About 12 months ago, I shared the importance of following good margin management practices, even in profitable times. Based on past trends, I encouraged you to anticipate and prepare for the next economic shift. Well, that shift is here. You know that ethanol margins have declined. Today's environment is basically the opposite of last year. Instead of high gas prices and low corn costs, we face falling crude-oil prices and fluctuating corn costs. Hopefully, you took my advice last year and implemented best practices. For example, some of the ways ethanol producers I work with leveraged the strong economy included: 
&bull; Increasing capital purchases. &bull; Improving cash reserves. &bull; Restructuring debt. &bull; Reducing debt above the scheduled amount. &bull; Making distributions to investors.
 These producers took advantage of record profits to create a financial cushion. If you didn't, or the padding isn't quite where you'd like it to be, there's still hope. But you have to be diligent. Now that margins are tighter, it's even more important to run your business efficiently. Financial data is essential to making good business decisions. Based on years working with ethanol producers, here are five tips to improve profit margins through financial management: 1. Employ the capital equipment invested during the last year to introduce new revenue streams or more efficient processes. 2. Use cash reserves to pay interest and principal on debt or pay off loans entirely. 3. Focus on production efficiencies. Take time to review all the steps within your production cycle. Concentrate on small, incremental savings. Encourage employees across your entire organization to look for savings and share efficiency ideas. Then, commit to evaluate all suggestions, executing on those that make sense. This also fosters a continuous improvement mindset. 4. Master margin management. Take steps to control expenses and maximize sales. Pre-buy when costs are lower. Purchase comparable resources at reduced costs, provided they meet your quality standards. Make sure you understand your cost structures and break-even, not only direct costs, but fixed and overhead costs, too. Compare actual costs against your budget and calculate your break-even. How much do you have to sell to get a return on your investment? Different prices, input purchasing programs and even varying philosophies can greatly impact expenses. 5.&nbsp;&nbsp;&nbsp; Maximize operational efficiency. By evaluating both production and cost efficiencies, and implementing small changes in each, you will realize a higher overall return. This isn't the first time you've experienced this kind of economic cycle. The drivers are different, but the things that worked during previous periods of low margins still apply. You can be financially successful if you implement the tips above. For help weathering today's tight margins, consult with your financial services partner. Author:&nbsp; Donna Funk, CPA Principal, K-Coe Isom 913-643-5000 funk@kcoe.com

2015/05/Donna-Funk0615_14311008929919_largethumb.jpg

2015/05/Donna-Funk0615_14311008929919_thumb.jpg

2015/05/Donna-Funk0615_14311008929919.jpg

Donna Funk with K-Coe Isom shares five tips for weathering today's tight margins. The drivers are different, but the things that worked during previous periods of low margins still apply, she says. 

Weathering Tight Margins 

When Blue Flint Ethanol came online in February 2007, corn production in North Dakota&rsquo;s McLean County was about 32,500 acres. In order to purchase the corn needed to operate the biorefinery, employees had to look far beyond the local market. At that time, the primary corn-producing area in North Dakota was the southeast part of the state, hundreds of miles from Blue Flint Ethanol&rsquo;s home in Underwood. More than 90 percent of the corn arrived via the Dakota Missouri Valley Western Railroad. Only about 10 percent of corn was purchased locally. That ratio of local to regional corn has changed, and in a significant way, in recent years. Today, over 90 percent of the corn used at the ethanol biorefinery is delivered via trucks within a 100 mile radius of Blue Flint Ethanol. Location, Location, Location Blue Flint Ethanol is located adjacent to Great River Energy&rsquo;s Coal Creek Station, North Dakota&rsquo;s largest power plant. Instead of burning fuel to make ethanol, Blue Flint Ethanol uses excess steam from Coal Creek Station to provide process energy and dry distillers grains. That proximity to a power plant is essential to Blue Flint Ethanol becoming one of the most cost-effective, energy-efficient and environmentally friendly biorefineries in the country. Blue Flint Ethanol is a part of Midwest AgEnergy Group, an upper Midwest biofuels enterprise owned by Great River Energy and other accredited investors including banks and international, agricultural and industrial businesses. MAG also includes Dakota Spirit AgEnergy, an ethanol biorefinery under construction near Jamestown, North Dakota. According to David Spickler, vice president of marketing and risk management for Midwest AgEnergy Group, the increase in local corn production is due to a number of reasons, including: &bull; The presence of the Blue Flint Ethanol ethanol biorefinery. &bull; The improvement of genetics that has resulted in corn varieties better suited for the climate in western and central North Dakota. &bull; An increase in corn prices (although prices are lower now). &bull; Abundant rainfall contributing to higher than average yields in western and central North Dakota. The numbers speak for themselves. In 2012, about 64,000 acres of corn were planted in McLean County. That number jumped to 85,800 acres in 2013, according to information from USDA&rsquo;s National Agriculture Statistics Service. Local Growers Steven and Katie Heger operate a third-generation family farm near Underwood. They started raising corn in 2004. Although corn had always been an easy crop to grow, a lack of local outlets to market corn limited any expansion of corn acres on their farm. An increase in corn production for the Heger operation coincided with the start of operations for Blue Flint Ethanol in 2007. &ldquo;It gave us a readily available and local market, and also a real freight advantage with our farm located just five miles north of the plant,&rdquo; Heger says. He adds it took a lot of work to get corn production levels to where they wanted them. He benefited from improvements in corn genetics for growing conditions in central North Dakota, along with a better understanding of those genetics. &ldquo;As a result, we have really seen yields increase in the last 5 to 10 years.&rdquo; Rob Tweeten, who farms on the west side of the Missouri River near Hensler, North Dakota, has been raising corn since the early 1980s, primarily for livestock feed. He increased corn acreage in 2005 with the addition of more irrigation pivots. After Blue Flint Ethanol came online, Tweeten gained a new market for corn, and the advantage of a local outlet boosting basis, a discount to nearby futures markets that mostly reflects transportation cost as well as local demand. Tweeten&rsquo;s dryland rotation is now corn, followed by pinto beans or soybeans and then wheat. His irrigated rotation is corn, followed by soybeans. &ldquo;We needed another crop in our rotation, in addition to wheat and beans. Corn has been a great addition and has taken over a lot of acres in this area,&rdquo; he says. Tweeten also utilizes another product produced by Blue Flint Ethanol: modified distillers grain. His farm has been purchasing the high-quality feed product since expanding the feedlot in 2008. Tweeten has an abundance of mixed grass forage for his livestock. By adding the modified distillers grains, he is able to provide his cattle a palatable and nutritious ration, and at a reasonable price. &ldquo;It&rsquo;s a good cold-weather feed,&rdquo; says Tweeten. He credits Blue Flint Ethanol with providing a consistent product. &ldquo;They do a good job with quality control.&rdquo; Added Drying, Storage Another major factor that has helped contribute to an increase in corn acreage in the region is the development of Coal Creek Drying and Storage, located adjacent to Blue Flint Ethanol. This 2010 infrastructure enhancement, developed by Knorr Farms and Great River Energy, resulted in the addition of a dryer and 600,000 bushels of crop storage. &ldquo;This provides local growers with an option to have their corn dried and then marketed at a local facility. Prior to this, there was not an option to have corn dried locally,&rdquo; Spickler explains. Since 2010, expansions at Coal Creek Drying and Storage have brought the total bin space to 2.36 million bushels of storage, in addition to the 1.5 million bushels storage at Blue Flint Ethanol. A second truck scale was also added to accommodate increased truck traffic. &ldquo;We have provided growers with a place to market and dry their corn, and to get in and out of Blue Flint Ethanol in an efficient manner,&rdquo; Spickler says. &ldquo;This has reduced wait times substantially for local growers.&rdquo; The increase in local corn acreage has led to a dramatic rise in the number of suppliers for Blue Flint Ethanol. Prior to the opening of Coal Creek Drying and Storage, Blue Flint Ethanol worked with fewer than 100 suppliers. As a result of the surge in local corn production, the biorefinery now has more than 900 suppliers. Author: Lyndon Anderson Leader, Communications Great River Energy 701-442-7036 landerson1@GREnergy.com

COLOCATION SYNERGIES:  Blue Flint Ethanol, left, gets steam from Great River Energyâ€™s Coal Creek Station on the right. In 2010, Coal Creek Drying and Storage was added to the site.    

2015/05/Ethanol-Biorefinery0615_14311010976355_largethumb.jpg

2015/05/Ethanol-Biorefinery0615_14311010976355_thumb.jpg

2015/05/Ethanol-Biorefinery0615_14311010976355.jpg

Blue Flint Ethanol stimulates corn expansion in McLean County, North Dakota.

Ethanol Biorefinery Boosts Local Corn Production

Ethanol plants are exposed to market forces over which they have little control, such as the price of commodities (ethanol, the cost of corn and natural gas), transportation rates for feedstock, and government support policies (e.g., potential changes to the RFS). Any commodity-based business is subject to sudden and prolonged market disruption, as recently experienced when the drop in oil prices put pressure on ethanol prices. In this economic environment, how can a plant stay profitable? When best laid plans fail and plants encounter financial difficulties, an experienced financial advisor who has worked with ethanol companies and other stakeholders and interested parties, such as lenders and investors, can prove to be indispensable. There are several strategies to mitigate the risks being faced in the current environment and lessons learned on ways to improve the financial position of ethanol plants and ensure the long-term viability of their operations. The ethanol industry had a record-setting year in 2014, with generous crush margins leading to high profitability for many plants. These high margins evaporated, however, toward the end of 2014 as falling crude oil prices resulted in lower gasoline prices that in turn pressured ethanol prices, as illustrated in the accompanying chart. With little economic incentive to increase ethanol blending beyond the regulatory minimum and limited demand from the export market, ethanol producers continue to face industry overcapacity and challenging market conditions into 2015. FTI Consulting has significant experience working with ethanol plants that faced financial distress in recent years and would like to share some lessons learned to help the industry weather the current unfavorable conditions and avoid the fate of companies such as Bionol Clearfield LLC, a 110 MMgy ethanol plant completed in 2010 at a cost of $270 million, which was idled in 2011 as the ethanol buyer breached its contract. The plant was sold in bankruptcy in 2012 for only $9 million. External factors largely determine the profitability of an ethanol plant. When crush margins come under pressure, as they are now, plant managers have the option to reduce production, including idling facilities, to mitigate operating losses. However, depending upon the length of time a plant faces unfavorable conditions, financial reserves may be depleted before markets improve. For a plant with debt in its capital structure, idling production does not alter the debt amortization or interest schedule, which can lead to liquidity issues, covenant breaches or missed debt payments.&nbsp; If not addressed through a planned response to these challenges, the timetable and options available diminish and the company potentially loses control. Avoiding Financial Distress Leverage (financing a plant with debt) can increase the profitability of a plant by providing a relatively cheap source of money, but it also increases the risk to a plant&rsquo;s viability when operating results deteriorate. Reducing the amount of debt will reduce the risk of financial distress, as a plant is relieved from the cash constraints of a strict debt payment schedule. Having access to sufficient reserves to meet debt obligations during prolonged periods of negative margins is another option to mitigate the default risk. These options require long-term planning which is not a luxury that many possess if already under financial distress. There are other measures that can be taken in advance that may be effective short-term solutions. Conducting a financial analysis of the operating costs relative to sales prices will provide management with meaningful guidance for the business operations. The goal of this exercise is to determine the breakeven point of the plant&rsquo;s profitability, which is driven by various factors, many of which are unique to each plant. In cases where operating economics have deteriorated beyond the breakeven point, a plant can reduce output or idle the plant entirely in order to reduce cash burn and stabilize the overall financial health of the operation. The break-even analysis is similar to a crush margin analysis but should include the cost of raw materials and the sale prices for all products, not just ethanol. A review of existing contracts and opportunities to hedge certain price risks also should be included in the analysis. Given the continued fluctuation of commodity prices driving an ethanol business&rsquo; profitability, companies should review and refresh their breakeven analysis on a periodic basis. If an ethanol plant faces difficulties meeting its debt obligations, prompt intervention can significantly improve the outlook for the facility. Interested parties benefit if there is a way to keep a plant in business rather than face the cost and uncertainty of bankruptcy. Dealing with financial distress is a new situation for most ethanol producers who, while experts at converting corn into ethanol and DDGS, are not typically as experienced in navigating day-to-day interactions with lenders that may be required in times of financial adversity. An outside advisor who focuses on financial restructuring will analyze the maturity profile of the existing debt and its alignment with forecast cash flows and asset mix to develop alternative capital structures and refinancing options that meet the needs of the business and lenders for the particular operating environment. Involving an outside party that specializes in distressed situations and has the experience to navigate this process can provide significant value, such as assisting with forecasting cash flows; implementing cash preservation strategies; and identifying, planning and executing on strategic options that preserve the business while demonstrating to lenders that collateral value is being maximized through solutions that avoid bankruptcy. The core of the financial advisor&rsquo;s work should include analyzing all business aspects of the ethanol plant, recommending change where needed based on biofuels industry knowledge and situation-specific considerations, and presenting that information to lenders in a manner that will foster cooperation. While an ethanol producer may be reluctant to share information in periods of distressed financial conditions, navigating lender debt work out processes requires carefully orchestrated communication of facts, as well as information supporting the preferred way forward for the company. There is a balance between communicating the situation and providing sufficient visibility to allow creditors and investors to make informed decisions. For example, if inventory management can be improved and the corresponding value is demonstrated in refined economic models, lenders may realize that their exposure is mitigated by amending existing loan covenants. One aspect of the role of a third-party advisor is similar to that of a translator:&nbsp; The advisor speaks the same language as the lenders, which allows the advisor to present the information from the ethanol plant in a format that is easily understood by the lenders, ultimately facilitating resolution of the situation in as positive and constructive a manner as is available. When to Seek Help Financial difficulties become harder to resolve the longer they linger. Once debt covenants have been breached, many options are off the table. An analogy that rings true comes from experience skiing in my home state of Colorado: If I&rsquo;m wondering whether I&rsquo;m going too fast, then I&rsquo;m probably going too fast. Accordingly, if you think your operation might be headed for financial distress, it is likely a good time to have an initial conversation with experts in that field to see what can be done. While it may be counterintuitive to spend money on advisors when confronting a cash crunch, the ultimate payoff can be significant. Author: Frank Baumgardt Senior Director, Corporate Finance, Clean Technology FTI Consulting Inc. 303-956-9981 frank.baumgardt@fticonsulting.com

2015/05/Long-Term-Planning0615_14311013547749_largethumb.jpg

2015/05/Long-Term-Planning0615_14311013547749_thumb.jpg

2015/05/Long-Term-Planning0615_14311013547749.jpg

The Center for Agricultural and Rural Development calculates ethanol return over operating costs as ethanol price minus corn cost plus DDGS revenue minus other operating costs for a representative Iowa dry mill. 

2015/05/EthanolMargins-CrudeOil_14311014114953.jpg

Advisors provide guidance and tools to achieve more sound financial footing.

