May 2010 Ethanol Producer Magazine

INSIDE: RINs IN THE FINAL RULE MAY 2010

Jazzed About Innovation The 26th Annual International Fuel Ethanol Workshop & Expo Returns to St. Louis

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contents

vol. 16 no. 5

features 42 REGULATION New System, New Start for All Things RIN There’s much to learn about the details in registering for and using the revised system for demonstrating compliance with the renewable fuels standard.

–By Luke Geiver and Holly Jessen 48 EVENT 2010 FEW Preview Enthusiasm is building for the International Fuel Ethanol Workshop & Expo to be held mid-June in St. Louis, where its rich tradition of linking industry and innovation was born 26 years ago.

–By Holly Jessen 54 ENERGY Cleening the Way to Energy Savings A Minnesota company’s cleaning system increases boiler efficiency.

–By Holly Jessen

60 FEEDSTOCK Tapping into BCAP USDA has a new program to support the development of biomass use for biofuels, biobased products and power.

–By Anna Austin

60 4

Correction: In an April story titled, “Several plants bought, resume production,” EPM incorrectly reported all of Pacific Ethanol Inc.’s plants were idled when the company filed for Chapter 11 bankruptcy protection. The company’s Pacific Ethanol Columbia LLC, located in Boardman, Ore., was never idled, and its formerly idled plant in Burley, Idaho—Pacific Ethanol Inc.’s Magic Valley plant—resumed production in early January.

ETHANOL PRODUCER MAGAZINE

May 2010

contents departments

contributions

8 Editor’s Note Picking up Steam in May

By Susanne Retka Schill 9 Advertiser Index 10 Events Calendar 14 The Way I See It Retaining the Tariff is Good Economic Policy

By Mike Bryan

64 64 HEDGING Hedging Renewable Fuels: Managing Risk Without Destroying Value Start small and simple when beginning to hedge, to build experience and systems that can handle more complex strategies.

16 View From the Hill Let the Fight Begin

By Bob Dinneen 18 Drive Building Infrastructure Will Open Markets

By Tom Buis 20 eBio Biofuels Not to Blame

By Christophe Bourillon-Girard

–By Randy Wilson, Brian O’Neal, Evan Zuckert

22 Taking Stalk Winter Barley Shows Promise for Ethanol

By Carl Griffey 24 Business Matters Clean Water Act Enforcement: Steps Producers Can Take to Reduce Exposure

By Lynn Kornfeld and Jess Phelps 26 Business & People 28 Commodities 30 BIObytes

68 68 R&D Leveraging SBIR to Advance Cellulosic Ethanol Innovation Companies can leverage the U.S. DOE Small Business Innovation Research Program to improve their competitive and strategic position.

–By Phyl Speser

6

32 Industry News 72 Marketplace

Ethanol Producer Magazine: (USPS No. 023-974) May 2010, Vol. 16, Issue 5. Ethanol Producer Magazine is published monthly. Principal Office: 308 Second Ave. N., Suite 304, Grand Forks, ND 58203. Periodicals Postage Paid at Grand Forks, North Dakota and additional mailing offices.

POSTMASTER: Send address changes to Ethanol Producer Magazine/ Subscriptions, 308 Second Ave. N., Suite 304, Grand Forks, North Dakota 58203.

ETHANOL PRODUCER MAGAZINE

May 2010

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Susanne Retka Schill Editor's Note

Picking up Steam in May

M

ay is a glorious month as the memory of frosty mornings fades and summer picks up steam.

FEW preparations are picking up steam as well with the goal of presenting another information-packed workshop complete with a full expo. EPM associate editor Holly Jessen’s conference preview in this issue provides more information on the plans as they take final shape.

In this issue, we also take another look at the final rule for the renewable fuels standard. Associate editor Luke Geiver and Jessen dig into the details of how renewable identification numbers (RINs) will be handled going forward. It looks like the RINs market is likely to become vastly more complex as cellulosic, advanced and biomass-based biofuels join conventional biofuels in the standard.

There are those who think the RFS will be incentive enough for biofuels and thus the tax credits should not be extended. Our columnists this month tackle the tax incentive issue, along with other policy concerns, providing talking points that each of us needs to learn.

I know from experience that when the debate gets rolling, all this will become so complicated that one’s eyes will glaze over and the mind will numb. Gaining a mastery of the arguments is a challenge. But what every ethanol plant employee, from top management on down, does have is a mastery of how his or her plant works and what its impact is on the community.

I urge you to invite your Congressmen (and/or their staffs) to visit your plant. Give them a tour, have them meet your directors and the farmers who supply your plant. Foster the personal experience that gives them concrete evidence of what ethanol means to rural America. Let them ask questions. You may not have all the answers, but give them the facts of your operation, and offer your opinions. Even if they are opponents of ethanol, ask them to come see for themselves and ask their questions directly. You might not change their minds on the first visit, but establishing a relationship is the first step in moderating their opposition.

Susanne Retka Schill, Editor sretkaschill@bbiinternational.com

8

ETHANOL PRODUCER MAGAZINE

May 2010

AdIndex www.EthanolProducer.com E D I T O R I A L Susanne Retka Schill Editor sretkaschill@bbiinternational.com

Holly Jessen Associate Editor hjessen@bbiinternational.com

Luke Geiver Associate Editor lgeiver@bbiinternational.com

Jan Tellmann Copy Editor jtellmann@bbiinternational.com

P U B L I S H I N G Mike Bryan

&

S A L E S

Chairman mbryan@bbiinternational.com

Joe Bryan

CEO jbryan@bbiinternational.com

Tom Bryan

Vice President tbryan@bbiinternational.com

Matthew Spoor

Vice President, Sales & Marketing mspoor@bbiinternational.com

Howard Brockhouse

Executive Account Manager hbrockhouse@bbiinternational.com

Jeremy Hanson

Senior Account Manager jhanson@bbiinternational.com

Marty Steen

Account Manager msteen@bbiinternational.com

Bob Brown

Account Manager bbrown@bbiinternational.com

Gary Shields

Account Manager gshields@bbiinternational.com

Jessica Beaudry

Subscriptions Manager jbeaudry@bbiinternational.com

Jason Smith

Subscriber Acquisition Manager jsmith@bbiinternational.com

Marla DeFoe

Advertising Coordinator mdefoe@bbiinternational.com

A R T Jaci Satterlund

Art Director jsatterlund@bbiinternational.com

Sam Melquist

Graphic Designer smelquist@bbiinternational.com

Elizabeth Burslie

19 21 & 70 78 62 50 66 71 39 51 69 2 56 41 45 25, 53 & 59 77 38 34 11 57 65 52 3 &15 80 46 76 5 12 & 13 40 37 35 47 58 79 7 17 63 23 67 36 44

2010 Advanced Biofuels Workshop 2010 International Fuel Ethanol Workshop & Expo 2010 Northeast BIOMASS Conference & Expo 2010 Southeast BIOMASS Conference & Expo ADI Systems Inc. Agra Industries Inc. Angel Yeast Co., LTD BrownWinick Law Firm Buckman Laboratories Inc. Buhler Aeroglide Burns & McDonnell Check-All Valve Mfg. Co. Cima Energy, LTD CPM Roskamp Champion EISENMANN Corp. ethanol-jobs.com Fagen Inc. Ferm Solutions Inc. Fermentis - Division of S.I. Lesaffre Flottweg Separation Technology Gamajet Cleaning Systems, Inc. Gavilon Genencor® - A Danisco Division Growth Energy Hydro-Klean Inc. IBED 2010 ICM, Inc. Inbicon Indeck Power Equipment Co. Interstates Companies Kennedy and Coe, LLC Louis Dreyfus Natwick Associates Appraisal Services North American Bioproducts Corp.

Novozymes Phibro Ethanol Performance Group Pro-Environmental, Inc. Renewable Fuels Association Victory Energy Operations, LLC Vogelbusch USA, Inc. Wabash Power Equipment Co.

Graphic Designer bburslie@bbiinternational.com

SUBSCRIPTIONS Ethanol Producer Magazine is now 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 and Mexico. To subscribe, visit www.EthanolProducer.com or you can send your mailing address and payment (checks made out to BBI International) to: Ethanol Producer 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 AND REPRINTS Select back issues are available for $3.95 each, plus shipping. To place an order, contact Subscriptions at (701) 746-8385 or service@bbiinternational.com. Article reprints are also available for a fee.

ADVERTISING For advertising rates and our editorial calendar, visit www.EthanolProducer.com or call (866) 746-8385.

Please send correspondence to: Ethanol Producer Magazine 308 Second Ave. N., Suite 304 Grand Forks, ND USA 58203 Phone: (701) 746-8385 Fax: (701) 738-4927 Advertising information online: www.EthanolProducer.com

LETTERS TO THE EDITOR We welcome letters to the editor. Send your letter to: Ethanol Producer Magazine Letters, 308 Second Avv. N., Suite 304, Grand Forks, ND 58203 or e-mail to sretkaschill@bbiinternational.com. Letters should include the writer’s full name, address and telephone number, and may be edited for purposes of clarity and space.

ETHANOL PRODUCER MAGAZINE

May 2010

COPYRIGHT © 2010 by BBI International

9

EVENTS CALENDAR

International Biomass Conference & Expo May 4-6, 2010 Minneapolis Convention Center Minneapolis, Minnesota This Biomass Magazine-sponsored conference will unite current and future producers of biomassderived power, fuels and chemicals with waste generators, energy crop growers, municipal leaders, utility executives, technology providers, equipment manufacturers, project developers, investors and policymakers. Future and existing biofuels and biomass power producers will be able to network with waste generators and other industry suppliers and technology providers as well as utility executives, researchers, policymakers, investors, project developers and farmers. www.biomassconference.com

May

Corn Utilization and Technology Conference June 7-9, 2010 Atlanta Hilton Atlanta, Georgia The program has been expanded to include current topics related to corn such as land use issues and greenhouse gas emissions, aquifers, water quality and usage in corn agriculture, life cycle analyses of new technologies and plenary sessions addressing these issues. The program will include sessions on wet and dry milling processes, biocatalysts, gene transformation technology, health and nutrition, unique specialty corns, new products and revenue streams.

International Fuel Ethanol Workshop & Expo June 14-17, 2010

2010 Farm to Fuel Summit August 11-13, 2010

America’s Center St. Louis, Missouri This Ethanol Producer Magazine-sponsored conference provides the global ethanol industry with cutting-edge content and unparalleled networking opportunities in a dynamic business-to-business environment. It is the largest, longest-running ethanol conference in the world. The event delivers timely presentations with a strong focus on commercialscale ethanol production, new technology, and nearterm research and development.

Rosen Shingle Creek Orlando, Florida This fifth annual summit is an opportunity for industry leaders and stakeholders to learn, network and strategize to advance the development of renewable energy in Florida. Florida’s Farm to Fuel initiative was developed to promote the production and distribution of renewable energy from Florida-grown crops, agricultural wastes and other biomass. More than 500 attendees from academia, industry and government participated in last year’s summit.

www.fuelethanolworkshop.com

www.floridafarmtofuel.com

June

Aug

Sept

Advanced Biofuels Workshop June 14, 2010

World Energy Congress Montreal 2010 September 12-16, 2010

America’s Center St. Louis, Missouri In its third year, this BBI International one-day workshop focusing on advanced biofuels will be co-located with the Fuel Ethanol Workshop & Expo to be held June 14 to 17 in St. Louis. The full range of advanced biofuels from biomass-based diesels to cellulosic ethanol and other biofuels will be covered in workshops dealing with research, project development, feedstock development, environmental performance and more.

Montreal Convention Centre Montreal, Quebec The goal and objectives of this event is to work toward responsible growth that reconciles economic development, environmental protection and the reduction of global inequalities. The conference happens every three years and brings together more than 3,500 top world leaders in the field of energy. www.wecmontreal2010.ca

www.advancedbiofuelsworkshop.com

www.corntechconf.org

10

ETHANOL PRODUCER MAGAZINE ETHANOL PRODUCER MAGAZINE• May May2010 2010

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The Way I See It

Retaining the Tariff is Good Economic Policy The elimination of the ethanol import tariff is wrong!

For years the domestic ethanol industry has worked to build market share. More recently, the use of higher blend levels is close to becoming a reality. In addition, there are more E85 pumps across America than ever before and the numbers continue to grow.

This growth has been predicated on our desire to reduce our dependence on imported oil and bolster our rural economy. The elimination of the import tariff is absolutely contrary to what the industry and the nation have been striving to accomplish since ethanol first began 30plus years ago. If an expanded market for ethanol is going to be filled by imports, what have we accomplished?

Some would argue that ethanol is a global commodity and should be free to roam about the world like oil.

One only needs to look back at history and see what the unrestricted importation of oil has done to the American economy. Tens of thousands of domestic jobs lost and the billions of dollars leaving the country every year for imported oil. At a time when jobs and the economy are both in grave danger, such wrong-headed policy clearly is not in step with the direction America is moving.

This is not protectionist, it is simply good economic policy. With a few exceptions, oil is no longer a domestic product. Ethanol is still a domestic product, and it deserves to be protected under the current import tariff regulations. It’s not just the jobs that are at stake, although estimates range as high as 100,000-plus jobs that would be lost if the import tariff is allowed to lapse, it’s also the economic impact it would have on main street America.

American farmers, some who have invested their life savings in an ethanol plant, would be forced to compete with heavily subsidized ethanol from countries with labor costs a third or less of what they are here. Ethanol plants with plans for expansion would be forced to cancel those plans, causing a severe blow to the local economy. In addition, such a move could potentially have a devastating effect on the emerging cellulosic ethanol industry, if cheaper imported ethanol in the billions of gallons were allowed into this country.

Funding for new ethanol projects of any kind would dry up overnight.

If one simply looks on the surface of this issue, it would be easy to conclude that we should open our doors for imported ethanol as we have for imported oil, but you do not have to peel back the onion very far to begin to see the flaws in such reasoning. American farmers built this industry, invested in this industry and promoted this industry, overcoming unbelievable odds. To simply wipe out the dreams and aspirations and decades of hard work by letting the ethanol import tariff lapse would fly in the face of the American dream.

That’s the way I see it!

Mike Bryan Chairman mbryan@bbiinternational.com 14

ETHANOL PRODUCER MAGAZINE • May 2010

VIEW FROM THE HILL Let the Fight Begin The ethanol industry has long known that 2010 would be almost singularly focused on extending the critical tax incentives for all ethanol, regardless of feedstock. The Renewable Fuels Association has expended large amounts of shoe leather educating our friends on Capitol Hill about the critical need for long term extensions of these important public policies. That work has now paid off in the form of legislation—H.R. 4940, the Renewable Fuels Reinvestment Act. But simply getting a bill is just the beginning.

The importance of this bill cannot be understated. As written, H.R. 4940 would provide the following critical extensions of these four tax incentives available for ethanol use and production: The Volumetric Ethanol Excise Tax Credit through Dec. 31, 2015.

The corresponding secondary tariff on ethanol through Dec. 31, 2015.

The Small Producers’ Tax Credit until Jan. 1, 2016.

The Cellulosic Ethanol Producer Tax Credit until Jan. 1, 2016.

These important policies remain the underpinnings for the continued growth and evolution of America’s ethanol industry. In a report recently released by the RFA, allowing VEETC and the secondary tariff to expire would force 112,000 Americans out of work and shutter nearly two out of every five ethanol plants operating today. Moreover, a failure to extend just these two incentives would chill investment in new, cutting edge technologies that are on the cusp of commercialization.

Extending these tax incentives must be the top priority of the ethanol industry, and is certainly the focus for the RFA. It will take the collective efforts of all the industry and its allies to get this legislation passed.

The benefits of ethanol production are well-documented. America’s ethanol producers help support nearly 400,000 jobs, providing tens of billions of dollars in economic opportunity for small, rural communities all across the country. The use of 10.6 billion gallons of ethanol last

year alone displaced enough oil to replace Venezuelan imports for 10 months, saving the country more than $16 billion.

These benefits, and those that will come from the continued evolution and deployment of new ethanol technologies, could disappear. Failing to extend these import provisions will add a reliance on imported ethanol to our dependence on imported oil.

Let me be clear, the extensive war chests and influence of Big Oil, Big Food, Big Livestock and Big Environmentalists are all aligned to stand in our way. They have already unleashed their hounds and will stop at nothing to prevent this legislation from becoming law. A group of ethanol naysayers, including the National Petroleum and Refiners Association, Friends of the Earth, Natural Resource Defense Council, American Meat Institute, and our friends at the Grocery Manufacturers, came out swinging.

In a joint release, these groups used phrases like “dirty corn ethanol” and “throwing good money after bad” in an attempt to group ethanol in with other technologies that have lost favor on Capitol Hill.

We all know their rhetoric rings hollow. This kind of firebrand speech is the last resort when facts do not support your position. But make no mistake, this is a formidable opposition with deep pockets and an even deeper commitment to the status quo. They will not go quietly into any good night.

That is why we must answer their charges with one voice, supported by sound analysis and facts. We must not let a cacophony of castigators dictate this discussion.

It is incumbent upon anyone believing in the potential of ethanol and American agriculture to make their voice heard. Call your member of Congress (you can find contact information at www.house.gov). Let them know that you want to protect American jobs and grow our energy security.

Winning this battle will not come easy. Let the fight begin.

Bob Dinneen President and CEO Renewable Fuels Association 16

ETHANOL PRODUCER MAGAZINE • May 2010

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DRIVE Buis

Building Infrastructure Will Open Markets

By Tom Buis

n the United States, low-level ethanol blends such as E10 already comprise the majority of the gasoline sold at the pump. The fueling stations that supply these blends are numerous and widely distributed. The number of fueling stations that supply mid- and high-level blends between E20 and E85, however, is much smaller. In fact, out of more than 170,000 fueling stations nationwide, there are only about 2,200 that offer ethanol blends higher than E10. Two-thirds of those stations are concentrated in just 10 states.

