Strength in Partnerships

Lurgi PSI nears completion of 40 mmgy Adkins Energy LLCnear Lena, Illinois, Experienced partners drive success of the project
By | June 01, 2002
Someone once said, "Success is a science; if you have the conditions, you get the results."

Adkins Energy certainly has the conditions for success, and in a matter of weeks, the $68 million ethanol plant near Lena, Illinois, will "get the results" - tanker loads of it. The new 40 mmgy ethanol plant is reaching the final phases of construction, and its 34-person staff is rapidly preparing the facility to begin grinding corn in early July. The facility is buzzing with anticipation.

"Once we grind corn, I think we'll finally feel like part of the ethanol industry," said Adkins Energy General Manager Todd Block. "It's a very exciting time for all of us."

For Block, and others involved in the Adkins Energy project since its inception seven years ago, the work has been a true test of determination, will and character.

The concept of building an ethanol plant in Stephenson County (40 miles west of Rockford, Ill.) was first discussed at a Pearl City Elevator board of directors meeting in 1995. Under the leadership of Block, Pearl City Elevator Vice President Mert Green, and others, the local farmers began searching for a way to boost their profits in a somewhat depressed farm economy. Ethanol seemed to be the answer to their problems.

"We were simply looking for ways to add value to our product," Block told Ethanol Producer Magazine. "Ethanol came up in the discussions and everything progressed from there. It's been a long road from where we started at that board meeting."

A long road, yes, but well worth the trip, Block added.

The project took off with a lot enthusiasm early, attracting 350 members made up of farmers and local investors from twelve counties in southern Wisconsin and northern Illinois. However, progress waned when financing stumbled in the early years, said Scott Trainum, president of the Adkins Energy Board of Directors. Trainum explained how the Adkins project "died a couple of early deaths and had to be reformed."

'Strong partnerships'
"It was not a complete success until we invited in major partners," he explained. "The strength of these lasting partnerships made everything we have here today possible. It enabled us to carry the project over the threshold and gain the confidence of the lending community.''

Along with the Adkins Energy and the Pearl City Elevator, Memphis-based design/build contractor Lurgi PSI, which is overseeing all aspects of constructing the ethanol plant, also invested equity in the project.

"Lurgi brought a lot of horsepower and experience to what we were trying to accomplish," Trainum said. "It's really been a great project - it's the most professionally managed construction job I've been associated with."

The cooperative found two more strong partners in Nicor Gas Company and Williams Bio-Energy (Williams Ethanol Services, Inc.).

"Williams coming aboard was pivotal to our financing of the project," Trainum said. "We finalized the partnership structure August 31, 2001 and we secured financing from U.S. Bank a few weeks later."

The financing
"The project represents a lot of hard work by all of the Adkins sponsors and U.S. Bank's Corporate Food & Agribusiness Group," said Curtis Schrieber, division vice president of U.S. Bank in St. Louis.

Schrieber said the financial underwriting of ethanol plants, if done properly, is very complex. A thorough understanding of the impacts of corn availability, corn price, basis volatility and the resulting financial implications of producing ethanol is key, he said.

"Fortunately, the bank understands these risks very well, and we recognized that two of the five sponsors (Pearl City Elevator, Inc and Adkins Energy Cooperative) of the Adkins project had experience in managing the various grain risks associated with an ethanol plant."

U.S. Bank was also fortunate in the Adkins project to find Williams Bio-Energy, a company that, he said, has vast experience in ethanol marketing.

An understanding of the utility consumption of an ethanol plant and the impact changing utility prices can have on the profitability of a plant was also a key consideration for U.S. Bank in financing the Adkins project.

"Again," Schrieber said, "we were fortunate that one of the five sponsors (Nicor Gas) of the Adkins project has experience in managing utilities.

"And we knew that Lurgi PSI has experience in managing large construction projects," he said.

The bank also supplemented the construction team with several professionals from the bank's own Corporate Real Estate Group."

