The World's #1 Renewable Energy Network for News, Information, and Companies.
Untitled Document

Solving the Biofuels Debt Crisis Part I

A reader this week sent along a copy of the latest Department of Energy funding announcement — the $25-35 million solicitation for “Environmentally-Prudent Unconventional Resource Development” (DE-FOA-0001076), noting:

Apparently, the most profitable companies on the planet need continuing taxpayer dollars to make their extraction processes environmentally safe!  Who knew?  And to the tune of $35 million.

In the meantime, DOE recently offered a much more conservative $10 million in the recent BioEnergy Technology Incubator funding opportunity (DE-FOA-0000974), geared to disruptive technologies in need of funding to eliminate risk and move on to commercial funding.  In my humble opinion, this is where significant taxpayer dollars are needed!  Sure we appreciate the $10 million, but DOE appears to have their priorities reversed.

Ah, unconventional oil. Like unconventional bathing habits, it’s popular in some quarters, though socially controversial. And the “Law of the Minimal Effort” that applies with certain occasional bathers, applies from time to time at the White House when it applies to energy transformation. Holding your nose and closing your watery eyes is usually easier than doing something about it.

The White House Energy Policy, Summarized

In that light, let’s look at the Administration’s policies and summarize where they are, these days.

1. Primarily, the Administration (and states) is working on transformation of grid-scale power., when it comes to capacity building. Now, you might observe that power generation has nothing to do with energy security and independence and everything to do with a carbon-agenda — since the U.S. has been energy independent on the power side for its entire history and gains on emissions (rather than security) by shifting, say, from coal to natural gas, solar, wind or biomass.

2. For energy security concerns on the fuel transportation side, there’s the 12-14 billion gallons of corn ethanol that is being produced, the 1-2 billion gallons of domestic biodiesel production, and the rest the Administration is generally looking towards unconventional oil production — hence, why the Administration would like to find ways to make the “unconventional resources” more “environmentally-friendly”.

3. For help on the emissions of road transportation, the U.S. is relying on expansion of electrics, and radically enhanced CAFE engine efficiency standards — with a target of 54.5 MPG as an average for all vehicles by 2025.

Liquid Biofuels and the Administration

Where do liquid biofuels fit in here? Aside from the capacity that has already been built — generally speaking, they don’t. Which is another reason why DOE’s financial support for biofuels has been tepid of late. Thought USDA’s been hard at work on making things happen.

Now, “tepid support” doesn’t translate into “repeal of the Renewable Fuel Standard” or any other drastic actions. Rather, the Administration has viewed its role as an enforcer of RFS targets where production and distribution capacity is in place, and there’s no perceived upward pressure on gasoline prices.

Which, by its nature, throws the RFS into some amount of turmoil, since obligated parties have — under this policy — the opportunity to avoid producing or buying wet gallons of renewable fuels (crying “blend wall!”), requiring them to buy (in effect) waiver credits (RINs), spiking RIN prices, and spooking the White House into believing that rising RIN prices will spike the cost of gasoline.

So, that’s what’s going on in US energy policy, in a nutshell.

What’s the Reaction from the Biofuels Community?

What’s happening, meanwhile, amongst the community of enterprises, rural interests and energy security hawks to find markets for the wave of technologies that have come forward for advanced biofuels production?

Sometimes, there’s frustration. Over the absence of loan guarantees and renewables pricing schemes (e.g. solar feed-in tariffs) that wind and solar are blessed with, to name a common theme.

On the pro-active side, the trends can be summarized as follows:

  1. For existing capacity, focus has been on preserving mandates and incentives.
  2. On the biomass side, capacity building is generally related to supplying biomass for power generation.
  3. On the processing technologies, one wave of capacity building is generally related to producing chemicals and higher-value materials (e.g. nutraceuticals).
  4. A second wave of capacity building has continued to target cost-competitive cellulosic biofuels — but the going has been slow because the debt markets have proven tough to tap for first-of-kind technologies.

Why the Continuing Slowdown in Advanced Biofuels Capacity Building?

The answers are two-fold.

1. Lenders are wary of projects that do not fit the old independent power purchase agreement model where you have, say:

  • 15-year fixed-rate fuel purchase agreements.
  • 15-year fixed-rate feedstock supply contracts (e.g., for wood chips).
  • Proven technologies, or unproven technologies covered by federal loan guarantees.