One thing is certain: If we’re going to put Americans back to work, strengthen our national security and reduce greenhouse gas emissions, more American motorists will need the choice of fueling their automobile with domesticallyproduced, renewable and low-carbon ethanol. But if we are going to deliver ethanol to wholesale markets—and ultimately consumers at the fueling station—we need to substantially build out our nation’s fuel-delivery infrastructure.

Simply put, our industry must make it a priority to promote the construction of our fueling infrastructure, through smart public policy and wise regulation, in order to give consumers a choice at the pump.

Specifically, I am talking about dedicated ethanol pipelines that can move ethanol from where it is made in the Midwest to the markets on the East and West Coasts where it is in demand. And we need many, many more blender pumps that can distribute ethanol blends directly to the consumer.

Under the mandates of the new Renewable Fuels Standard, ethanol use is expected to rise from the current 13.9 billion gallons to 35 billion gallons by 2022. Automotive companies have started adding flex fuel vehicles (FFV) to their fleet in order to help meet these federal targets for production and consumption of renewable fuels. More and more cars on the road today are engineered to consume higher ethanol blends, and demand by FFV owners continues to drive up demand for a choice at the fueling station.

I

18

To satisfy this rising demand, it is estimated that we will need to increase the number of stations that carry ethanol blends by 100,000. But that increase in blender pumps won’t happen by itself. We need federal policy—a plan—that supports the extensive build-out of America’s ethanol delivery infrastructure network.

An investment in blender pumps would provide drivers with a choice of mid- and high-level ethanol blends in more locations across the country. And choice is important: Americans deserve options other than gasoline refined from petroleum when they fill up their vehicles.

At the urging of Growth Energy, lawmakers in Washington, D.C., have sponsored legislation that would offer federal loan guarantees to help underwrite the cost of building a dedicated pipeline for ethanol. The 1,800-mile pipeline would transport ethanol from Midwest plants to markets on the Eastern Seaboard and help assure that U.S. consumers have access to domestic, renewable ethanol.

Growth Energy is also working on several other fronts— both in legislative affairs and with the regulatory agencies— to promote the construction of fuel-dispensing equipment and other infrastructure to help deliver the benefits of ethanol to consumers. The benefits of building out this infrastructure include expanded fuel supplies—which should help lower the price of fuel for consumers—as well as increased economic activity in rural areas and the creation of thousands of new jobs.

The bottom line is we need to invest in the national infrastructure necessary to provide greater access to ethanol to help kick our addiction to foreign fuels. Every blender pump we install and every pipeline we build will help make our country more energy independent and more secure, all while giving consumers a choice.

Tom Buis is CEO of Growth Energy. He can be reached at tbuis@growthenergy.org or (202) 545-4000.

ETHANOL PRODUCER MAGAZINE • May 2010

A 21 billion gallon market The 3rd annual Advanced Biofuels Workshop, a one-day event co-located with the 26th annual International Fuel Ethanol Workshop & Expo (FEW) in St. Louis, will feature more than 25 presentations from leading players in the race to scale up and commercially deploy next-generation renewable fuels such as biobutanol, green gasoline, renewable diesel and biobased jet fuel. Hundreds of FEW attendees will arrive early to attend this event—space is limited—so register today.

Panels include: • Value Propositions: A Look at the Upside of Four Unique Fuels • Game-Changing Pathways • Second Life: Converting Existing Industrial Facilities Into Advanced Biofuels Plants • Making Money in the Advanced Biofuels Game • Drop-In Biofuels: Sizing Up Advantages • Integrated Biorefining: Fuels and Chemicals

Co-located with the World's Largest Fuel Ethanol Conference & Expo

June 14 - 17, 2010

www.advancedbiofuelsworkshop.com

eBIO INSIDER

Biofuels Not to Blame—Or, Are We?

By Christophe Bourillon-Girard he good news of late has been that the global ethanol industry is being vindicated in a report commissioned by the UK government. “[All] available evidence suggests that biofuels had a relatively small contribution to the 2008 spike in agricultural commodity prices,” the report noted. “Whilst commodity prices have fallen steeply from their peaks in 2008, biofuel demand has remained steady—indicating that the causal link from biofuel demand to short-term crop prices is still relatively weak.” Speculators responding to rapidly declining global wheat stocks due to droughts in Europe and Australia originally triggered the crisis, according to the report titled, “The role of demand for biofuel in the agricultural commodity price spikes of 2007/08.” The simultaneous spike in crude oil prices affecting all commodities made the crisis a truly global event.

Having a governmental report definitively weigh in, even this long after the media frenzy dissipated, counters those who used the food crisis to vilify ethanol. In reality, the report finds that oil prices drove agricultural costs up, and studies, even by the United Nations, World Bank and International Monetary Fund, considered too few variables and made unrealistic or inconsistent assumptions. The report notes, going forward, that there are vast reserves of underutilized agricultural land—10 million hectares idled in Russia, Ukraine and Kazakhstan alone—that will likely be brought into production as agricultural prices rise.

So, it does look, like we—the biofuels industry—did not do it.

We are not to blame for the food crisis.

Aren’t we, however, collectively responsible for the media frenzy? Please bear with me. Before the food versus fuel issue, we could do no wrong. Biofuels and our industry were perceived as “good guys” by those who did not know much about us. Do you remember years ago when you’d meet someone at a party and would tell them you work in biofuels? They would buy you a drink. Have you tried this lately? You’d have some explaining to do and get real thirsty first.

When negative articles about biofuels started appearing in the media, our industry did not really take notice. The anti-biofuel flood

T

20

really started after that famed United Nations Food and Agricultural Organization meeting. Incidentally, everyone was invited to speak, except the biofuel industry. (We did not knock on the door, either). After that, it was open season. The arguments put forth against biofuels were not based on facts but on emotion and passion, illustrated with pictures of famished children. The biofuels industry knew the core arguments were wrong. What did the industry do? Nothing. Like a deer caught in the headlights, it did not react. Some industry executives were heard saying that what really matters are the politicians, not the media.

Well, guess what. As the anti-biofuels frenzy gained ground, it did not take long before these politicians took notice and had second thoughts. Mandates were reduced, sustainability criteria introduced, and today we are grappling with perceived indirect effects— the only industry to my knowledge ever held to this new standard. It is a clear case of the precautionary principle gone mad.

The industry was so busy trying to get off the ground that we did not think it relevant to protect and pamper our image. But let’s not forget that until such time as the biofuels industry is firmly established as a sound global industrial sector, to many it will remain a concept.

Our value is our promise, and that is all about image and perception.

We need to look after that image.

How about the future? There has been a steady stream of announcements of breakthroughs, often accompanied by clear timetables and promises about plant starts and fuel use on the large scale.

We are seeing these time tables slipping by and projects being cancelled—clear cases of over-promising and under-delivering.

We took a hit with the food versus fuel crisis. Collectively, if we want to regain the trust of the public and that of those precious decision makers, we must say what we do and do what we say.

If we under-promise, over-deliver and look after that image, we will get there ultimately.

Christophe Bourillon-Girard works in communications at eBio. Reach him at bourillon@ebio.org.

ETHANOL PRODUCER MAGAZINE • May 2010

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TAKING STALK

Winter Barley Shows Promise for Ethanol

By Carl Griffey esearchers at Virginia Tech are developing winter barley varieties with an eye on improving the traits needed to make a successful ethanol feedstock. The hull-less barley cultivar named Eve has a 62 percent starch content, 9.3 percent protein, 58 pound test weight. That compares with corn’s 70 percent starch content, 8 percent protein and 56 pound test weight. Research results on winter barley quality were reported in a paper published in the Journal of Cereal Science 51 (2010): “Grain composition of Virginia winter barley and implications for use in feed, food, and biofuels production.” Field trials indicate that Eve is likely to yield up to 80 bushels per acre. The newest hull-less cultivar Dan exceeds Eve in yield and test weight. Newer hull-less lines have yields that are 10 bushels per acre higher than that of Eve. Work on the region’s first barley-based ethanol plant, 65 MMgy Appomattox Bio Energy in Hopewell, Va., is progressing and on track for a late spring completion. Perdue Agribusiness is procuring grain for the new ethanol plant which is expected to use between 20 million and 30 million bushels of barley per year Barley as an ethanol feedstock has several advantages over wheat or corn. The relative price of feed barley is typically lower than both of these crops, and it has the potential of producing distillers grains with higher protein and lysine content for livestock feed than that from corn.

To date, use of traditional hulled barley as an alternative to corn in ethanol production has been limited by its lower starch concentration, higher fiber concentration, and abrasive nature of the hull which contains silica that causes excessive wear on equipment. New hull-less varieties developed at Virginia Tech solve the problem via incorporating a trait that results in a loosely attached hull that easily separates during combining and grain cleaning. Complementary research being conducted at the USDA Agricultural Research Service’s Eastern Regional Research Center in Wyndmoor, Pa., has developed beta-glucanase

R

22

enzymes which both decrease viscosity problems and improves ethanol conversion.

In addition ERRC is investigating the use of straw and barley hulls in pyrolysis to make bio-oil and biochar. The bio-oil can be used as boiler fuel now, and with some technology improvements, can be a feedstock for advanced biofuel production. Biochar is a carbon-rich product that can be used to improve soil quality and to sequester carbon in the soil. The researchers also anticipate any non feed grade barley distillers grains could be utilized in the pyrolysis process.

Barley is a high-yielding small grain adaptable to a wide range of growing conditions. In areas such as Virginia, with mild winters, it can be grown as a winter crop, providing needed ground cover and utilizing nutrients, thus preventing winter leaching of nitrogen and phosphorus into the watershed. Furthermore, a winter barley crop produces ethanol feedstock and needed distillers grains in a feed deficient region, while not displacing traditional crops. Researchers have estimated barley could produce 1 billion gallons of ethanol in the U.S. alone.

U.S. barley production has the potential to regain a more prominent position as a feed crop, and now as an ethanol feedstock. There also is the potential to develop another new line of cultivars targeted at the health food market. Phytochemicals in barley include several types of antioxidants which are often associated with cancer prevention. Beta-glucans in the bran are known to have cholesterol-lowering effects and result in a lowering of the glycemic peak that can be useful in diabetic diets. The U.S. Food and Drug Administration also recently approved a health claim petition documenting that barley contains high levels of soluble fiber (beta-glucans) that when consumed by humans helps prevent coronary heart disease.

Carl Griffey is a professor of small grains breeding and genetics in the Crop & Soil Environmental Sciences Department at Virginia Tech. Reach him at cgriffey@vt.edu or (540) 231-9789.

ETHANOL PRODUCER MAGAZINE • May 2010

RFA

The voice of the ethanol industry.

Since 1981, the Renewable Fuels Association (RFA) has been the authoritative voice of the ethanol industry. Our efforts have yielded an unequaled record of legislative and regulatory victories. But we consider our track record just the beginning, and are expanding our efforts with a focus on market development.

The RFA is a trusted source for reliable LQIRUPDWLRQ DQG VFLHQWLĂ€F DQDO\VLV IRU the industry, policymakers, and media alike. The RFA is the leading expert on ethanol standards and guidelines for safety. We are also the preeminent authority on E10 and E85.

The RFA is a member-centered, member-driven organization. Join with us to help build a strong future for the industry. For more information, visit www.ethanolrfa.org, or call (202) 289-3835.

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BUSINESS MATTERS Clean Water Act Enforcement: Steps Producers Can Take to Reduce Exposure

By Lynn Kornfeld and Jess Phelps oncerned about protecting the nation’s waters, the Obama administration intends to take a more aggressive approach to enforcement of the Clean Water Act. The U.S. EPA followed suit by ratcheting up efforts to pursue action against CWA violators. As a result, ethanol producers have come under increased scrutiny. At least one has been the subject of parallel action by EPA and state agencies against violating facilities. Additionally, several citizens’ groups have sued ethanol producers for wastewater discharge violations and other CWA permit violations. Therefore, ethanol producers should re-examine operating permits and prepare to respond to potential violations.

Most states can implement permitting programs under the CWA. However, EPA retains independent authority to directly enforce provisions or even “overfile” state actions. Corn Plus, a Minnesota ethanol producer, recently pleaded guilty to charges brought by both the Minnesota Pollution Control Agency and EPA. The court imposed a $100,000 fine and an additional $50,000 paid to the Minnesota Department of Natural Resources for a water quality project in the impacted watershed.

C

Citizens’ Suit Provisions Beyond agency enforcement, environmental groups are increasingly targeting ethanol producers under the citizen’s suit provisions of the CWA. In Wisconsin alone, Midwest Environmental Advocates recently targeted two facilities. The first suit alleged that Utica Energy of Oshkosh committed at least 2,207 permit violations in one year relating to violations of its temperature; total suspended solids; and chlorine, zinc, oil/grease and phosphorus limits. Utica settled for $110,000, allocated toward environmental efforts in the receiving waterway and covering Midwest’s litigation costs. Additionally, Utica paid $280,000 in forfeiture and fees and $200,000 to connect to the community’s water treatment plant.

Midwest also filed suit against Didion Energy of Cambria for various wastewater discharge permit violations. A federal district court granted Midwest partial summary judgment finding that Didion violated its permit by discharging excessive levels of total suspended solids, certain water treatment additives, chlorine and

24

sodium bisulfate, and floating solids. These suits demonstrate that citizen’s actions against ethanol producers are on the rise and can potentially result in significant liability to operating facilities. (Domino v. Didion Ethanol LLC, 2009 WL 4067800; W.D. Wisc. Nov. 23, 2009)

Minimizing Exposure to CWA Liability To prepare for potential enforcement action or citizen’s suits, ethanol producers should fully comply with operating permits to eliminate or reduce any potential liability under the CWA. Permits should be reviewed periodically to ensure compliance with the CWA and state programs in relation to the current status of the facility and whether the permit accurately reflects its conditions. Many CWA permits prescribe periodic sampling, the development of certain facility plans, reporting, and/or employee training requirements. Over time, an ethanol plant and the nature of its discharge can evolve, which can result in unanticipated violations.

EPA and several states have policies and laws providing immunity from prosecution or penalty mitigation for voluntarily disclosing violations discovered by an environmental audit, or as part of an environmental management system. Companies may benefit from performing a formal voluntary audit of its facilities.

Consider performing an audit under the direction of an attorney to help protect audit information from disclosure.

Anticipate and respond to citizens’ suits. Sixty days prior to filing a citizen’s suit, a potential plaintiff must notify EPA and the producer, providing an opportunity to come into compliance.

Even if an ethanol producer is unable to comply within this 60-day window, there is an opportunity to negotiate with the plaintiff(s) to reduce exposure—particularly litigation costs.

Lynn Kornfeld is a partner in the Denver office of Faegre & Benson, practicing environmental law and policy. Reach her at (303) 607-3697 or LKornfeld@faegre.com. Jess Phelps is a member of the Faegre & Benson litigation practice focused on international trade issues involving antidumping and countervailing duty litigation, working out of Des Moines, Iowa. Reach him at (515) 4474721 or JPhelps@faegre.com.

ETHANOL PRODUCER MAGAZINE • May 2010

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Business&People Ethanol Industry Briefs

Applied Process Technology International LLC, a newly formed, wholly-owned subsidiary of Bateman Litwin N.V., has purchased the assets of Delta-T Corp. for $2.2 million. Bateman Litwin purchased Delta-T for $45 million in 2007.

Applied Process Technology will be based out of Williamsburg, Va., in the same office space Delta-T was in, said Dave Hughes, president and general manager of Applied Process Technology.

In early March, Green Plains Renewable Energy Inc. offered up newly issued shares of its common stock. The company is looking for net proceeds of $79.3 million, including overallotment options, for a total of 6.325 million shares of common stock. A month earlier, the company reported $436.7 million in total revenue for the fourth quarter of 2009, a total increase of $255.5 million from the fourth quarter of 2008. The significantly higher operating income in the fourth quarter was attributed primarily to a strong performance in ethanol production at the company’s six ethanol plants, said Todd Becker, president and CEO.

26

Growth Energy added six new ethanol producer members. With Cardinal Ethanol, Carbon Green Bioenergy LLC, Tharaldson, Redfield Energy LLC, Advanced Bio Energy LLC, and Corn Plus signing on, the coalition of U.S. ethanol supporters now includes 55 plant members and 34 associate members. “Since our inception a little more than a year ago, Growth Energy has made great strides on behalf of making America energy independent, cleaning our environment and creating jobs right here in the U.S.,” said Growth Energy CEO Tom Buis.

BlueFire Ethanol Fuels Inc. posted its first-ever profit after filing its annual reporting form for 2009 with the U.S. Securities and Exchange Commission. The company recorded $4.3 million in revenue, resulting in a 4 cent profit per share. BlueFire reported it has applied for a $250 million loan guarantee for its cellulosic ethanol biorefinery in Fulton, Miss.

The company wants to build

two cellulosic ethanol facilities—a 3.9 MMgy plant at Fulton and a 19 MMgy plant near Lancaster, Calif. The location near Lancaster is fully permitted and shovel ready, according to the company.

large-scale biorefineries to utilize its process with Novozymes enzymes. Lignol’s current feedstock is hardwood chips but the company plans to begin working with softwood later in the year.

Osage Bio Energy will partner with Land O’Lakes Purina Feed to market its distillers grains coproduct as barley protein meal. Construction is expected to wrap up in May at Appomattox Bio Energy in Hopewell, Va., the first commercial scale barley-to-ethanol plant in the United States. The 65 MMgy facility will remove the hulls from the barley, resulting in reduced fiber content and concentrated protein and starch.

The coproduct is expected to find a market both domestically and internationally thanks to demand and limited availability of a nongenetically modified product, said Darian Carpenter, Land O’Lakes merchandising manager.

Inbicon and Mitsui Engineering & Shipbuilding announced a licensing agreement for a number of biomass refineries in Southeast Asia to be built using Inbicon technology.

Feasibility studies to determine the number of facilities and locations are under way. Mitsui, which is headquartered in Tokyo, plans to use wastes from palm oil production to produce ethanol. Coproducts from the process include a molasses animal feed and clean lignin for energy production.