"Our group (Corporate Food & Agribusiness) of the bank has spent considerable amounts time and money to fully understand the ethanol industry," Schrieber said. "We have also taken the effort to meet personally with the key players in the ethanol arena. This effort (along with our contacts and activities in other segments of Food & Agribusiness) has given us the understanding and ability to finance large ethanol projects."

Ethanol marketer
Along with investing equity in the project, Williams will market the plant's ethanol. According to Williams Bio-Energy President Ron Miller, the company markets ethanol for 13 U.S. producers. Williams will soon market over 450 million gallons a year.

`"Williams is meeting America's growing demand growth through expanding relationships to purchase and re-sell ethanol produced by third parties through the company's extensive distribution system,'' Miller said. ``Our agreements with Adkins Energy LLC, and other producers, help us meet these market needs.''

Gas-fired Turbine
Nicor, which is a major utility company in the northern Illinois area, is installing a 5 megawatt natural gas-fired turbine that will provide a portion of the energy required to fuel the ethanol plant. Along with another area utility, Nicor will also supply a portion of the natural gas required to power the facility.

ICM staff training
In July of 2001, ICM, Inc. was contracted by Lurgi PSI to provide the process design for the Adkins project - just 45 days before the cooperative closed $45 million financing with U.S. Bank (in St. Louis). Subsequently, ICM, Inc. is also training the entire Adkins Energy staff at its Russell, Kan. ethanol plant (U.S. Energy Partners). ICM (which has teamed with Fagen, Inc. on several ethanol projects in recent years) is now providing the process designs for nearly half of the ethanol plants under construction in the U.S.

"I feel as though we will have one of the best trained staffs in the country," Trainum said.

Interstates, Siemens involved
Interstates worked with Lurgi PSI on the project, handling the electrical and instrumentation work, as well as engineering the lighting system for the plant. Interstates has enjoyed a long relationship with Lurgi PSI and is "looking forward to another mutually successful venture," a company spokesperson said.

Siemens Energy & Automation, Inc. supplied a complete range of power distribution equipment for the Adkins project. Siemens will supply about $300,000 in electrical apparatus, consisting of low-and medium-voltage motor control centers, panelboards, switchboards, capacitors, and transformers.

For this particular project, Lurgi choose a DDGS dryer system designed by Ronning Engineering. Along with other experienced dryer manufacturers, Ronning Engineering's Three Stage Dryer Systems produce a uniform, light-gold product desired by DDGS consumers. For this project, Ronning engineers designed a dryer system for Adkins Energy that offers maximum production, while keeping emissions low and reducing energy and maintenance costs, according to Bob Kolb, president of Ronning. Kolb said Ronning has been designing dryer systems for nearly four decades and the company now focuses about 90 percent of its resources on the ethanol industry. (During the past two years, the company has doubled its engineering staff).

"Ronning was chosen for this project because our system was a good fit for Adkins Energy," Kolb said. "We're proud to be a part of the project."

State Funding
In addition to $2 million in Illinois First Funds from the state (that has or will be provided to Adkins Energy), the Department of Commerce and Community Affairs (DCCA) provided a number of programs to the ethanol project.

Adkins Energy received a job training grant through the Industrial Training Program (ITP), grant financing through the Business Development Public Infrastructure Program, and funds from the Alternative Energy Development Program. The project is also eligible for tax credits under the governor's EDGE (Economic Development for a Growing Economy) program and Enterprise Zone benefits.

"Among others, I must thank Dave Loos and the DCCA," Block said. "Dave was there for us every step of the way and I can't say enough about his efforts."

Positive market outlook
"The industry is certainly looking bright right now," Trainum said. "It's a great time to be entering the business. The decline of MTBE favors the industry and pending national legislation looks very promising. Things really couldn't be much better."

The Adkins Energy leaders are confident in the cooperative's ability to be competitive in its market area, largely because of the plant's ideal location - Adkins is located within a few hours of both the Chicago and Madison, Wis., markets, Trainum said.

"We feel as though we are very well placed," he said. We have the market logistics on our side, freight advantages and a solid DDGS market base."

On behalf of the entire ethanol industry, Ethanol Producer Magazine congratulates Adkins Energy LLC, and its partners, on its well deserved success.