Advice from the Wise

The ethanol business can be tricky at times. With more plants crowding into the mix, each one needs to be running at its peak. EPM takes a look at what some industry leaders feel are important factors to consider when putting together a project.
By Dave Nilles | February 01, 2006
  • WARNING: Resizehelper couldn't find requeted file: /datadrive/websites/ethanolproducer.com/app/webroot/uploads/posts/magazine/187-1292253867.jpg
  • WARNING: Resizehelper couldn't find requeted file: /datadrive/websites/ethanolproducer.com/app/webroot/uploads/posts/magazine/194-1292253867.jpg
  • WARNING: Resizehelper couldn't find requeted file: /datadrive/websites/ethanolproducer.com/app/webroot/uploads/posts/magazine/195-1292253867.jpg
  • WARNING: Resizehelper couldn't find requeted file: /datadrive/websites/ethanolproducer.com/app/webroot/uploads/posts/magazine/236-1292253869.jpg
At last year's International Fuel Ethanol Workshop in Kansas City, Mo., a panel of ethanol industry experts discussed what it takes to build and maintain a successful ethanol operation. This meeting of the industry minds was essentially an "ask the experts" roundtable for conference attendees. Its purpose was to share insight on what to doand avoidwhen putting together an ethanol project and maintaining a successful company.

The panel of eight provided a wide array of expertise, from plant operations to board management to equity coordination. The panel's insight and experiences gave those in attendance a glimpse of what it takes to be successful in the ethanol business, even through tough times.

It was made clear that plants that run most efficiently, have the latest equipment and eliminate bottlenecks will have an advantage in the marketplace. "If there's one thing that we focus on, in a word, it's efficiency," said Matt Janes, vice president of technology for VeraSun Energy, a company that owns and operates large dry-grind ethanol plants in Aurora, S.D., and Fort Dodge, Iowa. "It means many things, but it all comes back to being as efficient as you can. We all have to realize that we are in a commodity business where pennies, or fractions of pennies, on the bottom line are going to make a difference."

However, projects won't get that chance unless everything is in place for it to succeed. But what else helps drive a project? Besides debottlenecking a plant, what does it take to become a success? EPM reviewed the FEW panel discussion and talked with several ethanol industry leaders from varying projects and with different views of the industry to answer those questions.

Forge a strategic partnership
When it comes to creating strategic partnerships, Tom Branhan may have one of the best seats in the house. The Glacial Lakes Energy (GLE) general manager oversees operations at three ethanol plants, all within a 150-mile line across the Minnesota/South Dakota border. GLE is a 47 MMgy plant operating in Watertown, S.D. Seventy miles to the west, Redfield Energy is a 50 MMgy plant that recently broke ground in Redfield, S.D. Across the eastern state border is Granite Falls Energy, a 50 MMgy plant that recently started up near Granite Falls, Minn.

Creating partnerships with other plants can have several positive effects. Individual plants within that partnership can develop energy-conserving strategies that can be utilized for the good of the entire group. "Once you align all those people under one team, everyone gets to share equally in process improvements," Branhan said.

Plants can also leverage off of each other. In a tight market, that can mean the difference between failing and getting by. "If we lost a plant manager at one plant, I can have a new plant manager there in one hour," Branhan said. "The same thing goes with parts, corn and denaturant."

Aligning with other plants also increases the amount of ethanol the plants can market while paying down debt more quickly. "Interest and capital are going to eat you up," Branhan said. "Other plants that don't have strategic partners are going to get themselves in trouble without debt paid down."

Mick Miller agrees. As general manager of Red Trail Energy, a 50 MMgy plant under construction in Richardton, N.D., Miller sees the importance of forming alliances. "It's becoming more and more important because of growth in the industry," he said. "The supply and demand margin will narrow. It's going to come down to the lowest-cost producer."

Hire well, hire early
New plants oftentimes struggle due to a lack of experience, Aventine Bioenergy's Mark Luitjens said at the FEW. People are certainly the key to operating a plant. New projects are beginning to hire the best people earlier on in the project's development.

Hiring early is something VeraSun Energy has tried to do, according to Janes. "Having them there during the construction period helps them understand the plant and operations better," Janes said.