Novozymes has signed a memorandum of understanding with Vancouver-based Lignol Energy Corp. Novozymes enzymes will be used this year at Lignol’s 100,000 liter-per-year pilot plant in Burnaby, British Columbia. Lignol is planning to build a demonstration plant and

Glycos Biotechnologies Inc. announced in March that it had successfully produced lactic acid and ethanol at a facility capable of producing up to 150,000 liters of chemicals. The company uses multiple nonsugar feedstocks and is focusing its efforts on production of specialty chemicals used for a wide range of applications, such as biodegradable and non-degradable plastics in addition to fuel ethanol. “By using our proprietary microbes and bioprocess

ETHANOL PRODUCER MAGAZINE • May 2010

Sponsored by

technologies as an alternative to conventional petrochemicalbased manufacturing processes, GlycosBio has invented a sustainable and cost-efficient approach to the production of next generation bioproducts,” said Paul Campbell, chief scientific officer for Glycos Biotechnologies.

OnsetComputerCorp. announced enhancements to its Web-based energy and environmental monitoring systems. The company’s trademarked Hobo U30, a data logger product, now boasts expanded cellular network coverage, customizable display and an eco-friendly weatherproof enclosure. In addition, the company hired Justin Testa as president. He is a past executive vice president and business unit manager for Cognex Corp.

A new handheld pressure calibrator features a built-in electric pump system designed for high-accuracy pressure calibration. Jopha HP600, a trademarked product of Ametek Calibration Instruments, works as a pressure indicator,

pressure calibrator, a complete mA loop calibrator (including 24-volt supply), voltmeter, thermometer and pressure/ vacuum generator. “The HPC 600 features a user configurable information display, 15 different pressure units, transmitter supply, mA input/output, percent error calculation, voltage measurement, serial communications and an external pressure module capability,” according to the company. “The accuracy of the HPC is specified in percent of reading to ensure an even better accuracy and more applicable pressure range.”

Mick Sawka has been named vice president of business development for Qteros Inc. Sawka has 19 years experience in the specialty chemicals industry, including negotiations and leadership in numerous partnerships, alliances and acquisitions. Previously, he worked for Microbia Inc., a developer of specialty chemicals for industrial applications.

“Mick’s experience and success helping lead innovative product development within large-scale industrial chemicals companies will bring a great complement to our team as we accelerate the development of important industrial partnerships for Qteros,” said John McCarthy, president and CEO.

ETHANOL PRODUCER MAGAZINE • May 2010

Asahi/America Inc. mitter can ease the transition to announced the addition of Poly- wireless and help plants reap the tetra electric heaters to its prod- overall safety, equipment reliabiluct line. The heaters have an ity and process efficiency benextended life due to corrosion- efits that come with it.” resistant coating and other design elements, the com Enerkem pany said, and can be Inc., a waste-to-biocompletely submerged fuels and chemicals in a chemical bath. The technology compaheaters are available in ny, announced that standard models from PatriceOuimethas 120-600V and 350-4000 joined the company watts of continuous as vice president and power with lengths of Ouimet chief financial offi3 to 15 feet and can be cer. Ouimet’s most factory bent to the derecent experience in finance was sired shape. for Gildan Activewear, an international apparel manufacturer Universal input/output and marketer. “I am thrilled to transmitters have been added welcome Patrice Ouimet to to Honeywell’s XYR 6000 Enerkem. He is an experienced wireless products. The trans- finance executive and his knowlmitters are used to monitor edge of capital markets transaclevel switches, pump status and tions and manufacturing brings system alarms, convert up to valuable skill sets to our compathree measurements into wire- ny,” said Vincent Chornet, presiless sensor signals, and can help dent and CEO. EP save 30 percent over similar devices that transmit signals from SHARE YOUR INDUSTRY BRIEFS To be only two inputs. “More manu- included in Business & People, send inforfacturers today are considering mation (including photos and logos if availto: Industry Briefs, Ethanol Producer wireless monitoring to improve able) Magazine, 308 Second Ave. N., Suite 304, asset management while saving Grand Forks ND 58203. You may also fax costs, but converting to a wire- information to (701) 746-8385, or e-mail it to less infrastructure isn’t always sretkaschill@bbiinternational.com. Please include your name and telephone number easy,” said Raymond Rogowski, in all correspondence. global product marketing manager wireless, Honeywell Process Solutions. “Devices such as the XYR 6000 Universal I/O Trans-

27

COMMODITIES REPORT

Natural Gas Report

REX pipeline changes basis, pricing nation-wide March 26—Natural gas prices raced to find a bottom from midFebruary to mid-March. For the end-user, it is human nature to continue to move price triggers lower with the hope of capturing even better pricing. With spikes in volatility and the usual noise, prices will eventually seek a level representing the current supply and demand balance.

There is no doubt things are bearish with net futures short reaching record levels. A bearish view by producers has resulted in high-volume hedging in deferred contracts, significantly flattening the curve. The premium from the prompt month to Jan. 11 fell from $2.41 on Dec. 3 to $1.30 on March 5, before steepening again to $1.51 on March 23. If we get data supporting further increases in production, things are likely to turn lower still in the third quarter. With little threat to the upside, the market is busy trying to “call the bottom.” Current price levels are entering a range where factors offering price support are likely to materialize. The question at hand is will the following factors be enough to limit significant downside pressure?

Current price levels through 2012 are not economical outside of three or four major shale plays. This should limit selling pressure in deferred contracts.

By Brad Smith, U.S. Energy Services Inc.

Storage has been drawn down at a faster pace than last year.

With overall heating degree days similar, almost 400 bcf more has been drawn in 2009-’10 than 2008-’09. Utilities typically buy the bulk of hedges in April and May and are expected to be major buyers, replenishing storage.

Natural gas displacement of coal in power generation is a major demand source at price levels under approximately $4.50 in the Mid-Atlantic and Southeast. While there are a number of headwinds to reach demand levels seen in summer 2009 (2.5 bcf/d), utilities have acquired the skills to switch effectively and significant demand gains will arise.

Nuclear spring maintenance season peaks in March and April.

There are 104 nuclear plants in the U.S. with 12 currently offline. Per the Nuclear Regulatory Commission, average refueling outages in 2008 lasted 38 days.

Retail and speculative buying in natural gas by end-users and investors may limit downside pressure.

Lastly, will the global LNG market offer better returns elsewhere as U.S. spot prices approach $4? EP

Corn Report

By Jason Sagebiel, FCStone

USDA: corn stocks up, corn acres to increase March 31—The USDA released the much anticipated acreage and stocks report at the end of March. The USDA estimates 88.8 million acres of corn will be planted this spring. This is an increase of 2.3 million acres from the year prior. Looking ahead and assuming a trend-line yield of 161 bushels and 91.5 percent of the planted acres are harvested, this would equate to 13.13 billion bushels. Corn plantings are expected to be 200,000 acres less in Iowa while increases are expected in Kansas, Missouri, Illinois, Indiana, Ohio and North Dakota. Small losses of corn acres were noted across Texas and the Delta region.

In addition to acreage, the March 1 stocks were released revealing corn usage had slowed versus what traders had expected.

Stocks were pegged at 7.69 billion bushels versus 10.93 billion bushels on Dec. 1. This indicated a usage of 3.24 billion bushels and compares to 3.12 billion bushels a year ago. Nonetheless, the market expected disappearance to be approximately 3.40 billion bushels. Since demand has been overstated, now putting both pieces together, the 2009-’10 carry-out should increase, which will spill over into the 2010-’11 marketing year, thus offering more cushion in the event of production issues this growing season.

Corn rallies will be limited on prospects of big carry-outs and increased acreage. Planting weather and growing conditions will 28

now lead the volatility in grains this summer. Other factors will be outside influences such the U.S. dollar and petroleum markets.

The next planting intentions report will be released on June 30.

EP ETHANOL PRODUCER MAGAZINE • May 2010

COMMODITIES REPORT

DDGS Report

($/gallon as of March 26) - Front Month Futures Price (AC) $1.553

REGION

SPOT

RACK

West Coast

1.6075

1.85

Midwest

1.515

1.90

East Coast

1.635

1.77

By Sean Broderick, CHS Inc.

Feeders anticipate lower prices, offset by exports March 26—As April began, the price of corn slipped about 20 cents per bushel, following a brief uptick.

DDGS prices, which began slipping in January, started to firm as plants took seasonal down time. With margins eroding, some ethanol plants may extend that down time which should limit supply through the first half of May. After that, prices will be affected by summer supplies and feed demand.

The spring demand picture has been interesting. The price of hogs would normally lend support to DDGS, as more is fed each year. But vomitoxin concerns have resulted in cautious hog feeding. Cattle feeders, whose margins are not as strong, have incorporated DDGS to the greatest extent possible—there is a lot of cheap

Regional Ethanol Prices

SOURCE: DTN

Regional Gasoline Prices ($/gallon as of March 26) - Front Month Futures (RBOB) $2.2074

wet product across the plains. Dairymen have also been buying a lot of product—but only in the spot markets, since their margins are the worst among feeders. Looking ahead, bids are discounted in the deferreds, as feeders anticipate lower corn and feed prices.

Offsetting the downward pressure is the huge amount of Asian business—both in the ever-increasing container market, and especially the newly increasing Korean and Chinese bulk vessel markets. Several 35,000 metric ton boats have moved off the West Coast this spring, with several to go. The year over year increase on these shipments has been staggering.

Down the road, all eyes are on the planting reports, and ethanol margins.

REGION

SPOT

RACK

West Coast

2.1977

2.2354

Midwest

2.1884

2.1882

East Coast

2.0768

2.1503 SOURCE: DTN

DDGS Prices ($/ton) LOCATION

MAY 2010

APRIL 2010

MAY 2009

Minnesota

90

90

120

Chicago

115

122

125

Buffalo, N.Y.

125

125

140

Central Calif.

148

159

165

Central Florida

140

146

Corn Futures Prices DATE March 31, 2010

EP

155 SOURCE: CHS Inc.

Feb. 28, 2010 March 31, 2009

(May. corn, $/bushel)

HIGH

LOW

CLOSE

3.54 1/2

3.44 1/4

3.45

3.91

3.83

3.89

4.05 1/2

3.81 1/2

4.04 3/4

Ethanol Report

SOURCE: FCStone

By Rick Kment, DTN Biofuels Analyst

Ethanol supplies weaken market

March 26—Ethanol prices continued to erode through the middle of February as corn futures prices moved significantly lower due to lack of investment trader interest, and energy markets suffered due to lack of upward movement in the economy. The Dow Jones Industrial Average recently dropped below 10,000 for the first time in 2010. News of other global debt and solvency issues remains on the front of most traders’ minds. In the past month, prices of gasoline have fallen nearly 20 cents per gallon, but the outlook on the economy has not used this price decline to increase demand. The long, cold winter season, relentless for most of the country, seems to be dragging on forever, limiting travel for many

consumers. The outlook for gasoline demand remains strong heading into the summer months with RBOB gasoline futures currently posting significant premiums in deferred contract months.

This means that traders are willing to push off buying activity until later when they expect demand to be better.

Ethanol contracts remain cautious at best with traders following the weakness in the corn market as well as lower gasoline prices. The expectation of higher demand for gasoline through the late spring and summer months is helping to uphold ethanol demand expectations, but right now there is ample product available and demand is sluggish through most regions of the country. EP

Cash Sorghum Prices ($/bushel) MARCH 25, 2010

FEB. 12, 2010

MARCH 31, 2009

2.97 3.00 2.75 3.25 2.98 3.80

3.12 3.02 2.80 3.26 3.11 3.91

3.40 3.37 3.21 3.59 3.17 4.15

Superior, Neb. Beatrice, Neb. Sublette, Kan. Salina, Kan. Triangle, Texas Gulf, Texas

SOURCE: Sorghum Synergies

Natural Gas Prices

($/MMBtu)

MARCH 22, 2010

FEB. 1, 2010

MARCH 1, 2009

NYMEX

4.110

5.274

4.056

N. Ventura

4.100

5.860

3.960

Calif. Border

4.150

5.660

3.230

SOURCE: U.S. Energy Services Inc.

U.S. Ethanol Production Output December 2009

788,000

November 2009

786,000

December 2008

656,000

(barrels/day)

SOURCE: U.S. Energy Information Administration

ETHANOL PRODUCER MAGAZINE • May 2010

29

BIObytes Ethanol News Briefs

Mansfield Oil to market, expand Permeate process Permeate Refining Inc., a waste byproduct processor and advanced biofuel producer, will partner with Mansfield Oil Co. Permeate currently uses a yeast strain technology to ferment waste stream feedstocks.

Mansfield will now aid in mar-

Brazil pursues clean energy projects

keting and expanding the process to plants nationwide through an ethanol marketing division of Mansfield Oil, C&N Co. Permeate plans to use waste streams from the citrus, sweetened beverage and beet pulp industries.

According to data released in late March by the Pew Charitable Trusts, Brazil invested $7.5 billion in the clean energy sector in 2009. That put the country sixth on a list of G-20 countries committed to investing in clean energy and ranked it as the second fastest clean energy investment growth rate among those same countries.

One example of Brazilian investment in ethanol came with the merger of Brazilian biofuel producers ETH Bioenergy and the Brazilian Renewable Energy Co. The new company, operating under the name ETH Bioenergy, will have roughly 790 MMgy of ethanol capacity and will produce 2,700 gigawatts of elec-

tricity from sugarcane bagasse by 2013, putting the newly formed company’s total ethanol capacity among the world’s highest.

Two other companies, Shell International Petroleum Co. Ltd. and Cosan S.A., signed a non-binding memorandum of understanding to form a $12 billion joint venture in Brazil for the production of ethanol and related activities.

Other news from Brazil is focused on building pipelines for transporting ethanol. With that goal in mind, Petrobras, the Brazilian oil producer, formed a corporation, Uniduto, with Japan’s Mitsui Co. and real estate developer Camargo Correa S.A.

PHOTO: GUNTER FESTEL

DDG futures contract launches

Butalco will use a new yeast catalyst in the production of cellulosic ethanol.

German yeast catalyst improves yield German-based biofuels producer Butalco will use a new yeast catalyst technology to produce cellulosic ethanol. The yeast advancements ferment C5 waste sugars making the production of ethanol cheaper and more efficient, increasing production yields up to 30 percent, according to the company.

Starting this summer, Butalco will test the process under industrial level conditions at a

30

Hohenheim University pilot facility. “Together with the new commercially viable enzymes launched by Danisco and Novozymes, our yeast technology will enable cellulosic ethanol [to be] a competitive alternative to gasoline,” said Eckhard Boles, co-founder of Butalco. The Hohenheim plant is the only facility in Germany that allows genetically modified yeasts, Boles noted.

CME Group launched a distillers grains (DDG) commodity futures contract April 26. Under the existing rules and regulations of the Chicago Board of Trade, now merged with CME Group, the contracts will offer another option in risk management, according to Tim Andriesen, CME Group man-

aging director for commodities. “This product will enable our feed customers to directly manage price risk of feed inputs.” The contracts will equal 100 short tons of DDG with the following specifications: 26 percent protein, 8 percent fat, a maximum 12 percent fiber and 11.5 percent moisture content.

Two represent ethanol on CARB workgroup Representatives from the ethanol industry are among those on a California Air Resources Board-appointed expert workgroup. Mark Stowers, Poet’s senior vice president of science and technology, and Jesper Hedal Kloverpris, a life-cycle assessment specialist

for Novozymes, are among 30 people examining indirect land use change as included in the state’s low carbon fuel standard. The group first met in February and will meet monthly until December, when it is expected to give its report to CARB.

ETHANOL PRODUCER MAGAZINE • May 2010

Greenshift files patent infringement

PHOTO: GILBARCO VEEDER-ROOT

Two fueling equipment mark on it.” Drengenberg said. companies, Dresser Wayne and Many components for a comGilbarco Veeder-Root, received plete E85 dispenser have alUnderwriters Laboratory certi- ready been submitted for testfication for E25 fuel dispensers ing. However, in mid-March, in mid-March. UL confirmed there were still some missing that the dispensers are the first links in the hanging hardware to be certified by UL for any- components. Because of conthing above E10. The hanging fidentiality agreements with hardware—the nozzle, hose, the various manufacturers, UL swivel and breakaway—must can’t reveal the specifics about go through a different UL cer- what components have been tification path, said John Dren- submitted for testing. “That’s genberg, a UL consumer safety like telling Hoover what Eureka is doing with their vacuum director.

The Renewable Fuels As- cleaners,” he said. sociation acknowledged that the fuel dispenser certification was a boost while maintaining that what the industry really needs is a UL certified dispenser for E85. “While this move by UL is helpful, certification of a dispenser for up to 85 percent ethanol is critical to expanding both the infrastructure for and the use of high level ethanol blends,” said Robert White, RFA’s director of development.

Due to concerns about corrosion, UL is holding off certification of any fuel dispensing equipment for E85 until the dispenser and hang- The Encore NJ2 dispenser is pending ing hardware are certi- Underwriters Laboratory approval. It has separate hoses for four fuels including E85. fied together. “We need The company also has 19 dispenser units everything in the system with UL approval up to E25. before we can put our

ETHANOL PRODUCER MAGAZINE • May 2010

Greenshift Clean Tech Corp. received a third patent for its corn oil extraction technology.

The patent came at the same time Greenshift issued an infringement complaint against Cardinal Ethanol LLC and Big River LLC, facilities using corn oil technology. GS, which claims it innovated and created the technology, believes the company deserves the full measure and advantage

of creating the technology first.

ICM Inc. manufactured and installed the Cardinal Ethanol and Big River facilities with the corn oil technology and will now defend both facilities after filing litigation against GS. “ICM believes that GS Clean Tech’s alleged patent claims will be proved to be invalid,” said Chris Mitchell, vice president of marketing for ICM.

PHOTO: TEXAS AGRILIFE RESEARCH

First E25 dispensers UL certified

An ear of corn starts out with earworm damage and ends up fully colonized with aflatoxin. The contamination can also be present in grain with no visible symptoms.

Research seeks aflatoxin resistance After identifying a gene associated with aflatoxins in corn, Texas AgriLife Research scientists are harnessing that information to create an aflatoxin-resistant line of corn.