Long-Term Planning Mitigates Risks from Prolonged Downturns

Companies are pressing harder and harder to raise capital to grow or just to survive. As a general rule, raising money is challenging because federal and state securities laws prohibit the sale of securities without registration with the U.S. Securities and Exchange Commission or an exemption from such requirements. Like an initial public offering, registration is expensive and complex. Three recently passed laws and rules, however, may help companies raise the capital they need: crowdfunding, Rule 506(c) and Regulation A+. Crowdfunding You have likely heard about crowdfunding sites like Kickstarter and Indigogo. Unfortunately, the promise of bringing the &ldquo;crowd&rdquo; to regular businesses has so far fallen short. To facilitate broader use of crowdfunding, the JOBS Act added a crowdfunding exemption that will allow companies to sell equity or other securities to the crowd. In practice, however, the requirements to use the crowdfunding exemption may be too onerous for most. While an overview of the general requirements for crowdfunding is possible, specifics will not be available for companies until the SEC adopts final rules. The aggregate amount of securities sold under the crowdfunding exemption during any 12-month period may not exceed $1 million. In addition, if either the annual income or the net worth of the investor is less than $100,000, the aggregate amount that can be sold to such investor may not exceed the greater of $2,000 or 5 percent of the annual income or net worth of the investor. If either the annual income or net worth of the investor is equal to or more than $100,000, the aggregate amount sold to the investor may not exceed 10 percent of the annual income or net worth of the investor; and, in any case, the aggregate amount sold to any investor may not exceed $100,000.&nbsp; Additionally, the transaction must be conducted either through a registered broker-dealer or a funding portal registered with the SEC. If a registered funding portal is used for crowdfunding, the portal will not be allowed to offer investment advice or recommendations, solicit purchases, sales or offers to purchase the securities displayed on its website, pay employees, agents or other people based on the sale of securities displayed on its website, or handle investor funds or securities. In other words, companies will not be able to use their own website as a &ldquo;funding portal.&rdquo; The company must also disclose information to investors, including: &bull; General information about its business such as location, directors and officers, description of business. &bull; A business plan. &bull; A description of financial condition, including tax returns and financial statements for offerings of $100,000 or less, independent accountant reviewed financial statements for offerings between $100,000 but not more than $500,000 or audited financial statements for target offerings more &nbsp;&nbsp; than $500,000. &bull; The purpose of the offering and proposed use of proceeds. &bull; The target offering amount and deadline to reach such amount. &bull; The price of the securities. &bull; A description of company ownership and capital structure, along with specific information regarding the company&rsquo;s securities. In addition, the company must provide investors financial statements and reports on the results of operations on an annual basis following the sale.&nbsp; The relatively low transaction and investor limits permissible under the federal crowdfunding exemption, coupled with the funding portal limitations and the upfront and ongoing disclosure obligations, could prove to be too much of a burden for many companies. There are several state legislatures that have adopted or are considering their own crowdfunding exemptions that may provide a more efficient means to raise capital from several investors.&nbsp;&nbsp; Got all that? Now for something a bit easier&hellip; Rule 506(c) Prior to the JOBS Act, Rule 506 was and remains the most used exemption. However, Rule 506 did not permit general solicitation or advertisement, so companies raising capital under Rule 506 could not legally use social media, printed flyers or other channels to solicit investors they did not know. Now, Rule 506(c) allows companies to advertise to find investors.&nbsp;&nbsp; Rule 506(c) does not have a dollar limitation, does not limit the number of investors or their investment amount and does not require specific information be disclosed to investors (but most companies make disclosures to avoid misrepresentation or fraud claims). Rule 506(c) does have certain restrictions, however. A primary restriction is that all investors must be accredited, which generally equates to the investor being relatively wealthy (e.g., annual income in excess of $200,000 for an individual and $300,000 for married couples, or net worth of at least $1 million, excluding the investor&rsquo;s principal residence). In addition, the company must take reasonable steps to verify the accredited status of such investors. Whether steps taken are &ldquo;reasonable&rdquo; depends on particular facts and circumstances of each purchaser and transaction. The SEC has provided some guidance as to what constitutes reasonable steps, but this is still relatively unclear and untested. Overall, companies seeking to solicit sales from a large group of wealthy investors may find Rule 506(c) as a viable exemption, but will need to be careful to conduct proper diligence on the investors. Regulation A+ Regulation A+ is a complex exemption, and in many ways, reflects a scaled back version of registration requirements and the ongoing requirements of reporting companies. The following summary only scratches the surface of the various requirements and limitations of Regulation A+ and many companies may find this exemption too burdensome and expensive, but for some, it may be the perfect fit. The SEC adopted the Regulation A+ amendments March 25, but they will not likely become effective until sometime in June. Regulation A+ will permit two tiers of offerings. Tier 1 offerings have aggregate sales of up to $20 million during the preceding 12 months. Tier 2 offerings have aggregate sales of up to $50 million during the preceding 12 months. In addition to a larger offering size, the primary advantage of Tier 2 is companies will not be required to also navigate state law registration and exemption requirements. Companies will be able to sell securities under Regulation A+ to accredited and nonaccredited investors. Sales to nonaccredited investors under Tier 2 offerings will be subject to a maximum amount equal to 10 percent of the nonaccredited investor&rsquo;s annual income or net worth, whichever is greater. To conduct a Regulation A+ offering, companies will need to file Form 1-A with the SEC, which will then complete a process to qualify the offering prior to the company selling the securities. Form 1-A will provide investors with basic information about the company, offering, securities and other general information. Form 1-A will also provide an offering circular that contains extensive narrative discussion similar to that of registration statements, such as a description of the business, risk factors, use of proceeds, capitalization, description of securities, director and officer information, related party transaction disclosures and other disclosures. Form 1-A will also include financial statements for the two most recent fiscal years (that must be audited for Tier 2 offerings). Subject to certain requirements, companies are allowed to test the waters to gauge investor interest prior to filing Form 1-A and during the qualification process, but securities cannot be sold prior to qualification. After the sale, companies that engaged in Tier 2 offerings will be subject to ongoing reporting requirements, such as filing annual reports, semiannual reports and current event reports. Whatever your company needs to do to raise money, be aware that the rules and regulations are complex and vary from state to state, so please check with a competent securities lawyer before you start. This article isn&rsquo;t intended to give anyone legal advice, so don&rsquo;t try to do an offering based on it. Author: Todd Taylor Attorney, Fredrikson &amp; Byron P.A. ttaylor@fredlaw.com 612-492-7355 Contributing author: Joseph Schauer Attorney, Fredrikson &amp; Byron P.A.

2015/05/Raising-Capital0615_14311024680392_largethumb.jpg

2015/05/Raising-Capital0615_14311024680392_thumb.jpg

2015/05/Raising-Capital0615_14311024680392.jpg

2015/05/Jobs-NewLaws_14311024672434.jpg

2015/05/RegulationA_14311024690579.jpg

2015/05/Rule-506_14311024700325.jpg

Attempts to bring crowdfunding to industry fall short, but new mechanisms are available.

New Laws, Rules Offer Options for Raising Capital

Running a 21 MMgy ethanol plant in an industry led by 100 MMgy-plus facilities isn&rsquo;t easy. Smaller plants are at a major disadvantage, says Dana Persson, who served as CEO of Central Minnesota Ethanol Co-op for four years. &ldquo;Being a small plant, you question what your future might be, and what that means to the plant, the corn farmers and shareholders.&rdquo; Then, along came Green Biologics Inc., a wholly owned subsidiary of a United Kingdom industrial biotechnology and renewable chemicals company, Green Biologics Ltd. The company&rsquo;s business model is to own and operate or become a majority shareholder in ethanol plants for normal butanol (n-butanol) and acetone production, says Joel Stone, president of Green Biologics. The plan is to add bolt-on production capacity at ethanol plants or retrofit them, like at newly renamed Central Minnesota Renewables in Little Falls, where Persson now serves as interim general manager of the plant and vice president for Green Biologics. Pulp and paper mills are another potential target, Stone says. Acquisition of the Little Falls facility, which closed in December, was the first step. Detailed engineering to retrofit it for n-butanol and acetone production was ongoing in April, with construction expected to begin in early summer, he says. The plant will continue to produce ethanol with minimal disruption during the transition to renewable chemical production, which is expected to be complete in mid-2016. Ethanol, a two-carbon alcohol, and n-butanol, a four-carbon alcohol, can both be produced through fermentation of corn, other crops or biomass. Although new distillation equipment will be installed, most equipment will be repurposed, including fermenters, where Clostridia, small rod bacteria, will replace the use of yeast. Going from ethanol to chemical production is a steep learning curve for the&nbsp; employees, Persson says. The fermentation process is more detailed, for one thing. The facility will also produce another coproduct, high-protein fermentation broth concentrate, in addition to distillers grains. &ldquo;There are going to be some things that are pretty different but there are some things that will be the same,&rdquo; he says. Still, the transition into renewable chemicals has been welcomed with open arms, Stone says. In fact, some ethanol plant shareholders rolled over their investments to become minority shareholders in the new company. That enthusiasm also includes everyone from the former ethanol plant employees, who now work for the new company, to the local community, and all the way up to Minnesota government officials. In late April, Green Biologics collected the Standout Fundraising Achievement of the Year award from Cleantech Group for raising more than $100 million since December 2013, using a creative combination of of venture debt and equity. The retrofit model is one that Green Biologics thinks could work at additional ethanol plants, Stone says. The bolt-on approach, on the other hand, could be pursued by ethanol producers who want to continue producing fuel while diversifying risk. For example, a 100 MMgy nameplate facility operating close to 120 MMgy could add on n-butanol and acetone production, allowing the company to operate more efficiently at 90 MMgy and produce renewable chemicals with some of its feedstock.&nbsp; &ldquo;Our most logical-sized facility would be producing somewhere between 40,000 and 50,000 metric tons of total solvent, which would be the butanol, acetone and ethanol,&rdquo; he says. Old Made New Although, currently, nearly 100 percent of the global market for n-butnaol and acetone is petroleum derived, producing it from renewable sources isn&rsquo;t a new concept. &ldquo;We say it&rsquo;s back to the future,&rdquo; Stone says. The fermentation process to produce acetone, butanol and ethanol (ABE) from corn mash or molasses was commercialized in 1915 in England. It wasn&rsquo;t until 1938 that a process was developed for petrochemical-derived n-butanol and acetone and, by the late-1940s, the last plant producing the chemicals from renewable sources had closed. In the 1990s David Ramey began to champion butanol as a drop-in replacement for gasoline. In 2005, he drove 10,000 miles in an unmodified 1992 Buick Park Avenue powered by 100 percent butanol. He also founded ButyFuel LLC, which merged with Green Biologics in 2012. While Ramey focused on butanol or isobutanol, primarily a fuel blendstock, Green Biologics has its sights set on n-butanol. Both are types of butanol with similar characteristics but dramatically different uses. N-butanol is an ingredient in products like moisturizers, fragrances and other personal care products and n-butanol derivatives are used in paints, inks and more. Acetone is a chemical found in nail polish remover and can also be transformed into rubbing alcohol, which can be an ingredient in flavor and fragrance compounds. &ldquo;We&rsquo;re not locked into a single end use for these products,&rdquo; Stone says. &ldquo;There are a myriad of uses of normal butanol and acetone through different consumer products.&rdquo; The global annual demand for n-butanol is more than 8 billion pounds with 4.4 percent yearly growth, Stone says. It has an intermediate market valued at more than $6 billion as well as downstream chemical intermediate markets valued at more than $40 billion. And, there&rsquo;s a significant demand to replace petroleum-based products with biobased alternatives. &ldquo;The mix of the normal butanol and acetone that we are producing will be marketed for a value that is probably double what fuel ethanol would market for,&rdquo; Stone says, adding that chemical markets are not as volatile as fuel markets. &ldquo;That&rsquo;s a good rule of thumb. It could be significantly higher, depending on market conditions.&rdquo; &nbsp;Just as the ethanol industry has optimized operations over time, Green Biologics has improved on the ABE process, and plans to continue to do so. R&amp;D work on ABE fermentation has been done at a pilot plant in Columbus, Ohio, and a demo-scale facility in Emmetsburg, Iowa, which has been operating continuously since 2014, Stone says. At the Little Falls facility, the plant will continue to produce a small amount of ethanol after the conversion to n-butanol and acetone production. However, it&rsquo;s expected to be only about 2 percent of total production and as the company optimizes its production process, the amount of ethanol produced may go to zero, he adds. In addition, Green Biologics believes the process is superior to petrochemical processes. It&rsquo;s at least 45 percent more carbon efficient, produces higher purity materials and results in n-butanol with lower water content and no hydrocarbon impurities, which are intrinsic to the oil refinery produced n-butanol. The acetone produced will also be free of toxic impurities. Author: Holly Jessen Managing Editor, Ethanol Producer Magazine 701-738-4946 hjessen@bbiinternational.com

Scott Haggerty, operations manager, pauses outside the 21 MMgy ethanol plant in Little Falls, Minnesota.

2015/05/N-Butanol-0615_14311104780128_largethumb.jpg

2015/05/N-Butanol-0615_14311104780128_thumb.jpg

2015/05/N-Butanol-0615_14311104780128.jpg

Plant employees will continue producing ethanol until the transition to renewable chemicals is complete in 2016.

2015/05/InteriorPlant-0615_1431110646121.jpg

Elby Cox, lab manager, collects a sample of corn mash. 

2015/05/Ethanol-CornMash-0615_14311104710447.jpg

The Central Minnesota Ethanol Co-op has been renamed Central Minnesota Renewables and will begin producing n-butanol and acetone in 2016.

2015/05/GreenBiologics0615_14311106451696.jpg

Scott Warfield, vice president of construction, at left, looks over expansion plans with Joel Stone and Dana Persson. 

2015/05/Ethanol-Guys-0615_14311104730037.jpg

2015/05/ButanolChart-0615_14311106441311.jpg

Joel Stone, holding a sample of n-butanol, and Dana Persson say the market for renewable-based n-butanol is growing, thanks to interest from consumers and companies like Coca-Cola and Home Depot.

2015/05/Ethanol-Joel-Dana-0615_14311104750435.jpg

The acetone, butanol and ethanol (ABE) process was commercialized in 1915 in England.  

2015/05/Ethanol-Lab1-0615_14311104759637.jpg

Elby Cox, lab manager, works in the lab. 

2015/05/Ethanol-Lab2-0615_14311104770342.jpg

A Minnesota ethanol plant is first in line to produce high-value renewable chemicals.    

