends in a DC-8

Black Carbon Reduction An emissions detection rake device is positioned behind the No.3 engine on NASA’s DC-8 flying laboratory during ground tests of an alternative jet fuel.

“NASA Dryden was excited to contribute to the study of alternative fuels for aviation use,” says Frank Cutler, NASA’s DC-8 flying laboratory project manager in a release issued by NASA. “The results of these tests will tell us a lot about emission generated by modern turbine aircraft engines using these fuels.” —Erin Voegele

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PHOTO: BIOAMBER INC.

Differentiating Bioplastics

Cereplast’s new symbol distinguishes biobased plastic from fossil-based counterparts A new symbol will soon aid consumers in identifying products made using renewable, bioplastic materials. The symbol, which was chosen via a competition titled “Make Your Mark,” was announced by Cereplast Inc. on Earth Day Eve. Cereplast and its partners will initially use the symbol to differentiate its products from traditional, petroleumbased plastics. According to Nicole Cardi, Cereplast’s vice president of marketing and communications, it is also possible that the symbol will be opened up for wider use in the future.

Cardi said the new symbol will be Making a Mark Cereplast’s new featured on Cereplast products as soon bioplastic symbol as possible. “We actually have some new is designed to help customers products that we are rolling out soon… differentiate between and anticipate rollout [of the symbol] biobased and within the next few months at the very petroleum-based plastics. least,” she says.

SOURCE: CEREPLAST Cereplast’s Make Your Mark competition was modeled after a similar graphic design contest in 1970 that resulted in the recycling symbol. More than 1,500 bioplastic symbols were submitted to the Cereplast. The winner was selected using a multitiered voting system that featured a public voting component. More than 2.8 million public votes narrowed the selection to 200 finalists which were further ranked by a panel of judges that included Gary Anderson, the creator of the recycling symbol.

The winning design was created by Laura Howard, a thirdyear design student at the University of Louisville in Kentucky.

“We are excited to congratulate Laura Howard for designing a symbol that has the potential to become a revolutionary logo representing the next generation of plastics—plastics that protect and preserve our environment and are made from renewable resources,” says Frederic Scheer, Cereplast’s chairman and CEO. “The new bioplastic symbol will be used in a similar fashion to the recycling symbol as it will be stamped on products, and it will serve as an identifying mark of bioplastic material…

We believe that this new symbol will help provide consumers with the tools they need to make more environmentally intelligent purchasing decisions.”

According to Howard, the symbol she submitted was designed to represent the creation of a structural element from a plant source. She also noted that she was familiar with bioplastics before entering the competition. “That’s one of the things that drew me to the contest,” she says. “I am very excited to be part of that movement.” —Erin Voegele

Proving Ground Since January 2010, BioAmber produced biobased succinic acid at its demonstration facility in Pomacle, France. With an annual capacity of 2,000 metric tons, it uses wheat-derived glucose as feedstock and consumes carbon dioxide in the process.

Amber Waves of Potential How BioAmber is closer to achieving commercial scale than one might think

Don’t mistake BioAmber Inc. as a biochemical company that would gloat or come off as pretentious when it comes to having the confidence that its two biobased product offerings derived from agricultural residues—succinic and adipic acid—will someday enter the commercial market.

“We think we have a pretty good business plan,” Mike Hartmann, vice president of corporate affairs, tells Biorefining Magazine.

In April, BioAmber joined forces with Mitsubishi Chemical Corp. in the field of biobased succinic acid, in a strategic agreement that makes BioAmber and Mitsubishi Chemical’s distribution partner, Mitsui & Co., exclusive suppliers of biobased succinic acid to Mitsubishi Chemical. As a result, the three companies plan to conduct a feasibility study to build a succinic acid production facility adjacent to Mitsubishi’s planned polybutylene succinate (PBS) production plant in Thailand.

BioAmber and Mitsubishi Chemical also intend to incorporate elements of Mitsubishi’s succinic acid technology into BioAmber’s biobased succinic acid platform. The goal, according to Hartmann, is to produce low-cost succinic acid that will drive down the manufacturing cost of Mitsubishi Chemical’s patent-protected PGS, a renewable and biodegradable polymer. BioAmber has begun to supply Mitsubishi Chemical with biobased succinic acid produced at its 2,000-metric-ton-per-year commercial facility in Pomacle, France.

BioAmber has also secured the right to source biobased PBS from Mitsubishi Chemical for its modified PBS polymers, which are marketed through its Sinoven Biopolymers subsidiary.

Additionally, BioAmber secured $45 million in a Series B round that will be used to accelerate the commercialization of biobased succinic acid and modified PBS via its forged venture with Mitsubishi Chemical, including funding ongoing development work on biobased succinic acid in collaboration with Cargill Inc., to strengthen its management team and build out its research and development capabilities to accelerate development of its adipic acid platform.

According to Hartmann, BioAmber intends to use a portion of the funds toward the construction of a proposed commercial biobased succinic acid production facility in North America. While a specific location isn’t determined, Hartmann says the company has identified potential sites in Canada and in the Midwestern U.S. “It all comes down to what kinds of government funding, whether its state, provincial or federal, we can leverage for the project,” Hartmann says.

“That’s a definite consideration aside from the logistical issues with siting a project like this.” —Bryan Sims JUNE 2011 | Biorefining Magazine | 15

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The AFEX Has Almost Arrived Researchers at Michigan State University, led by Bruce Dale, professor in the department of chemical engineering and materials science, have found a way to use the properties of lignin to their advantage.

To do it, they’ve nearly perfected a process they call AFEX, ammonia fiber expansion.

Using AFEX, the team has also shown that transporting biomass can be much more efficient if the properties of lignin, namely its binding qualities, are put to use to form (or bind) the biomass into easy to transport biomass packs that are similar to briquettes.

Dale, who has been working on the AFEX process for roughly 30 years, says that some people might be familiar with the process as a gaseous treatment to improve the material for animal feed. To form the biomass packs, here is how it works.

Starting with plant material that can contain moisture content as high as 50 percent, the process uses roughly a pound of ammonia for every pound of plant matter.

The biomass (hay, straw, corn stover, etc.) is treated at 150 to 200 degrees Fahrenheit for approximately 15 minutes at a pressure of 200 pounds per square inch. After the treatment time is up, the ammonia evaporates

PHOTO: MICHIGAN STATE UNIVERSITY

Already licensed, ammonia fiber expansion can cut biomass transport costs

Prolific Bioresearcher Bruce Dale from Michigan State University has created the AFEX process and a Lansing, Mich.-based company is working to commercialize it.

and nearly 20 to 30 percent of the original amount is recovered. “One of the effects of the treatment is to break down the lignin into smaller pieces,” Dale says. “When the pressure is released, the mixture of ammonia, water and lignin migrates to the surface of the plant fiber and it leaves behind the lignin fiber, which is naturally sticky.” Es-

sentially, the AFEX process breaks down the lignin into pieces that are more than capable of acting as a binding agent to hold the rest of the biomass together, making the biomass easily compactable and transportable.