Although it’s good news that researchers have identified the gene associated with aflatoxin contamination, developing new varieties will take years.

With a $500,000 USDA grant, Mike Kolomiets, an associate professor in Texas A&M University Department of Plant Pathology and Microbiology, Seth Murray, corn genetics researcher, and Tom Isakiet, plant pathologist, have started a four-year project to apply the information to corn breeding.

31

Legislation calls for tax incentive extensions March was a busy month for ethanol industry leaders pushing for an extension to three tax incentives and the secondary tariff on imported ethanol.

The biggest news was the Renewable Fuels Reinvestment Act, proposed in the House by Reps. Earl Pomeroy, D-N.D., and John Shimkus, R-Ill. If passed, this bill would add five years each to the Volumetric Ethanol Excise Tax Credit, the Small Ethanol Producers Tax Credit and the tariff on imported ethanol. The bill would also tack three years on to the Cellulosic Ethanol Production Tax Credit. The bipartisan bill has 27 co-sponsors. “At a time when our economy is struggling, we cannot afford to let these tax incentives expire and stymie the growth we have seen in our ethanol industry,” Pomeroy said.

VEETC, commonly known as the blenders credit, provides 45 cents per gallon to oil and gasoline refiners for each gallon of ethanol blended. SPTC is a 10-centper-gallon tax credit, offered on the first 15 million gallons of ethanol produced by ethanol companies producing no more than 60 MMgy. CEPTC offers producers of cellulosic ethanol 56 cents per gallon on top of VEETC. The 54-cent a gallon tariff is on ethanol imported from countries other than Caribbean Basin Initiative countries.

Before the House legislation was announced, several separate studies came out, detailing lost jobs and other consequences if ethanol tax incentives aren’t extended. The first of those studies was published at the University of Missouri in a yearly report of the Food and Agricultural Policy Research

32

Incentives for U.S. ethanol

Currently set to expire

Bill would extend to

VEETC

Dec. 31, 2010

Dec. 31, 2015

Small producers (SPTC)

Dec. 31, 2010

Jan. 1, 2016

Cellulosic (CEPTC)

Dec. 31, 2012

Jan. 1, 2016

Tariff on imported ethanol

Dec. 31, 2010

Dec. 31, 2015

SOURCE: RFA

Institute, which said without VEETC, U.S. fuel ethanol and biodiesel production would drop 10 percent, ethanol imports would increase and corn prices would drop about 15 cents in the next nine years.

A report written by John M. Urbanchuk of Entrix Inc. suggested even more serious consequences. The study predicted a 38 percent decrease in ethanol production if VEETC and other ethanol incentives were allowed to lapse at the end of the year. The Renewable Fuels Association, which commissioned the study, said that would be the equivalent of closing two out of every five ethanol plants operating now. The study also pointed to the loss of more than 112,000 jobs and a reduction of household income by $4.2 billion.

A third study focused on what would happen if the tariff were not extended. According to a 10-year projection performed by the University of Missouri’s Community Policy Analysis Center, 161,384 jobs would be lost, many of them permanently, by the third year. In addition, if the tariff were allowed to lapse, economic activity would decline by $9.2 billion in the first year, reaching $21.2 billion by 2021. The six states with the largest declines in economic activity would be Iowa, Illinois, Nebraska, Minnesota, In-

diana and South Dakota. In addition, steep declines in the value of corn, wheat, barley and sorghum were predicted.

Another study conducted by IHS Global Insight reported that as much as 2 billion gallons of Brazilian ethanol would be imported yearly if the tariff were not extended. That ethanol would, for the most part, replace domestically produced ethanol, not oil.

In addition to efforts to extend VEETC and other incentives to U.S. ethanol, nearly 40 industry groups sent a letter to Congress, urging that advanced biofuel producers be granted a 30 percent investment tax credit.

It was needed, the March 3 letter said, to help producers overcome financial barriers and move ahead on developing commercialscale cellulosic ethanol plants. Private investors, the letter pointed out, are often wary of taking on technology risks, and loan guarantees from the DOE and USDA have yet to “emerge as a material factor” in supporting commercialization of cellulosic ethanol.

Among the companies and groups signing the letter were the Renewable Fuels Association, BlueFire Ethanol, Coskata, Enerkem, Verenium, Range Fuels and Iogen.

—Holly Jessen

ETHANOL PRODUCER MAGAZINE • May 2010

Several major enzyme providers recently announced improvements in their advanced enzymes for cellulosic ethanol production.

The newest versions of these enzymes are creating higher production yields at a reduced cost, easing concerns that cellulosebased biofuels cost too much for too little.

Enzyme giant Novozymes Inc. released its newest version, the Cellic CTec2, in February. The CTec2 (when combined with the HTec2), reduces enzyme costs per gallon of ethanol to 50 cents, according to the company. Essentially a cocktail mix made up of earlier enzymes, the CTec2 can be used on various feedstock types including corn cobs and stalks, wheat straw, sugarcane bagasse and wood chips. “We have had a very positive response,” said Cynthia Bryant, marketing manager for the global fuels division of Novozymes. “Before CTec2, enzymes, and specifically the cost to use them in a cellulosic ethanol process, were a key concern that needed to be addressed.” The positive response, according to Bryant, is directly related to the enzymes’ ability to improve performance 1.8 times over the previous enzyme. “Now, with CTec2, enzymes have become a tool because of the benefits the enzymes provide to the process, such as significantly lower enzyme use cost and process flexibility.” After 10 years working with research partners such as Greenfield Ethanol Inc., Inbicon, Lignol Energy Corp., Poet LLC and ICM Inc., the enzyme is now being used, but Bryant said their efforts are not done. “CTec2 is just the beinning. Our cellulosic ethanol research and development effort is the largest Novozymes has ever undergone. With over 150 people dedicated

to developing solutions for the industry, we will continue to develop solutions that provide further improvements.”

In the same month, competing enzyme developer, Genencor, introduced Accellerase Duet, an extension of the earlier Accellerase 1500 enzyme. The Duet version will reduce biofuel enzyme dosing three-fold using a whole-broth formulation which provides nutrients for the fermentative organisms. “Inbicon has successfully trialed Accellerase in our demonstration biorefinery in Kalundborg, Denmark, and sees promise in using Duet now that it has been launched,” said Niels Henriksen, CEO of Inbicon.

A subsidiary of Dupont Danisco, Genencor uses proprietary protein engineering methods to identify enzyme variants, according to Francis Stalder of Genencor.

The approach allows for improved performance in the critical parameters of highefficiency, low-protein loading, and a tolerance to real-world process conditions said Stalder. The Duet enzyme is currently being used at the Vonore, Tenn., cellulosic ethanol plant to convert corn cobs and eventually switchgrass.

For wheat-based ethanol producers, the release of Verenium’s newest enzyme means improvements to fuel production costs as well. Verenium’s new enzyme, Xylathin, breaks down the compound, xylan, that’s found in grains such as wheat, rye and barley, significantly reducing mash viscosity.

The enzyme also allows producers to reduce grain water retention and most notably, enzyme dosage. “Xylathin is effective over a wide temperature and pH range allowing producers greater operational flexibility and

ETHANOL PRODUCER MAGAZINE • May 2010

PHOTO: ZEACHEM

Advanced enzymes lower production costs

ZeaChem Inc. has concentrated the acetic acid broth (left) into glacial acetic acid (right) for use in ethanol production.

significant reductions in processing costs,” according to Janet Roemer, executive vice president of Verenium.

Outside the recent enzyme developments, ZeaChem Inc. has developed a commercial grade bio-based acetic acid. The pure, glacial acid will be used in the production of ethyl acetate at a proposed 250,000 gallon-per-year facility in Boardman, Ore. Created through a broth in the front end fermentation process, an acid/hydrogen reaction process will eventually be put to use in the cellulosic ethanol process at the Boardman plant. “ZeaChem’s biggest fermentation hurdles are now behind us and we have significantly de-risked future integrated operations,” said Jim Imbler, president and CEO. The Boardman plant will come online in 2010 with the help of a $25 million U.S. DOE grant ZeaChem received in December.

—Luke Geiver

33

PHOTO: GREG CARLISLE

Idled plants restart, new plants on the way

Clean Burn Fuels LLC, North Carolina’s first corn-based ethanol plant, is now receiving corn.

Add another term to the list describing the ethanol industry: emergence. This spring several plants have emerged from Chapter 11 bankruptcy and reorganization proceedings. After a year in the reorganization process, Aventine Renewable Energy Holdings Inc. announced in March the company had successfully completed the process. Like many plants, Aventine cited unfavorable market conditions stemming from high corn prices and low petroleum costs as the main factor pushing the company into Chapter 11. Although the Pekin, Ill., Aventine facility was able to secure debtor-in-possession financing to remain operational, work on two other Aventine plants nearing completion was halted. Now, the Aurora, Neb., and Mt. Vernon, Ind., facilities will resume construction with a completion date set for fall.

“I am very optimistic about the ethanol industry and our success going forward,” said Thomas Manuel, the company’s new CEO and chief operating officer. “The ethanol industry has sound, long-term prospects, and we anticipate a strong rebound as the biofuels mandate continues to increase.”

Another ethanol plant, Nebraska Corn Processing LLC based in Cambridge (formerly Mid America Agri Products), also reported good news. Only two months after purchasing the mothballed 44 MMgy facility, NCP has started producing ethanol again.

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“We are running at full capacity and ethanol has been shipped out from the facility,” said Beth Westemeyer, marketing manager for NCP. Many of the workers laid off before the plant was idled are back at the facility, and Westemeyer said bringing the plant back online was met with enthusiasm. “It couldn’t have gone better actually, everyone in Cambridge is just so welcoming to us,” she said. “It’s a great town to have an ethanol plant in.”

While Aventine and NCP both resumed operations at plants formerly idled in bankruptcy, a new North Carolina plant moved one step closer to full completion. Greg Carlisle from the Clean Burn Fuels LLC plant in Hoke County, N.C., said the plant is now receiving corn, the boilers have been fired and certified, the cooling tower commissioned and all major ducting completed.

Although reaching full operational status has taken longer than first expected, Doug Archer, general manager of Clean Burn Fuels, noted the turn in the market as a positive time for the North Carolina plant to open.

In neighboring Georgia, American Process Inc. announced the official beginning of a pilot plant set to fractionate wood for cellulosic ethanol production. Partnering with Valero Energy Corp. and its subsidiary Diamond Alternative Energy, American Process will operate using its process called American Value Added Pulping. Bill Belling, vice president of business development for American Process, says the AVAP process will eventually be scaled up to commercial production and colocated at a pulp and paper mill. At a paper mill producing 500 tons of pulp per day, the company estimates it will produce up to 22.6 MMgy of ethanol. American Process is also developing a process it calls

Green Power+. The biomass extraction process will be put to use at a planned prototype biorefinery in Alpena, Mich.

More pilot facilities are being developed in Florida. In a joint venture with the University of Florida, Buckeye Technologies Inc. and the Florida legislature, the Stan Mayfield Biorefinery cellulosic ethanol pilot plant held a groundbreaking ceremony in early March. The Florida legislature provided $20 million in funding and Buckeye provided the land at the Perry, Fla., site.

Using an engineered E. coli bacterium made to break down nonfood materials, the plant will be operated by UF and is expected to be online in the spring of 2011. “We would not be here today without the exceptional foresight and support of those who realize, even in these trying economic times,” UF President Bernie Machen said, “how important this work is to our future.”

In UK developments, green investment firm Future Capital Partners has acquired a site in Grimsby, Northeast England, for a future ethanol plant, adding to the growing number of wheatbased ethanol facilities in the UK. The plant is set to go online in 2013. Due to the region’s ability to produce and utilize a wheatbased feedstock, Dave Knibbs, CEO of Vireol, believes the UK has the ability to emerge as leading producer in Europe. “I think you could see some more plants here,” Knibbs said. “We are the most efficient place to produce feed wheat in Europe. Our yields are better than anyone else’s and there is room for more growth.”

—Luke Geiver

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35

PHOTO: BIODYNAMICS INC.

Companies reach for process improvements

These two glass containers show the difference in thin stillage before being treated with a Biodynamics fungal cleaning process, left, and after it has been treated, right.

The ethanol industry continues to aim for efficient and environmentally sound production methods. In March, two companies, Poet LLC and Biodynamics Inc., a newly formed coproduct enhancement developer, announced projects to reduce water use in ethanol production, and Didion Ethanol LLC embarked on a yearlong project to reduce energy consumption by 25 percent.

The first goal of Poet’s new sustainability initiative, Ingreenuity, will be to cut water use for ethanol production by 22 percent over the next five years. If successful, that adds up to an annual water savings of 1 billion gallons. Poet engineers developed a total water recovery process to recycle cooling water, rather than discharging it.

The system has been installed in three Poet plants, which now average 2 to 2.5 gallons of water per gallon of ethanol. The company is also looking into offering its total water recovery process to other ethanol producers.

In 2009, Poet plants used an average of 3 gallons of water for every gallon of fuel produced—an 80 percent reduction from 1988, when the company started producing ethanol. In addition, several plants use alternative sources of water, such as water recycled from other industries or waste water treatment plants.

Poet plans to go beyond just reducing water use at the company’s ethanol plants. Feedstock producers will be surveyed to determine how much irrigation is used. In addition, over the next five years, Poet will donate more than $420,000 to a non-profit, Global

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ETHANOL PRODUCER MAGAZINE • May 2010

PHOTO: BIODYNAMICS INC.

The coproduct created by the Biodynamics Inc. fungal cleaning process can be used for human consumption or animal feed.

Health Ministries. Part of the money will be used to repair, construct and maintain 90 water wells in Nigeria.

Iowa-based Biodynamics announced two Midwest ethanol plants have agreed to let the company install production units using fungi to process thin stillage, recycling water and creating a new single-celled protein coproduct. Biodynamics will finance, install and operate the technology in demonstration units at the unnamed dry mill facilities.

The company expects commercial scale testing to be completed in the third quarter of 2010.

The fungus, Aspergillus oryzae, is commonly used to treat industrial waste water, said Trevor Cassel, project director for Biodynamics. In the ethanol process, it will remove organic solids from the thin

stillage, leaving water that is clean enough to be used again, reducing water use by 75 percent. The company says to create 2.8 gallons of ethanol, the process uses only 2.1 gallons of water. In addition, one bushel of corn will result in 13.5 pounds of distillers grains and 3.5 pounds of the coproduct coming from the thin stillage treatment. That coproduct could be used as a meat substitute for human consumption in some settings, but Biodynamics will use it as animal feed.

In Courtland, Wis., Didion Ethanol began an $11 million project to save energy by increasing the efficiency of its evaporators and dryers, said Chad Carter, plant controller. The energy efficiency project at Didion includes four dryer projects and two evaporator projects.

The company is adding corn oil extraction to reduce the load on the dryers, meaning distillers grains can be dried more efficiently and with less energy. Didion will also add two centrifuges and a second whole stillage tank and upgrade the conveyor system. This will allow stockpiling of stillage so it can be fed into the dryer at 100 percent capacity, Carter explained. By adding fermentation capacity, the company hopes to increase the amount of corn solids being turned into ethanol by 3.8 to 5 percent, while also reducing the load on the dyers.

Finally, the company will optimize the dryer’s fluid bed by re-piping and re-engineering it so it is fed just enough air to function properly. On the evaporation side, Didion will add a fourth evaporator to lower overall temperatures and reduce energy use. Finally, Didion will replace the liquid jet eductor in the evaporator with a liquid ring vacuum pump that will cut energy use in half.

—Holly Jessen

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37

E85 funding spreads nationwide The availability of funding for ethanol infrastructure is aiding the growth of ethanol-compatible blender facilities across the U.S. But, while most states and development groups accept anything they can get, some have chosen to decline the funding.

In February, the Southern California Association of Governments turned down an $11 million federal grant for ethanol fueling station expansion. The decision by SCAG came before the final rule for the renewable fuels standard was announced in mid-February. Noting the difficulties in understanding the benefits of ethanol blending terminals in California, Debbie Cook, a former SCAG committee member, spoke out in opposition to accepting the funding. “You have to consider carbon emissions in your land use, you have to consider everything,” Cook said.

“That is something that has not been done by the boosters of ethanol.”

The funding, which was intended for 55 new ethanol fuel stations, was sponsored by the U.S. DOE. Paul Wuebben, clean fuels officer for the South Coast Air Quality Management District, spoke in favor of the funding. “[Ethanol’s] wider use would reduce dependence on gasoline and remove pollutants from the air,” Wuebben said. Another member of the AQMP, assistant deputy executive officer Henry Hogo, said the group did consider everything in its research, adding, “Ethanol in terms of E85, we feel, has benefits to Southern California and the environment.”

In the end, the decision to refuse the grant was made by the community members making up the SCAG committee. After questioning the possibility of cellulosic ethanol, Cook added, “We make amazing assumptions about areas we are really not well informed on. We understand things a mile wide and an

inch deep. We can’t possibly know the critical questions that need to be asked.”

Less than a week after the SCAG decision, Propel Fuels announced it has raised $20 million in equity funding for E85 infrastructure expansion, while DMC Green Inc. announced it has received two DOE grants to do the same. Matt Horton, CEO of Propel Fuels, called SCAG’s decision to decline the funding for fueling station expansions disappointing. Through the equity funding, Propel plans on adding to five existing E85 stations while hiring 35 people at its headquarters in Sacramento. “Our success in Sacramento has shown us that despite what some government officials believe, consumers and fleets do want this fuel now.”

In agreement with Horton, F. Kent Leacock, director of corporate and regulatory affairs for DMC Green, also said the SCAG decision was disappointing. DMC Green had

During a recent promotion, Propel offered E85 for 85 cents per gallon to attract flex-fuel vehicles and promote the growing demand for ethanol blended fuel.

also applied for funding from the rejected grant, and Leacock spoke about the SCAG decision, noting that infrastructure construction for corn-based ethanol will be a proactive step to benefit cellulosic ethanol in the future.

“There will be no way to sell the fuels if you don’t build the infrastructure,” Leacock said.