'Back to the Future' With N-butanol

Vecoplan LLC has promoted Misty Turner to the position of assistant service manager. Responsibilities of her new position include connecting customers and field technicians with Vecoplan&rsquo;s internal troubleshooting service technicians. She will also oversee the organization and scheduling of Vecoplan&rsquo;s network of certified service personnel throughout North America. Turner joined Vecoplan in March 2012 as a service administrator. She brings 10 years of management and service experience to her new job, including three years as accounts receivable manager at HEP Direct and four years in customer service with Furniture USA.&nbsp; American Ethanol reached a new milestone at the Phoenix International Raceway in March, when it topped 7 million miles of racing. That equates with roughly 30 trips from the Earth to the moon or 281 laps around Earth. NASCAR began running E15 in 2011. The fuel change was in conjunction with its NASCAR Green Platform, which has become one of the most comprehensive recycling, tree planting and renewable energy programs in professional sports. American Ethanol is a partnership of the National Corn Growers Association and Growth Energy. Aemetis Inc. has appointed Satya Chillara as vice president of corporate development. Chillara has more than 24 years of experience in the cleantech and semiconductor industries and on Wall Street. He previously served as managing director and equity research analyst working for several investment banks and hedge funds.&nbsp; VAC-U-MAX has announced its 55MW industrial sump vacuum cleaner allows operators to quickly empty machine tool sumps, machining beds, oil/water separators, parts washers, rinse tanks and clean up liquid spills. Included with the complete system, the chip basket and liner separates solid particles from collected liquid at 1 to 2 gallons per second; and, with the turn of a lever, this industrial vacuum will pump out the filtered liquid contents of the drum through the discharge hose to a central filtration system for coolant/oils or approved floor drain at up to 14 gallons per minute. Celtic Renewables has received &pound;500,000 ($746,150) in a new round of investment, taking its valuation to &pound;10 million. The company announced an investment of &pound;250,000 from the Scottish Investment Bank, with an additional &pound;250,000 equity stake acquired by an existing private investor. Scottish Renewables converts whiskey waste into biofuels. Growmark Inc. and Magellan Pipeline Co. PL have entered into an agreement in which Growmark will acquire the refined fuels terminal near St. Joseph, Missouri.&nbsp; Terms of the acquisition were not disclosed. Acquisition of the facility will enable Growmark to ensure continued supply of refined fuels. In addition to the current diesel fuel availability at the terminal, Growmark intends to offer ethanol blends of gasoline in the future. Iogen has appointed Gordon McLennan vice president of business development. McLennan has 35 years experience in domestic and international sales, revenue generation, project development, operations management, change management and leadership. As vice president of business development, he will be responsible for developing and delivering new commercial opportunities, including Iogen&rsquo;s current strategic initiatives both within and beyond cellulosic ethanol. Gordon will play a key role in building upon Iogen&rsquo;s commercial initiatives.&nbsp; Amerplast has entered into a supply partnership agreement with Braskem to market green polyethylene (Green PE) obtained from a renewable source, sugar cane ethanol. While environmentally sustainable, Green PE has the performance characteristics of a traditional PE. For Amerplast&rsquo;s customers, such as tissue producers, it offers an environmentally sound alternative for meeting packaging needs.
The Nebraska Corn Board recently presented Duane Kristensen of Chief Ethanol Fuels Inc. with its Ethanol Industry Appreciation Award, which recognizes a producer or person in the industry who has worked hard to develop ethanol markets and expand demand for ethanol in the state while appreciating the value of the corn checkoff and its involvement in ethanol market development. Kristensen was selected for his leadership in Nebraska as well as his involvement and engagement in ethanol advocacy groups on a statewide, national, and global basis.
Methes Energies International Ltd. recently announced it has received an initial payment for the sale of a Denami 600 biodiesel processor and a PP-MEC pre-treatment system to be installed in Havelock, Ontario, Canada. The buyer, Drain Bros, will become the first facility in the world to use Methes' pretreatment system using the PP-MEC catalyst to process corn oil from a local ethanol plant. Ener-Core Inc., a provider of power oxidation technology and equipment that generates clean power from low-quality and waste gases from a wide variety of industries, has appointed John Millard as director of Europe and the Middle East region and Mark Owen as director of sales. Millard and Owen will both report directly to Alain Castro, CEO of Ener-Core. Millard has previously served as CEO of a Swiss energy consulting company focusing on demand-side energy management and most recently the development of smart energy systems. Owen is an internationally recognized expert on industrial pollution control systems and processes. He has 30 years experience in the commercialization, installation and operational servicing of various types of air pollution control and waste treatment systems. Archer Daniels Midland Co. has announced several management appointments in its corn business unit. Craig Willis, a 23-year company veteran, has been named president of the ethanol group. He had been a vice president of the business since 2011. Prior to joining the ethanol group in 2007, Willis&rsquo; broad-based ADM tenure included experience as commercial manager of three large oilseeds crush plants. He also managed origination and transportation assets within the company&rsquo;s agricultural services business unit. In addition, Kris Lutt and Andy Moore have been named president and vice president, respectively, of sweeteners and starches; Luther Pohlmann has been named vice president of corn operations, and Gary Towne will continue to serve as president of risk management for the corn business unit.In addition, ADM has announced that Mark Schweitzer has been appointed vice president of investor relations, where he will represent the company to the investment community and act as an advocate for shareholder value creation. Schweitzer previously served as managing director of ADM&rsquo;s intermodal and international container freight business.

Duane Kristensen (left) accepts Ethanol Industry Appreciation Award from Dennis Gengenbach, farmer-director on the Nebraska Corn Board.

2015/05/Kristensen-Ethanol0615_14311113594256.jpg

2015/05/McLennan-Gordon-Ethanol_14311113602369.jpg

2015/05/Millard-Ethanol0615_1431111361251.jpg

2015/05/Turner-0615EPM_14311113622931.jpg

2015/05/ADM-Logo_14311115066788.jpg

2015/05/MethesEnergies_1431111507694.jpg

Business Briefs

For several years the biofuels industry has been confronted with misinformation about the role that biofuels production plays in driving up food prices and impairing food security. It has been disseminated in large part by vested interests that have been threatened by the growth of the industry. While the industry has countered this with the facts, the recent drop in oil prices and global food price index should finally put an end to the food vs. fuel debate. The Global Renewable Fuels Alliance has repeatedly pointed out that the price of oil and energy inputs are the single most important drivers of food and commodity prices.&nbsp; For a number of years the World Bank, International Energy Agency and United Nations Food and Agriculture Organization had been under the misguided impression that food price increases were the result of increased biofuels production. They have since come to the conclusion that the biofuels industry has had a negligible impact on food prices. The World Bank publication, &ldquo;Long-Term Drivers of Food Prices,&rdquo; which examined the relative contribution of various macroeconomic drivers on food price increases from 1997-&rsquo;04 to 2005-&rsquo;12 concluded &ldquo;that most of the price increases are accounted for by crude oil prices (more than 50 percent)&hellip;&rdquo; The report goes on to say, &ldquo;most of the contribution to food price changes from 1997-&rsquo;04 to 2005-&rsquo;12 comes from the price of crude oil, which for maize and wheat is 52 percent and 64 percent, respectively.&rdquo; This long overdue &ldquo;revelation&rdquo; is not a surprise to the biofuels industry and the GRFA, which published the accompanying chart for the first time five years ago.&nbsp; It compares the global food price index published by the UN FAO with global crude oil prices and the results are undeniable: The recent collapse of global crude oil prices has been followed by the drop in the global food price index. It is interesting to note that this recent drop in the food price index happened while biofuels production grew to over 90 billion liters per year.&nbsp; More recently, the UN FAO concluded that biofuels have actually helped the agriculture sector over the years by stating in a recent publication that &ldquo;increased agricultural productivity and output has ensured that the global supply of crops available for nonbiofuel uses has continued to grow over the long term.&rdquo; In a January speech at the Global Forum for Food and Agriculture by Jose Graziano da Silva, director general of UN FAO, he recognized biofuels as a key part of the global agriculture complex with social, agricultural and environmental benefits and the necessity for agriculture to accommodate both food and fuel. Perhaps this is a fitting end to the debate once and for all. Author: Bliss Baker Global Renewable Fuels Association 647-309-0058 info@globalrfa.org

2015/05/Baker,-Bliss_14311116257182_largethumb.jpg

2015/05/Baker,-Bliss_14311116257182_thumb.jpg

2015/05/Baker,-Bliss_14311116257182.jpg

2015/05/GlobalScene-Chart_14311116267282.jpg

The recent drop in oil prices and global food price index should finally put an end to the food vs. food debate, writes Bliss Baker of GRFA. The price of oil and energy inputs are the most important drivers of food and commodity prices, not biofuels.

End the Food  Vs Fuel Debate 

Every year, surveys are performed by advertising and marketing companies to try and measure trust.&nbsp; Who or what do people trust when they are looking for the answer to a question, a recommendation on a purchase, or information about a controversial topic? While the results reshuffle a little bit each year, near the top of the list in every survey is &ldquo;someone like me,&rdquo; or &ldquo;people I know.&rdquo; In reality, sure, we want to know what people like us think, but come on, if you were offered advice from, let&rsquo;s say, Pat Hawkins, a guy I grew up with in Hilltop, or noted theoretical physicist Stephen Hawking, you&rsquo;d listen to the guy who is considered one of the greatest minds of our time, right?
Not me. I&rsquo;m going to listen to Pat, because&mdash;I forgot to mention this&mdash;the subject is &ldquo;winning strategies for &lsquo;cans,&rsquo;&rdquo; a game that was invented by Pat, my brother Greg and me &hellip; and maybe Todd Nussbaum&hellip; I don&rsquo;t remember.&nbsp; Anyway, we would all kick Hawking&rsquo;s butt in cans. And I bet he can&rsquo;t give you any tips on hot-waxing a pop can either. Pat could. Pat was awesome at that. If you&rsquo;re looking for that kind of advice, you can just say, &ldquo;thanks for nothing, Professor Hawking.&rdquo; I guess the point is, for most decisions, studies and spokespeople are important, but most of us still want to get the recommendations of &ldquo;people like me.&rdquo; However, we prefer the opinions of leaders and innovators, like Pat. Guys who care enough to find out if waxing a pop can makes a difference, and who don&rsquo;t mind if it doesn&rsquo;t, because now they know (and it still looked cool). The convenience store industry is often described as one where &ldquo;everyone wants to be first to be second.&rdquo; Maybe that&rsquo;s true of most industries, and the meaning is the same in all of them: Before business owners invest time and money in a new product or new line, they want to see it in action. And, whenever possible, they want to talk to people who have already been there and done that, to find out how it&rsquo;s really working out. Fuel marketers go to trade shows and petroleum industry events to see that stuff and talk to those people. The challenge for a new product like E15 is most marketers don&rsquo;t know a station owner who sells E15, and what they think they know has been warped by the ongoing E15 smear campaign. The American Coalition for Ethanol&rsquo;s Flex Forward campaign introduces fuel marketers to other real, live marketers, who saw through those ghost stories, added E15, and made more money. We can&rsquo;t bring experienced E15 marketers with us to every trade show or workshop ACE attends, so we&rsquo;ve done the next best thing. We&rsquo;ve brought their stories to ethanol.org and flexfuelforward.com where they will be available 24/7, for marketers who live and work in the 24/7 convenience store world. Beyond that, in the c-store world, just like every other &ldquo;world,&rdquo; there are operators who are watched more closely by other retailers. They are the innovators, retailers who try things nobody else has tried. When it works, they reap the rewards, if it doesn&rsquo;t, they find a way to make it work. That&rsquo;s why it was a big deal when Sheetz Inc. announced it will be putting E15 in 60 stations this year.&nbsp; Sheetz is one of those companies. They have a reputation for being an innovator. If you doubt that, the next time you&rsquo;re talking to a prospective E15 retailer, just drop this into the conversation: &ldquo;Sheetz is going to sell E15 in 60 of their stores.&rdquo; Watch for the reaction. A lot of time and money has been spent to encourage some high-profile retailers to offer E15. The only way that investment pays off is if other fuel retailers notice and want to &ldquo;be the first to be second.&rdquo; Drop those names. Not just Sheetz. Mention Mapco. Murphy. Whoever sells E15 in your area. Every chance you get, let station owners know &ldquo;someone like you&rdquo; is selling E15. And it&rsquo;s one of the cool guys. Author: Ron Lamberty Senior Vice President American Coalition for Ethanol 605-334-3381 rlamberty@ethanol.org&nbsp;

2015/05/Lamberty-Ron_14311117080972_largethumb.jpg

2015/05/Lamberty-Ron_14311117080972_thumb.jpg

2015/05/Lamberty-Ron_14311117080972.jpg

Most of us want to get recommendations from others that are like us and, at the same time, cooler than we are, writes Ron Lamberty of ACE. In the case of gas stations, Sheetz, Mapco and Murphy are a few examples of high-profile innovators. 

Following the Cool Guys

The U.S. ethanol industry has appreciably matured in the past six years, but it hasn&rsquo;t lost its youthful propensity to take chances and explore new things. American ethanol producers are, today, among the most efficient, disciplined and financially sophisticated agribusinesses in the world. At the same time, the industry&rsquo;s 200-plus facilities, still owned by roughly 100 different companies, are hungry for innovation, open to change and flexible enough to look at almost anything. This month&rsquo;s issue of Ethanol Producer Magazine examines the ethanol industry&rsquo;s current financial condition against the backdrop of its remarkable affinity for adaptation. Our inspection of money management in the ethanol business begins with an instructive look at recent mergers and acquisitions within the sector. In <a href="http://www.ethanolproducer.com/articles/12219/how-deals-square-up" target="_blank">&ldquo;How Deals Square Up,&rdquo;</a> we see that ethanol plant M&amp;A has historically been driven by distress and more transactions occur on the heels of downturns than after profitable periods. For comparison, there were nearly three dozen ethanol plants sold after the industry&rsquo;s well-chronicled 2008-&rsquo;09 downturn, but just five transactions during and after the recent period of record margins (see <a href="http://ethanolproducer.com/articles/12213/follow-the-money" target="_blank">&ldquo;Follow the Money&rdquo;</a> for more insight on what producers did, or plan to do, with last year&rsquo;s earnings).&nbsp;&nbsp; Investment bankers tell us, however, that financial distress isn&rsquo;t the only thing that prompts ethanol plants to be sold. One recent deal, for example, included a seller that was a nonlong-term investor looking to cash out on a healthy asset. Another transaction was based on a strategy to convert a relatively small ethanol plant into a facility that can produce higher-margin chemicals, which is the focus of our cover story, <a href="http://www.ethanolproducer.com/articles/12218/back-to-the-future-with-n-butanol" target="_blank">&ldquo;&lsquo;Back to the Future&rsquo; with N-butanol."</a> &nbsp;In this feature, EPM Managing Editor Holly Jessen goes inside Green Biologic&rsquo;s recent acquisition of Central Minnesota Ethanol Co-op in Little Falls, Minnesota. Green Biologic&rsquo;s plan is to retrofit the plant to produce n-butanol and acetone while still making some ethanol. The nature of the deal illustrates the incredible versatility of dry-mill ethanol plants and shows us that acquisitions can be carried out with real people in mind. The deal was structured in a way that benefitted existing shareholders, plant employees and area farmers. We look more downstream at biobased chemicals in <a href="http://www.ethanolproducer.com/articles/12212/stepping-up-to-a-currency-molecule" target="_blank">&ldquo;Stepping Up to a Currency Molecule.&rdquo;</a> In this piece, EPM Senior Editor Susanne Retka Schill reports on how a growing global demand for sustainable products is opening a huge door for renewable chemicals, some of which can be derived from, or made with, ethanol. Finally, we look closely at the overall financial state of U.S. ethanol plants and how producers are leveraging the hard lessons of their recent past to run their businesses better. We learn in <a href="http://www.ethanolproducer.com/articles/12217/riding-the-performance-curve" target="_blank">&ldquo;Riding the Performance Curve,&rdquo;</a> that most producers are still financially comfortable, operating with healthy levels of working capital and generally looking at ways to reinvest in new assets and next-stage technologies.&nbsp;
Author: Tom Bryan President &amp; Editor in Chief tbryan@bbiinternational.com

2015/05/Tom-Bryan-Ethanol_14311120879282_largethumb.jpg

2015/05/Tom-Bryan-Ethanol_14311120879282_thumb.jpg

2015/05/Tom-Bryan-Ethanol_14311120879282.jpg

The June issue of EPM includes stories about the overall financial state of U.S. ethanol plants, M&A, the conversion of a small ethanol plant to high-value ethanol production, the growing demand for biobased chemicals and more, writes Tom Bryan. 