The material, Dale says, “has about the bulk density of corn and it flows like corn and should store well in grain handling equipment.” And, because the AFEXeffected biomass holds those properties, Dale believes the system will allow for a more distributed process approach for biomass to biofuel biorefineries. The idea is to utilize regional biomass processing depots that perform this pretreatment step and densify the biomass. “We envision a series of these smaller distributors that maybe process a hundred tons a day of plant material that could be owned by rural interests.” This vision can all be made possible, he says, because of one of the greatest advantages to the AFEX process. “There are no other processes like the AFEX process” that would work, he says, on a distributed basis because, unlike the AFEX process, they all use heavy amounts of water.

—Luke Geiver

Preparing a Prototype

Avjet Biotech selects design, installation partner North Carolina-based Avjet Biotech Inc. has announced the selection of Boulder, Colo.-based Continental Technologies LLC to establish its pre-prototype laboratory system, prototype aviation biofuel facility and commercial aviation biofuel refinery. Continental Technologies has experience designing, fabricating, installing and operating refineries and other processing systems.

“Our agreement with Continental Technologies will produce plans, specifications, schematics and equipment designs that we can implement at other small, distributive 16 | Biorefining Magazine | JUNE 2011

refineries across the globe,” says Marty Oliver, president of ABI. “Continental’s knowledge, support and years of experience will help Avjet become the turnkey provider for organizations that need small, distributive refineries.”

According to Avjet Biotech, it has delved a unique, patented refining technique that utilizes a thermal catalytic process to refine triglycerides into aviation fuels. The technology, referred to as the RWR System, is currently under development for sale as a small distributive refining system. The company’s

subsidiary Red Wolf Refining has already been approached by potential customers regarding sublicenses.

“We are pleased to take this next step forward to see the laboratory scale facility built on the N.C. State University campus,” says Don Evans, chairman and CEO of ABI. “As our facilities grow into three stages of production scale, we will be able to provide aviation biofuels that will benefit the military and commercial aviation biofuel demands worldwide.” —Erin Voegele

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Splitting Wood into Biodiesel, Pellets An interesting approach to biorefining

The biomass and biodiesel industries collided in St. Louis this spring at the International Biomass Conference & Expo as Dino Mili, co-founder and CEO of Montreal-based New Forest Industries, gave a presentation titled Low Severity Process Yields Functionalized Wood Pellets and Biodiesel.

The process Mili discussed is an ideal biorefining retrofit strategy for a distressed pulp and paper mill, the end products from which would be wood pellets and biodiesel— a counterintuitive pair of products. It involves hydrotorrefaction in which wood chips are cooked in a digester with water, “just like the pulp industry has been doing for years,” he tells Biorefining Magazine, at about 160 degrees Celsius for an hour and a half. The hemicellulose (woody biomass consists of three main

components: cellulose, or six-carbon sugars; hemicellulose, or five-carbon sugars; and lignin) and soluble fractions like ash and chlorides are separated out, and the lignin and cellulose portions are used for high-grade wood pellets optimized for combustion.

Mili says the resulting wood pellets are harder, more energy dense and hydrostable, since the hydrophilic fractions are removed.

The hemicellulose is separated and hydrolyzed to five-carbon sugars, a base feedstock for many advanced ethanol projects; but rather than make ethanol from these sugars that are more difficult and costly to ferment, Mili says the project reverts to more robust, homogeneous organisms to convert the fivecarbon sugars to lipids for use to make fatty acid methyl esters (biodiesel). New Forest Industries has hired FPInnovations to help put the project together.

“The biggest issue is the conversion of the sugars to lipids,” Mili says. He says most of the organisms the project will use were originally developed for the wastewater treatment industry. In explaining the process, he also noted that if we eat too much sugar, our bodies will convert those sugars to fat, or

lipids; so these microorganism conversions work in a similar way. Mili couldn’t give too much detail because his company is still finalizing patent applications on the process.

The oil properties from the converted sugars to lipids—the microbial oils—fall between those of vegetable oils and animal fats, Mili says.

Mili says he predicts 60 percent of the revenue stream from the process will come from pellet sales, while the remaining 40 percent will be equally distributed between green power and biodiesel.

While this biorefining approach would work well in a pulp and paper mill, finding one to work with might be more difficult than it appears. Mili likened a partnership between a biorefining startup and pulp and paper mill as a man with a cart who wants to hook it up to a horse. The stable owner (the mill owner) has only thoroughbreds (new, efficient mills) and crippled horses (outdated, inefficient or mothballed mills). The stable owner isn’t about to let the man with the cart slow down his thoroughbred, and the cart can’t be pulled by the crippled horses because they have to be put down. —Ron Kotrba

Success is in the Bioenergy Details Is there anything the Biofuels Atlas can’t do?

Say the word “location” three times and you’ve basically summed up the No. 1 factor that will allow a bioenergy project to succeed.

Placing a facility in the best possible location is much more complex than finding a nice view or having the right neighbors. Typically, the first place to start in the location research process would involve allocating the availability of needed resources such as feedstock or infrastructure, but, if the theory holds that future success “is all in the details,” then knowing the availability of woody biomass in a 50-mile radius is only the first step down a very long road.

Kristi Moriarty, senior analyst for the Center for Transportation Technologies and Systems for the National Renewable Energy Laboratory, and her team at NREL have developed a map to get you there.

Of course, the Biofuels Atlas developed by the NREL team can provide information on feedstock availability ranging from corn stover to forest residues, but the atlas, which is linked into Google Maps, and is a compilation of information (when available) from the U.S. DOE, the U.S. EPA and the USDA, can provide much greater detail.

Want to know the flex-fuel vehicle density for an area around St. Louis? The atlas can tell you. Want to know the biofuels potential based on a specific feedstock in a specific collection radius? The atlas can provide that information. Or—and this is where the map is truly an asset to project developers—if a user wants to understand the en-

ergy demands of a particular state, how those energy users are receiving their energy (coal plants, oil refineries, ethanol plants, etc.) and how many gallons of biofuel could be created in that state given the availability of a feedstock like wheat straw or corn cobs, the atlas can do all of that too. If that isn’t enough, the map also provides information regarding state-by-state incentives and laws for energy along with the general energy capacity for each state.

“It gives you an idea of what may be possible,” Moriarity says.

“When you are looking at a map like this, it really starts to highlight some opportunities.”

While the atlas is somewhat subject to the amount of funding the data sources receive throughout the year, the ability of the atlas to analyze and overlay a number of different aspects like rail lines, methane production sites or even nuclear power plants shows the benefit of the tool that to this point has already received 10,000 views, according to Moriarity. And, in 2012, the plan is to include dedicated energy crop acres on the map. So, hopefully by then, the atlas will provide even more data on available feedstock like the 50,000 acres the USDA has awarded under the Biomass Crop Assistance Program to Missouri and Kansas to establish native grasses and herbaceous plants specifically for bioenergy uses. —Luke Geiver JUNE 2011 | Biorefining Magazine | 17

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Now Accepting

Speaker Abstracts

Deadline: June 24th

The 2011 Northeast Biomass Conference and Trade Show offers industry experts an unparalleled opportunity to showcase their industry knowledge and expertise to biomass professionals in the northeast region of the United States.