Like Propel Fuels and DMC Green, an ethanol development group based in Florida had no reservations about accepting DOE funds for ethanol fuel station expansion. Protec Fuels will put in 30 new fueling stations across Florida, Georgia and Alabama. In a partnership with Urbieta Oil, Renewable Fuels Association, U.S. Clean Cities Coalitions and General Motors, the goal for Protec is to place the stations into the highest use areas.

“Just because there are a lot of flex-fuel vehicles in one area, doesn’t mean we will put a blending facility there,” said Todd Garner, managing partner for Protec. Starting with the number of flex-fuel vehicles located in the vicinity of each proposed site, Garner said information regarding the presence of corpo-

rate fleets, military vehicles and the distance between those vehicles and the proposed site also help determine where to construct a station. Because of the research performed before applying for grant money, Garner believes Protec can be more successful in receiving the funding and better situated to help a fueling station succeed. “Our success rates at our stations average more gallons of E85 than any other stations in the nation,” said Garner.

In South Dakota, motorists will have more choice at the pump as well. After Gov. Mike Rounds signed House Bill 1192 into law, South Dakota will use $1 million in federal funds for the installation of ethanol blender pumps. “We support maximum consumer choice at the pump,” said Brian Jennings, executive vice president of the American Coalition for Ethanol, “and this legislation will make it easier for South Dakota fuel marketers to add more renewable fuel choices for their customers.”

—Luke Geiver

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Oil groups challenge retroactive RFS2 in court Two associations representing the petroleum industry filed petitions for review with the U.S. Court of Appeals for the District of Columbia on March 29. The National Petrochemical & Refiners Association and American Petroleum Institute are challenging the U.S. EPA’s Renewable Fuel Standard 2 final rule. “The petition NPRA filed today does not challenge the overall RFS2 program and does not call into question the important role renewable fuels play in our nation’s transportation fuel mix,” said Charles T. Drevna, NPRA president. “Rather, our concern is with the unreasonable retroactive application of certain provisions of the rule and fundamental fairness in the implementation of policy.

Likewise, API said it supports a “realistic and workable” renewable fuel standard. “While the U.S. oil and natural gas industry recognizes and appreciates the role of ethanol and other biofuels in the fuel marketplace, we are deeply concerned that the Environmental Protection Agency’s final RFS2 rule could result in higher consumer costs,” the organization said. “By setting retroactive requirements, refiners, and ultimately consumers, will be penalized for EPA’s inability to get this rule out on time as directed by Congress.”

Both groups also said the EPA missed important Congressional deadlines. According to NPRA, the EPA was required by the Energy Independence and Security Act of 2007 to finalize certain RFS2 standards in 2008 and 2009 and failed to do so. Instead, the organization said, the EPA is “retroactively and unlawfully” imposing RFS2 compliance on obligated parties.

API used similar language in its press release. “We believe this rule unlawful and unfair, and we filed a petition for review in the U.S. Court of Appeals for the District of Columbia to challenge the legality of EPA’s actions. EPA made the rule effective on July 1, while setting unreasonable mandates on refiners that reach back to 2009 for bio-based diesel and to January 1 for the other advanced biofuels.”

These lawsuits are only two of several lawsuits filed recently against EPA. In February, Texas, Alabama and Virginia were the first to challenge the EPA on its endangerment finding on greenhouse gas (GHG) emissions. At the end of March, 16 states and 21 industry groups had filed petitions to join that legal battle. Nebraska, Florida, Hawaii, Indiana, Kentucky, Louisiana, Mississippi, North Dakota, Oklahoma, South Carolina, South Dakota and Utah filed a joint petition and Alaska and Michigan filed individual

claims. Alaska Attorney General Dan Sullivan said the state wasn’t challenging the climate change science. Instead, Alaska signed the petition to challenge what the EPA considers as its authority under the Clean Air Act. Alaska has been challenging the EPA’s authority to regulate GHGs since 2003, he said.

Only 15 states have not joined the lawsuit by filing petitions.

However, with a coalition of 16 state and local associations, plus five national industry associations, filing a joint petition, Nevada, Missouri and Montana are the only states not somehow involved in the lawsuit against the EPA. The additional petitions will be reviewed and consolidated before the appeals court considers the case. The EPA has continued to assert its right to regulate emissions under the Clean Air Act and many believe the lawsuits will be thrown out. The agency won’t regulate emissions from stationary sources such as those used in the ethanol industry until 2011 but, at the end of March, was expected to issue its final tailpipe rule and the final decision on GHG emission regulations soon after.

In support of the EPA, the environmental protection departments in Minnesota and Pennsylvania have filed a joint petition, which joined similar ones filed earlier this year by Arizona, Cali-

ETHANOL PRODUCER MAGAZINE • May 2010

fornia, Connecticut, Delaware, Iowa, Illinois, Maine, Maryland, Massachusetts, New Hampshire, New Mexico, New York, Oregon, Rhode Island, Vermont and Washington.

Lawmakers in both the House of Representatives and the Senate have also joined the fight. Resolutions to repeal the EPA’s endangerment finding were introduced by Sen. Lisa Murkowski, R-Alaska, in the Senate in January and Reps. Ike Skelton, D-Mo.; Collin Peterson, D-Minn.; and Jo Ann Emerson, R-Mo., followed suit with a similar disapproval resolution at the end of February.

The EPA is using the Clean Air Act to regulate GHGs without seeking approval from Congress, Peterson said. “Energy issues should be addressed by elected officials, not the EPA. We need to stop the EPA in its tracks on this and prevent them from simply imposing these over-reaching regulations on all of us,” he said. According to Skelton, the joint resolution would not stop Congress from working on energy legislation. “I do hope it will set aside cap and trade in favor of a more scaled back bipartisan bill,” he continued. “My resolution does, however, keep EPA from threatening Congress with its own GHG policy as we write legislation.”

—Holly Jessen

41

REGULATION

42

ETHANOL PRODUCER MAGAZINE

May 2010

REGULATION

New System, New Start

For All Things RIN

With all the changes to the renewable identification number (RIN) system, many have been scrambling to understand and comply.

By Luke Geiver and Holly Jessen

ETHANOL PRODUCER MAGAZINE

May 2010

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REGULATION

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he countdown continues to July 1—the date when the “currency of compliance” for the revised renewable fuels standard (RFS2) switches to a new system. As part of the final rule for RFS2 issued in early February, the U.S. EPA will institute a new accounting system for the generation, sale, purchase, separation or retirement of all RINs. After an extensive review process that lasted more than eight months, the EPA created a closed system that will more closely monitor all things RIN. The biggest change to the process, the EPA Moderated Transaction System, will take effect in July, but there are many other changes to know.

Expanded from one fuel type in the first standard, RFS2 now includes four classifications of fuel as defined in the 2007 Energy Independence and Security Act. EPA is referring to the new RINs types as CBAR, an acronym for cellulosic, biomass-based diesel, advanced biofuels and renewable fuel, which will now be indicated in the 38-digit identification number.

Prior to July 1, the RIN number would define the fuel as cellulosic (1) or noncellulosic (2) in origin. The fuel definition code in the 22nd spot in the 38-digit number will expand to one of five new classification numbers. Using the CBAR definitions, a number is assigned to each letter. The C for cellulosic ethanol will equal a 3 in the code, a B will equal a 4 and so on. The number 7 in the 22nd spot of the code is assigned to cellulosic biodiesel, a new fuel type under development since EISA was enacted.

Although the lengthy code still exists under RINs2, the task of generating the number is shifting from being the producer’s role to the EPA’s. A major weakness of the first RINs system was its susceptibility to human error that often resulted in RINs with extra numbers, duplicated codes, or production information that didn’t match the RINs. Now,

RINs codes will be generated and monitored by the EPA via the Webbased EMTS. The first step for RFS2 compliance is to register, even if an ethanol producer was registered under RFS1.

During an informational session on RINs accounting, Tony Miller, an EPA chemical engineer, stressed the importance of registering with the Central Data Exchange as a “submitter” within the QTAGReg system.

The program type—gasoline, diesel or renewable fuel—is indicated along with expected business activities such as RIN generator or owner, refiner, importer, exporter, pipeline/ pass through terminal, mobile facility, small refiner, oxygenate blender, truck loading terminal, independent lab, renewable diesel, small blender, transmix and finally, nonrenewable fuels importer. Plant information is included in the initial registration including the selection of all processes performed at the facility.

To generate RINs on the Web site, the registered user has numerous options, two of which Miller believes will be the easiest and most efficient for most. One option, Miller notes, is the wizard, a step-by-step process asking the user for information on a single batch of transactions including RIN year, fuel code, reason code, trading partner, assignment code and transaction code. The second option for generating RINS allows a user to submit a larger batch of transactions.

For example, if a producer completes 10 RINs-generating transactions in one day, the producer can combine all that information into one template for submission.

Regardless of the approach taken by the submitter, the EPA provides the template for submitting information on its Web site. The Excel spreadsheet can be used to generate RINs for buying, selling, generating, separating or retiring. An EMTS conversion tool is also available on the Web site to convert the spreadsheet

ETHANOL PRODUCER MAGAZINE

May 2010

REGULATION

RINs Under Cover As of July 1, ethanol producers will no longer be assigning the 38-digit renewable identification numbers used to verify compliance with the renewable fuels standard. RINs are not going away, however, just under cover. The EPA Moderated Transaction System is EPA’s online tool that will assign the RIN and be used to track transations. Under RFS2, each batch RIN generated will continue to uniquely identify not only a specific batch of renewable fuel, but also every gallon RIN assigned to that batch.

The RIN will continue to be defined as follows: RIN: KYYYYCCCCFFFFFBBBBBRRDSSSSSSSSEEEEEEEE Where K = Code distinguishing assigned RINs from separated RINs SOURCE: EPA, PREAMBLE TO THE RFS2 FINAL RULE

YYYY = Calendar year of production or import CCCC = Company ID FFFFF = Facility ID BBBBB = Batch number RR = Code identifying the Equivalence Value D = Code identifying the renewable fuel category SSSSSSSS = Start of RIN block EEEEEEEE = End of RIN block

to XML format for uploading to the EMTS. One strength of the new system is that RINs transactions with incorrect data will not be accepted into the database. In addition, both the buyer and seller must confirm a transaction within five days or it will be rejected.

EMTS will notify parties if a submission failed, a trade has expired, or a trade has been denied. In the new system, the validity of RINs can be determined with the click of a button.

To aid in the process of information input and reduce errors, the EPA has also developed a checklist for users as they navigate the system.

Too Early to Tell With a major overhaul in the reporting mechanism and new complexities to navigate, the jury is still out among the ethanol industry. Kelly O’Farrell, supervisor of the accounting and auditing department at Christianson Associates, says she has talked to a few ethanol producers who have Kelly O’Farrell supervisor tested the new accounting and Web-based sys- auditing, tem. It’s too early Christianson Associates

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May 2010

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REGULATION

R

to tell, she says, whether it will really would be extended. Price differences be a big improvement over RINs1. won’t stop with that example, he sug“They don’t believe it’s a time saving gests. “Each market is going to functhing but it’s a quality improvement,” tion and have its own unique price as she says. a result.”

“I think that most Engineering market participants find Reviews Required the program to be comSeparate from the deplex and burdensome,” tails of RINs, but equally says Graham Noyes, RINs important, is a new respecialist at Stoel Rives quirement for third-party LLP. Noyes believes the engineering reviews as required verification of a David Steiner part of the registration transaction within a five- ethanol broker, process. The engineering day period is a key issue Blue Ocean reviews will verify a plant’s that will need to be field Brokerage production is classified in tested. “To be fair, the EPA the proper CBAR category, was handed this by Congress and it was not a simple system and in the case of grandfathered ethanol plants, verify that the plant has to set up for anyone,” he added.

O’Farrell reports that one fre- not recently expanded its capacity. quently raised complaint is that the Any capacity expansion initiated after EPA is asking for pricing informa- December 2007, the date of EISA’s tion, something that ethanol produc- enactment, is not grandfathered in, ers didn’t have to disclose in the past. and must meet the 20 percent greenMany of her customers are question- house gas reduction target for renewing why per-gallon and RIN-transac- able fuels.

The engineer completing the retion prices are now reported.

RINs pricing is likely to change view must be a professional chemical drastically under the new system. Da- engineer licensed through a regulavid Steiner of Blue Ocean Brokerage tory state agency. In addition to regLLC points out that under RINs1, istering as an EMTS user early, Miller ethanol and biodiesel RINs were emphasized the engineering review is interchangeable. Obligated parties also a task that should be completed could purchase either type. Now, with early as only the EPA will determine four RINs types, cellulosic, biomass- when the review is complete. Noyes based diesel, advanced biofuels and says the reviews are only just getting renewable fuel, four distinct markets, started as both engineering firms and each with its own pricing relation- producers are still determining how ships, are created. “We’ll probably to do them. “It is a significant expensee less linkage between the different diture, and there will be even more RINs markets,” he adds. For exam- challenges and costs for those pursuple, there was a big spread between ing new fuel pathways,” he adds.

Ethanol plants grandfathered in biodiesel and ethanol RINS in early 2010. By mid-March biodiesel RINs to the RFS2 will have an additional had traded for 19 cents or even as six months to submit an engineering high as 37 or 39 cents per gallon and review. “This will direct the focus of ethanol RINs were only at 3.5 to 4 engineering review resources on procents, Steiner says. That situation was ducers of advanced, cellulosic and created by the demand for biodiesel biomass-based diesel,” the preamble RINs since not as much biodiesel was to the RFS2 final rule says. “EPA blended in early 2010 as producers fully expects these producers of adwaited to hear whether the tax credit vanced renewable fuels to meet the

ETHANOL PRODUCER MAGAZINE

May 2010

REGULATION

engineering review requirement; however, if they are having difficulties producing engineer’s reports prior to April 1, we ask that they contact us.”

Beth Hilbourn, senior consultant at Turner, Mason & Co., says the company is preparing to conduct engineering reviews and verifications. However, like many others, Turner, Mason & Co. still has questions on what the EPA expects. Ethanol producers are calling the company, most saying they’re reading and trying to understand the regulations but “waiting to react” until they have more information. “It’s pretty onerous for these companies,” she says.

Unchanged Elements With all the functions the EMTS performs, there are some aspects the system will not cover. The new system will not replace quarterly reporting. Also, the system will not generate product transfer documents or satisfy all recordkeeping needs. And, annual attestations will still be required from an independent auditor. “PTD (product transfer documents) processes will have to get much more efficient,” Noyes says, noting that many market participants will decide to use other third-party service providers to enable quicker compliance.

Other elements of RINs accounting did not change.

The equivalence values attributed to each fuel type are the same. However, the EPA did reassign the Btu value of ethanol used as the baseline to 77,000 Btu per gallon from 77,750 Btu per gallon.

With the clock ticking down to the RINs2 EMTS, in mid-March many producers had yet to start testing the new EPA system. “This will be very clunky initially as everyone gets used to the new requirements,” Noyes says. “It will be particularly interesting to see how the new categories of RINs are traded and valued in the market.”

The EPA offers a number of resources for help on the registration process or clarification on regulations.

To view informational tutorials, a list of frequently asked questions, or to download the conversion tool, go to: http://www.epa.gov/otaq/fuels/renewablefuels/epamts.htm. To speak with a technical support staff member email emts-testing@pqa.com or call (800) 3856164. For questions or concerns regarding regulatory or registration issues email EPAFuelsPrograms@epa.gov or call (202) 343-9755. EP Luke Geiver and Holly Jessen are associate editors of Ethanol Producer Magazine. Reach Geiver at (701) 738-4944 or lgeiver@bbiinternational.com and Jessen at (701) 7384946 or hjessen@bbiinternational.com.

ETHANOL PRODUCER MAGAZINE

May 2010

4C3: B63 4CBC@3 Biofuels Operations

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EVENT

2010 FEW Preview In June, the International Fuel Ethanol Workshop & Expo (FEW) returns to St. Louis, where its rich tradition of linking industry and innovation was born 26 years ago.

By Holly Jessen

The St. Louis Gateway Arch can be seen from the Kiener Plaza, which includes a fountain and a statue known as “The Runner.”

PHOTO: ST. LOUIS CONVENTION & VISITORS

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s the ethanol industry shakes off 2009 and builds positive momentum in early 2010, enthusiasm is building. Existing producers are making money again, new products are springing back to life and registrations for the 26th annual International Fuel Ethanol Workshop & Expo are up. By mid-March twice as many people had registered for the event as had at the same time last year. In fact, BBI International is conservatively estimating 2,500 attendees at this year’s event, a 25 percent increase over 2009.

Wes Bolsen of Coskata, a speaker and past attendee, calls FEW one of the “must attend” events of the year. He highly recommends it to people because they can listen to leading industry experts as well as network with technology providers—all in one location. “There are a lot of conferences pulling on producers' and prospective producers’ attention,” Bolsen tells EPM. “This event allows all of the leaders in the industry to come together and truly move projects forward.”

The FEW will be held June 14-17 at the America’s Center Convention Center in downtown St. Louis, drawing people from

more than 30 countries and from nearly every ethanol plant in the United States and Canada.

Aside from a full agenda of speakers, FEW will benefit from the most-widely attended expo in the business—with about 350 FEW exhibitors expected this year.

FEW is, and always will be, a conference tailored for ethanol producers. Two free, fullaccess passes will be again given to every under construction and operating ethanol plant in North America, meaning hundreds of plant employees, executives and board members will be at the event.

This year’s FEW will feature more than 120 speakers addressing topics attendees want and need to hear about. There’s something to interest everyone, from speakers and panels looking at “the big picture” during the general session to the concurrent tracks grouped into five topics: production and operations, management and business, cellulosic ethanol, distillers grains and coproducts, plus energy, carbon and environment. A steering committee of nearly 40 industry professionals reviewed and rated hundreds of presentation abstracts, helping the EPM staff hone in on the most timely and relevant subject matter as the pro-

gram was crafted. The result is one of the FEW’s most diversified and useful programs to date. A sampling of some of the many program speakers follows:

Timely Topics Britta Bergland, a senior analyst for Merjent, will speak about restarting a mothballed facility. After a difficult year for the biofuels industry, Merjent has been working with companies that shuttered their plants due to market conditions and now want to dust off the cobwebs and begin producing again, she says.