Matchmaking, Money And Makeovers 

Some long for the good ol&rsquo; days, when cars were simple and you could do much of the repair work yourself. When in the evening the 9 o&rsquo;clock whistle blew and you had to get home, or writing a letter meant pen and paper. Myself, I&rsquo;m glad we no longer live in the good ol&rsquo; days. I don&rsquo;t want to work on my car. The cars today are much more reliable and more fun to drive. I really am not terribly concerned that kids spend more time on the computer than they do playing outside. It&rsquo;s the age we live in and they are preparing themselves for a new and exciting future. Frankly, I like being able to send an email rather than sit down and handwrite a letter, and I am a better communicator as a result. I&rsquo;ve heard some say that they long for the good ol&rsquo; days of the ethanol industry, when it was young and we all felt a sense of comradery and we knew who the enemy was.&nbsp; Frankly, I&rsquo;m not interested in reliving the past of the ethanol industry either. It was often painful. We are much more sophisticated now, we have years of research under our belts and can stand toe-to-toe with the enemy rather than throw rocks and sticks at them, as that&rsquo;s all we had back then. I don&rsquo;t think there is a better time to be in this industry, with technology moving forward at breakneck pace. We have matured and replaced the rocks and sticks with billions of miles of trouble-free consumer use and reams of data that substantiate the viability and performance of ethanol. We have a whole new generation of bright young talent working in the industry who will carry us into the next tier of success. Many of us remember when a woman named Roberta Nichols from Ford Motor Co. introduced the first flexible fuel vehicle. Exciting as it was, it seems so long ago now, given where things are with E85 today. The good ol&rsquo; days sometimes consisted of organizing corn farmers to stand at service stations handing out ethanol brochures and offering to fill the customer&rsquo;s car up for them, just to get product recognition. While it was fun at the time, I don&rsquo;t want to do that anymore. There are lots of things that had to be done to get the industry where it is today, that most of us who did them would not really want to do again. The young talent in the industry today are creating their own good ol&rsquo; days and a decade or two from now will likely write a column reminiscing about those days, glad that they don&rsquo;t have to relive them. Personally, I&rsquo;m happy where the industry is today, still with challenges, still with much work to be done, but with the ability to do that work on a much more level playing field. We have set aside the rocks and sticks and replaced them irrefutable facts and a mountain of well-researched data. We have moved from a niche industry to a major contributor to energy security, cleaner air and economic stability. So for me, while I may look back from time to time with fond memories of the battles and the things we did to build the industry, I think now is the best time ever to be in the ethanol industry. Besides, there is little need to look back, because, before you know it, today will be one of the good ol&rsquo; days. That&rsquo;s the way I see it.
Author: Mike Bryan Chairman, BBI International mbryan@bbiinternational.com

2015/05/Mike-Bryan0615_14311119395545_largethumb.jpg

2015/05/Mike-Bryan0615_14311119395545_thumb.jpg

2015/05/Mike-Bryan0615_14311119395545.jpg

Although there are challenges and there's still much work to be done, the ethanol industry is in a better place now than it was in the so-called good ol' days, writes Mike Bryan of BBI International. 

Present Day Ethanol Trumps Good Ol' Days 

There is nothing quite like the feeling of being on the water on a clear summer day. Tennis champion Rafael Nadal once described it as, &ldquo;I like fishing. Not actual fishing, I like the peace and quiet of being at sea. It&rsquo;s different.&rdquo; Boating is a beloved pastime for many Americans, whether taking part in fishing, water skiing or simply enjoying the exhilarating feeling of cruising on the water. Over the years, a lot of misinformation has been creating waves when it comes to ethanol use in marine engines. In a sign of their desperation, API actually ran ads last year claiming that ethanol&mdash;and the renewable fuel standard (RFS)&mdash;will strand boaters on the water. Nothing could be further from the truth. But as the summer months rapidly approach, we must once again equip the boating community with the facts they need to cut through the wake of misinformation being churned up by the petroleum industry. All boaters must know that E10 can safely be used in their marine engines. Oftentimes marine publications will exaggerate concerns about E15 marine use to vilify all ethanol blends; but E15 is not approved for use in these engines. However, E10 is perfectly fine for marine engines. It doesn&rsquo;t matter whether their boat has a two-stroke or four-stroke engine, an in-board or out-board motor, or a built-in or portable fuel tank. But, don&rsquo;t just take my word for it. Every marine engine manufactured today provides warranty coverage for E10. The Honda owner&rsquo;s manual for the BF25A/30A Outboard Motor states that &ldquo;You may use gasoline containing up to 10 percent ethanol by volume.&rdquo; Additionally, Yamaha owner&rsquo;s manual for the F115 notes that &ldquo;Gasohol containing ethanol can be used if ethanol content does not exceed 10 percent and the fuel meets minimum octane ratings.&rdquo; Manufacturers would certainly not approve a fuel that would harm the product or the consumer. Similar language appears in the owner&rsquo;s manuals for Kawasaki, Mercury Marine, OMC (Johnson/Evinrude), Pleasurecraft, Tigershark (Artco) and Tracker marine engines. In addition to the owner&rsquo;s manuals clearly approving E10, Vernon Barfield, former vice president and technical chairman of the National Boat Racing Association said that &ldquo;There is a myth out there that 10 percent ethanol is not good for marine engines, but we have been operating for over 20 years and have not had any issues with it whatsoever.&rdquo;&nbsp; He continues, &ldquo;&hellip;there are absolutely no problems running on 10 percent ethanol.&rdquo; We now have the facts from manufacturers and experts alike. So how do we disseminate the information? The new digital age offers a plethora of opportunities to easily get the word out at very little cost. It can be as easy as posting the information on Facebook or Twitter.&nbsp; E-mail also offers a quick and easy way to send the information to family and friends. But, let&rsquo;s not forget traditional media and the power of one-on-one interaction. Individuals or groups can write an op-ed or submit a letter to the editor of the local paper, ultimately reaching a larger audience. But, nothing can compete with one-on-one conversation. Have a conversation with boaters filling up at the local gas stations, strike up a discussion when launching your boat at the boat dock or chat with the local gas station owner to make sure they have the correct facts for their customers. Every little bit helps calm the waves of ethanol misinformation and create a more informed boating community. Author: Bob Dinneen President and CEO, Renewable Fuels Association 202-289-3835

2015/05/Bob-Dineen_14311118489359_largethumb.jpg

2015/05/Bob-Dineen_14311118489359_thumb.jpg

2015/05/Bob-Dineen_14311118489359.jpg

E10 can be safely used in marine engines and every marine engine manufactured today provides warranty coverage for E10, writes Bob Dinneen. To combat misinformation floating around, he encourages one-on-one conversations to keep the facts straight. 

Waves of Ethanol Misinformation 

The journey to making E15 the standard fuel option across the country is like a high hurdle race. As soon as we clear one hurdle, we have to focus on the next. Although we are making constant progress with retailers and E15 is now available at more than 120 stations in 18 states, there are still challenges ahead. The largest regulatory obstacle standing between consumers and access to higher ethanol blends is the absence of a Reid vapor pressure (RVP) volatility waiver for E15. Currently, E15 and higher ethanol blends do not receive the same 1-pound RVP volatility waiver that is granted to E10, which restricts summertime sales of E15 in many states. This regulatory restriction creates a disincentive for retailers to sell E15 or higher biofuel blends and denies consumers access to a fuel that meets their price and performance needs. E15 should not be treated as a seasonal fuel and the American consumer should not have to check their calendar to see if they will have a choice when they pull up to the pump. Since Growth Energy applied for a fuel waiver for E15 in 2009, the ethanol industry has repeatedly asked the U.S. EPA to level the playing field and grant a similar 1-pound RVP waiver for ethanol blends above 10 percent. Unfortunately, when EPA finalized the misfueling mitigation rule for E15, they explicitly stated that they would not grant a RVP waiver for E15, even though E15 is a cleaner, higher performing, less expensive fuel. We commend Sens. Chuck Grassley, R-Iowa, and Rand Paul, R-Ky, Reps. Rod Blum, R-Iowa, and Adrian Smith. R-Neb., for recognizing the need for competition in the marketplace and taking leadership on this important issue in U.S. Congress. These congressmen have introduced legislation in both the Senate and the House of Representatives to remove regulations that limit market access to higher ethanol blends and restrict consumer choice at the pump. They agree that the regulatory treatment of E15 is unfair and is preventing the adoption of new fuels that could benefit our environment, our economy and our energy security. We know that others will soon follow their lead and work together to move these measures forward. For the ethanol industry, E15 is the low-hanging fruit. It&rsquo;s the most tested fuel in history and is compatible with more than 80 percent of the cars on the road. Nationwide, moving to E15 would create another 136,000 American jobs that can&rsquo;t be outsourced, reduce the demand for foreign oil by 7 billion gallons and eliminate up to 8 million metric tons of greenhouse gas emissions per year&mdash;the equivalent of taking 1.68 million vehicles off the road&mdash;all while saving consumers money at the pump. E15 is projected to save consumers between 5 and 15 cents per gallon. And, because ethanol increases the available fuel supply, it will help to drive down the price of gasoline for all drivers. In a time when roughly 8 percent of our annual incomes are being used for commuting costs, those savings really add up. The oil industry recognizes the obvious benefits to consumers and will continue to throw up every hurdle they can to protect their market share and keep our nation addicted to fossil fuels. But each of those hurdles we clear sends a positive signal that America is ready for cleaner technologies that provide consumers with a choice and savings at the pump. As an industry, we know that hurdles are just a series of barriers that are meant to be jumped over, and in the end, we will win this race.
Call your elected officials today and let them know that you support S. 889, H.R. 1944 and H.R. 1736. Author: Tom Buis CEO, Growth Energy 202-545-4000 tbuis@growthenergy.org

2015/05/Tom-Buis0615_14311117825346_largethumb.jpg

2015/05/Tom-Buis0615_14311117825346_thumb.jpg

2015/05/Tom-Buis0615_14311117825346.jpg

E15 and higher ethanol blends do not receive the same 1-pound RVP volatility waiver that is granted to E10, writes Tom Buis of Growth Energy, encouraging readers to contact their legislators to show support for new bills seeking to change that. 

High Hurdle Race

Managing ethanol plant margins is a challenging endeavor as the factors affecting input costs and revenues are constantly changing and often pulling in different directions to the detriment of the plant&rsquo;s profitability. Ethanol margin management is the process of analyzing financial risk and considering costs and revenues as a single unit of risk. This differs from a more traditional approach which focuses on minimizing plant expenses and maximizing revenue from ethanol and co-product sales independently of one another. Fortunately, there are tools available in the market to help identify and manage these margins.&nbsp; A margin management process involves modeling forward curve projected costs and revenues using the futures market as a price discovery mechanism. The daily interaction of a large pool of buyers and sellers in the futures market determines a forward curve of value for a host of commodities, including those impacting ethanol margins. Holding certain fixed cost assumptions static and using futures market prices to represent both input costs and revenue values together, forward profit margin opportunities can be identified in deferred time periods to indicate how that profitability is projected to change from one period to the next.&nbsp; This gives greater visibility to an ethanol producer on how the market, as an unbiased estimate of price, is valuing both input costs and revenue. It may be the case, for example, that current costs and revenues to the plant are generating a loss, while at the same time, forward values for those same costs and revenues are projecting a profit in a deferred time period. And, what was once projected to be a profitable marketing period for the plant may eventually be turned into a loss as the fundamental dynamics of the market shifts over time to the detriment of margins. The accompanying February margin graph displays such an occurrence for a model ethanol plant earlier this year. Profit margins in January and February were breakeven at best and negative for many plants as a function of slumping ethanol prices while corn costs held relatively steady. While the chart shows this negative profitability during that period, you will notice that the market was projecting a positive margin as high as 35 cents per gallon for the month of February during the fall of 2014. In fact, the market was projecting margins above the 90th percentile of the previous five years through November before profitability started to slip.&nbsp; Risk can be managed through the futures market when an ethanol plant contracts both input costs and revenue values simultaneously using exchange-traded derivatives to lock-in or protect a profit margin level in a forward time period. For example, an ethanol company projecting a positive margin last fall of around 25 cents per gallon for the winter time period of January and February could have locked that margin in by buying a corn futures contract and simultaneously selling an ethanol Platts swap. Alternatively, it may have used an option to protect a minimum margin while allowing the opportunity for improvement.&nbsp; Choosing a strategy will depend on how relatively strong or weak the opportunity is perceived to be. If, for example, the profit margin being projected is very strong historically and represents a good return, the company may be inclined to simply lock it in. If instead the profit margin is projected to be weaker or more average from a historical perspective, the ethanol producer might want to preserve the opportunity for improvement and incorporate more flexibility. The accompanying table of June 2015 statistics shows the ethanol margin and the underlying input costs of corn and natural gas against the revenue value of ethanol. The red box in the table outlines each of the components of the June 2015 margin, along with the open market margin itself. Holding other fixed cost assumptions constant and factoring for local cash basis and ethanol index to the plant, the model is essentially looking at the variable costs of corn and natural gas against the value of ethanol to project a margin during the month of June. The ethanol price index and corn basis represent the difference between the local cash price and the swap or futures price that is being used to manage the risk of that price changing over time. Because cash prices and futures prices do not move in lockstep with one another, there is also a risk of a fluctuating basis or index over time. The projected margin of 22 cents per gallon currently exists at about the 38th percentile of historical profitability when looking back over the previous five years of June margins. The strongest the margin has ever been over the past five years in the month of June was 71 cents per gallon, and the weakest value observed was breakeven. Scanning to the left of the margin column, you can see the individual components starting with the ethanol price at $1.57 per gallon. This value is at the 5th percentile of the previous five years, meaning that 5 percent of the time the June ethanol price has been lower than $1.57, and 95 percent of the time the price has been higher than this level. Moving further to the left, you will notice the input costs for natural gas at $2.74 per million Btu and corn at $3.86 per bushel. These currently exist at about the 6th percentile of historical prices over the past five years for their respective contracts. In thinking about contracting alternatives, let&rsquo;s assume that this particular ethanol plant is concerned about summer margins and believes that the 22 cents per gallon projected margin is worth protecting. Because it is only at the 38th percentile however, the plant would like to incorporate flexibility for this margin opportunity to hopefully improve over time. Considering the price levels for each component of the margin, the plant&rsquo;s risk managers may deem corn and natural gas prices to be historically cheap and therefore wish to simply lock in these values. They may even choose to do this through the cash market with a local intermediary, whereby these costs are fixed and secured, including basis. Moving on to the ethanol piece, because that is also historically cheap, they may want to include flexibility here. Perhaps one contracting possibility might be to place a floor under the value of the ethanol to establish a minimum margin with their input costs now fixed. Another alternative might be to establish this floor under the current ethanol price while also incorporating a ceiling or maximum price above the market.&nbsp; This form of contracting involves two types of futures options. A call option provides the right to purchase a commodity at a fixed price level while a put option provides the right to sell. In exchange for this right, the buyer of the option pays a premium which fluctuates on a daily basis as a function of where the underlying futures price is trading relative to the fixed price at which the right to buy or sell that contract exists. The seller of the option who receives the premium from the buyer takes on the corresponding obligation should the buyer exercise the right to buy or sell at the fixed price level, which is referred to as the strike price.&nbsp; As an example, the plant&rsquo;s risk managers could purchase a June 155 put option for a cost of around 7 cents, which effectively would establish a minimum price for their ethanol at $1.48 per gallon (the right to sell at $1.55 minus the 7-cent cost). Alternatively, for a cost of around 5 cents, they could purchase the same 155 put in June while also selling a 175 call option. This combination would give the plant a minimum ethanol price of $1.50 per gallon along with a maximum price of $1.70 per gallon (the right to sell at $1.55 and the obligation to sell at $1.75 minus the 5 cent cost). If we also assume that the input costs have been locked in at the values indicated, with no further fluctuations to the plant&rsquo;s fixed costs and no changes to the index, this likewise would imply a minimum margin of 15 cents per gallon and a maximum margin of 35 cents per gallon. The latter maximum value would translate to a profit margin at the 80th percentile of historical opportunity, which the ethanol producer might consider attractive. Obviously, a different matrix of prices and margins would suggest a different approach to contracting.&nbsp; In any case, modeling and managing risk from a margin perspective can provide valuable insight on forward opportunities and help direct contracting decisions.&nbsp; Author: Chip Whalen Vice President, Education and Research Commodity &amp; Ingredient Hedging LLC 312-596-7755 ethanol@cihedging.com

2015/05/Market-Tools0615_14311019683849_largethumb.jpg

2015/05/Market-Tools0615_14311019683849_thumb.jpg

2015/05/Market-Tools0615_14311019683849.jpg

2015/05/ethanol_graph_14311019675251.jpg

2015/05/Statistics-June2015_14311019693949.jpg

Volatility, a function of fluctuating prices for corn and natural gas inputs, is changing revenue values for ethanol, DDGS and corn oil. 