Speakers at BBI International Events enjoy: • Complimentary Registration for the Conference • Inclusion in both print and electronic marketing campaigns • Opportunity for inclusion in a weekly ‘Panel Preview’ marketing series • Exposure at a well attended, well produced industry event Don’t miss this unique opportunity. Submit an abstract today! www.biomassconference.com/northeast 866-746-8385 speakers@bbiinternational.com

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PROCESS

20 | Biorefining Magazine | JUNE 2011

PROCESS |

An

Anaerobic Alternative

Undefined mixed cultures traditionally used to produce methane through anaerobic digestion show potential for creating higher-value carboxylates

By Erin Voegele

Anaerobic digestion systems have long been used to produce methane, a renewable form of natural gas. The microbial communities found in anaerobic digesters, known as undefined mixed cultures, essentially degrade organic materials into chemical precursors that are eventually converted into methane by methanogens, a group of microorganisms found in those undefined mixed cultures.

While producing methane through anaerobic digestion systems can be economical in some configurations in the U.S., such as those treating waste water or burning the resulting methane to provide heat and power to a plant or other industrial facility, the economics can be more difficult to manage in other situations; specifically, in situations where the renewable methane is used to create electricity that is fed to the grid.

Improving Economics Texas A&M professor Mark Holtzapple has developed a carboxylate platform, which is an economical way to convert biomass into fuels and chemicals.

PHOTO: TEXAS A&M UNIVERSITY

JUNE 2011 | Biorefining Magazine | 21

PROCESS

PHOTO: TEXAS A&M UNIVERSITY

|

Pilot Production A pilot-scale carboxylate production facility on Texas A&M’s campus has been operating since 2000.

This is economically challenging because the methane used to produce electricity must compete with fossil-based natural gas used to fuel power plants. Low natural gas prices have made it hard for renewable methane to compete economically.

However, researchers at Texas A&M and Cornell Universities are developing respective anaerobic biotechnologies that inhibit methane production in undefined mixed cultures. Instead, the cultures produce higher value molecules, known as carboxylates, which are chemical precursors to alkanes found in fuels, such as gasoline and Jet A-1. The resulting carboxylates feature a significantly higher value than methane.

According to Mark Holtzapple, Texas A&M professor of chemical engineering, methane is currently valued at approximately $4 per million Btu. In comparison, drop-in biofuels that can be manufactured from carboxylates are worth nearly $20 per million Btu. Terrabon Inc., which is currently working to commercialize a carboxylate platform developed by Holtzapple and his team at Texas A&M, further estimates that methane production results in approximately $80 to $90 of value per dry ton of feedstock introduced into the system, while the carboxylate platform creates between $250 and $400 in value from the same amount of feedstock.

22 | Biorefining Magazine | JUNE 2011

Research and Development

Holtzapple has been working on developing a carboxylate platform for more than a decade. “We wanted to come up with an economical way to convert biomass into fuels and chemicals,” he says. “In my view, the beauty of this is there is no sterility required and you do not have to purchase enzymes.”

This significantly reduces the capital costs and operating expenses when compared to many other advanced biofuel production technologies.

There are several ways research teams Anaerobic Innovator are working to inhibit Texas A&M University professor of chemical methane production engineering Mark in undefined mixed Holtzapple has been working to develop his cultures, including the carboxylate platform use of inhibitors and for more than a decade. manipulation of heat and pH in a digester.

Holtzapple’s team is using a methane inhibitor known as iodoform. “It’s a methane analog,” he says. “It has a structure similar to methane. What it does is it binds to the active site of enzymes that release methane and plug them up.”

Holtzapple and his team built a pilot-

scale carboxylate facility on the Texas A&M campus in 2000. The plant can process approximately 100 pounds of feedstock per day. “The purpose of the pilot-plant on campus is to go all the way to ketones,” he says.

“We can make a few kilograms of ketones.

From that, we’ve actually made gasoline and jet fuel. By converting the ketones to alcohols you can covert the alcohols to gasoline and jet fuel.”

Researchers at Cornell University are working to develop a different carboxylate platform. According to Lars Angenent, an associate professor of environmental engineering at Cornell, his team has been working to develop its technology for approximately three years.

To date, some of Mixed Angenent’s research Understanding Cultures has focused on study- Cornell University professor ing the microbiology associate of environmental communities found engineering Lars is studying in existing anaerobic Angenent the microbial digestion systems. Un- communities found in defined mixed cultures anaerobic digestion systems with the goal contain thousands of of manipulating them microbial species that to prevent methane production. work together in a food web, he says, noting his team is interested in learning what types of microbes are in those systems, what they are doing, how they work together, and how the system can be improved.

The team recently conducted a study of nine full-scale anaerobic digestion systems treating brewery wastewater. Samples were collected from each system once a month for a year, resulting in 112 samples. According to Angenent, there have been important technological advances in gene sequencing in recent years that have allowed his team to generate 400,000 sequences of a particular gene from the microbes to characterize them.

“We found about 5,000 different species of microbes in these reactors,” he says.

“They were all working together to treat waste and eventually make methane.” The research determined that each of the nine anaerobic digestion systems featured its own unique community structure, which didn’t change much over time. Data gathered from

PROCESS |

the samples was then analyzed with operational data provided by the brewery, which included pH and temperature. The ultimate goal of the study and Angenent’s research is to alter microbial communities in a way that inhibits methane production.

While the technology developed by Texas A&M features a methane inhibitor, Angenent and his team are working to inhibit methane by adjusting the pH within the digester. A pH of 5.5 has been shown to mitigate methane production by the communities, he says. According to Angenent, pilot-scale evaluations of process could begin within three to four years.

Scaling Up

PHOTO: TERRABON INC.

While Angenent and his team at Cornell continue to work towards pilot-scale production, Terrabon is working to commercialize the carboxylate production technology developed at Texas A&M. Terrabon, which has exclusive license to the carboxylate platform developed by Holtzapple, is already operating a demonstration-scale plant and has plans to break ground on a commercial facility late this year or early next.

The demonstration-scale plant became operational in early 2009, says Terrabon Director and CEO Gary Luce. There are essentially two components to the plant he says: an upstream portion that takes in waste

materials; and a downstream process that converts the resulting carboxylates into renewable gasoline and JP8 jet fuel.