Bergland will use her background in permitting and compliance to give listeners a checklist approach to environmental, health, safety and security issues that need to be addressed. Some plants are facing a steep learning curve as the employees who previously managed environmental compliance issues were laid off and moved on to other jobs, she says. Merjent has been working with companies on issues such as employee training or retraining and review and revision of written plans. Also, ethanol plants that have been idled must make the necessary start-up notifications to relevant regulatory agencies, she says.

Ethan Solomon, a research scientist at DuPont Biofuels, will tackle the topic of bacterial control. Present in all ethanol feedstocks, bacteria can make fermentation less profitable by competing with yeasts and producing ethanol-inhibiting acids. “Most ethanol plants experience bacterial contamination ‘upsets’ a number of times per year,” he says. Solomon’s presentation will include case studies, the current science on bacteria, and the benefits and drawbacks to various strategies for controlling bacteria. “This session is a must for attendees who wish to maximize their ethanol yields and gain a better understanding of the origins and prevention of bacterial contamination,” he says. “As ethanol yield and efficiency becomes the biggest differentiator between a plant that is operating profitably and one that is not, one of the most controllable factors impacting yield is bacterial contamination.”

For those interested in coproducts, Michael Regier, technical director for Cereal Process Technologies, will talk about what he refers to as a “required mindset change to that of an agricultural processing plant, rather than only a fuel ethanol plant.” A plant that adds fractionation can diversify its revenue streams

PHOTO: NATIONAL CORN-TO-ETHANOL RESEARCH CENTER

EVENT

The National Corn-to-Ethanol Research Center, one of the tour locations, is located on the campus of Southern Illinois University Edwardsville, 20 miles from downtown St. Louis.

into various markets. Because the process is flexible, he adds, an ethanol plant can take advantage of market fluctuations. Regier will also discuss using fractionation to reduce a plant’s greenhouse gas (GHG) emissions. With the requirements in the renewable fuel standard and California’s low carbon fuel standard, this is a

topic of utmost importance, he says. “I think fractionation is something all plants should focus on for its effect on ethanol plant efficiency, ability to generate new (more valuable) and more consistent coproducts, reduce water use, and reduce greenhouse gas emissions.”

Though corn-based ethanol production

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PHOTO: ST. LOUIS CONVENTION & VISITORS

EVENT

Anheuser-Busch Inc.'s symbolic eagle stands guard outside the company's historic St. Louis Brew House. A special event is planned for June 16 at the brewery.

remains the focus of this year’s event, cellulosic ethanol will be an important topic as well. Bolsen, chief marketing officer and vice president of government affairs for Coskata,

will combine the two topics by speaking about co-locating cellulosic ethanol production with an existing corn ethanol plant. Creating a biorefinery will help ethanol plants reduce produc-

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tion costs, enable maximum efficiency and reduce GHG emissions. “The idea is not to replace or retrofit the existing asset, it is to utilize available synergies between the base level corn ethanol facility and a new cellulosic biorefinery,” he says. Coskata has a process in which corn fiber, stover and cobs as well as other non-grain cellulose goes through a gasifier at the front end. That gasifier creates steam, which can replace a large portion of natural gas used at that plant.

Coskota’s process is efficient, affordable and flexible, Bolsen says. “We believe there is a lot of promise in making plants biorefineries and we are already seeing movement in that direction,” he adds.

Speaker Cole Gustafson of North Dakota State University will share details on a collaboration with Green Vision Group and Heartland Renewable Energy that aims to establish five 20 MMgy biofuel plants in North Dakota. As the leading producer of sugar beets, the state is the perfect place for sugar beet-to-ethanol production, Gustafson says. An economic feasibility study put the cost per gallon at $1.57.

“Sugar beets used for food consumption is a high-value crop,” he says. “However, we are looking to develop energy beets that have different product characteristics. High grade sugar for crystallization is not needed for biofuel production.” NDSU researchers have been studying energy beets to support development of the industry. Four years of energy beet trials show dry land beet yields average 30 tons per acre while irrigated beets approach 40 tons per acre. The university is currently planning a third study to evaluate storage and transportation of energy beets.

“The project has a goal of extending beet juice shelf life so biofuel could be produced year around, unlike sugar beets for sugar which is highly seasonal,” he says. “Extending the production season would more fully utilize fixed plant investment and lower final production costs.”

402.889.4300

For the third year, the Advanced Biofuels Workshop will be co-located with FEW. For those interested in learning more about other emerging fuels—from biomass-based ethanol and biobutanol to biodiesel and green diesel—this is the place to be. The ETHANOL PRODUCER MAGAZINE

May 2010

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The 2010 Kathy Bryan Memorial Scholarship program will award $2,000 educational scholarships to selected individuals interested in educational paths that will enhance Bryan’s vision of stronger rural community, prosperous agriculture and environmental stewardship. The grants are open to employees of ethanol plants and members of their immediate families. Applications can be found at www.fuelethanolworkshop.com. Deadline is May 7. Bryan was cofounder of BBI International, sponsor of FEW and Ethanol Producer Magazine.

participants in the National DDGS Library.

That number has grown to more than 120.

Other additions include vent condensers on all fermenters, a state-of-the-art dry feed mixing system for coproduct studies and a distributed control system for data collection.

FEW also provides opportunities to network and renew relationships with friends and business associates. Those who enjoy doing so on a golf course should plan to come a day early for the annual golf tournament at Gateway National Course. For those not attending the Advanced Biofuels Workshop, golfing, or setting up an exhibit at the expo, FEW gets underway with a Monday evening expo grand opening and welcome reception.

This year’s special event is a visit to Anheuser-Busch brewery for a casual and fun evening of exploration and networking June 16.

Attendees can trace the origins of the company in both the Budweiser and Bud Light museums and visit the malt, hops and barley houses.

The tour also offers a chance to sample more than 24 varieties of draught beer and take a pic-

workshop starts June 14, the day before FEW kicks off. The event will include all the perks of a full conference with the convenience of a one-day workshop.

A tour of the National Corn-to-Ethanol Research Center, located just 20 miles from downtown St. Louis, is scheduled June 17, the last day of the event. NCERC has the only facility in the world with analytical and fermentation laboratories, a pilot plant and a workforce training program all in the same location, according to John Caupert, facility director. “The NCERC truly is unique in the fact that it is the one public entity in which academia, government, industry and trade associations all come together to facilitate commercialization of new biofuels technologies,” he tells EPM. Some FEW attendees will remember touring NCERC during FEW 2007. However, Caupert points out that in the past three years there have been many changes to the facility. For example, at that time only about 10 ethanol plants were ETHANOL PRODUCER MAGAZINE

May 2010

ture with the famous Clydesdale horses at the Budweiser Clydesdale Stable. Space is limited to 750 guests, who must be registered FEW attendees.

In addition to workshops, tours and networking, FEW has taken a moment every year to recognize individuals. The Award of Excellence will be given to an industry professional who has made major technological or scientific contributions to the industry and the High Octane Award will be given to someone who has made a contribution to help the industry mature over the years. New this year is at least one academic scholarship, which will be presented in the name of Kathy Bryan, past president of BBI International, who succumbed to cancer last summer, just weeks after the 25th FEW. For more information about FEW and the Advanced Biofuels Workshop, or to register, go to www.fuelethanolworkshop.com. EP Holly Jessen is associate editor of Ethanol Producer Magazine. Reach her at (701) 7384946 or hjessen@bbiinternational.com.

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ENERGY

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ETHANOL PRODUCER MAGAZINE

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ENERGY

Cleening the Way to Energy Savings

Using a dry ice blasting process, Freez-it-Cleen has saved ethanol plants an estimated $3 million in natural gas costs since 2008.

By Holly Jessen

A Freez-it-Cleen operator uses dry ice to clean inside an ethanol plantâ&#x20AC;&#x2122;s thermal oxidizer.

PHOTO: FREEZ-IT-CLEEN

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ENERGY

I

n an effort to save energy, an ethanol plant could install new, more efficient equipment. One company in Cedar, Minn., has a different idea. By cleaning the equipment ethanol plants have already, Alternative Methods Inc.’s Freez-it-Cleen service offers substantial energy savings without a big price tag.

Bushmills ethanol plant in Atwater, Minn., schedules a cleaning with Freez-it-Cleen during every six-month maintenance shutdown. Freez-it-Cleen uses its patent-pending cryogenic processing to scour the built up gunk off the ethanol plant’s economizer and boiler tubes—helping the plant run more efficiently with less energy. “Basically the payback is just about instant,” says Art Lange, maintenance manager at Bushmills.

Over time, a plant’s boiler tubes become fouled with corn distiller’s grains, dried ash and refractory, explains Kelly Brannick, president of Alternative Methods. This, in effect, insulates the tubes and reduces the efficiency of steam generation. “What happens is they have to turn up the natural gas so they can create steam,” he says. And, as the energy used goes up, so does the emission output. Besides cleaning boilers at ethanol plants, the process can also be used on centrifuge bowls, oil separators and even grain receiving and load-out buildings, he says.

By the Numbers A 2008 study at a 50 MMgy Minnesota ethanol plant shows what the company can do in terms of saving energy. Minnesota

Technical Assistance Program part of the University of Minnesota, analyzed boiler efficiency at Granite Falls Energy after two separate cleanings in April and October. The study concluded that had the cleaning not been done, the ethanol plant would have paid out, in total, approximately $150,750 in additional fuel costs due to decreased efficiency of its boilers. “We recommend that Granite Falls Energy clean the boiler tubes and economizer every six months,” said Shaina Brown, MnTAP engineer, in a letter to the Granite Falls maintenance manager. The study also suggested that, besides saving energy, a cleaning every six months could reduce the load on the boilers. At the beginning of the study, Granite Fall’s boiler efficiency was calculated at 83.4 percent which increased 0.8 percent to 84.6 percent after the first cleaning. If the cleaning had not been completed at that time, the study said, boiler efficiency would have dropped 1 percent over the next six months. Instead, before the October cleaning, boiler efficiency had only dropped 0.4 percent. After the second cleaning, boiler efficiency was at 84.3 percent, nearly a percent higher than one year earlier, when the study started.

For the study, MnTAP estimated natural gas costs a $1 per therm, based on the average cost at that time. Even with today’s lower natural gas prices, ethanol plants will see a return, Brannick says. Cleaning a thermal oxidizer at a 50 MMgy plant typically costs around $20,000 or less, depending on whether the equipment has been cleaned before. According to the study, Granite Falls, a 50 MMgy plant, saved an estimated $70,762 in

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PHOTO: FREEZ-IT-CLEEN

ENERGY

These before-and-after photos show the dramatic difference the Freez-it-Cleen process can make in an ethanol plant's economizer tubes.

natural gas costs after just one cleaning, showing an obvious payback. For larger, 100 MMgy plants, some upfront costs can be avoided with the second thermal oxidizer, Brannick adds, bringing the Freez-it-Cleen charges to about $36,000 for cleaning two units at one plant .

ETHANOL PRODUCER MAGAZINE

May 2010

Besides saving natural gas, the Freez-it-Cleen treatment can also help drop stack temperature, which, in turn, decreases the emission of pollutants, Brannick says. At the Granite Falls plant, stack temperature was decreased by 32 degrees during the study. While the average decrease is about 40 degrees, one

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The Freez-it-Cleen process can also be used to clean dust out of buildings and even the pits and tunnels where distillers grains or grain are stored.

ethanol plant saw a dramatic 180 degree decrease following cleaning to 200 degrees, down from the 380 degree stack temperature it had been recording for about a month. “Stack temperature is a real good indicator that they have a problem,” he says.

Another benefit of clean equipment is extended lifespan. As the tubes are fouled they can overheat and start to warp or crack, which of course, generally happens in the middle, where the broken part has to be cut out and welded to fix. Some of Brannick’s customers have had to replace broken equipment in the past but hope never to do so again, Brannick says. MnTAP saw that potential as well. “The scope of this project did not include the costs and savings associated with long term improved performance and longer equip-

ment life,” Brown commented, “but it is worth considering as another benefit of the cleaning.”

Getting Started Brannick hasn't always worked with dry ice. For 17 years he was in the aluminum die cast industry, which he described as brutal and dirty. Part of his job was purchasing needed equipment.

Eventually, he started researching ways for the company to keep it clean. “It bothered me that all this nice equipment that I’d buy for 50, 60, $70,000 would get so dirty,” he tells EPM. At first, he used high pressure steam and water, but that damaged electrical components. Eventually he hit upon using dry ice, which leaves no residue and doesn’t result in a waste stream.

However, the company didn’t want to

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ENERGY

buy the needed equipment or pay employees to do the cleaning, so Brannick started his own side business. By 2004 he quit his job to pursue it full time. “I got a lot of inquiries,” he says.

“At the time I started [the company], ethanol was not even on my radar screen,” Brannick says. Although Freez-it-Clean has other customers, ethanol jobs now make up 80 percent of the workload. In the spring of 2008, the company cleaned three thermal oxidizers. By last fall that number had jumped to 32.

He first noticed ethanol plants during trips from Minnesota to Sioux Falls, S.D. Brannick often traveled that route on the way to and from jobs, visiting family or on pheasant hunting trips.

Along the way, over and over, he saw at least three ethanol plants. “I always thought, ‘They’ve got to have something I can clean,’” he told EPM. It wasn’t until 2006 when Brannick started visiting ethanol plants and doing small cleaning jobs. A year later he was asked by Bushmill ethanol to clean its clean boiler tubes and thermal oxidizer and its stack economizer coils.

“Like any good salesman, I said I could do it,” he says.

Once he looked a little closer, he realized it was going to be a tough job.

The issue is, he says, boilers are made up of a tight bundle of tubes, about 8 feet by 10 feet and 12 feet tall. Brannick worked with some of his associates to come up with a “funky tool” that could clean around all those tubes. It’s a time consuming process that Freez-it-Cleen has perfected though trial and error.

The first tools were made out of aluminum and were basically destroyed by the end of the third job. So, four new tools were designed, this time formed out of stainless steel and not welded.

The next step will be to make the tools out of titanium. The company has also worked to decrease the time it takes to complete each job. Today, Brannick says, a single thermal oxidizer can be cleaned in about 10 to 12 hours—14

ETHANOL PRODUCER MAGAZINE

if it has never been cleaned before. “That first job we worked 14 hours the first day and 10 hours the second day,” he says with a laugh.

More to Clean Just this spring, Freez-it-Cleen began a new project often requested by ethanol plants to clean the pits used in handling grain and distillers grains. With the EPA cracking down on the allowable amount of dust and the threat of fines for companies that don’t comply, this is a concern.

“It’s a high risk explosion area and they become very moldy,” he tells EPM. Until now, the company hasn’t been able to tackle this type of cleaning project due to safety concerns. The CO2, or dry ice, pushes out air, leaving crews without breathing air, he explains. So, Brannick partnered with Glacier Technology of Plymouth, Minn., to build a ventilation system. In late February, Freez-it-Cleen

May 2010

tested the new system at the Hawkeye Renewables plant in Iowa Falls, Iowa. The new venting system was used to clean the pits and tunnels under the grain receiving area with dry ice. “It worked as expected or even better than expected,” he told EPM. “The outcome was very good.”

Dry ice will kill existing mold but it will eventually grow back because of the conditions of those areas, Brannick cautions.

He recommends a yearly cleaning, while maintaining basic housekeeping throughout the year. EP Holly Jessen is associate editor of Ethanol Producer Magazine. Reach her at (701) 7384946 or hjessen@bbiinternational.com.

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FEEDSTOCK

Tapping into

BCAP

Traditional and cellulosic ethanol plants can qualify as biomass conversion facilities under the USDA’s Biomass Crop Assistance Program.

By Anna Austin

T

he Biomass Crop Assistance Program final rule will soon be out, and many are anxious to see program adjustments, further clarification on vague components, and an end to the current freeze on program sign ups.

The main impetus in BCAP, which was first introduced to the public in the 2008 Farm Bill, is to assist nonfood biomass crop development. The first part of the program, initiated in June 2009, provides matching payments for collection, harvest, storage and transport (CHST) to eligible material owners who are selling and delivering materials to a qualified biomass conversion facility using the biomass for the production of heat, power, biobased products or biofuels.

Though a coal-fired, cornbased ethanol plant won’t qualify under BCAP, ethanol plants producing heat or power from biomass beyond their historical base line capacity can qualify, as can cellulosic ethanol producers. The process for

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applying for matching CHST funds is relatively simple, but a supplier and a biomass conversion facility must be partnered in order for either to benefit from BCAP.

Basics and Blemishes CHST funds allow matching payments to eligible material owners of one dollar per dollar paid per ton, up to $45 per dry ton, for a period of two years after the first payment is made. As of Feb. 8, the USDA stopped accepting CHST applications, and will not begin accepting them again until the final BCAP rule is in place.

To qualify, a facility must first enter into an agreement with the USDA’s Commodity Credit Corp. and Farm Service Agency, establishing that it is a biomass conversion facility by submitting related forms and documents to the state FSA office for approval. This agreement and CHST qualification will become effective only when the facility and feedstock supplier sign a memorandum of understanding—a contract that says the biomass grower will

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supply the facility with material for conversion into bioenergy, biofuel or bio-products by the facility according to BCAP rules.

Initially, BCAP required biomass purchases to be made only on a dry ton weight basis. The facility was to provide the supplier with a signed scale ticket clearly indicating the actual total tonnage delivered and total dry-weight tonnage equivalent purchased. The USDA reported that many respondents didn’t agree with measuring biomass deliveries moisture levels to meet the dry-ton measurement standard. Currently, the common industry practice is to use green tons, which are generally assumed to possess a moisture level of about 45 percent. It appears the final BCAP rule will be modified to adopt the industry standard.

As the proposed rule currently reads, the biomass conversion facility is required to convert green tons to dry weights. “This requirement may result in the need for facilities like our demonstration facility in Upton, Wyo., to purchase additional equipment or have facility personnel to perform additional tasks,” says Steve Corcoran, CEO of KL Energy Corp. KL Energy operates a qualified cellulosic ethanol demonstration facility, Western Biomass Energy LLC, which utilizes wood waste as a feedstock.