Market Tools Help Identify, Manage Margins

Particulate matter (PM) emissions are one of the six major criteria pollutants regulated by the U.S. EPA that are controlled and quantified from point sources at industrial facilities to meet air quality standards. While particulate testing is a routine sampling procedure performed during air emission compliance testing, it is important to stay abreast of changes that may affect test planning, pollution control operations and compliance status. As regulations have evolved, new methods used to measure PM have been introduced and modified in an effort to more accurately quantify emissions. Some of these changes may affect facility permit limits and compliance tests. It is important to understand the various types and classifications of particulate matter and the methodologies commonly utilized for PM measurements, as well as changes that may cause issues leading to costly compliance mistakes.
Regulation of particulate matter through the EPA, along with state and local governments, is directed by the federal Clean Air Act, with the goal of preserving and improving the ambient air quality that can affect human health as well as the public welfare through such things as PM&rsquo;s impact on visibility, buildings, crops, vegetation. Over the course of time, as information on particulate matter and its effects has expanded, regulatory mechanisms have evolved to effectively target and control the more harmful forms of particulate matter (primarily very small particles) as well as total particulate matter measurements used as a surrogate to quantify and control hazardous air pollutants (HAPS). Various terms and acronyms are used to describe particulate emissions and emission limits, which can vary across different regulatory agencies, so it is imperative that the exact intent of the language is defined and the methodology is clearly determined in the permitting process. PM, PM state, PM federal, PM filterable, condensable PM, TSP, PM10 and PM2.5 are all acronyms that are commonly used in the permitting process, and may imply that one or more test methods needs to be used to measure emissions. Careful navigation through the language and terminology within a facility&rsquo;s air permit often requires a team effort consisting of facility personnel, test consultants and regulatory authorities, to determine the most accurate, efficient and cost effective means to completing emission tests and assuring compliance. Dry mill emissions are vented from multiple sources and controlled using a variety of pollution control technologies. Dictated by the type of source, characteristics of the gas streams, required level of control, as well as cost. The table above shows common emission sources and various particulate control devices. Bear in mind that emission control requirements can vary widely between facilities depending upon regional air quality conditions and facility emission limits. Testing Methods In the most simplistic form, emission testing to measure particulate matter consists of extracting a known volume of gas through a filter from vents exiting an industrial process through a stack. The particulates collected on the filter are rinsed, dried, weighed and quantified to report the source&rsquo;s emission rate, which is used to demonstrate compliance with allowable levels set forth in the facility&rsquo;s air permits. In more complex methodology, additional components are introduced to the sample assembly, such as cyclones or glassware, which may allow for particle size fractionation or measurement of condensable (vapor form) particulate matter. Standard methodologies have been developed to sample specific source types, particulate sizes, and/or conditions present within a given gas stream. Common test methods used to sample total particulate matter (PM or TSP) are EPA Methods 5 and 17. In addition, state agencies may require total or partial condensable particulate matter to be measured to quantify total PM using methods equal or similar to EPA Method 202. Fine particulate matter test methods targeting PM10 and PM2.5 (particulate with an aerodynamic diameter matter smaller than 10 and 2.5 microns, respectively) are typically measured using EPA Method 201A, when possible, coupled with EPA Method 202. When sampling limitations or test site constraints do not allow for sampling using EPA Method 201A, other arrangements need to be made, such as reverting to a total particulate method (such as EPA Method 5 or 17) and quantifying all particulate as PM10 or 2.5. The primary points to consider when determining the proper PM sampling methods include the following: &bull; What needs to be quantified? (PM, PM10, PM2.5, condensable PM, etc.) &bull;&nbsp; Does the facility air permit or associated rule(s) require specific methods? &bull;&nbsp; Can new methods yield different results than those that were used to develop permit emission limits? If so, what if results are higher? &bull; Will the chosen method accurately quantify emissions, or are there conditions that may bias the results, prevent the method from being performed properly or meet required quality assurance standards? Examples include high moisture content, uneven flow distribution, high temperatures, improperly sized test ports or inadequate test site design. &bull; There may be allowable method modifications, but if implemented, how can the results and compliance status be affected? &bull; Can one single test be performed to meet all needs of a plant&rsquo;s PM sampling requirements? If so, are there long term considerations and how could it potentially effect reporting and compliance status now and in the future? All of these questions and points, among others, need to be carefully considered and navigated when determining a sampling strategy for particulate matter. Seemingly subtle changes in methodology or facility operations can have a major impact on test results. The ultimate goal is to complete the sampling in an efficient, accurate manner, in order to prove compliance with the regulatory requirements. This can all be accomplished by thoughtful planning and working with a competent test consultant who can help determine the proper testing methods and bridge communication between regulatory agencies and facility personnel. Author: Edward &ldquo;EJ&rdquo; Juers Stack Department Manager, Interpoll Laboratories Inc. 763-786-6020 EJuers@interpoll-labs.com

2015/05/Sampling-Methods0615_14311016513233_largethumb.jpg

2015/05/Sampling-Methods0615_14311016513233_thumb.jpg

2015/05/Sampling-Methods0615_14311016513233.jpg

2015/05/Emissions-Charts_14311016504142.jpg

A team effort determines the most accurate, efficient, cost-effective emission compliance testing.

Small Changes Affect Sampling Methods

Like golf, ethanol mergers and acquisitions (M&amp;A) is game of opposites. A golfer swings right to draw the ball left, left to cut it right, down to send it up. Ethanol M&amp;A, too, work on ironic inverse relationships. Transaction numbers spike after bad times and dip during good times. High margins work against deals. Low margins produce them. Simply put, when profitability goes up, ethanol M&amp;A activity generally goes down.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; After the 2008 downturn, for example, 29 ethanol plants traded hands in 18 transactions before the end of 2010, according to Mark Fisler, managing director at Los Angeles-based investment banking firm Ocean Park Advisors. &ldquo;That was a huge amount of volume over a two-year stretch,&rdquo; Fisler says, explaining that improved margins, starting in 2010, yielded only five ethanol plant acquisitions in four deals in 2011. Then low M&amp;A activity continued through the first half of 2012 following a generally profitable 2011. Production margins sagged in 2012, spurring the sale of six ethanol plants late in the year and setting the stage for double-digit transactions in 2013. &ldquo;We saw 13 ethanol plants acquired in 10 transactions that year,&rdquo; Fisler says. &ldquo;It was driven mostly by weak balance sheets and distress coming off 2012. &ldquo;Clearly, the industry sees more transactions on the heels of distressed cycles than it does during or after good times.&rdquo; That last big M&amp;A run ended when the ethanol industry cycled into an epic 18-month stretch of record margins from mid-2013 through late 2014. &ldquo;I would characterize the last year and a half as a period of low M&amp;A activity, but it depends on what you compare it to,&rdquo; Fisler says, explaining that there were five ethanol asset transactions completed in 2014. &ldquo;There are a lot of reasons for that, including the fact that ethanol margins were so good through most of 2013 and 2014.&rdquo;&nbsp; Most but not all M&amp;A activity in the ethanol industry since 2008 has been a story of leaders acquiring laggards. A vast majority of the deals were financially distressed independent plants acquired by large, integrated ethanol producers. Today, Fisler says, &ldquo;strategic producers&rdquo; remain interested in acquiring ethanol plants, but sellers are scarce. &ldquo;We&rsquo;re four months into the year and there really isn&rsquo;t an announced 2015 deal at this point,&rdquo; he says. &ldquo;There are whispers about deals&mdash;and we are in talks with various people&mdash;but ethanol producers just aren&rsquo;t approaching the table. So there&rsquo;s a lot of interest in transactions but very few producers looking at a sale.&rdquo; Fisler continues, &ldquo;When you talk to a producer who just made 60, 70, 80 cents a gallon last year, it&rsquo;s pretty hard for them to get excited about where plants are trading. Ethanol plants are [selling for] roughly $1.60 per gallon on nameplate capacity or around $1.30 per gallon on their operating rate. So if you made 70 or 80 cents a gallon last year, that&rsquo;s not very interesting. Shareholders remember the last dividend check they made, and most of them don&rsquo;t want to let go of an asset for that low a number right now.&rdquo; Notably, M&amp;A activity in the ethanol sector doesn&rsquo;t follow industrial M&amp;A activity in general. &ldquo;The ethanol industry is characterized by single-purpose assets at location,&rdquo; Fisler says, explaining how some industries offer more opportunities for transactions than others. &ldquo;There are a limited number of reasons for ethanol plant acquisitions.&rdquo;&nbsp; The fact that this year&rsquo;s lower-margin environment has not spurred appreciable M&amp;A activity could be the result of two things. First, it&rsquo;s early and transaction activity generally lags behind prevailing market conditions by several months. Second, many U.S. ethanol producers were able to strengthen their balance sheets and reduce their debt last year. &ldquo;The massive run up in crush spreads provided meaningful liquidity to producers and gave them a number of capital market solutions for the first time in a while,&rdquo; says Scott Chabina, director at Carl Marks Advisors, a New York-based investment banking firm. Chabina cites three high-profile loans secured by producers in 2014, including a $66 million senior credit agreement completed by Southwest Iowa Renewable Energy, a $225 million senior secured credit facility completed by Green Plains Renewable Energy, and a $40 million loan and security agreement secured by Aventine Renewable Energy before the company moved ahead with its pending merger with Pacific Ethanol. &ldquo;This was a great time to provide optionality, which is king in the world of ethanol. It&rsquo;s defensive. It&rsquo;s strategic. You need to be a low-cost producer and take advantage of the margins when the margins are there.&rdquo; Chabina says ethanol producers, big and small, are still in good positions and able to act on strategic activities including M&amp;A, refinancing and inside-the-fence capital projects. &ldquo;Producers are looking at projects,&rdquo; he says. &ldquo;In many cases, they're dusting off the CapEx books that have been on the shelf for a while because they&rsquo;re in a position to take advantage of having liquidity.&rdquo; Nondistress Deals While financial distress may be the surest expediter of ethanol plant transactions, it is not the only thing that makes deals occur. Fisler says multiple ethanol plants have been sold in recent years by what he calls nonlong-term investors. &ldquo;These are your pure-play investor groups that see an opportunity in ethanol, put dollars into a plant, achieve good returns and want to exit their investment,&rdquo; he says, citing CHS&rsquo;s acquisition of Illinois River Energy LLC last April. &ldquo;That&rsquo;s a perfect example of a plant that was owned by an offshore investor that didn&rsquo;t see the asset as strategic to retain. That deal was not driven by distress.&rdquo; At the other end of the seller spectrum are farmer-owned ethanol plants, arguably the most unlikely transaction participants. Fisler says that about a third of U.S. ethanol plants can still be characterized as &ldquo;steadfastly independent,&rdquo; and not interested in giving up control, regardless of margins. &ldquo;Those types of ethanol plants are usually not going to trade. Even though there might be a real opportunity to merge four or five smaller plants together in a way that creates a greater internal balance sheet, better cash flows, greater ability to invest and grab new technology, they may not necessarily be interested in hearing that because they just want to keep what they&rsquo;ve got.&rdquo; Chabina says some near-term ethanol plant transactions could involve middle-of-the-road producers who have &ldquo;earned their way out of trouble&rdquo; and are considering selling while they&rsquo;re in a strong position. &ldquo;Against the outlook of a more moderate 2015, it might make sense for some of these guys to explore their options and look at a sale,&rdquo; Chabina says, explaining that nondistressed facilities can command a premium from buyers seeking assets with specific attributes. &ldquo;Many producers wanted to acquire gallons for scale a few years ago. Now, buyers are more disciplined and seeking assets that fill out their respective network for a number of reasons. Flint Hills&rsquo; acquisition of Southwest Georgia Ethanol is a great example of that sort of approach. It was strategic purchase and it made sense for them given their existing resources.&rdquo; Chabina adds, &ldquo;The appetite from buyers is still there, but they are more discerning. They know what they want, and it&rsquo;s often not just a matter of gallons. Buyers are looking at the specific production history of a facility, its transportation and logistics situation, its management team, third parties services, grain storage and more. The attractiveness of each plant is unique to each prospective buyer. That&rsquo;s always been true, but today&rsquo;s buyers are more disciplined and won&rsquo;t simply stretch for gallons alone.&rdquo; A new X-factor in ethanol M&amp;A is the potential for more transactions to be driven by strategies to convert existing ethanol plants into facilities that can produce nonethanol fuels and chemicals. &ldquo;We&rsquo;re seeing the emergence of companies interested in buying and retrofitting ethanol plants for other purposes, one being the possibility of producing higher-value, higher-margin specialty chemicals,&rdquo; Chabina says. &ldquo;That tends to lead toward the discussion of the diversified, integrated biorefinery concept against the backdrop of the big second-generation ethanol plants that are coming online.&rdquo; Having spearheaded the sale of the Central Minnesota Ethanol Co-op to Green Biologics last year (<a href="http://www.ethanolproducer.com/articles/12218/back-to-the-future-with-n-butanol" target="_blank">see &ldquo;Back to the Future with N-butanol&rdquo;</a>), Fisler knows firsthand what the value proposition is, for both buyers and sellers, in transactions based on plant conversions. Green Biologics purchased CMEC in a creatively structured deal that gained a lot of attention in the biofuels M&amp;A space. When completed, the reconfigured plant will have the capability to produce acetone, normal butanol and ethanol. &ldquo;I&rsquo;d be surprised if we don&rsquo;t see more deals like that in the future,&rdquo; he says. Clear Signals Help At press time, the ethanol industry was awaiting the U.S. EPA&rsquo;s final 2014 and proposed 2015 and 2016 renewable volume obligation (RVO) numbers, which instruct oil companies on their mandated biofuels blending obligations. Fisler doesn&rsquo;t expect the RVOs to have a major impact on ethanol plant M&amp;A, but he does think improved policy certainty will invite more capital to the biofuels sector. &ldquo;The type of improvement projects that a number of producers are looking at are quite large and would require the support of the lender community,&rdquo; Fisler says. &ldquo;Better policy certainty might help facilitate that process, particularly if it gives the industry a runway for cellulosic ethanol or plant upgrades.&rdquo; Chabina agrees that a stable regulatory and policy environment is key for biofuels finance markets. &ldquo;It&rsquo;s critical to stay the course and send a clear signal that encourages companies to invest the time and capital in next-generation biofuels and, more broadly, biorefining,&rdquo; he says, adding that he believes M&amp;A activity will pick up regardless of where the EPA lands on its RVOs. &ldquo;Absent any truly adverse changes to the RFS or major weather events, margins are largely expected to be moderate. We&rsquo;re not expecting to see a lot of plants with their backs against the wall. There will still be some distressed asset sales, but they will be less a function of pure crush spreads and more a function of not being the low-cost producers in a normalized market.&rdquo; Author: Tom Bryan Editor in Chief, Ethanol Producer Magazine 701-746-8385 tbryan@bbiinternational.com

2015/05/Margins-Ethanol0615_14311110955573_largethumb.jpg

2015/05/Margins-Ethanol0615_14311110955573_thumb.jpg

2015/05/Margins-Ethanol0615_14311110955573.jpg

2015/05/Chabina-Scott_1431111094746.jpg

2015/05/Mark-Fisler_14311110965572.jpg

2015/05/Plant-AcquiresChart_14311110975757.jpg

1. Two Aventine plants 2. Minority stakes in 3 plants from Mitsui. 3. Based on marine terminal value. 4. 32 MMgy capacity acquired by Granite Falls pro-rata for its 63.3% ownership stake in Heron Lake 5. Based on announced capacity. 6. Average

2015/05/Plant-Transactions_14311110985724.jpg

2015/05/EthanolPlant-101_14311111735403.jpg

After a long stretch of profitability, there are few U.S. ethanol producers "approaching the table" to sell. But that could change.  