The facility can take in approximately Leader 40 to 50 tons of bio- Commercial Terrabon Director and mass material per CEO Gary Luce and team are working month. It currently his to commercialize processes food waste carboxylate production collected from a Texas technology developed at Texas A&M A&M cafeteria, local University. hospitals and several grocery stores. According to Luce, the carboxylate technology employed by the plant is very similar to traditional anaerobic digestion systems. “[In methane production] you basically start with biomass,” Luce says. “A mixed culture breaks down the biomass [into carbohydrates and sugars] using its own set of enzymes. Then those get further digested into organic acids, and the organic acids ultimately get eaten by methanogens that make methane and CO2. That one step right before the methane is where these organic acids— or carboxylate acids—are being produced by this mixed culture. What our process does is it follows that same biological process, which you would find inside a cow….What we’ve

Scaling Up Terrabon Inc.’s demonstration-scale carboxylate facility can take in 40 to 50 tons of biomass waste per month. A larger-scale commercial plant is expected to break ground near the end of the year.

done is create through chemical engineering, process design and optimization [a way to] control temperature, pH, and mixing through fermentation tank design to optimize the maximum yield of these organic acids.”

That’s what the front end of the technology does, Luce explains. “Then we effectively convert those acids to salts so we can get them to dissolve in water and separate it out from the mush that is still [in the digester]—that is the biomass that hasn’t been digested,” he says. “Then we concentrate that down and effectively thermally convert those organic acids into ketones…

From there we use a traditional chemical engineering catalyst to convert those secondary alcohols into gasoline and JP8. The upstream is the biological system and the back end of our system is just a traditional chemistry system. The IP [intellectual property] and know-how is kind of how we think those two systems [work] together.”

In addition to using additives to inhibit methane production, Terrabon’s process also uses a timing mechanism to mitigate methane. “It takes awhile for methanogens to organize themselves,” he says. “We run our system at a very small liquid residence time.

Because the system is being flushed so quickly, it’s not being held up in there. It actually doesn’t give time for the methane to be produced.” The scale of the system can also impact methane production. As the anaerobic digestion industry began producing bigger and bigger reactors they found that the reactors would get “stuck.” In other words, they wouldn’t turn the carboxylates into methane.

“What we’ve done is captured some natural tendencies of how systems operate and then wrapped it around chemistry to make renewable fuels,” Luce says.

Terrabon currently expects to have a commercial-scale system operational by 2013, and already has strong development partners on board. “We’ve got two large strategic partners invested in us, Waste Management Inc. and Valero Energy Corp.,” Luce says.

Finding a Home

There are several key factors that make the carboxylate platform an attractive biorefining technology. Perhaps most importantly, it is economical. “Because it does not JUNE 2011 | Biorefining Magazine | 23

PROCESS

PHOTO: TEXAS A&M UNIVERSITY

|

Proving the Process The pilot-scaleAd facility Texas A&M University uses1iodoform, a methane analog, to mitigate the production of methane by undefined mixed cultures.

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PROCESS |

require sterility or enzymes, the cost is very attractive compared to other process options,â&#x20AC;? Holtzapple says. The process is also flexible in terms of both feedstock and final products. â&#x20AC;&#x153;With the carboxylate platform you can produce almost any base chemical currently made from petroleum or natural gas,â&#x20AC;? he adds. â&#x20AC;&#x153;In addition, you can make every basic category of hydrocarbons.â&#x20AC;?

Early on in its commercial development, Holtzapple says he expects the technology to take in waste products as feedstock. This includes municipal solid waste and sewage sludge. â&#x20AC;&#x153;But, eventually I think it will be scaled up to use energy crops for agricultural residues,â&#x20AC;? he says.

There are several operational configurations under which the carboxylate platform may prove economically competitive. While Terrabon intends to construct a new, freestanding plant that will utilize waste feedstock sourced from Waste Management, Angenent notes that there is also potential to co-locate carboxylate production systems with exist-

ing biorefineries, where waste biomass and wastewater could be taken in as feedstock. In addition, it may also be possible to retrofit existing anaerobic digestion systems to produce carboxylates rather than methane.

Although Angenent notes that standalone plants are likely to be constructed in the future, he thinks co-location strategies would be advantageous. â&#x20AC;&#x153;The biggest value for the dollar is if you have a biorefinery concept where youâ&#x20AC;Śget the most value out of the biomass that you have going into a plant,â&#x20AC;? he says. For example, existing wet mill corn ethanol plants typically produce a significant amount of waste water. Feeding that waste into a carboxylate production facility would allow a plant owner to convert waste nutrients found in the water into a biofuel, resulting in a new revenue stream. The carboxylate platform would also allow the resulting clean water to be recycled back into the ethanol plant.

With all the potential the carboxylate platform is showing, there is surprisingly

little research going into the technology right now. â&#x20AC;&#x153;I want to predict that this is going to be a hot topic and a big area, but itâ&#x20AC;&#x2122;s not at this point,â&#x20AC;? he said. The lack of ongoing research in the platform might be tied to the fact that research money for methane production technologies has slowed significantly in recent years, and the two technologies are similar enough that they often get lumped together. A great deal of research interest has been focused on synthetic biology routes to biofuels. â&#x20AC;&#x153;There is nothing wrong with that, but I think it is also very scientifically exciting to [develop] new ideas on the same angle with these undefined mixed cultures,â&#x20AC;? says Angenent, noting that he will continue to work to bring more interest to this exciting technology.

Author: Erin Voegele Associate Editor, Biorefining Magazine (701) 540-6986 evoegele@bbiinternational.com

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FINANCE

The Proof Enerkem President and CEO Vincent Chornet used the bond-based approach to earn an $80 million USDA Loan Guarantee under the 9003 program.

PHOTO: ENERKEM

26 | Biorefining Magazine | JUNE 2011

FINANCE |

Financial Reform Bond financing is here—and all signs point to a perfect match

By Luke Geiver

On Good Friday more than a year ago, a team of renewable energy investors, lobbyists and lawyers met with 20-plus high-ranking members of USDA for several hours to discuss changes to the USDA’s 9003 Loan Guarantee program that offers up to $250 million of guaranteed debt to project developers. The results of those talks, along with more than 4,000 hours of unbilled time, have transformed the overall biorefining outlook from one of “could be someday” to one of “will be soon.” By incorporating the changes to the loan guarantee program first offered by the renewable energy all-star team that met with the likes of USDA Under Secretary Dallas Tonsanger and USDA Secretary Tom Vilsack, the USDA has already been able to supplant companies like Ineos Bio, Coskata and Enerkem as biorefinery developers that have already, or will in the next year, break ground and begin construction on their way to advanced biofuels and biobased chemical production.

JUNE 2011 | Biorefining Magazine | 27

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FINANCE

For John May, managing director for Stern Brothers, the brainchild of the revamped loan guarantee program came down to a simple, yet incredibly complex idea: match the reality of the financial markets with a loan program whose entire goal is to provide imperfect applicants with the necessary funding to unleash an unproven technology into a world where off-take agreements, which might mitigate the risk of such commercially unproven technology, are more of a myth than reality.