Miller was hired as general manager at Red Trail Energy in June 2005. The plant is on pace for a December 2006 start-up. Miller said there are several advantages to hiring a general manager and/or other top management positions early on in the project. First, and possibly most important as potential profit margins tighten, is that banks look at the strength of the management team when considering financing a project. It also benefits the flow of work.

"It creates a trickling effect," Miller told EPM. "With the [general manager] on site, he can oversee construction and day-to-day decision making. They're there to set up contracts to help business run successfully. It's not all about construction."

That trickle-down effect can also affect future hires. Hiring a general manager early on allows time for the person to get comfortable and hire the key management people underneath him or her. "Spending money up-front on having a top manager pays for itself," Miller said.

Having an aggressive general manager also makes a difference, Branhan explained. "Quite honestly, the biggest fault is to underrate the value of a good general manager when starting the facility," he said. "Then they have to get the management team on the same page. That's what makes us successful. Everyone involved gets a decision."

Mick Miller's brother Mitch agrees with that approach. Mitch is the general manager for Central Indiana Ethanol, a 40 MMgy plant under construction in Marion, Ind. Mitch said that while addressing operational problems, it is key to involve lower-level people in the plant when deciding where to spend capital each year.

Targeting the educated
Finding qualified plant workers with ethanol experience is sometimes easier said than done. Plants like Red Trail Energy are taking advantage of a homegrown solution. Located 75 miles away, Bismarck State College (BSC) (see Education, August 2005 EPM - (click here) provides Red Trail with access to in-state workers. "BSC's [training] is starting to focus some programs on ethanol," Mick Miller said. "It's a huge thing to have success right out of the gate and to have access to employees that have process training from the get-go."

Recruiting and finding the right personnel is a problem for everyone, according to Janes. While many traditional power plants have the luxury of hiring only people with experience, ethanol plants often have to look at younger workers.

"The pay may not be as high, but it's a growing industry," Mick Miller said. "They are personnel with the background and capabilities to make day-to-day decisions."

Focusing on the unconventional
Finding the most educated and experienced employees can only do so much for an ethanol plant. Even at maximum efficiency, plants can only react to the market situations facing them everyday, which is why site selection is becoming an even more important fundamental aspect to a project's success.

With the ethanol industry growing, it's becoming more difficult to find the no-brainer sites to build on. Mick Miller said that newer plants have to take seriously the need to be diversified, such as in energy sources and where the company procures corn.
"We're getting further [away] from the traditional area we've been looking in," Janes said, adding that he feels a decline in optimal sites will lead to more plant expansions. "At any individual site, we'll see plant capacity continue to grow," he said. "It's easier to add on to an existing facility than to find a new site."

Sharing information breeds success
The FEW panel covered it and most in the industry support it, but sharing information is vital to the success and advancement of the industry. Judging from the panel's remarks and those in the industry, it seems this aspect has come full circle.

In the 1980s, the ethanol industry was [more like] a competition, according to Corn Plus General Manager Keith Kor. Seeing another plant fail meant your plant must be doing something right. However, while the industry is still very competitive, it is more secure and often more cooperative. "More alliances are taking place," Kor said. "If someone has a problem, they can call another plant and work together to make this industry grow."

Still, many plants today are secretive about revealing proprietary information or giving away too many secrets. But experts say that's typical of any industry, especially a young, booming one, and there's still plenty of insight to be had. "Before you start acquiring funds, [consider that] there are a lot of people in the industry that cleared the way," said Jill Zimmerman, coordinator for East Kansas Agri-Energy's equity drive. "Take advantage of that knowledge, and avoid making those mistakes."

Perhaps the most important part of any successful ethanol project is finding a goal and striving toward itpersevering through thick and thin.

"The biggest part is having a good vision," Branhan said. "Where do you want to be in three, five, seven years? Once you get that vision, get it in the business plan."

David Kolsrud, who helped Mid-Missouri Energy get its project going, said creating and focusing on the goal is key. "Once you focus on that goal you can go down that road," Kolsrud said. "If things don't work out, you can get on an off-ramp." EP

Dave Nilles is an Ethanol Producer Magazine staff writer. Reach him at dnilles@bbibiofuels.com or (701) 746-8385.