How Deals Square Up

Biobased chemicals are two steps closer to the tipping point when the growing demand for sustainable products opens huge global markets for renewables. Last fall, DuPont announced a deal to sell its cellulosic ethanol to Proctor and Gamble to be used in laundry detergent. This spring, Croda Inc. broke ground on a $170 million upgrade to its Delaware manufacturing campus, preparing to bring in corn ethanol to manufacture the ethylene oxide it uses to make surfactants.&nbsp; DuPont&rsquo;s Jan Koninckx, global business director of biofuels, is enthusiastically bullish about the future of ethanol for renewable chemicals. &ldquo;This is a beginning of the reinvention of the manufacturing industry. It&rsquo;s like the industrial revolution. In the past, we started out with coal-derived chemicals and then it was petroleum-derived chemicals. And now biomass-derived chemicals. Ethanol is going to be a currency molecule&mdash;a molecule that&rsquo;s going to be a starting point for a lot of production.&rdquo; DuPont has long collaborated with Proctor and Gamble. Last year, P&amp;G introduced Tide Coldwater, &ldquo;designed to enable a powerful clean in cold water.&rdquo; About 85 percent of the energy used in washing clothes is for heating up water, Koninckx explains. &ldquo;The Tide Coldwater uses an enzyme we developed to allow the temperature of laundry wash water to be lower.&rdquo; On the heels of that introduction, the companies announced an agreement for DuPont to supply P&amp;G with cellulosic ethanol from its soon-to-be-completed plant in Nevada, Iowa, to be used in making the laundry detergent. Ethanol has long been used as a solvent in consumer products, he explains, carrying other ingredients into a formulation. &ldquo;It&rsquo;s basically a harmless molecule that, after it&rsquo;s used, is easy to break down biologically, with low toxicity.&rdquo;&nbsp; Ethanol can be used for many things other than a solvent, with its potential use in plastics perhaps the most lucrative. The Coca-Cola Co. made headlines in 2009 when it announced it would make its trademarked PlantBottle using biobased, monoethylene glycol (MEG) manufactured from Brazilian sugarcane ethanol. A 2014 USDA report &ldquo;Why Biobased&rdquo; reports Coca-Cola has distributed more than 15 billion PlantBottles in 25 countries. About 30 percent of the PlantBottle, by weight, is made from green MEG and the company is working on developing green chemistries to make PTA (purified terephthalic acid), the other 70 percent, from plants as well. &ldquo;Our ultimate goal is a carbon-neutral, 100 percent renewable, responsibly sourced bottle that is fully recyclable&mdash;a bottle we can all feel good about,&rdquo; the company says. In 2013, Coca-Cola partnered with Ford Motor Co. to use PlantBottle Technology as part of the interior fabric of a Ford Fusion energy plug-in hybrid research vehicle. Coca-Cola is one example of many companies wanting to green their products. Croda&rsquo;s customers are increasingly asking for sustainable, renewable materials, says Richard Hanson, managing director of performance technologies and industrial chemicals for the U.K.-headquartered specialty chemical company. The Delaware facility is Croda&rsquo;s largest in North America, manufacturing surfactants, emulsifiers and demulsifiers, with about half its production bound for consumer products and the other half for industrial uses. Consumer end products include shampoos, lotions and cleaning products. There is a wide variety of industrial applications, Hanson adds, including the Tween 80 and Polysorbate 80 widely used by suppliers of corn oil extraction aids for the ethanol industry. When construction is completed in about two years, Croda will begin converting between 10 million and 14 million gallons of ethanol each year into ethylene oxide, Hanson reports. &ldquo;This will be the first facility of its kind in North America,&rdquo; he says, and one of two or three worldwide. Currently, Croda rails in ethylene oxide manufactured on the Gulf Coast from petrochemical-based ethane or naptha. Being in the same hazard classification as chlorine and ammonia, Hanson says, &ldquo;the issues of shipping ethylene oxide by rail may not make that feasible in the future.&rdquo; Rather than move its manufacturing facility to the Gulf Coast, the company chose to invest in the ethanol-to-ethylene oxide capability instead. &ldquo;There&rsquo;s a lot that goes into the economics of going the ethanol route versus petrochemicals,&rdquo; he explains. &ldquo;You have to factor in all of the freight costs, all of the market economic drivers.&rdquo; How ethanol is positioned in the market versus petroleum will vary, he says. &ldquo;If corn were to spike, it might cause a temporary blip in the economics. Over the long haul, we think, based on where we are located, it will provide comparable economics. Otherwise, we wouldn&rsquo;t be doing it.&rdquo; Hanson adds that chemical production will introduce new business models to the ethanol industry.&nbsp; &ldquo;When we speak to ethanol producers and start asking about pricing models and pricing trends, they&rsquo;re not quite sure how to deal with us yet. We&rsquo;re not really spot buyers. We normally contract for three years on ethylene oxide.&rdquo; The new facility fits with the company&rsquo;s sustainability goals, Hanson continues. Croda&rsquo;s 2015 goal at its 18 manufacturing facilities worldwide is to get 24.4 percent of its energy from renewable sources, source 100 percent of its palm oil raw materials from sustainable operations and 65.2 percent of all raw materials from renewables. When the company begins manufacturing ethylene oxide from ethanol in Delaware, Hanson says, the portion of renewable raw materials used will top 90 percent. &ldquo;This will be unique,&rdquo; Hanson said. &ldquo;This is enough volume that it will be a game changer. We assume others will go this route, but we will be the first in the market.&rdquo; In the big scheme of things, Hanson adds, Croda&rsquo;s demand for ethylene oxide is a relatively small part of the overall demand for ethylene-derived chemicals. Global Prospects Ethylene is the most widely used chemical in the world. Originally made from ethanol when first discovered, petrochemical refineries are the dominant supplier of the ethylene demand used primarily for polyethylene, although there is a host of other chemicals and plastics made from ethylene. USDA&rsquo;s July 2014 paper reports the global market for polyethylene, the largest volume derivative of ethylene, exceeds 100 million metric tons per year, and is used extensively in packaging and construction. Over 3.2 million metric tons of ethylene oxide were produced in the U.S. in 1997. Other sources report global ethylene production in 2011 at 141 million metric tons. (As a point of reference: If that were 141 million metric tons of ethanol, it would amount to about 47 billion gallons.) In 2013, ethylene was produced by 117 companies in 32 countries. Prices for ethylene have been around $800 per ton in recent years, although new capacity for shale gas-to-ethylene being brought online on the Gulf Coast is expected to keep downward pressure on ethylene prices.&nbsp;&nbsp; Several companies are making biobased ethylene and derivative chemicals. In 2010, Brazil&rsquo;s Baskem A.S. inaugurated a commercial-scale plant to produce ethylene from ethanol, at an investment of $278 million. The company&rsquo;s announcement said it would consume about 120 million gallons of ethanol per year at the new facility with the capability of producing 200,000 tons per year of polyethylene. At the time, the company was reporting demand three times greater than the plant&rsquo;s capacity for green polyethylene. India Glycols Ltd. has been producing ethylene glycol and MEG since the 1980s and claims the distinction of being the first to commercialize sugarcane-based ethylene, its derivatives and glycols. It was the initial source for the MEG used in Coca-Cola&rsquo;s PlantBottle, made from Brazil-sourced cane ethanol. In late 2012, Coca-Cola announced it was partnering with India-based JBF Industries Ltd. to build a facility in Sao Paulo, Brazil, with a capacity of 500,000 metric tons of biobased MEG. At least one other facility is under construction as well. In 2012, Plastics Engineering Blog reported bio-MEG capacity being built in Taiwan. This spring, yet another company, Freudenberg-NOK Sealing Technologies announced it has developed an ethylene propylene diene monomer (EPDM) rubber compound from sugarcane-based feedstock. Freudenberg-NOK Sealing Technologies is the Americas joint venture between Freudenberg and Co. in Germany and NOK Corp. in Japan. The announcement says development began in 2012 on converting sugarcane ethanol to ethylene, to form a substantial portion of the base polymer used to manufacture the biorenewable rubber. The sugarcane base allows the material to be 45 percent biorenewable, which ultimately reduces the manufacturing carbon footprint. DuPont&rsquo;s Koninckx reports that interest is high in Europe as well. Last fall, the company announced a collaboration with Ethanol Europe to develop a cellulosic ethanol project in the south central European country of Macedonia. After the announcement, Koninckx says, &ldquo;several companies came to us and expressed interested in our production, and not all were fuel companies. Some are consumer companies that want more sustainable packaging material and some make furniture components, to give a couple of examples.&rdquo; A major attraction is that DuPont&rsquo;s life-cycle analysis shows its cellulosic ethanol is carbon neutral. When asked what will unlock ethanol&rsquo;s potential in green chemistry, Koninckx replies, &ldquo;Availability, scale and cost.&rdquo; He points to the example of renewable electricity, which began &ldquo;very niche, very small. The cost has come down to the point where, in many places in the world, it has reached grid parity from photovoltaics or from wind.&rdquo;&nbsp;&nbsp; Corn ethanol has been the first step, and the next is being taken with biomass, he says. &ldquo;We are unlocking that. We&rsquo;ve unlocked the technology. We&rsquo;ve unlocked the supply chain and we&rsquo;re now going to unlock scale.&rdquo; Cellulosic ethanol supplies, with their low-carbon appeal, are about to grow and first-generation ethanol is lowering its footprint as supplies continue to expand. &ldquo;There is a certain tipping point that must be reached. I am absolutely convinced that when we reach that tipping point, the switch from petrochemicals to renewable chemicals will be fast.&rdquo; It is far easier to predict how it will happen, however, than when, but Koninckx is confident it will. &ldquo;We&rsquo;re not waiting for it. We&rsquo;re going to make it happen. We&rsquo;re going to tip it.&rdquo; Author: Susanne Retka Schill Senior Editor, Ethanol Producer Magazine sretkaschill@bbiinternational.com 701-738-4922

2015/05/SteppingUp-Ethanol0615_14311027494834_largethumb.jpg

2015/05/SteppingUp-Ethanol0615_14311027494834_thumb.jpg

2015/05/SteppingUp-Ethanol0615_14311027494834.jpg

GROUNDBREAKER: Construction has begun in a corner of Crodaâ€™s manufacturing site at Atlas Point, Delaware, for a new plant that will convert ethanol into ethylene oxide to use in manufacturing surfactants. 

2015/05/CrodaDel-0615_14311027466658.jpg

2015/05/Jan-Koninckx_14311027474385.jpg

GREEN PET:  Coca-Cola made headlines in the plastics world when it announced in 2009 that it was introducing PlantBottle, made with up to 30 percent renewable MEG. Its goal is to reach 100 percent renewable content. 

2015/05/plantbottle-Coca-Cola_14311027484747.jpg

Sustainability drives growing interest in renewable chemicals from ethanol.   