He says he is supportive of the suggested woody biomass sampling methodologies that follow standard probability sampling

of materials, and moisture analysis that follows standard test methods for wood fuels.

Benson, Minn.-based ethanol producer Chippewa Valley Ethanol Co. also disagrees with the dry ton requirement. “There should be some type of allowable moisture to the program and we would certainly support moisture of around 30 percent,” says Chad Friese, CVEC commodities manager and biomass delivery coordinator. CVEC gasifies wood waste and corn cobs for power and steam at its 48 MMgy ethanol plant.

“Forty to 50 percent seems a bit high. We currently have to use a shrink in order to bring the tons in line with the zero moisture, and we’re doing that with a straight moisture correction shrink, not a shrink factor, as no studies that I’m aware of have detailed what a shrink factor would be for biomass,” he says. “Due to the low density and high moisture of biomass products, transportation is one of the biggest costs, so by shrinking excessively, we limit the value that can be offset to transport and reduce the effective draw area of a conversion facility.”

Eligible Materials: Owners and List While facilities work to meet moisture standards, suppliers have their share of requirements in making valid and efficient BCAP transactions. The owners of eligible

materials—defined by USDA as renewable biomass and excluding things such as algae, animal waste, mulch, municipal solid waste or finished wood products—must provide copies of written sales contracts, purchase commitment agreements, or nonbinding letters of intent for eligible material delivery and sale, to the county FSA office before a CHST application is approved. The supplier must also apply for CHST matching payment at the county FSA office before the sale or delivery of the material.

After each eligible material sale and delivery under arms-length sale transactions, an eligible materials supplier then submits a Request for Payment at the FSA county office where the original application was approved. Multiple sales and deliveries can be made under the initial approved CHST matching payment application. Payments will be disbursed after all required documents, including original scale tickets and invoices, are submitted to the county office.

A complete list of eligible and ineligible materials can be found on the USDA Web site, but some adjustments are being made in light of comments on the proposed ruling, including a possible prohibition on wood waste and residues not just on federal land but also nonfederal land that otherwise might be used for higher-value products.

Kent Politsch, public affairs branch chief

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for USDA-FSA, says the prohibition proposal resulted from concerns voiced by segments of the wood industry, specifically the pulp and pressboard/fiberboard manufacturers. “They say that the BCAP collection, harvest, storage and transport matching funds were paying for forest items—chips, bark, excess wood, stumps and limbs that were knocked down in the forest that were generally cleaned up afterward—and therefore directly increasing prices and competition for a market that was already established, mostly the fiberboard industry,” he says. In the case of particleboard makers, CHST funds could essentially double the price paid for materials they utilize in order to maintain their material streams. Politsch said the original intent of Congress allowing wood waste and residues to qualify for CHST funds was to appeal to the wood supply industry to clean up unwanted debris that they assumed had no or little market value. “The fiberboard industry responded by saying that was an incorrect assertion, and that there was already a market value for that stuff,” Politsch says.

Composite Panel Association President Tom Julia says that initially the industry didn’t pick up on the BCAP program’s threat to industry members, as the organization doesn’t typically track things that come out of the USDA. “We support BCAP; it’s a great idea—but not if all that is really going

happen is that you’ll pay companies double for the materials they’re already selling to somebody. There’d be no incentives to go out and develop a new fuel source when someone can get double what they’re getting now by selling it to somebody else.”

Corcoran says though KL Energy doesn’t typically use wood materials used for higher value-added production (for the production of cellulosic ethanol), he believes there needs to be clarification of on what exactly is meant by “higher valueadded production.”

Establishment Payments Beyond CHST payments, there is a second aspect of BCAP funding, which has not yet been initiated, that seeks to facilitate long-term growth of the biomass crop industry. Part two of BCAP, establishment payments, will cover up to 75 percent of the cost of planting eligible woody and non-woody perennial crops, and annual payments for up to 15 years. To be eligible, production activities must take place in designated project areas—areas which may be proposed by conversion facilities or by groups of producers. Qualifying for establishment or annual payments requires a description of the eligible land and crops to be grown, including maps showing current land use, roads, railroads, rivers, barge access, cost of land preparation, and evidence

of a need for sufficient equity. A letter of intent from a biomass conversion facility indicating it intends to utilize the crops must also be provided, as must solid evidence that the biomass conversion facility has enough equity to operate in the future, if it isn’t operational at the time of the proposal.

Although not definitive, BCAP does have an estimated cap. The USDA reported it intends to cap the cost of the BCAP program at $2.6 billion, including $2.1 billion for matching payments for biomass materials over the next four years, $306 million for crop establishment over the next three years, and $219 million for annual payments over the next 17 years.

The public comment period for the proposed ruling ended at the beginning of April, and the final rule should be published this summer. Meanwhile, the USDA is confident the kinks will be worked out in the long term, and that BCAP will fulfill its purpose. “It will take some time, there will be some hills, valleys and bumps in the road,” Politsch says, “(but) it will settle down and be a very successful program.” EP Anna Austin is a BBI International associate editor. Reach her at aaustin@ bbiinternational.com or (701) 738-4968.

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HEDGING. BY RANDY WILSON, BRIAN Oâ&#x20AC;&#x2122;NEAL, EVAN ZUCKERT Contribution

Hedging Renewable Fuels: Managing Risk Without Destroying Value The multiple commodities used in biofuel production introduce complexity and challenges to designing effective hedge programs.

Hedging renewable fuels introduces a strategy and risk management complexity that is unusual even for experienced energy risk management professionals. Ethanol production requires three major commodity inputsâ&#x20AC;&#x201D;corn, dried distillers grain (DDG) and natural gas.

They are each used in varying quantities, purchased and sold in different markets, traded on different exchanges (if at all) and vary in their correlation to each other as well as to related energy commodities (such as

Protecting the Margin For producers, it is important to remember that hedging is about protecting a margin or price spread.

Just like oil refiners or power generators, ethanol producers are in a conversion business where the focus needs to be on the conversion margin and not on the absolute price of the inputs or outputs.

Never consider hedging corn or natural gas purchases without simultaneously hedging ethanol sales (or vice versa). Trying to manage one side of the business will more than likely introduce risk as opposed to mitigating it.

heating oil and gasoline). Plus, when adding in the more macroeconomic factors that influence ethanol margins such as tax incentives, asset valuations and access to capital, the hedging story becomes quite interesting indeed.

The solution to managing through this complexity is to keep the initial hedging approach relatively simple with a program that is both flexible and scalable in terms of transaction volume and complexity.

It is imperative that hedging

decisions are derived from a sound analysis of the companyâ&#x20AC;&#x2122;s financial risk profile and capital resources.

Risk Identification and Measurement To start, identify and quan-

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

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Dynamic Hedging The ability to choose between hedging the corn-to-ethanol spread and not hedging provides companies with significant value. For instance, a company may opportunistically alternate between full-hedge and no-hedge as the spread widens and narrows, thereby capturing multiple price peaks and valleys before the ethanol is actually produced. This ability is often viewed as a spread option in other industries, such as seed oil processing, crude oil refining or electricity generation, and the methods used by those market participants may easily be applied to ethanol refining.

tify all sources of market risk.

Every company’s risk profile will be different based upon assets owned, contracts involving these assets and how they are deployed. If you have not previously hedged much, do not initiate a program by hedging 80 percent of corn purchases, 100 percent of natural gas and 90 percent of expected ethanol production for the next two years. Instead, start with small volumes for shorter durations, perhaps 20-30 percent of anticipated purchases and sales for a period not exceeding the next business cycle or season (six months). This accomplishes two very important things: The impact of hedging on key financial metrics can be assessed without significantly altering the company’s financial position.

It provides time for accounting, tax and credit departments to establish procedures to support the overall hedging effort. Issues around valuation, invoicing and collateral can be worked out on a smaller scale where errors are less likely to be financially material.

Before executing a hedge strategy, back test against historical data by creating a spreadsheet that examines key financial metrics under different hedging scenarios over the past one, three and five years.

While the past will obviously not predict the future, certain factors, such as seasonality or periods of high price volatility should be visible, with the impact on cash flow and returns readily observable. Finally, determine an acceptable amount of market risk, and express it in financial terms that resonate with leaders of the business.

Risk Strategy and Tolerance Use simple hedging instruments that you understand and, more importantly, that achieve the targeted price risk and exposure objectives. Many ethanol producers favor overthe-counter (OTC) swaps, indexed to CBOT ethanol. OTC instruments may not require a company to post margin and the price should correlate well with the physical exchange traded market.

Avoid complex option strategies at the outset. There are many companies willing to sell structured risk management solutions to producers or large consumers that are “designed” to better align with your specific risks. While some of these structures may in fact be effective risk management solutions, we recommend gaining a thorough understanding of simpler financial tools before adding this level of complex-

ETHANOL PRODUCER MAGAZINE

May 2010

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HEDGING. BY RANDY WILSON, BRIAN O’NEAL, EVAN ZUCKERT Steps to Designing Effective Hedging Strategies

Risk Identification and Measurement

Identify and measure commodity risks based on defined qualitative and quantitative metrics.

Risk Stategy and Tolerance

Establish risk mitigation and optimization strategies to treat critical risks in accordance with company tolerances and goals.

Risk Aggregation and Reporting

Develop and implement risk reporting and continuous monitoring programs to oversee risk mitigation and optimization activities.

Risk Govemance

Implement a risk govemance framework consistent with organizational objectives, regulatory guidance, and industry leading practices.

ity. A three-way option strategy with an embedded binary may be the perfect tool, but if one does not have the resources to model or value the instrument, or cannot explain it to owners and management, it probably should be avoided.

municated to all, from the board of directors on down to the accountant settling invoices. A well-written hedge policy should be developed that contains delegation of authority limits and clearly defined responsibilities.

Risk Aggregation and Reporting

Key Communication

Responding to changes in the pricing environment requires being able to accurately calculate and measure net position on a daily or at least weekly basis. Accurate and timely risk reporting is key to monitoring the effectiveness of a hedging program and informing decisions to alter strategies based on market events.

In addition, some simple metrics should be developed to evaluate how the hedging program impacts key financial metrics. “Cash flow at risk” can be a useful tool to assess the potential impact on changes in market prices to the cash flows generated by core operating activities.

Other financial metrics such as gross margin, return on equity or return on capital are likely more actively monitored by management. Advanced financial techniques or complex modeling are not required to develop a simple scorecard to measure the impact of derivative hedge positions on these metrics on a forward looking basis.

Risk Governance Finally, responsibilities for oversight and execution of the hedging program should be clearly documented and com66

In the past few years, investors and other stakeholders have become much more in tune with how a company’s hedging strategy can impact future returns. The ability to effectively communicate the intent behind a hedging program has never been more important. In addition, regulators are requiring increased transparency and better disclosure around how a company uses derivative instruments.

We believe hedging is a value-creating activity, in part because the penalty for getting it wrong can be so great in the form of substantially higher capital cost. However, many companies are still reluctant hedgers for fear that communication gaps with key stakeholders can lead to uncertainty or concern that investors may punish them if they depart from perceived industry norms, or “give away the upside.” There also have been numerous highly publicized incidents of public companies suffering significant losses as the result of poorly designed and executed hedging strategies.

Despite these challenges, companies can still build effective hedging programs.

Successful ones follow a disciplined approach requiring a strong understanding and communication of underlying risks,

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May 2010

relevant hedging strategies, available tools, and associated valuation and reporting requirements. Developing a plan to communicate risk exposure internally and to manage perception and branding risk externally can be a key to successful hedging in the current environment.

Disclosure Although the reasons behind hedging are clear to the company, they are often less transparent to investors and stakeholders. Recent changes to accounting rules and investor communication are now addressing this need for increased transparency. For example, the Statement of Financial Accounting Standard (SFAS) 161 now requires public companies to disclose much greater detail on the objectives for using derivatives, the context needed to understand those objectives, and strategies for achieving them. To be truly transparent, a company should also communicate what its long-term and short-term hedging expectations are, its hedging controls, and the companyâ&#x20AC;&#x2122;s skill set. Most importantly, the company should convey the long-term value of hedging as opposed to quarterly or even annual results that may place an undue focus on temporary market trends at the expense of multiyear risk management goals, metrics and successes.

Capital Constraints Hedging can consume capital in the form of posted collateral, so any hedging program has to be developed in light of potential balance sheet constraints. Since the financial meltdown in late 2008, companies across the energy complex, large and small, must consider the impact of hedging on liquidity and capital resources. As noted above, many ethanol producers prefer to use OTC swaps, as these instruments have historically consumed less capital than futures contracts, which require both upfront and maintenance margining (collateral).

New regulations contemplated by ConETHANOL PRODUCER MAGAZINE

May 2010

gress, and expressed by the Commodity Futures Trading Commission, would require most swap transactions clear through exchanges, resulting in liquidity or collateral requirements similar to exchange-traded futures. Such regulatory changes will require evaluation of the impact from changing commodity values and processing margins in future periods in terms of potential collateral posting and liquidity; and the potential impact of collateral posting on other projects and initiatives that must be funded through scarce capital resources.

The bottom line is that ethanol producers need to consider a wide range of strategy alternatives and design hedging programs which protect working capital while balancing commodity risk management goals.

While hedging renewable fuel exposures can be challenging, companies can develop an effective hedge program by following a disciplined framework, and at the same time provide transparency to stakeholders through a well-thoughtout communication plan. Starting out in hedging with a small volume of simple instruments, in well-developed markets, with relatively short tenors, will allow the organization to adapt financially and operationally. Balance sheet constraints and new derivative disclosure requirements also warrant careful consideration by management before the launch of any new hedging initiative. Once comfortable with your companyâ&#x20AC;&#x2122;s ability to deploy and manage commodity derivatives, more advanced concepts such as margin locks and dynamic hedging programs can be adopted with greater confidence and a lower risk of operational error. EP Randy Wilson, Brian Oâ&#x20AC;&#x2122;Neal and Evan Zuckert are managing directors of Eco Risk Markets LLC. Reach them at info@ ecoriskmarkets.com.

R&D. BY PHYL SPESER Contribution

Leveraging SBIR to Advance Cellulosic Ethanol Innovation The U.S. DOE Small Business Innovation Research Program seeks to reduce the time to market for cellulosic ethanol by supporting innovative technologies.

Cellulosic ethanol is at best a long-term niche player in a post internal combustion world. In the long run, fuel cells and electric power will provide power for most transportation and small scale power applications.

Ethanol pencils out, but it is likely other technologies will pencil betterâ&#x20AC;&#x201D;especially where population concentration allows for economies of scale in production and network economies in delivery of clean electric power. Ethanol combustion still emits pollutants, although in lower amounts. Further, growing and harvesting feedstocks and pro-

ducing ethanol is not energy neutral. (Look at the debate over subsidies if you have any doubts.)

Nonetheless, there still will be significant opportunities that remain where woody biomass, corn stalks, sugar cane bagasse and the like create waste feedstocks in rural and isolated areas where provision of grid-based power is expensive and delivery of hydrogen and other new fuels expensive. Further, in the mid-term, there are very attractive opportunities and a lot of money to be made as fuel cells and renewable energy remain

costly and have technology development challenges of their own. One way to capture those opportunities for cellulosic ethanol is to speed the time to market.

Leveraging SBIR R&D The SBIR program funds research and development (R&D) on innovative technologies across the spectrum of energy alternatives. There are two phases of SBIR funding.

Phase I makes awards for around $100,000 to establish proof of feasibility for new technologies. Phase II makes awards up to $750,000

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

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Such government-funded technology is great, but if it never gets used, there is little benefit to industry or the taxpayer. The solution lies in building partnerships during Phase I that can lead to Phase II collaborations.

Related to the research on enzymes themselves are ways to improve their efficiency, such as pretreating with ionic liquids.

Current pretreatment methods work to some extent, but in general they are expensive and unproven at production scale. DOE funded work is creating new options here.

A second area is new production methods. A few examples include one approach that uses microbes where the cellulosic conversion process can be performed with high

for additional R&D driving towards prototype. Only efforts succeeding in Phase I can apply for Phase II money. After that, the awardee would need to seek non-SBIR money to move the technology to market.

In ethanol, that means licensing, joint ventures, product sales or other partnering with industry. Foresight Science & Technology has a unique perspective on the market for cellulosic ethanol. The company serves as the commercialization support contractor for the DOE SBIR Program, and in this role has assessed and helped commercialize scores of cellulosic ethanol projects.

Foresight sees three major areas of opportunity for accelerating the use of cellulosic ethanol in the short- and mid-term. In each of these areas, technology is emerging from Phase II that is ready to head to the market.

sugar yields at a wide range of pHs and a wide range of temperatures. In this arena DOE SBIR technologies have the immediate goal of making cellulosic ethanol at the same price as grain-based or sugar-based ethanol.

Another approach uses a dual bioreactor for small-scale production suitable for cities and major landscaping contractors. A third area of technology R&D addresses filters and membranes.

The final area is feedstocks where SBIR-

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Emerging Technolgies The first area of opportunity with emerging technology is enzymes. Our research indicates that new enzymes need to offer around a five-fold reduction in production cost so they can be sold at a fraction of the cost of current enzymes on a per kilogram basis. Emerging from SBIR are novel plant proteins that provide enzymatic hydrolysis to improve performance of cellulases in the conversion of recalcitrant cellulose to sugars.

The solution behind the solution.

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R&D. BY PHYL SPESER funded R&D takes several approaches. Work in genetic engineering of plants and trees has focused on making cell walls less of a problem and increasing cellulose production by the plant. Another project is working on crops containing the necessary enzymes within the cell walls that can be easily triggered for processing. Another project is focused on endophyte enhancement of biomass and productivity in grasses, and another is ensiling crops to reduce downstream processing costs. Again, these are just examples.