With the help of Mark Reidy, partner for Mintz Levin, Cindy Thyfault, founder and CEO of Westar Trade Resources and John Kirkwood, partner for Krieg Devault, May and his team have singlehandedly shifted the hope for aspiring biorefining project developers away from the cash-strapped, heavily regulated banking atmosphere that had previously hindered the effect of loan guarantee programs like 9003, to what is today a trillion dollar market atmosphere where market players aren’t afraid to take on risk and they aren’t afraid to pay a lot for it: the bond markets. Now, with the continuation of funding to the 9003 program, future biorefining projects have in place a system that will create an unlimited—think in terms of trillions—source of debt financing that can provide the needed capital for projects like Coskata or Enerkem to go commercial, all while feeding the appetite of institutional investors looking to expand their portfolios through the bond market. If you are in the biorefining industry and you aren’t familiar with the bond markets and what they could mean to the growth of the industry, then now is the time to learn.

Why Bonds?

If a person were to sum-up the global economic climate over the past three years, there might be words like “bleak,” “tight” or “downright impossible” to describe the time period. Translate those sentiments into an impact statement on the biorefining industry that is still moving towards commercialization, and the result is an industry strapped by banks not willing or unable to lend the type of money, to the type of unproven clients, that is needed to make a bioprocess worthwhile.

“The problem with the 9003 program 28 | Biorefining Magazine | JUNE 2011

The Highlights Before Bonds

After Bonds

Minimum retention requirement of 50% of the unguaranteed portion of the loan

Minimum retention requirement of 7.5% on the total loan amount

Maximum 80% of total loan amount eligible for guarantee with 20% equity

Maximum of 90% of total loan amount eligible for guarantee if under $125 million and meets other requirements with 40% equity

Unspecified

Federal grants do not qualify as part of the 20% equity, while state and local grants will qualify

Repayment of the loan (guaranteed and unguaranteed) cannot exceed 20 years or 85% of the life of the project, whichever comes first

Repayment of the loan (guaranteed and unguaranteed) cannot exceed 20 years or the life of the project, whichever comes first

The unguaranteed portion of the loan’s interest rate cannot be more than 1% higher (absolute spread) than the guaranteed portion

The unguaranteed portion of the loan’s interest rate cannot be more than 5% higher (absolute spread) than the guaranteed portion

51% U.S. ownership requirement for qualified borrowers

No U.S. ownership requirement

Projects must be located in a “rural” area

Projects are scored higher/lower in their initial assessment based on location and “rural” is no longer a requirement but serves to increase a project’s score

More than 70% of refinery revenue generated must be from advanced biofuels

The majority of what is generated must be advanced biofuels

Very strict definition of biofuels

A bio-based product with a specified BTU content recognized by a federal agency can qualify as an advanced biofuel in some cases

Refinancing not qualified for loan guarantee

Refinancing will qualify for a loan guarantee under certain circumstances

SOURCE: Mark Reidy, Mintz Levin

was that it wasn’t being used,” May says.

“The reason for no use was that the program was designed to use commercial banks as the so-called lender of record, and the commercial banks did not have the liquidity or the risk appetite to be involved in transactions of renewable energy that presented technology risk and off-take risk.” In the wake of the subprime crisis and the credit crunch May says of the banks, “they couldn’t take the risk.”

But, the near-term economic climate isn’t the only factor to blame for the 9003 program’s lack of effectiveness. “A lot of the problems with the 9003 program were not something that was intentionally created by the USDA as a roadblock,” May says. “It was simply a holdover of an earlier era when small farm loans and agribusiness loans were made on very simple projects,” and most importantly, he adds, “I don’t think that when

those regulations were put together that anyone thought the same sorts of regulations would be used by large biofuels projects with extremely complex technology and equipment.” This technology and equipment also comes with a steep cost per project, May adds.

With the help of other industry experts, May set out to change the landscape for the loan guarantee program. “I was trying to bring the 9003 program up to date and make it consistent with reality of not only the renewable energy market, but also the financial market,” he says. The team’s answer was the bond market. Why? A bond is another form of borrowing. The money, instead of coming from the bank, comes from investors like mutual funds, life insurance companies or pension funds looking to invest. The market has been around for roughly 150 years according

FINANCE |

to May, and in the market “there are many, many investors.” Those investors are looking for several things, many of which coincidentally are provided by a USDA 9003 Loan Guarantee’s successful applicant.

For one, a bond investor typically has the financial ability to invest large chunks of money into a particular investment because of the size of the investor’s institution. This means that investors can invest in several areas and take on more risk if so desired. Second, unlike a bank-based lender, a bond-holder wants a long-term, 15-plus year lifespan for the senior debt (loan) in the hopes of earning more interest over time.

Time will tell if the new set-up is perfect for the biorefining industry, but so far, it seems that way. Typical project developers are seeking high amounts of cash to start a project, upwards of $100 million, amounts that the bond market can easily provide.

Those project developers, however, can’t justify taking out a five- to seven-year loan with unfixed interest rates equaling double digits.

“It’s not like the old days when you had a grain plant with a crush margin of $2.50 to $3 because of the disparity of the price of grain that was so low and the price of fuel which was so high,” Mark Reidy says, “where the guys would take that and pay off their plants within two years or sooner.” He adds, “You aren’t going to see that anymore, so guys will want to amortize them as long as they can.”

As May says, somebody has to own these projects, “but they aren’t going to do it if they can’t make any money.” A more real-

istic, or at least better, situation allows those developers to spread out the debt over time, to know beforehand what the interest rate on that debt will be, and, to pass off some of the risk of investing in a unproven technology with no contracted end-user, refiner or oil company to start with. Because the bond markets can offer a fixed interest rate on more than three-fourths of the loan, and the USDA can guarantee that more than threefourths of the loan will be covered by the U.S. government in the event that a project goes belly-up, the bond financing mechanism in the new 9003 program looks, if nothing else, pretty good.

Essentially, the bond market offers an alternative for financing. And if one looks at the numbers, considering how willing the banks have been, it is a welcomed alternative.

Bond Numbers

The most important number to remember about the 9003 program is really more about the ranking of the rating that the bonds created by the project developer will equal. Reidy says the bonds guaranteed by the USDA will be Triple AAA rated, or in bond rating terms, the best. The bonds earn that rating directly from the presence of the loan guarantee, which in effect acts as a major credit enhancer, and qualifies the bonds as investment grade.

The current system can be seen in this example. Consider an advanced biorefinery developer is awarded a $100 million loan guarantee from the USDA under the 9003

USDA vs. U.S. DOE

The May and company all-star team believes the USDA program is 60-70 percent cheaper than the 1703 DOE program. Here are a few reasons why: 1. No application fee at USDA versus $75,000-$125,000 nonrefundable application fee at DOE. 2. No facility fee at USDA versus a nonrefundable 1% of the total guarantee amount to $1,625,000 + .05% of the total guarantee amount at DOE. 3. No operations fee at USDA versus of $50,000-$100,000 per year during the life of the guarantee at DOE. 4. No diligence/underwriting fees for lawyers, accountants, consultants at USDA versus full reimbursement of all of these costs at DOE. USDA treats these costs as its cost of doing business.