Stepping Up to a Currency Molecule

In an industry ruled by volatility, it&rsquo;s important for producers to position themselves to take advantage of favorable market conditions. &ldquo;You&rsquo;ve got to get it while the getting is good,&rdquo; says Scott Chabina, director at Carl Marks Advisors. The ethanol industry is now on the other side of exactly that type of scenario. In March, University of Illinois economist Scott Irwin pointed out that 2014 was the most profitable on record, in his FarmDocDaily analysis. Looking at a model 100 MMgy Iowa ethanol plant, it lasted 22 months with an average profit of 43 cents per gallon, more than 10 times the average 4-cent-per-gallon profit earned in the previous seven years. Driven by relatively high ethanol prices and relatively low corn prices, the record profits went from March 15, 2013, and ended on Jan. 2, 2015, representing the longest run of uninterrupted profits since the university started keeping records in 2007.
With that strong profitability now in the rearview mirror, Ethanol Producer Magazine is taking time to reflect on what savvy companies did to prepare for the new normal. &ldquo;The more sophisticated, strategic producers that were able utilize that window, from September &rsquo;13 to September &rsquo;14, are the ones that have optionality to explore the capital solutions or capital projects, in house,&rdquo; says Chabina. &ldquo;That can really position them for a better day in an environment with thinner margins.&rdquo; As a result, some companies were able to pay down debt while others were given the opportunity to refinance outstanding loans. Lenders haven&rsquo;t always been receptive to that but, for a period of time, deals were being made. &ldquo;That window opens and closes pretty frequently, given the margin environment,&rdquo;Chabina says. Mike Jerke, CEO of Guardian Energy Management LLC, says he heard one particular remark repeated several times at annual meetings.&nbsp; &ldquo;We can&rsquo;t expect this to happen with any frequency because it was so unprecedented,&rdquo; he says. As a result, Guardian Energy, and the ethanol industry as a whole, is set up to better handle the normal volatility that comes with being an agricultural industry. Besides paying down debt or refinancing, Jerke added that putting together a rainy day fund was also a move some producers were making, to prepare for leaner times. Chabina agrees. For those producers able to build up cash, some are thinking about consolidation. &ldquo;There are definitely producers out there looking for additional gallons,&rdquo; he says. &ldquo;We are aware of people on the hunt for assets at the 100 million gallon level and the 50 million gallon level.&rdquo; (See <a href="http://www.ethanolproducer.com/articles/12219/how-deals-square-up" target="_blank">&ldquo;How Deals Square Up&rdquo;</a> for more information about mergers and acquisitions.) Others are looking at &ldquo;inside the fence,&rdquo; toward operational improvement projects or even moving to the true biorefinery model, he adds. Mick Miller, president of NuVu Fuels LLC, which has management contracts with Carbon Green BioEnergy LLC, Iroquois Bio-Energy Co. LLC and DENCO II LLC, says in times of profitability the emphasis is on continued investment, including equipment upgrades, debottlenecking projects and potential technology improvements. &ldquo;These investments are usually focused on increasing plant efficiencies, throughput and shareholder return,&rdquo; he says. Of course, not every producer is in the same favorable position. Some face operational impediments or are located in less desirable geographic areas, Chabina says. The reality is, when times are tough, those plants may idle and come back online depending on the margin environment. Farmer Roots When asked what Big River Resources did with the profits the company brought in, Ray Defenbaugh, president, CEO and chairman, says the answer is closely tied to the company&rsquo;s original goals in entering the ethanol industry. &ldquo;Those goals were to provide good jobs for people in the community and, secondly, to preserve the community&mdash;and you have to have good jobs to preserve rural communities&mdash;and the third is to provide good returns to our investors,&rdquo; he tells EPM. &ldquo;Of course, our subgoals are that we are people of our word&mdash;you can take it to the bank if we tell you something&mdash;and, secondly, we treat people like we&rsquo;d like to be treated, so fairness is an important concept.&rdquo; Looking at the first and second goals, Big River continued to pay good salaries for the people who helped the company reach success and, on top of that, paid out extra bonuses during the time of profitability. Big River also paid local farmers generously for their crops. &ldquo;Our goal never was for cheap grain, we were put into existence to build up the price of grain, to build up the local farmer,&rdquo; he says. In reference to the third and final goal, the company paid good dividends to its shareholders. In 2014, return on investment was 126.8 percent and return on equity was 45 percent. The strategy is working for Big River. &ldquo;We&rsquo;ve been in existence over 10 years and we&rsquo;ve never had a loss year and we&rsquo;ve never failed to pay a dividend,&rdquo; Defenbaugh says, adding that the company has no debt and more than adequate cash reserves on hand to weather any unexpected downturns or capital requirements. The period of profitability also allowed Big River to put money back into its facilities, with several capital investment projects. One example is improvements being made into the company&rsquo;s grain procurement infrastructure, which includes six elevators. &ldquo;We&rsquo;ve upgraded them with large capacity dryers and bin storage and so forth,&rdquo; he says. Then there&rsquo;s the zein production plant currently under construction at Big River&rsquo;s Galva facility. &ldquo;It will be finalized and we will have product for sale this early summer, late spring,&rdquo; he says.&nbsp; Last but not least, Big River contributes heavily to organizations and causes that support the growth of the ethanol industry, as well as local groups, such as clubs for children and local parks. &ldquo;When we have a good year like last year, we put even more into those areas,&rdquo; he says. On Big River&rsquo;s list is Prime the Pump, a nonprofit group formed to expand the availability of E15 and higher blends, American Ethanol, the group that partners with NASCAR and others to put ethanol on the racetrack, and more. The company is also a member of the Renewable Fuels Association, Growth Energy, the American Coalition for Ethanol and the U.S. Grains Council, to support U.S. and global markets for ethanol and distillers grains. &ldquo;We think that whatever benefits the industry, will lift everybody up,&rdquo; he says. Alternative Viewpoint Eric McAfee, chairman and CEO of Aemetis Inc., which operates a 60 MMgy corn-ethanol plant in Keyes, California, and a 50 MMgy distilled biodiesel plant in India, sees things a bit differently. Aemetis&rsquo; goal has long been to convert corn ethanol plants to advanced biofuels. In 2013, the EPA approved the company&rsquo;s pathway to produce D5 advanced biofuel RINs using sorghum in combination with biogas and the plant&rsquo;s existing combined heat and power system. However, the plans for are on hold due to the high price of sorghum. Policy certainty is needed in order for the industry to invest in next generation biofuels. The profits brought in during 2014 didn&rsquo;t significantly change lenders&rsquo; willingness to increase their exposure to the ethanol industry, McAfee says, at least not at levels that support $20 million to $40 million projects to upgrade or build plants for advanced biofuels production. &ldquo;Are biofuel producers making a crazy amount of money, rolling in cash and just can&rsquo;t wait to throw money at the next advanced biofuels technology, or are biofuels producers mostly saying to the EPA and others seeking advanced biofuels, &lsquo;Oh my gosh, stop beating me up, I&rsquo;m dying here',&rsquo;&rdquo; he asks. &ldquo;I hate to tell you, but the industry is closer to the latter.&rdquo; For example, there&rsquo;s the incremental step that corn-ethanol producers could take to convert corn fiber to cellulosic ethanol. It would allow for production of an extra two to three million gallons of ethanol yearly, bringing in $6 million to $7 million in revenue and cost about $10 million to implement. The industry isn&rsquo;t doing it, he says, because it doesn&rsquo;t have bank financing or access to equity. &ldquo;They are struggling to survive,&rdquo; he says. What looks like big numbers in the 2014 profit column, actually aren&rsquo;t sustained enough to provide access to growth funding, McAfee says. For example, Aemetis brought in $30 million in positive cash flow last year. While that&rsquo;s a good number, he points to the fact that the company applied 100 percent of its cash flow to debt reduction, adding that it&rsquo;s more the rule than the exception in the biofuels industry. He believes the biofuels industry has a curable illness. The cause, he says, is the U.S. EPA&rsquo;s failure to enforce the renewable volume requirements as required by the renewable fuel standard (RFS). It&rsquo;s making the industry anemic. &ldquo;There is no lender in their right mind that would expose itself to additional funding of ethanol businesses when you don&rsquo;t have the faintest idea whether federal law is going to be enforced,&rdquo; he says, adding that because lenders and investors can&rsquo;t depend on the law being enforced, it&rsquo;s preventing investment, job creation and strengthening dependence on foreign oil.&nbsp;
He called it a &ldquo;complete screw up&rdquo; by the EPA and Office of Management and Budget and compared the situation since November 2013 to the repeated robbery of a federal bank, after which law enforcement doesn&rsquo;t even bother to investigate. The oil industry is stealing about 50 cents a gallon from Aemetis every day, he says, due to surplus inventories caused by lower biofuels demand than the RFS requires. The EPA&rsquo;s failure to enforce the RFS has cost the company at least $30 million in cash in the last year. McAfee believes a lawsuit for declaratory relief should have been filed against the EPA 18 months ago by biofuels and corn industry associations. &ldquo;How can you ever run an industry when federal law is not being enforced?&rdquo; he asks. &ldquo;I personally think there should be riots in the streets in Iowa."
The question then becomes, is the ethanol industry well-positioned to produce the next 16 billion gallons of cellulosic ethanol and up to 5 billion gallons of advanced biofuels? &ldquo;Is this industry ready for that?&rdquo; he asks. &ldquo;The answer is, yes, if you just enforce federal law.&rdquo;
Financial Highlights Although far from a complete list, here are some examples of refinancing deals and record profits announced by ethanol production companies in 2014 and early 2015. Refinancing deals: Green Plains Inc. announced June 10, 2014, that a $225 million senior secured credit facility due 2020 was complete and that the proceeds would be used to refinance outstanding debt. On Sept. 17, 2014, Aventine Renewable Energy said it had secured a $40 million loan and security agreement in partnership with AloStar Bank of Commerce in Birmingham, Alabama, and MidCap Financial LLC in Bethesda, Maryland. Aventine used proceeds from the refinancing and its existing stockpile of cash to fully repay debt early, before it matured in 2016. Southwest Iowa Renewable Energy LLC announced that, during its fiscal year 2014, the company paid off $96 million in net debt reduction. In June 2014, the company completed debt refinancing, with a $66 million senior credit agreement and a $26.2 million subordinated term loan. &nbsp;&nbsp;&nbsp; Record Profits: On Feb. 4, Green Plains announced record operating income of $286 million for 2014. The company produced a record 966 million gallons of ethanol, earned more than $100 million in nonethanol operating income and was close to achieving its goal of zero net term debt. Aemetis Inc. said March 12 that it had achieved record revenues of $208 million, up from $178 the previous year, and record gross profit of $37 million, up from $18 million. The company also made term debt net cash payments of $29.6 million. On March 30, Rex American Resources Corp. released its fiscal year 2014 results, which revealed gross profits more than doubled to $141.9 million, up from $64.3 million the previous year. The company also said its net sales of $572.2 million were down from $666 million in 2013. Author: Holly Jessen Managing Editor, Ethanol Producer Magazine 701-738-4946 hjessen@bbiinternational.com

2015/05/Follow-The-Money0615_1431103031647_largethumb.jpg

2015/05/Follow-The-Money0615_1431103031647_thumb.jpg

2015/05/Follow-The-Money0615_1431103031647.jpg

2015/05/Chabina-Scott_14311030289022.jpg

2015/05/Defenbaugh-Ray_14311030295547.jpg

2015/05/Eric-McAfee0615_14311030305805.jpg

2015/05/Mike-Jerke-Ethanol_14311030325716.jpg

After a period of incredible profitability, leaders in the ethanol industry are better positioned for thinner margins.  

Follow the Money

A healthy cash balance is a nice problem to have, though it does present its own challenge. The questions ethanol company boards and management face are simple, but crucial to the long-term viability of their businesses:&nbsp; How much working capital needs to be preserved? What level should be reinvested in the business? How much should be paid out to investors? Ethanol Producer Magazine turned to three ethanol industry financial advisors&ndash;&ndash;Christianson &amp; Associates PLLP, Ascendant Partners Inc. and K-Coe Isom&ndash;&ndash;to see what lessons they are sharing with boards and managers as they meet in strategic planning sessions.&nbsp; &nbsp;&ldquo;EBITDA per gallon is a good place to start,&rdquo; says Mark Warren, partner and chief financial officer at Ascendant Partners. It encompasses both revenue, how well a plant buys corn and sells ethanol and distillers grain, and operating performance and efficiency. &ldquo;The net result of those dynamics, by definition, will result in your performance on EBITDA&mdash;revenue less cost of goods sold, less operating expenses&mdash;gets you earnings before interest, taxes, depreciation and amortization.&rdquo; The Figure 1 bar chart for EBITDA per gallon since 1990 is calculated using formula-based assumptions and multiple commodity prices. It illustrates the wide swings the U.S. ethanol industry has seen since its early years. It is critical for managers to know where their plants fall on the performance curve, Warren says. Creating another gauge for comparison, Warren has taken the financials from 26 publicly traded ethanol producers and charted in Figure 2 the average EBITDA per gallon over the past three years, which includes some of the leanest and best operating margins seen in the ethanol industry. &ldquo;The graphic shows the variable from the best to the worst,&rdquo; he says, pointing out that it includes a range of plant sizes, primarily located in the Midwest but including destination plants. The average EBITDA per gallon for that group is 30 cents per gallon, ranging from a top performer of nearly 50 cents per gallon, to a low of 15 cents.&nbsp; The chart of publicly traded companies mirrors the pattern seen with plants in the Ascendant benchmarking group, combined with facilities the company has assisted in selling over the years. &ldquo;You&rsquo;ll see a swing of 70 to 80 cents a gallon on an&nbsp; EBITDA basis from a top performer to a marginal producer,&rdquo; Warren says. That goes from a high three-year average of 50 cents per gallon to a low of negative 20 cents per gallon. The 2012 drought dominated the first year of his analysis, when producers struggled with tight corn supplies and high prices. &ldquo;Everybody had to experience that drought, and it&rsquo;s telling in terms of who were able to perform better and keep their heads above water and who lost significant amounts of money,&rdquo; Warren says. Good years like the last one are easier to operate in, but margin swings will continue. &ldquo;We can expect volatility going forward. That&rsquo;s part of it, when you&rsquo;re dealing a commodity-in and commodity-out enterprise.&rdquo; Digging into the performance is the next step, he continues, to evaluate why the plant is positioned high or low on the curve. &ldquo;Is it a market thing? A plant thing? A technology thing? Is it a combination?&rdquo; he asks. &ldquo;And then, what kind of things can you do to improve your position?&rdquo; Each plant is different, he adds. Some have issues that are difficult to overcome, such as a poor location relative to ethanol or distillers marketing, or a local corn basis that has been permanently restructured. As new technologies are adopted industry-wide, it puts pressure on all to keep driving costs down and efficiencies up. It is imperative, he stresses, that plants keep up, lest they become the marginal producer with a low or negative EBITDA per gallon, putting it in jeopardy whenever margins are tight. He adds that there is a high risk for that to happen more often, now that ethanol capacity appears to be outgrowing demand. &ldquo;It&rsquo;s a continuous process and there&rsquo;s continual innovation that is occurring in the ethanol space, which is great for everybody involved. That puts more onus on the board and management to make very good, informed decisions on what they&rsquo;re going to do to improve the asset and underlying performance of that plant, which ultimately improves the evaluation of their asset as well,&rdquo; Warren says. &ldquo;We had such a good year last year, but we saw a lot of plants distribute a lot of capital coming out of that. I think that was initially great for shareholders but, if we find ourselves in a challenging year, that could have some cash flow implications with these plants which may limit their ability to be as responsive as they need to be to adjust and improve their position on the curve.&rdquo;&nbsp;&nbsp; Benchmarking Insights When Christianson &amp; Associates asks boards for their priorities, much emphasis is put on improving ethanol yields, says Connie Lindstrom, benchmarking analyst. She dug into the data to see how well ethanol yield correlates with EBITDA, comparing the EBITDA per gallon from the leaders in ethanol yield&mdash;the top 25 percent in yield&mdash;from the laggards, the bottom 25 percent. Figure 3 shows the five-year average EBITDA performance in each quarter for the yield leaders in the black line and the laggards in red. &ldquo;It&rsquo;s interesting,&rdquo; she says, &ldquo;because it shows how little impact it really has whether you&rsquo;re a leader or laggard in ethanol yield.&rdquo; In the periods of strong margins, better ethanol yields did translate to higher profitability, she adds, &ldquo;but it typically isn&rsquo;t as high as a lot of people think it would be.&rdquo; The data also illustrates the situation facing those boards in their strategic planning sessions coming off 2014&rsquo;s strong margins. Looking at the average financial ratios, found in the Figure 4 table,&nbsp; a current ratio of assets to liabilities hovering around two is considered a healthy number, Lindstrom says. &ldquo;It indicates there isn&rsquo;t too much capital sitting around waiting to be utilized.&rdquo; In 2014, the current ratio rose to 2.46. &ldquo;That&rsquo;s definitely a high over the past 10 years even,&rdquo; she adds. &ldquo;What that tells us&mdash;and what we hear when we go out to the plants&mdash;is they&rsquo;re in a holding pattern. They&rsquo;re making decisions on what to do with that capital.&rdquo; That is confirmed in the working capital ratio which has doubled from its five-year low point in 2010 to 31 cents per gallon for 2014. Other ratios add to the story. Long-term liabilities have dropped from 47 cents per gallon five years ago to 19 cents per gallon after 2014. &ldquo;The plants have paid down their debts,&rdquo; Lindstrom says, &ldquo;but the negative side to that is that some of these older plants that have been producing 10 to 15 years have not been reinvesting.&rdquo; That is confirmed in looking at the fixed assets ratio, which has stayed pretty stable over time, particularly the past three years. &ldquo;They haven&rsquo;t been expanding or putting in new technologies,&rdquo; Lindstrom adds, &ldquo;so they&rsquo;re looking really hard at doing some of these things now.&rdquo; To answer the question of how much working capital should be targeted, the average working capital in the benchmarking group was compared to the leaders and laggards for that metric. Then to gain further insight, Lindstrom took a subset of the 10 best performing plants&mdash;those with consistently top earnings in every quarter over the past five years&mdash;and compared their working capital. Figure 5 shows those 10 EBITDA best performers keep their working capital close to the average. Average working capital, furthermore, is a moving target. &ldquo;There isn&rsquo;t a number per se, but there seems to be that ability to not let it pool up too much, but not let it dip down too far either,&rdquo; she says. &ldquo;What that translates to is that they have a policy in place,&rdquo; Lindstrom explains. &ldquo;They can distribute [capital] as dividends or they can pay down debt or do some strategic investing. They&rsquo;ve got a target for all three of those things: Here&rsquo;s what we&rsquo;re going to do when we&rsquo;re squeezed and here&rsquo;s what we&rsquo;re going to do when things are better. So, they are reacting more quickly.&rdquo;&nbsp;&nbsp; Success Beyond Numbers As important as the financial performance is, Donna Funk, an accountant and principal with K-Coe Isom, steps back to take a longer view of other factors important to a successful business. &ldquo;You can have the healthiest balance sheet in the world, but if you don&rsquo;t have the right other components to your business, you may not stand a chance of success, especially during difficult times,&rdquo; she says. &ldquo;It&rsquo;s those intrinsic values that really can be the differentiating factor in what your ultimate success is.&rdquo; In her 20-some years in the business, she&rsquo;s seeing a shift towards a more relational approach in her own profession and in all sectors she follows. One obvious example is to maintain good relations with employees&mdash;both existing and potential future employees. &ldquo;What do people in the community say about your business, as not only a corporate citizen, but what are your employees saying out there as to what it&rsquo;s like to work for you?&rdquo; she asks. Another example would be that interactions with vendors need to go beyond placing orders. Good vendor relations, including with those you don&rsquo;t currently buy from, can be particularly helpful for learning about and evaluating new technologies. Similarly, regular communications with customers&mdash;the buyers of ethanol and coproducts&mdash;are important to developing better understanding of each other&rsquo;s businesses and heading off issues. Having more than strictly business relations with your banker is important as well, she stresses, and with more than just one person.&nbsp; She has seen an instance where a bank&mdash;not a small one, but one that wasn&rsquo;t a traditional player in the ethanol industry&mdash;pulled the line of credit. &ldquo;It ultimately came down to there weren&rsquo;t enough people at the bank comfortable with the industry,&rdquo; Funk recalls. While that doesn&rsquo;t mean the banker needs to become a best friend, it is wise for plant management and boards to cultivate multiple relationships within their lending institutions, she advises.&nbsp;&nbsp; &ldquo;I don&rsquo;t know that you can say [these intrinsic values] translate directly to the bottom line,&rdquo; Funk continues, &ldquo;but I think it definitely can translate into the attitude of people, the willingness of people to do something a little extra for you.&rdquo; Financial performance numbers are important, she adds, &ldquo;I would never say they are not, but you&rsquo;ve got to look beyond the historical numbers reporting and get to those underlying aspects of the business that ultimately do impact your financial results.&rdquo; It might be difficult to align improved relationships with the bottom line, she says. &ldquo;But I do think if you ignore all those things, you&rsquo;d certainly see a negative impact on your financials.&rdquo;&nbsp; Author: Susanne Retka Schill Senior Editor, Ethanol Producer Magazine sretkaschill@bbiinternational.com 701-738-4922