Interesting subsets of DOE SBIR projects are those that have spin-off use for other technologies, such as fuel cells. For example, one project is creating a specially designed, genetically engineered microorganism with the ability to utilize unprocessed biomass in order to produce ethanol and hydrogen gas for alternative fuels. If successful, these kinds of projects can create long-term solutions for farm- and logging camp-sized biogenerators creating ethanol used in vehicles and hydrogen for fuel cells.

Promoting Options Such government-funded technology is great, but if it never gets used, there is little benefit to industry or the taxpayer. The solution lies in building partnerships during Phase I that can lead to Phase II collaborations. This

way, the proposals small firms submit for Phase II research address issues of concern to industrial partners. The necessary R&D is done under federal funding, reducing the cost and risk for downstream industrial acquirers of technology. Industrial firms interested in SBIR technology can monitor DOEâ&#x20AC;&#x2122;s Phase I awards, which are publically available.

For projects of interest, a downstream right to the technology can be secured by buying a real option. Options cost substan-

tially less than actually buying or licensing the underlying asset. All that is being purchased is the right to buy or license. So unlike traditional discounted cash flow investments, real options can be used by corporations and investors to hedge their technology bets. Options provide industry and venture capitalists a low cost way of capturing the value of strategic positioning. At the same time, the cost is small enough to allow abandoning the option rather than striking or renewing if changing

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market situations or new technology suggest the technology asset underlying the option will not have commercial legs.

Options for SBIR (or other government-funded technology) give the buyer the right to license an emerging technology on completion of a milestone, such as successful proof of concept (a SBIR Phase I project) or development of working prototype (a SBIR Phase II project). It may also provide the right to buy an additional option to license after test and evaluation. In other words, by selling a linked series of options (called a compound rainbow option) a small firm or other R&D entity provides their investors or downstream partners a way to stage their involvement with a technology.

The partner or investor obtains the strategic ability to strike when the iron becomes hot while deferring major investment until justified by the maturity of the technology and the conditions in the market.

Options are especially attractive when the seller agrees that all receipts will be used to mature the technology. The cost of the option in such a model can be viewed as all or part of the cost of the R&D necessary to move to the next milestone, minus the government or foundation subsidy. The actual price represents the value of having the flexibility to buy the technology at or before a specified date in the future. For the seller, the option provides needed cash flow to keep a project alive to the next technical milestone.

For the buyer it provides a strategic hedge with limited financial exposure, while, at the same time, the R&D conducted during the option period matures the technology, thereby hopefully increasing the value of the underlying assetâ&#x20AC;&#x201D;the technology. To make the option sweeter, the seller can make it assignable so if the R&D succeeds, but the owner entity decides its strategic thrust leads in another direction, it can sell the option to a firm interested in obtaining rights to the underlying asset.

When the milestone is reached, the investor can exercise the option and license the technology, buy another option to the next

ETHANOL PRODUCER MAGAZINE

milestone to preserve the strategic position, or walk away. Once this business model is grasped, it is clear that one can sell the same option to a pool of investors to spread the risk. In this case, each option holder receives the right to bid against the other option holders to license, or if none wish to license, to hold an exclusive option until the next technical milestone is reached.

For more information on the SBIR program and how to apply, visit www.er.doe.

May 2010

gov/sbir/. Ethanol producers or manufacturer of enzymes, equipment, or other production resources, or feedstock growers can contact Foresight Science & Technology for help with acquiring SBIR-funded technology.

Foresight is a DOE support contractor; there is no charge for its services. EP Phyl Speser is CEO of Foresight Science & Technology, www.ForesightSt.Com. Reach him at info@ ForesightST.com or (401) 273-4844 ext. 10.

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Zac Cudney Zac.Cudney@IISGLLC.com 313-841-5800 24-Hour Service: 800-992-9118

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Associations/Organizations EPPIC Environmental Index 334-277-1364 www.eppicenv.com Red River Valley Clean Cities 651-227-8014 www.CleanAirChoice.org

Twin Cities Clean Cities Coalition 651-223-9568 www.CleanAirChoice.org

www.senecaco.com

www.ferm-solutions.com

Hydro-Klean, Inc. 515-283-0500

Hydro-Klean, Inc. 515-283-0500

Hydro-Klean, Inc. 515-283-0500

www.hydro-klean.com

www.hydro-klean.com www.senecaco.com

Evaporators

EPM MARKETPLACE www.hydro-klean.com

Fans

Desiccant

Premium Plant Services, Inc. 888-549-1869 www.premiumplantservices.com

www.hydro-klean.com

Filter Media Hydro-Klean, Inc. 515-283-0500

72

Hydro-Blasting

Emergency Spill Response

Hydro-Klean, Inc. 515-283-0500

www.3Angstrom.com

www.senecaco.com

www.hydro-klean.com

Resonant BioSciences, LLC. 866-933-0408 www.puremash.com

3 Angstrom 630-980-5205

Seneca Companies 800-369-5500

www.hydro-klean.com

Ductwork

Premium Plant Services, Inc. 888-549-1869 www.premiumplantservices.com

Anti-Microbial Ferm Solutions 859-402-8707

Seneca Companies 800-369-5500

Hydro-Klean, Inc. 515-283-0500

Chemicals

www.hydro-klean.com

Premium Plant Services, Inc. 888-549-1869 www.premiumplantservices.com

Seneca Companies 800-369-5500

Clean Cities

Hydro-Klean, Inc. 515-283-0500

With all contact information placed in one convenient location, Ethanol Producer Magazine not only contains top editorial content but also a useful directory in each publication. Whether a first-time advertiser wanting to raise awareness of your business or a frequent display advertiser looking for added exposure, EPM Marketplace is the perfect solution.

www.hydro-klean.com ETHANOL PRODUCER MAGAZINE

May 2010

EPM MARKETPLACE Spraying Systems Co. 630-665-5000

www.spray.com

Consulting Environmental

Tank Cleaning Services Hydro-Klean, Inc. 515-283-0500 Seneca Companies 800-369-5500

Aquaterra Environmental Solutions, Inc. 877-913-8200 www.aquaterra-env.com

www.hydro-klean.com www.senecaco.com

Construction

Andy J.Egan Co. 616-791-9952 VAL-FAB Inc. 877-482-5322

www.agraind.com www.andyegan.com

www.harrisgroup.com

www.icminc.com

Plant Optimization Harris Group Inc. 206-494-9422

Marcus Construction Company 800-367-3424 www.marcusconstruction.com

ICM, Inc. 877-456-8588

Railroad Tracks

Project Development

www.harrisgroup.com www.icminc.com

Harris Group Inc. 206-494-9422 www.hydro-klean.com

www.harrisgroup.com

Safety Rail Safe Training, Inc. 712-212-4145 www.railsafetraining.com

www.hydro-klean.com

Employment

Railcars

Recruiting S.E Weinstein Company 800-258-1701 www.seweinstein.com

www.hydro-klean.com

SearchPath of Chicago

Scrubbers

815-261-4403, x100

www.hydro-klean.com

www.searchpathofchicago.com

Engineering Process Design

Smoke Stack Hydro-Klean, Inc. 515-283-0500

Harris Group Inc. 206-494-9422

Management

Railcar Spill Response

Hydro-Klean, Inc. 515-283-0500

Feasibility Studies

ICM, Inc. 877-456-8588

Plate-Frame

Hydro-Klean, Inc. 515-283-0500

www.senecaco.com

Management Services

Petrochem Insulation 707-644-7455 www.petrocheminc.com

Hydro-Klean, Inc. 515-283-0500

www.icminc.com

www.valfab.com

Insulation

Hydro-Klean, Inc. 515-283-0500

ICM, Inc. 877-456-8588 Seneca Companies 800-369-5500

Fabrication Agra Industries, Inc. 715-536-9584

Cantley Inc. 865-360-4080

ICM, Inc. 877-456-8588

www.hydro-klean.com

www.icminc.com

Tanks Tank Cleaning Equipment Cloud/Sellers Cleaning Systems 800-234-5650 www.sellersclean.com Gamajet Cleaning Systems Inc 877-GAMAJET www.gamajet.com

ETHANOL PRODUCER MAGAZINE

May 2010

ATEC Steel 620-856-3488

www.atecsteel.com

J.C. Ramsdell Enviro Services, Inc. 877-658-5571 www.jcramsdell.com Westmor Industries 320-589-2100

Reach your customers Your Solution. Advertise Today.

EPM MARKETPLACE

www.westmor.biz 73

EPM MARKETPLACE Process Design-Cellulose

Cereal Process Technologies 217-779-2595 www.cerealprocess.com

Cooling Towers

Industrial Services Done Right Specialty line cleaning Waste Transporation Ultra-High Pressure Hydro-Blasting (40,000 psi) Custom Designed Waste Reduction Programs

Delta Cooling Towers, Inc. 800-BUY-DELTA www.deltacooling.com

Corn Oil Recovery

www.iisgllc.com

Equipment & Services Analytical Instruments

www.icminc.com

DDGS Diesel Total-Yield Diesel from Distillers 402-640-8925 www.total-yield.com

SRS Engineering Corpration 951-526-2239 www.srsbiodiesel.com

Dryers-Fluid Bed www.aeroglide.com

Custom Rotary Driers for DDGS & Biomass Feedstocks

Visit Buhler Aeroglide at

Revere Control Systems 800-536-2525 www.reverecontrol.com

or call +1 919-851-2000

www.icminc.com

www.icminc.com

Quality Kiln and Dryer Inc 318-335-2001 www.qualitykilnanddryer.com

Intersystems 800-228-1483

MAC Equipment, Inc. 816-891-9300 www.macequipment.com www.intersystems.net

Superior Industries 320-589-2406

WINBCO Tank Company 641-683-1855

www.winbco.com

Filtration Equipment www.ustsubaki.com

Conveyors–Pneumatic MAC Equipment, Inc. 816-891-9300 www.macequipment.com 74

www.perten.com

Miller Insulation Co., INC 701-297-8813 www.millerinsulation.com

Laboratory-Equipment Perten Instruments, Inc. 801-936-8165

www.perten.com

Midwest Laboratories, Inc. 402-829-9877 www.midwestlabs.com

Fluid Engineering 814-453-5014

www.fluideng.com

Carbis, Inc. 800-845-2387 Determan Brownie, Inc. 800-835-6074

www.carbis.net www.determan.com

Maintenance Software ICM, Inc. 877-456-8588

Perten Instruments, Inc. 801-936-8165

www.icminc.com

www.perten.com

Grace Davison Renewable Technologies 410-531-8731 www.gracebiofuels.com www.icminc.com

Parts & Services ICM, Inc. 877-456-8588

Fractionation-Corn Buhler Inc. 763-847-9900

Loading Equipment

ICM, Inc. 877-456-8588

www.superior-ind.com

U.S. Tsubaki 847-459-9500

Perten Instruments, Inc. 801-936-8165

Molecular Sieves

Fermentors Conveyors–Mechanical

Instrumentation

Moisture Analyzers

Dust Control Systems Conveyors–Drag

www.mccormickconstruction.com

www.aeroglide.com/ethanol

ICM, Inc. 877-456-8588 www.icminc.com

McC, Inc.

Laboratory-Testing Services

Dryers-Rotary Steam Tube ICM, Inc. 877-456-8588

Grain Handling & Storage

Insulator

Buhler Aeroglide 919-851-2000

www.perten.com

Control Systems

www.icminc.com

MOR Technology, LLC 618-522-8324 www.mortechnology.com

763-477-4774

Distillation Equipment

ICM, Inc. 877-456-8588

Perten Instruments, Inc. 801-936-8165

www.crowniron.com

ICM, Inc. 877-456-8588

ICM, Inc. 877-456-8588

Dryers-Rotary Drum

Zac Cudney Zac.Cudney@IISGLLC.com 313-841-5800 24-Hour Service: 800-992-9118

Crown Iron Works 651-639-8900

www.icminc.com

www.buhlergroup.com/us ETHANOL PRODUCER MAGAZINE

May 2010

EPM MARKETPLACE Process Control

Finance

Harris Group Inc. 206-494-9422

Appraisals

www.harrisgroup.com

Natwick Associates Appraisal Services 800-279-4757 www.natwick.com

VFTechnical Services, LLC 423-794-6747 www.vftechserv.com

Due Diligence

Productivity Enhancements

Harris Group Inc. 206-494-9422

ICM, Inc. 877-456-8588

Insurance

Pumps

ERI Solutions, Inc. 316-927-4294

PeopleFlo Manufacturing 847-929-4774 www.peopleflo.com

Moglia Advisors 847-884-8282

QA Test Products Perten Instruments, Inc. 801-936-8165

erisolutions.com

Mergers & Acquisitions

Valley Equipment Co. Inc. 423-753-3541 www.valleyequipment.com

www.mogliaadvisors.com

Legal Services www.perten.com

Attorneys

Scales-Truck Weigh-Tec Inc. 1-800-461-4153

www.harrisgroup.com

www.icminc.com

BrownWinick Law Firm 515-242-2400 www.biofuellawyers.com www.truck-scales.com

WOHLSIFER & ASSOCIATES, P.A. 850-219-8888 www.wohlsifer.com

Tanks

www.atecsteel.com

With all contact information placed in one convenient location, Ethanol Producer Magazine not only contains top editorial content but also a useful directory in each publication. Whether a first-time adver-

www.pro-env.com

www.chsinc.com

om www.ethanol-jobs.com www.ethanol-jobs.com www.ethanol-jobs.com www.ethanol-j

Valves Check-All Valve Mfg. Co. 515-224-2301

www.checkall.com

Wastewater Treatment Services ADI Systems Inc. 1-506-452-7307

www.adisystemsinc.com

Hydro-Klean, Inc. 515-283-0500

www.hydro-klean.com

ICM, Inc. 877-456-8588

www.icminc.com

UEM, Inc. 561-385-7515

www.uemgroup.com

tiser wanting to raise awareness

Water Treatment

of your business or a frequent dis-

H2O INNOVATION 763-566-8961 www.H2OINNOVATION.com

play advertiser looking for added

CHS Renewable Fuels 651-355-6271

exposure, EPM Marketplace is the

Yield Enhancement

perfect solution.

EdneiQ, Inc. 310-592-4158

www.EdeniQ.com

www.ethanol-jobs.com www.ethanol-jobs.com www.ethanol-jobs.com www.ethanol-jo

ETHANOL PRODUCER MAGAZINE

May 2010

s.com www.ethanol-jobs.com www.ethanol-jobs.com www.ethanol-jobs.com www.ethanol-jobs.com www.ethanol-jobs.com www.ethanol-jobs.com www.ethanol-jobs.com www.ethanol-jobs.c

EPM MARKETPLACE

Pro-Environmental, Inc. 909-989-3010

ob

Spokane Industries Inc. 509-921-8868 www.spokanemetalproducts.com

Fuel Ethanol

Thermal Oxidizers

bs.com www.ethanol-jobs.com www.ethanol-jobs.com www.ethanol-jobs.com www.ethanol-jobs.com www.ethanol-jobs.com www.ethanol-jobs.com www.ethanol-jobs.com www.ethanol-jobs.c

ATEC Steel 620-856-3488

Marketing www.agraind.com

om

Agra Industries, Inc. 715-536-9584

75

EPM MARKETPLACE Railcar Gate Openers

Custom Designed Waste Reduction Programs

Zac Cudney Zac.Cudney@IISGLLC.com 313-841-5800 24-Hour Service: 800-992-9118

www.iisgllc.com Miscellaneous Maas Companies 507-424-2640

www.maascompanies.com

Nelson Ink Promotional Products 218-222-3831 www.nelsonink.com

bs.com www.ethanol-jobs.com www.ethanol-jobs.com www.ethanol-jobs.com www.ethanol-jobs.com www.ethanol-jobs.com www.ethanol-jobs.com www.ethanol-jobs.com www.ethanol-jobs.c

Ultra-High Pressure Hydro-Blasting (40,000 psi)

Research & Development

EPM MARKETPLACE

Dynamometer Testing Roush Industries 734-779-7736

Marine www.odingroup.com

Rail Ameritrack RailRoad Contractors, Inc. 765-659-2111 www.ameritrackrailroad.com

Rail Consulting Rail Safe Training, Inc. 712-212-4145 www.railsafetraining.com

76

ROCKFORD, IL

Speakers | Exhibits Networking | 3 Program Tracks ■

Best Practices & New Technology

■

Political Issues, Economic Resources & Public Policy

■

Applying & Implementing Bioenergy Technologies

Learn the latest advancements in the field.

Make contacts to help you expand your knowledge and grow your business.

Pursue turning bioenergy technology into opportunities on a local to global scale.

Discover alternative energy resources in the Great Lakes region from special exhibits and tours.

www.roush.com

Transportation Odin Marine, Inc. 203-969-3400

SEPTEMBER 26-29

om www.ethanol-jobs.com www.ethanol-jobs.com www.ethanol-jobs.com www.ethanol-j

www.ethanol-jobs.com www.ethanol-jobs.com www.ethanol-jobs.com www.ethanol-jo

Waste Transporation

Salco Products, Inc. 630-783-2570 www.salcoproducts.com s.com www.ethanol-jobs.com www.ethanol-jobs.com www.ethanol-jobs.com www.ethanol-jobs.com www.ethanol-jobs.com www.ethanol-jobs.com www.ethanol-jobs.com www.ethanol-jobs.c

Specialty line cleaning

Railcar Parts

ob

Industrial Safety Done Right

The Arnold Company 800-245-7505 www.arnoldcompany.com

om

Market Data

With all contact information placed in one convenient location, Ethanol Producer Magazine not only contains top editorial content but also a useful directory in each publication. Whether a first-time advertiser wanting to raise awareness of your business or a frequent display advertiser looking for added exposure, EPM Marketplace is the perfect solution.

Please Visit www.IBED2010.com ■ ■ ■

For general information Attendee registration Sponsorship and Exhibitor opportunities

ETHANOL PRODUCER MAGAZINE

May 2010

4.12.2010 America learns the truth about ethanol.

AMERICA’S TRUTH FUEL. Starting April 12, Growth Energy will set the record straight on ethanol with the industry’s first national TV campaign. You can see the commercials running on CNN, Headline News, Fox News and MSNBC. Or you can view them online at GrowthEnergy.org.