5. No NEPA requirement at USDA (although it has a lesser environmental permit/study requirement) versus an elongated/expensive NEPA requirement at DOE. 6. No credit subsidy fee at USDA versus a credit subsidy of 15%-20% of total project costs at DOE. 7. A closing fee at USDA of 1%-2% of the LG and an annual fee of 0.25%-1.0% of the annual outstanding balance on the loan amount versus similar or larger closing and annual fees at DOE. SOURCE: Mark Reidy, Mintz Levin

program. Through the system, 80 percent (or $80 million in this case) of the loan request will be guaranteed. The other 20 percent (or $20 million) will not be guaranteed. Because the USDA is guaranteeing 80 percent of the $100 million, bond holders will be willing to accept a lower coupon rate (interest rate) on the $80 million, somewhere around 5 percent. But, as Reidy explains, do to the reality that the bonds are financing an unproven technology (this is where the reality of the applicants come into play), the bond holders will be seeking a much higher coupon rate for the 20 percent of the loan that is not guaranteed, a rate that could be anywhere from 10 to 15 percent.

But, because the interest rates are blended together, the project developer will ultimately end up with the money needed to construct a facility at an interest rate between 8 and 10 percent spread out over a 20-year period.

Thyfault explains that the bond financing system inherently brings three major positives to the lender and two major benefits to the borrower. For the lender, she says, they can make more loans. Under the bond approach she also says a lender only has to carry 5 percent of the unguaranteed portion, the rest the lender can sell on the bond market, which allows the lender to expand a portfolio and take on less risk. Second, the lender, unlike a bank, does not have to go through syndication (or work with more banks) because the bond holders are the syndicates. And third, in the past when the unguaranteed portion of the loan was difficult for a bank to participate in, “the unguaranteed portion of the loan is readily accepted by the bond market.”

For the borrower, the advantages are related first to the length of the term of the issued bonds. And second, the borrower can typically see an interest rate for a bond that can be less than a bank loan, the result, she points out, “is a long-term, low-cost interest rate for the borrower.”

All four of the applicants that received USDA loans in 2010 used the bond financing approach, May says, and in doing so they helped prove May’s idea to revolutionize the way projects financed with a loan guarantee can work. The situation used to be one where, as May says, an applicant’s credit was good JUNE 2011 | Biorefining Magazine | 29

|

fINANCE

PHOTO: ENERKEM

interest rate will be on the unguaranteed portion of the loan.

And even with four deals already done for biorefining developers earning loan guarantees, the most significant part of the new bond financing approach may be more linked to what hasn’t hapBig Time Enerkem President and CEO Vincent Chornet talks to reporters about the pened yet. “We success of his company’s project, thanks in part to bond financing. filed four applicaenough and the bank would do the deal, or tions last year and the credit was not up to par and the deal was receive four loan guarantee awards,” he says, dead, but now has changed to a situation un- “and we have half a dozen that we intend to der the bond financing approach where “we file for in 2011.” And that, he says, is just his can find a way to get the deal done,” a deal, all-star team. he says, that is just a matter of how high the Reidy, who says nothing like this has

ever truly been done before, is also excited about the potential for this type of renewable energy financing for foreign investors and other countries that his group has already spoken to, including China, India and several countries from Europe. “As long as we have a loan guarantee or something as good to credit enhance the bonds, because you have to credit enhance them to make them palatable for the institutional investors to buy them,” he says, “we can do these projects of any type offshore.”

From Reidy’s perspective, he could be putting together these types of deals for the rest of his career, and from May’s, the process has been rewarding to see an idea turn into reality—a reality it seems that will affect anyone who consumes energy in a sustainable way.

Author: Luke Geiver Associate Editor, Biorefining Magazine (701) 738-4944 lgeiver@bbiinternational.com

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|

EVENT

Sending a Message RFA President Bob Dinneen, left, and the CEO of NBB Joe Jobe, middle, look on as AFBA president Michael McAdams tells the audience to let Capitol Hill know that we need second-generation biofuels and biobased chemicals, and sound federal policy supporting them, today.

32 | Biorefining Magazine | JUNE 2011

EVENT |

Gateway to

Cooperation and Parity Industry leaders take the stage at the International Biomass Conference to discuss policy objectives and collaboration opportunities

By Erin Voegele Photos By Whitney Curtis

St. Louis is not only the Gateway to the West, it also acted as the gateway to the future of the biomass industry in May as nearly 1,400 professionals representing all aspects of the sector descended upon its Americaâ&#x20AC;&#x2122;s Center conventional hall to network, conduct business and learn about recent technological and agronomic breakthroughs.

A highlight of the event was the Tuesday morning plenary session, titled Association Executive Roundtable: Our Industry in a Changed Political Landscape. Leaders of seven biomass trade associations shared the stage during the session, discussing policy objectives, cooperation strategies and methods to overcome common obstacles.

Those participating in the discussion included Algal Biomass Organization Executive Director Mary Rosenthal, Biomass Thermal Energy Council Chairman Charlie Niebling, Biomass Power Association President and CEO Robert Cleaves, American Biogas Council Vice Chair of External Affairs Norma McDonald, Renewable Fuels Association President and CEO Bob Dinneen, National Biodiesel Board CEO Joe Jobe, and Advanced Biofuels Association President Michael McAdams.

JUNE 2011 | Biorefining Magazine | 33

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EVENT

While different segments of the biomass industry have, at times, unintentionally worked against rather than with each other, the tide seems to be shifting. In fact, McAdams commented on how far the organizations represented in the panel had come in a single year, noting that many cooperative policy efforts between the organizations were a direct result of a similar session at last year’s 2010 International Biomass Conference & Expo. Today, organizations like the ABFA, NBB, RFA and BIO are working together to support areas of common policy goals and objectives.

Near-term Objectives

To open the panel, each association leader provided the audience with an overview of its respective near-term policy goals.

Rosenthal kicked off the discussion by stating the ABO will continue to push to achieve parity for the algae industry with regard to tax credits. “[The algae industry] receives no fuel credits at this point in time,” she said, noting that it is imperative algae-based fuels are eligible for the same tax incentives that cellulosic fuels and other advanced biofuels qualify for. “The other key with this 112th Congress is education,” Rosenthal continued.

There is a continual need to educate federal lawmakers on the energy security benefits and advantages of algae-based fuels. According to Rosenthal, the ABO will also continue to advocate for continued renewable fuels funding through the U.S. DOE, USDA and the U.S. Department of Defense.

While the RFA also has plans to focus on educating members of Congress, Dinneen stressed that his organization must also work to maintain certainty for the ethanol industry. “It’s not that we don’t support parity—we do—but, we’re looking at a situation where our tax incentive expires at the end of this year,” he said. “When the tax incentive was extended [last year] it was made clear by friend and foe alike that going into the future there needs to be a fairly significant meaningful reform of that tax incentive. That’s what we’ve been working on.” According to Dinneen, the RFA is working to reform some of the existing incentives in a way that reflects the fact that the ethanol industry has grown.

