Calif. producers unable to use ethanol incentive

By Kris Bevill | July 15, 2010
Posted Aug. 12, 2010

The California Energy Commission has approved three ethanol producers and four facilities to participate in its Ethanol Producers Incentive Program (CEPIP), but only one facility meets the actual qualifications to benefit from the program when it begins.

CEPIP is a unique incentive program in the country, according to CEC spokesman Rob Schlichting. "There are other states that have incentive programs, but they pretty much just give money to producers to make ethanol in their state," he said. "Ours depends on the market and, depending on the crush spread, ethanol producers could get payments from the state or, if the market is really healthy, those same people would be required to return money to the state." In order to determine the ethanol crush spread, the CEC established a floor of 55 cents per gallon of ethanol. If the monthly average is less than 55 cents per gallon, eligible producers will receive an incentive of up to 25 cents per gallon of ethanol produced during that month. The total amount of incentives allowed for each facility is capped at $3 million per year. During months that the crush spread is greater than $1 per gallon, participating producers will be required to pay back incentives at the rate of up to 20 cents per gallon of ethanol produced.

In order to qualify to participate in the program, corn ethanol facilities must be located in California and have an operating capacity of at least 10 MMgy. "And here's the tough part: you have to operating," Schlichting said. There are four companies with facilities in California that meet the first two requirements for program participation, but Schlichting said only one company - Calgren Renewable Fuels LLC - is currently producing ethanol. The company operates a 52 MMgy plant in Pixley and will be the only eligible facility able to receive payments when the program begins.

Pacific Ethanol Inc. announced Aug. 11 that its 60 MMgy facility in Stockton and its 40 MMgy plant in Madera had received approval to participate in the CEPIP but "they're not operating, so they can't get any money until they're up and producing," Schlichting said. The 55 MMgy AE Advanced Fuels Keyes/Cilion Inc. plant in Keyes is also approved for the program but "is not operating at the moment," according to Schlicting.

The only other California ethanol producer with a facility large enough to meet the program's qualification requirements is AltraBiofuels Inc. It has a 31.5 MMgy facility in Goshen, but "as far as I know they have no application in and they're not operating either," Schlichting said.

One of the goals of CEPIP is to increase statewide production of biofuels, but if producers are currently idle due to financial constraints and don't qualify to receive state incentives unless they are already producing, can the program really be effective? "That's a good question," Schlichting said. He speculated that if producers get the word out that they've been accepted into the program, perhaps the marketplace will identify those producers as "up and coming" companies. "It may make it easier for them to get loans and things like that," he said.

And while production issues are preventing most of the producers from being able to receive CEPIP's financial incentives, the program itself is also currently delayed by financial issues. The program cannot officially begin until California has a signed budget and other contractual issues are finalized. Because of those barriers, actual program implementation is delayed indefinitely. "Who knows when the budget's going to be done," Schlichting said, adding that it would likely be a few months after a budget is approved before the program can go into effect.