California Rising

Unique incentives inspire investments to restart facilities
By Kris Bevill | December 27, 2010
California's innovative Ethanol Producer Incentive Program (CEPIP) appears to be having an almost immediate positive impact on ethanol producers in the state. The program, which began accepting applicants last summer, offers payments to producers when ethanol crush spreads are low and requires producers to repay those funds when spreads are high. Producers will be able to receive an incentive of up to 25 cents per gallon of ethanol produced, capped at $3 million per year per facility, during months when the ethanol crush spread is less than 55 cents per gallon. During months that the crush spread is greater than $1 per gallon, participating producers will be required to pay back incentives at a rate of up to 20 cents per gallon of ethanol produced. In order to qualify for the program, ethanol plants must be located in California, have an operating capacity of at least 10 MMgy and be actively producing ethanol. Initially, only Calgren Renewable Fuels LLC was pegged to participate in the program. Other producers had applied for and been approved to participate in the program, but Calgren was the only facility operating. That has recently changed, due in part to the incentives offered by the state. Pacific Ethanol Inc. received program participation approval for its 60 MMgy plant in Stockton and its 40 MMgy plant in Madera while the plants were still idle. Since receiving the incentive program approval, the company has been able to acquire the financing necessary in order to restart both facilities. Paul Koehler, the company's vice president, confirmed that the program played a role in Pacific Ethanol's ability to restart production. "The CEPIP program was a definite positive factor to the lenders and owners in the decision to restart Stockton as it provides assurance of payments when corn-to-ethanol spreads are low," he says. "The California Ethanol Producer Incentive and the California Low Carbon Fuel Standard demonstrate to lenders and investors that the State of California is serious about building a renewable transportation fuel production industry." In late-November, Pacific Ethanol said it planned to restart the Stockton facility within the next month. A restart at the Madera plant was still in the works and would occur "as market conditions permit," according to Koehler. In early November, AE Biofuels Inc. announced that its subsidiary, AE Advanced Fuels Keyes Inc. was being retrofitted and prepared to begin producing in the first quarter of 2011. The 55 MMgy plant has been idle since 2009. Once operational, the facility will qualify to begin receiving payments through CEPIP as dictated by the corn-to-ethanol spreads. Price assurance offered through the program also played a role in AE Biofuels acquiring the $4.5 million needed to repair the Keyes facility, according to Andy Foster, president and chief operating officer of the company's advanced biofuels division. The incentive program's official start date could not be determined until the state passed its budget. Legislators were finally able to do so in October and it is anticipated that the program will be officially rolled out by the end of January.