“There needs to be a fiscally responsible approach to this that will allow the industry to 34 | Biorefining Magazine | JUNE 2011

continue to grow, and more important to evolve,” he added.

Extending tax incentives is also a primary goal of the NBB, Jobe said. “Our top priority is successful implementation of the RFS2, and a big part of that is extension of our tax credit in order to help buffer the cost of compliance and get this program more mature,” he said. “It’s going to be very difficult given the focus on debt reduction in this Congress, but we believe that we’ve got a good chance…Our tax credit is a quarter of a century younger than the ethanol tax credit. We just need a little bit more time to get a little bit more mature.” Responding to a question posed by a member of the biomass industry regarding speculation that some members of the biodiesel industry would prefer to see the credit lapse, Jobe reiterated that extending the biodiesel tax credit is the No. 1 goal of the NBB. He elaborated by explaining 2011 is the first full implementation year of the RFS2 program. “Really, this is the first year—and the only year—we’ve ever had the tax credit and the RFS2 working in tandem,” he said. “And guess what?

It works.” In addition to helping to increase the favorability of blending economics, Jobe also noted that the tax credit also plays an important role in driving investment in nextgeneration feedstocks, such as algae.

Results Oriented ABFA president Michael McAdams says while other associations are worried about securing long-term federal policy, the ultimate goal for his members is to put steel in the ground and get plants built.

Although many of the association leaders taking part in the panel spoke about policy goals, McAdams said the primary goal of ABFA members is to get plants built. “The number one objective of the advanced and

cellulosic industries is to deploy new technologies to build new plants—put steel in the ground,” he said. One policy element that McAdams said could help support this objective would be for federal lawmakers to alter the fuel procurement requirements of the U.S. military in a way that would allow the formation of long-term off-take agreements.

“What we are really trying to do is deploy these technologies,” McAdams said. “If we could extend the procurement process, particularly with the Department of Defense, by extending the period of time in which the military can buy renewable fuels or jet, for instance, that would be enormously helpful.”

New Sectors, Old Debates

Industry leaders who participated in the panel also briefly discussed recent energyrelated environmental disasters, such as Japan’s nuclear crisis and the oil spill in the gulf.

These events did not spur a significant, widespread public demand for renewable technologies, and seem unlikely to do so in the future. There has also been a noticeable lack of renewed political support for renewable sources of energy following these disasters.

“I think it’s just a reflection of the dysfunction that is the United States Congress today,” Dinneen said. “Congress does not do thoughtful policy on much of anything. It reacts to negative events, they give speeches, there is a lot of fervor but not much that really happens as a consequence. Biofuels are not radioactive; they are not going to degrade the ecological system of the Gulf of Mexico; you don’t need a no-fly zone for biofuels and bioenergy, and yet trying to get members of Congress to focus on the importance of growing these domestic clean energy supplies has been a real challenge,” he said. “There are entrenched, powerful, well-healed interests that like the status quo.

We have to accept that, but we also need to figure out what we can to do change it.

It doesn’t happen overnight, and it doesn’t happen because of a catastrophic event. You have to build support for these clean-burning energies. It takes time. We will this week—on average—top $4 a gallon gasoline. If that’s not a clarion call for doing more to extend our domestic energy supplies, I don’t know what would be.”

The panelist also addressed the food

EVENT |

Changing the World Leaders of seven renewable energy trade groups discussed important policy and industry goals during the 2011 International Biomass Conference & Expo May 2-5 in St. Louis.

vs. fuel debate. While on the surface it may seem as though second- and third-generation biorefining industries should be immune to the issue, Dinneen cautions the ABO and others to be wary. “You need to take a much more educated and robust look at what is really driving food price inflation and then you need to consider that the food vs. fuel debate isn’t about food; it’s about land,” Dinneen said. “As soon as there is land that is being used to produce algae, if [that land] could be used to produce a food crop [the debate will focus on algae]…I think we all have a responsibility right now to make sure that this debate doesn’t continue to undermine the growth and evolution of our industry.” According to Dinneen, the food vs. fuel debate has focused nearly exclusively on corn ethanol to date because it was the first biofuel to achieve commercial success. That will change as other forms of biofuel find increasing success.

A Look Ahead

RFS2 was also a hot topic addressed by the panel. Dinneen noted that he doesn’t think the U.S. EPA has done a particularly stellar job implementing the program, specifically when it comes to some areas of congressional intent around carbon scoring. “They’ve [also] been overly restrictive on feedstocks,” he said. “They’ve been very slow to certify some of these new pathways, and when they’ve done it, they’ve done it

in a way that almost defines some of these technologies out of existence before they get going.”

However, Dinneen also noted that the agency can’t be faulted for lowering the cellulosic targets within the RFS2. “The RFS was never intended to be something that cellulosic companies could take to the bank to help them gain financing,” he said, noting, however, that the targets do create an important market lenders should consider.

McAdams also spoke about the reduced cellulosic targets under RFS2. It was very significant that the agency shifted the cellulosic volumes into the advanced biofuel pool rather than reducing the volume targets as a whole. “That is verification that they believe that biodiesel and renewable diesel and advanced fuels are going to fill that number for the advanced pool,” McAdams said. “That looks good going forward.”

In addition, McAdams stressed the importance of EPA moving forward to certify new feedstocks, molecules and pathways in a swift, efficient manner. “EPA needs to get in place…the [regulations] that allow these feedstock processes and products to be compliant with RFS2,” he said. “That is a key mission for them in the next six to eight months.”

During the panel discussion, McAdams also responded to a question posed by a member of industry regarding possible competition between biofuel and biochemical

producers for investment funds. McAdams stressed he disagreed with the assertion that the financial and investment communities are showing a reluctance to support the developing advanced biofuels industry while support for biochemical is flowing exclusively from traditional chemical companies. “I would suggest to you that biobased chemicals and biofuels go hand in hand—particularly with a lot of the synthetic biology companies,” McAdams said. “What they may be able to do in the short-term is actually make a chemical that will make them profitable to where they can get the funding to do the fuel following the chemical.”

Furthermore, McAdams noted that several ABFA members have completed highly successful IPOs in recent months. “What you are beginning to see with those technologies that have really done their R&D and have really done their homework, you are beginning to see private capital fly in to give them the wherewithal to build commercial facilities,” McAdams continued. “All those companies have models in conjunction with fuels and chemicals. I think they leverage each other.

It’s very similar to our current refining chemical structure and I think you’ll see more of it, not less of it.”

Author: Erin Voegele Associate Editor, Biorefining Magazine (701) 540.6986 evoegele@bbiinternational.com

JUNE 2011 | Biorefining Magazine | 35

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INTERNATIONAL

CONTRIBUTION

Establishing Business Operations in Japan

Understanding customs and laws is critical to opening business overseas

By Richard Weiner

Imagine that your biofuels company had decided to establish business operations in Japan. Your first decision would be whether to appoint an independent consultant or to hire an employee in Japan to help expand your business. Which one should you choose?