2. Equity investors are pooped out. Venture capitalists will tell you “we’re done” excepting support of very small niche opportunities and existing investments; feedstock strategics like Waste Management have pulled back substantially from earlier-stage technologies; end-user strategics like Shell, BP and Total are generally supporting existing investments or expansion in Brazil; processing technology strategics like DuPont, Abengoa, Grupo M&G, Novozymes and GranBio continue to invest aggressively, but certainly do not have the balance sheet power to continue investing indefinitely — they need investment partners, and soon.

The U.S. Navy’s approach — a combination of strategic investment and off-take contracts, but tied to the production of cost-competitive drop-in fuels — is terrific, but not for all parties and certainly limited by the Navy’s fuel needs.

Shifting the Momentum Back to Liquid Biofuels

Tired of seeing the Benjamins shift to natural gas, wind, solar, biomass power, hydrogen, or unconventional oils?

The solution? Though there’s work to be done in logistics, feedstock development, bringing processing technologies to scale, and securing a more stable distribution: the most transformative opportunity lies in debt — or rather, reducing risk for lenders and bondholders.

It simply isn’t likely that technologies will come around that are:

  1. Cost-competitive with fossil fuels
  2. Infrastructure-compatible
  3. Have a 50 percent reduction in emissions compared to 2005 baseline gasoline
  4. Provide the kinds of 25 percent annual returns for equity investors that justify the risks of developing first-of-kind technologies that have high failure rates.
  5. Afford credit-card debt rates such as the 16-20 percent finance charges that routinely are offered to advanced biofuels technologies.

The first four items on that list: do-able, though tough. The fifth, that breaks the camel’s back.

Apollo Moonshots: Who Does What?

Keep in mind, this: though you can think of the Apollo moonshots any way you like, they were a combination of vision and financing. The technology is produced by private industry.

Now, we have the vision on advanced liquid fuels. So, what about the financing?

Clearly — though industry critics say that the RFS is broken, it is the financing model for capacity building to meet the RFS that is broken. And no one ought to expect that RFS-scale expansion in loan guarantees, or federal supports that are used to build wind and solar capacity, are in the cards any time soon, if ever.

Stay tuned for parts II and III, which will discuss new structures and players.

This article was originaly published on Biofuels Digest and was republished with permission.

Lead image: Eraser debt via Shutterstock

Untitled Document

RELATED ARTICLES

Energy Storage and Geothermal Markets Look To Team Up in the Hunt for Lithium

Meg Cichon In today's fast-paced tech environment, no one can make a splash quite like Elon Musk. So when he decided to enter the energy storage game in 2014, he did it with gusto. Musk is now in the process of building what he coined...

Regional News from the July/August 2015 Digital Edition of Renewable Energy World

Renewable Energy World Editors EcoFasten Solar announced that it launched a new mounting "Rock-It System" that it would be displaying during Intersolar. Product compliance was determined through testing per UL Subject 2703, which reviews integr...

UK Government Proposes Solar and Biomass Subsidy Cuts

Alex Morales, Bloomberg The U.K. proposed to reduce support for the solar and biomass-power industries to help consumers who fund the subsidies through their energy bills. Ministers plan to end a government aid program for small solar projects a y...

Some Hope for US Renewable Energy Tax Credits As Extension Bill Passes Committee

Vince Font In a lopsided 23-3 vote, the U.S. Senate Finance Committee voted yesterday to extend a number of renewable energy production tax credits through the end of 2016. The vote allows developers of wind, geothermal, biomass, land...

CURRENT MAGAZINE ISSUE

Volume 18, Issue 4
1507REW_C11

STAY CONNECTED

To register for our free
e-Newsletters, subscribe today:

SOCIAL ACTIVITY

Tweet the Editors! @megcichon @jennrunyon

FEATURED PARTNERS



EVENTS

StartUp Green

AREI, American Renewable Energy Institute, in partnership with ...

SAP for Utilities

SAP for Utilities is North America’s most comprehensive utilities ...

2015 AREDAY Summit

The 12th Annual AREDAY Summit, August 8-13th in Snowmass Colorado. Engag...

COMPANY BLOGS

Clean Energy Patents Maintain High Levels in First Quarter, Solar L...

U.S. patents for Clean Energy technologies from the first quarter of 201...

SAP for Utilities Blog

The Eventful Group produces the annual SAP for Utilites Conference ...

Renewables make huge strides globally in 2014

Renewable sources of energy are making an increasing impact on the globa...

NEWSLETTERS

Renewable Energy: Subscribe Now

Solar Energy: Subscribe Now

Wind Energy: Subscribe Now

Geothermal Energy: Subscribe Now

Bioenergy: Subscribe Now  

 

FEATURED PARTNERS