USDA approves loan guarantees for 3 cellulosic projects

By Kris Bevill | January 20, 2011

The USDA announced Jan. 20 it has approved $405 million in loan guarantees through the 9003 section of the 2008 Farm Bill to support the commercialization of cellulosic ethanol at facilities owned by Coskata Inc., Enerkem Corp. and Ineos New Planet BioEnergy LLC. The three projects represent a combined 73 MMgy production capacity and are targeted to begin producing cellulosic ethanol as early as next year. Additionally, the agency released a list of advanced biofuel producers who will receive payments under Section 9005 of the Farm Bill to expand the production of advanced biofuels.

In his comments to announce the funding, Vilsack referenced a speech given by him in October, during which he laid out a vision for the USDA to spur the advancement of domestic biofuels production. Commitments made during that speech included funding for biorefinery projects in five defined regions of the country, as well as funding for advanced biofuel producers to relieve some of the risk of production, modifications to the Biomass Crop Assistance Program and a vow to not only utilize E85 and other renewable fuels in the USDA’s fleet of 43,000 vehicles, but to devise a financing program to assist in the installation of 10,000 blender pumps nationwide within five years. “I’m happy to report we’re making good on that pledge,” Vilsack said. “The Obama administration is working aggressively to bring greater energy independence to all of America by promoting the production of renewable energy in rural communities. This funding will help the nation’s advanced biofuel industry produce more fuel from sustainable rural resources, and in doing so create jobs, a new revenue stream for agriculture producers and stimulate rural economies across the nation.”

Coskata received the largest loan guarantee for its proposed 55 MMgy woody biomass-to-ethanol facility to be located in Green County, Ala., in the west-central portion of the state. “Coskata’s $250 million loan guarantee announced today by the USDA is the largest biofuel guarantee that has ever been issued by a federal agency,” said Wes Bolsen, Coskata’s chief marketing officer and vice president of government affairs.  “This, along with the other announced loan guarantees is a clear demonstration of the Administration’s long-term commitment to advanced biofuels.” Bolsen said the USDA’s guarantee will allow the company to move ahead with fundraising efforts to complete financing for the plant, adding that approval from the USDA validates that Coskata’s platform technology is ready for commercial deployment. Coskata has also proposed a 100 MMgy sugarcane/sugarcane bagasse facility in Clewiston, Fla., and expects that project to move forward in the future, but will focus on financing efforts for the Alabama project in the near-term. Bolsen declined to provide a construction timeline for the Alabama project, stating that construction will begin once financing is complete.

Enerkem Corp., a subsidiary of Quebec-based Enerkem Inc., received a USDA commitment for $80 million. The company’s proposed 10 MMgy municipal solid waste-to-ethanol project in Pontotoc, Miss., will process 300 tons of feedstock per day, according to the company, and will create at least 70 permanent jobs. “USDA financing for our Mississippi plant demonstrates the confidence in Enerkem as a company equipped to drive the waste-to-biofuels movement across North America and beyond,” Enerkem President and CEO Vince Chornet said. “We are thrilled with the resounding assurance that we continue to earn from leading government and private investors.” In 2009, Enerkem received a $50 million grant from the U.S. DOE for its project. A groundbreaking for the plant is expected this year, with operations targeted to commence sometime in 2012.

Ineos received a $75 million loan guarantee for its 8 MMgy waste-to-ethanol project to be located near Vero Beach, Fla., in the central portion of the state’s famed Treasure Coast. Construction on the approximate $150 million project is expected to begin soon as site work is nearly complete. In addition to ethanol, about 6 megawatts of electricity will be produced at the plant when it becomes operational in 2012. The project previously received a $50 million DOE grant and so the remaining $25 million in financing necessary for the project should not be difficult to acquire, according to Dan Cummings, INEOS Bio vice president.

Ethanol industry groups and loan awardees agree that the USDA’s funding announcement is a positive indicator of the industry’s momentum. “Secretary Vilsack and the team at USDA are providing a timely and much needed boost [to] help this nation realize its potential for domestically produced renewable alternatives to imported oil,” RFA President Bob Dinneen said. “Access to capital is the chief hindrance to the rapid commercialization of advanced and cellulosic ethanol production. President Obama has been clear about his vision for the continued evaluation of American ethanol production. Today’s announcement helps bring that vision into greater focus.” Growth Energy CEO Tom Buis commended the USDA for investing in renewable energy projects, but said the next policy focus should be to implement the group’s Fueling Freedom Plan, which would create more market demand for ethanol.

Vilsack admitted that “we’ve got some work to do” in order for the domestic biofuels production capacity to be able to produce 36 billion gallons of fuel by 2022. But he said the USDA loan guarantees will help reach that target. “That’s the goal,” he said. “We’re going to work as hard as we can to promote as much as we can to get there. There’s a clear roadmap—it’s clear it has to be something other than corn, it’s clear it will be multiple technologies. It won’t be any single feedstock and it won’t be any single technology.”

For struggling cellulosic ethanol producers, the USDA announcement could provide hope for funding that has otherwise been nearly impossible to acquire, said Cummings. “[The loan guarantee program] is a breakthrough in allowing for an additional funding vehicle,” he said. “It will bring these technologies to the forefront. It’s different from the first-generation sector and provides opportunities for the U.S. to move forward and hopefully export these technologies around the world.”

Approximately $300 million will be available to applicants this year once the USDA finalizes new rules for Section 9003. After that, the future of the program is unknown. “Part of our challenge, and the industry’s challenge, in 2011 is to figure out what works, what kind of tools we will need in the future to continue this momentum that’s been built and then make the case for the 2012 Farm Bill that there needs to be a robust commitment to energy and biofuel production,” Vilsack said.