In the event that your company decided to appoint an independent consultant to help expand your business in Japan, be careful to structure the relationship such that the independent consultant would not constitute your “permanent establishment” in Japan.

Under Japanese tax law, a permanent establishment of a foreign company in Japan subjects that company to corporate income tax in Japan based upon the revenues generated by and attributable to the company’s permanent establishment in Japan.

In order to ensure that your independent consultant would not be considered a permanent establishment under Japanese tax law, several guidelines must be followed.

Your independent consultant should be a corporation, not an individual. Your company would enter into an agreement with the corporation to expand business in Japan on your behalf. The corporation would, in 36 | Biorefining Magazine | JUNE 2011

turn, hire an individual to perform these tasks. Your independent consultant would not have authority to bind you to any obligation whatsoever. It would not have the authority to sign contracts on your behalf in Japan. It could, however, assist you in negotiating business deals and in discussing the terms of contracts with potential customers in Japan. You would pay your independent consultant in the form of commissions, not in the form of a standard monthly (or annual) consulting fee. If your independent consultant were paid in the form of a standard monthly (or annual) consulting fee, the consultant might be considered a “standing agent” under Japanese tax law, which would constitute your company’s permanent establishment in Japan and subject you to corporate income tax in Japan.

In the event that your company decided to hire an employee in Japan, the employee would, under almost all circumstances, constitute your permanent establishment in Japan, which would subject your company to corporate income tax in Japan based upon the revenues that are generated by and attributable to that employee. You would also be required to pay U.S. corporate income tax on the revenues generated by and at-

tributable to the employee in Japan because the U.S. taxes its corporations on their worldwide income, regardless of where it is earned. However, under the Convention between the U.S. and Japan for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income, which entered into force on July 9, 1972, you would be entitled to receive a partial tax credit in the U.S. for the corporate income tax paid in Japan. This would, to a certain extent, relieve the double taxation imposed upon your company by virtue of having an employee in Japan.

In addition, your employee in Japan would be entitled to all of the rights and safeguards accorded to employees under Japanese labor laws. Your employee would be entitled to participate in the Japanese National Health Insurance Plan and the National Welfare Pension Plan, and your company would be required to enroll in such plans. The payment of the premiums for such plans would be shared equally by your company and your employee in Japan.

Your employee would be entitled to participate in the Japanese Worker’s Compensation Insurance Plan, and you would be required to pay the entire cost of the premiums for

INTERNATIONAL |

such plan. They would be entitled to participate in the Japanese Unemployment Insurance Plan, and you would be required to pay 75 percent of the premiums while the employee would be required to contribute the remaining 25 percent. Your employee would be entitled to receive between 10 and 20 days of paid vacation per year and approximately 25 days of paid holiday time per year. Japanese companies usually give their employees both winter and summer bonuses, which are equal to 3 months’ salary each.

You could not unilaterally change the terms of the employment contract between your company and the employee, especially if such changes were detrimental to the employee. You could not unilaterally terminate the employee’s employment unless you had “just cause” to do so. Just cause is narrowly defined under the Japanese labor laws and involves more than simple misconduct or negligence. You would have to show that the employee engaged in serious misconduct or that the employee repeatedly and systematically performed poorly in the execution of his duties. The standards of performance expected of the employee would have to be articulated in his employment contract, and written warnings would have to be issued to him if he failed to meet the performance standards. The employee would also have to be given a period of time within which to improve his performance after you had issued warnings to him before you could terminate him for just cause.

Branch Office or Subsidiary?

In the event that your company decided to hire an employee in Japan, your company would be required to establish a Japanese registered branch office or a Japanese subsidiary in which the employee could work.

In order to establish a registered branch office in Japan, you would have to appoint a registered representative who would be deemed to have the power and authority to represent the branch office. Your representative would have to be a resident of Japan

but would not need to be a citizen of Japan.

You would have to register the branch office’s place of business and its representative with the appropriate government authorities in Japan. An “initial inward direct investment” report containing details about your company and business objectives would also have to be submitted. Any claim or cause of action against the registered branch office or any risk or liability of the registered branch office would be considered to be a claim or cause of action against or risk or liability of your company in the U.S., since the registered branch office would be considered to be an extension of your company into Japan.

The registered branch office would be taxed in Japan only on the income that it generated from sources in Japan. As indicated above, you would be taxed in the U.S. on the income generated by the registered branch office. However, under the U.S.-Japan Income Tax Treaty, you would be entitled to receive a partial tax credit in the U.S. for the corporate income tax that the registered branch office paid in Japan.

In the event that your company decided to establish a subsidiary in Japan, you would probably form a Japanese limited liability company (known as a “Yugen Kaisha”).

In order to establish an LLC in Japan, you would be required to file an Application for Commercial Registration for the new subsidiary. You would also have to submit an “initial inward direct investment” report containing details about your company and business objectives in Japan. Furthermore, you would be required to file a report after you acquired shares in the subsidiary, which would describe the type, purchase price and amount of the shares purchased by your company.

You would have to file various tax reports with the Japanese national and municipal tax authorities regarding the subsidiary. Finally, you would be required to make an initial capital investment in the subsidiary of at least 3,000,000 yen ($37,000). You would have to elect directors to serve on the subsidiary’s board of directors, and the directors would

The claims and statements made in this article belong exclusively to the author(s) and do not necessarily reflect the views of Biorefining Magazine or its advertisers. All questions pertaining to this article should be directed to the author(s).

appoint the officers of the subsidiary. The directors on the board of directors of the subsidiary would have general supervision over the business operations of the subsidiary, and the officers of the subsidiary would be responsible for the day-to-day operations of the subsidiary. Any claim or cause of action against the subsidiary or any risk or liability of the subsidiary would be limited to the subsidiary and its assets, and would not be considered to be a claim or cause of action against or risk or liability of your company in the U.S., provided that the subsidiary was properly incorporated and operated in compliance with Japanese commercial laws.

As a domestic Japanese company, the subsidiary would be taxed in Japan on its worldwide income. In addition to Japanese corporate income tax, local enterprise tax and corporate residence tax would also be imposed upon the subsidiary. The combined rate of tax on the subsidiary would be approximately 41 percent. As indicated above, you would be taxed in the U.S. on the income generated by the subsidiary. However, under the U.S.Japan Income Tax Treaty, you would be entitled to receive a partial tax credit in the U.S. for the corporate income tax that the subsidiary paid in Japan. A withholding tax would also be imposed upon your company on the issuance of dividends to your company from the subsidiary. The rate of such withholding tax would be 10 percent.

Establishing business operations in Japan requires careful strategic planning and an in-depth understanding of the Japanese corporate, tax and labor laws. Depending upon your business objectives, you may wish to appoint an independent consultant or hire an employee in Japan. Your decision will have significant business, legal and tax consequences as you attempt to expand your business activities in Japan.

Author: Richard Weiner Vice President, Fredrikson & Byron (612) 492-7009 rweiner@fredlaw.com

JUNE 2011 | Biorefining Magazine | 37

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