MONEY BACKS OFF NEXT-GEN BIOFUELS

U.S. advanced biofuel sector finds lenders wary
Charles Abbott (w/David Gregario), October 29, 2009 (Reuters)

"U.S. lenders are leery of putting money into cellulosic ethanol and other new-generation biofuels due to the recession and an industry shakeout, Agriculture Department and biofuel leaders said…

"That is one reason near-term production of advanced biofuels is unlikely to meet targets set by a 2007 energy law…Several witnesses at a House Agriculture subcommittee hearing on the future of new-generation biofuels pointed to difficulties in securing credit…"

From Cal Tech's Professor Frances Arnold. (click to enlarge)

"Agriculture Undersecretary Dallas Tonsager said lenders also were discouraged by an industry shake-out last year that included the bankruptcy of the largest producer due to rising grain costs and a drop in petroleum prices…Plants with roughly 12 billion gallons of annual capacity are in operation now while 1.2 billion gallons in capacity is idle…USDA has awarded two loan guarantees totaling $105 million for advanced biofuels projects. Two applications remain under consideration…Some applicants were rejected because they did not have a lender behind the project, Tonsager said.

"New-generation projects often have costs that equal $10 a gallon or more for small-scale plants, well above corn-based ethanol and petroleum. Proponents say costs will drop rapidly for a commercial-size plant…as technology is refined…Rajiv Shah, Agriculture undersecretary for research, said he was optimistic of a significant improvement over the next five to seven years in the economics of new-generation biofuels. Feedstocks account for one-half to two-thirds of the cost of biofuels, he said, so it is important to develop biomass crops and improvements in converting crops into fuels…"

The plan. Not likely. (click to enlarge)

"Ethanol industry officials suggested that producers should receive government grants for start-up costs instead of tax credits after they begin production…They also said Congress should extend a cellulosic fuels production tax credit to cover all fuels produced before 2022 instead of the current cutoff of 2012…[They] suggested that Congress create a "green bank" using government funds to support advanced biofuels and other clean energy projects…[and] said the USDA should relax its loan-guarantee rules to make it easier for advanced biofuels projects to obtain financing.

"…[T]he renewable fuels standard [was] created by the 2007 energy law. It calls for use of 36 billion gallons a year of biofuels by 2022, most of it from new-generation feedstocks…[but biofuels producers are] unhappy with proposed U.S. environmental rules that would cover how biofuels meet requirements to reduce greenhouse gases."