2015/05/Performance-Curve0615_14311101348824_largethumb.jpg

2015/05/Performance-Curve0615_14311101348824_thumb.jpg

2015/05/Performance-Curve0615_14311101348824.jpg

figure 2 :  The three-year average EBITDA per gallon is charted for 26 publicly reporting ethanol producers, showing a 30-cent range between the top and bottom performer. 

2015/05/3YrEBITDA-0615_14311101321689.jpg

figure 3 :  EBITDA per gallon for yield leaders in the top 25 percent of benchmarking plants is shown in the black. In strong margin periods, better yields result in slightly better profitability than that achieved by the bottom 24 percent.

2015/05/EthanolYieldProfit-0615_1431110132851.jpg

figure 1 :  EBITDA margins per gallon are shown since 1990, calculated using formula-based assumptions and historical prices from OPIS and Feedstuffs. 

2015/05/HistoricalAverage0615_14311101338983.jpg

figure 4 :  Key financial ratios are averaged in the table for the plants participating in the benchmarking program. Between 45 and 60 participate each year, representing a range of plant sizes from across the country.   

2015/05/US-IndustryAvg-0615_14311101358693.jpg

figure 5 :  The top 10 EBITDA performing plants maintain working capital levels close to the average cents per gallon. The difference between the leaders and laggards in average working capital is 29 cents at the lowest in 2009 and 42 cents in 2014. 

2015/05/WorkingCapital-Chart0615_1431110137266.jpg

2015/05/Donna-Funk0615_14311102293027.jpg

2015/05/Mark-Warren_14311102304379.jpg

2015/05/Connie-Chappell_14311102646216.jpg

A good understanding of financial ratios is essential when making strategic plans.

Riding the Performance Curve

The use of energy for space and water heating accounts for roughly one-third of the total energy consumed in the U.S. and is supplied almost entirely by fossil fuels such as natural gas, propane and heating oil. In the Northeast, an epicenter of the growing wood heating market, more than 4.4 billion gallons of heating oil are used annually, primarily for space heating. This accounts for approximately 86 percent of the national demand for heating oil. In recent years, many northeastern states have established aggressive targets for renewable energy as a way to expedite the transition away from fossil fuels. To date, however, most of the targets have focused on the use of renewable energy for electricity generation, rather than for thermal energy or transportation. In 2010, the Northeast Biomass Thermal Working Group, a coalition of biomass thermal energy advocates, released a vision statement calling for state and federal policies to grow the use of biomass energy from 4 percent of thermal energy demand to 18.5 percent of demand in the region by 2025. Referred to as &ldquo;The Bold Vision,&rdquo; this report was a valiant effort to spur more aggressive targets at the state level, and also recognize the positive economic impacts a bigger biomass market would generate for local economies, including job creation and other societal benefits. A bold vision indeed, this report was a first step in the right direction, and if you are not familiar with it, look it up on the NEBTWG website&mdash;it is worth a read. Five years after release of the report, great progress has been made in the region. Maine, New Hampshire, Vermont, New York, and Massachusetts are now front-runner states where advancement of modern wood heating is most noticeable. Each of these states has a wide range of regulations, incentives, financing and education programs aimed at helping the market accelerate the use of modern wood heating. Each offers some level of incentives for bulk wood pellet-fueled boilers and has modest grant programs to encourage larger commercial and institutional wood heating projects. And a few states have also adopted, or are currently pursuing, other helpful policies,&nbsp; such as flexible boiler regulations; sales tax exemptions on biomass heating equipment; fuel, state income tax credits; PACE and other financing programs; thermal inclusion in their state renewable portfolio standards; government lead-by-example policies, and wood heat education and technicalassistance programs. Any of these policies taken individually may be a helpful step in the right direction, but they remain a patchwork of activity with incremental gains. When several can be woven together into a portfolio of biomass thermal energy policies, however, a lot more progress can be made. This is essentially the &ldquo;carrots, sticks and tambourine&rdquo; approach touted by our colleague (and 2015 Excellence in BioEnergy Award winner) Christiane Egger from Upper Austria.&nbsp; In the U.S., we need a combination of financial, regulatory, and program support policies to move the market. But as states move toward developing portfolios of biomass thermal policy, we need also need state-specific targets for biomass thermal energy. The NEBTWG Bold Vision goals of 18.5 percent of thermal energy met with biomass by 2025 for the Northeast region was a great start, but the real need is for each state&rsquo;s energy office to set its own specific targets for biomass heating in conjunction with their counterparts in economic development and forestry offices. For example, in Vermont we have an ambitious state goal of reaching 90 percent all energy&mdash;including electric, thermal, and transportation&mdash;with renewables by the year 2050. Vermont is somewhat unique in that this state goal is not limited to just the electric sector. To meet such a large, ambitious goal, however, there must be smaller, achievable subgoals to serve as milestones to demonstrate measureable progress over time. Toward that end, we are working with the state to adopt a subgoal of reaching 35 percent of Vermont&rsquo;s space heating needs with modern wood heating equipment and locally sourced wood fuels by the year 2030. Establishing high-level goals for the expanded use of biomass heating is an essential strategy to unify all the various policies and programs and will help ensure we are all rowing in the right direction. As more states broaden their energy thinking beyond just electricity, and realize that thermal and transportation make up a large majority of energy consumption (and carbon emissions), we have an ideal opportunity to engage state-level policy makers and regulators to help set clear goals and implement packaged policies and programs that will make measurable progress toward those goals. Author: Adam Sherman Manager, Biomass Energy Resource Center asherman@biomasscenter.org (802) 658-6060

2015/05/adam-sherman_Biomass2015_14317047439586_largethumb.jpg

2015/05/adam-sherman_Biomass2015_14317047439586_thumb.jpg

2015/05/adam-sherman_Biomass2015_14317047439586.jpg

Biomass Energy Resource Center Manager Adam Sherman discusses how  financial, regulatory, and program support policies are needed to move the market. 

Targets, Policy for State-Level  Thermal Energy Markets

A movement is only as effective as the people behind it. For renewable natural gas (RNG), a dynamic team has coalesced to bring this fuel to market and strengthen its profile and uptake. I am fortunate to be working with the individuals described below, whom I refer to as Team RNG. Apart from supportive government representatives and technology suppliers who play a critical role in RNG development, there are people from several associations and natural gas utilities that are charting the course for RNG development and dismantling barriers to production and use of this fuel. What drives this group and how did they choose this cause? Some of the key players describe their paths, motivations and findings.&nbsp; When Scott Gramm was hired at FortisBC, he told his boss he didn&rsquo;t know a lot about the natural gas utility. &ldquo;He replied that we had 1,100 employees who knew the natural gas business&mdash;he needed someone to make something happen,&rdquo; Gramm says. &ldquo;I would say, to those who would follow: Throw away your ideas of how it has to be in the utility world and think like an entrepreneur. Get creative, roll up your sleeves and work hard to find ways to make it work. Your customers expect that much from you.&rdquo; Paul Cheliak of the Canadian Gas Association remembers his first briefing on RNG. &ldquo;People were speaking about digestate, anaerobic this and that, dried solids&hellip;.I wondered if I stumbled into the wrong briefing room.&nbsp; After peeling back the onion (to be used in a digester, of course!) a little further, I was taken aback by the passion of the RNG community and the simplicity and practically of RNG for traditional energy markets.&nbsp; Safe to say, I&rsquo;m glad I walked into that briefing room and I&rsquo;ve never looked back.&rdquo;&nbsp; Cheliak will be working with industry colleagues to implement the RNG Technology Roadmap recommendations and to promote smart policies that can realize the Canadian RNG potential. When Don Beverly was hired in 2005 by an equipment manufacturer to develop a siloxane removal technology for landfill gas, job one was to look up the word siloxane. When he moved to Quebec&rsquo;s Gaz M&eacute;tro, he designed the mechanisms needed to incorporate RNG into the often complex framework of rules governing natural gas distribution. Education and promotion now occupy much of his time.&nbsp; &ldquo;Unlike solar or wind power, renewable energy from waste exists only because we make the waste in the first place,&rdquo; he says. &ldquo;For me, closing the loop to recover this unused energy is really about living up to what I learned from my parents and what I now teach to my children: When you&rsquo;re done, clean up and put everything back in its place.&rdquo; Johannes Escudero of the RNG Coalition says he would rather jump off the proverbial cliff only to find out there was no water below and die, than to never jump and live forever wondering &lsquo;what if we had?&rsquo; &ldquo;This was precisely my thought when David Cox and I recused ourselves of all energy related policy in the California State Legislature where we were employed at the time, and fronted the costs for the RNG Coalition&rsquo;s inaugural membership luncheon,&rdquo; he says. &ldquo;Expecting only a handful of companies to attend, I recall the pleasant surprise when more than 40 organizations attended and agreed to join or otherwise work with our new coalition. Shortly thereafter, our members again enjoyed similar surprise when we overcame insurmountable political odds to pass legislation reversing quarter-century-old statute and create a new market in California. The rest, as they say, is continuing to unfold as history.&rdquo; Cora Carriveau is a self-proclaimed pipeline-hugging environmentalist with Union Gas. &ldquo;My biggest motivator comes from knowing that the California government (Air Resource Board) has proposed a significantly reduced carbon intensity for RNG derived from wastewater treatment plants,&rdquo; she says. &ldquo;If we adopted this source of RNG as a vehicle fuel instead of gasoline or diesel, we could reduce our GHG emissions by almost 170 percent.&nbsp; I like to think that the work I do will help this 100-year-old-plus company to continue to be sustainable and deliver the affordable energy that our communities and country need well into the future.&ldquo; Jennifer Green of the Biogas Association in Canada points out, &ldquo;The industry is confident, developers are well-informed, and support is growing. Now is the time for Canada to advance RNG and realize its economic and environmental benefits.&rdquo; Author: Stephanie Thorson Associate, Biogas Association sthorson@biogasassociation.ca (613) 822-1004 &nbsp;

2015/05/Thorson-Stephanie_1431704427352_largethumb.jpg

2015/05/Thorson-Stephanie_1431704427352_thumb.jpg

2015/05/Thorson-Stephanie_1431704427352.jpg

Stephanie Thorson, associate at the Biogas Association, highlights contributions of those working in the biogas-to-compressed natural gas sector.

Team RNG: Bringing a New Fuel to Market

Over the past few decades, biomass heat has spread across Europe, its success largely a result of government and public education and support. Industry leaders such as Christiane Egger of Upper Austria, Gustav Melin of Sweden and Neil Harrison of England are a few standout professionals who have made a mark on their countries&rsquo; growing markets. When the attention of Egger, Melin and Harrison was drawn to biomass heat, an industry for it essentially didn&rsquo;t exist. Egger helped forge Upper Austria&rsquo;s prioritization of energy efficiency and renewable energy, assuming the role of deputy manager of the state agency&nbsp; O&Ouml; Energiesparverband. Melin became immersed in the bioenergy business more than 20 years ago, and has served as CEO of the Swedish Bioenergy Association (Svebio) since 2008 and chairman of the European Biomass Association (Aebiom) since 2010. Harrison has been involved in the U.K.&rsquo;s wood energy sector the majority of his career. He cofounded the wood energy company re:heat in 2011, and played a key role in forming the Wood Heat Association. Each has fashioned their career around building a market for biomass heat. Carrots, Sticks, Tambourines Egger has worked for the state agency focused on renewable energy and efficiency in Upper Austria since it formed in 1991. She also manages a network within the agency of 170 companies known as the Oekoenergie-Cluster (OEC), and serves as vice president of European Federation of Agencies and Regions for Energy and Environment. Some partners within the OEC are considered pioneers of their trade by atomizing biomass heating in the mid-&lsquo;90s. &ldquo;I was privileged to work with them and help them grow, and they helped create thousands of in-state jobs,&rdquo; Egger says. Upper Austria has indeed grown, with biomass heating representing more than 40 percent of the market and around 50,000 automatic biomass systems installed. Additionally, the number of OEC partners has doubled since 2000, with combined revenue jumping ten-fold to $2.5 billion. Now one of the leaders in biomass heat, Upper Austria&rsquo;s first use of biomass dates back to the early &lsquo;80s, driven by farmers and forest owners searching for new sources of revenue and markets for forestry residues. A cooperative business model emerged where both groups develop, build and operate small-scale biomass district heating systems, of which Upper Austria now has about 330. In addition to biomass heating system entrepreneurs and forward-thinking farmers and forest owners, another driving force for biomass is supportive state policies. Egger&rsquo;s agency develops and promotes policy, supports legislation, and targets the entire industry with awareness campaigns, the World Sustainable Energy Days, training through their Energy Academy and independent technical advice, among other services. The combined success of these initiatives can be summed up as a three-pillar energy strategy of carrots, sticks and tambourines. The energy agency adopted a cartoon to depict the strategy, with a donkey representing the market, stubborn and not inclined to change. However, once the sticks (regulatory measures), the carrots (financial measures) and tambourines (information and training) are applied, a successful policy package is created to stimulate market demand and support supply. &ldquo;We need this combination of these three things, and we need them at the same time,&rdquo; Egger says. Building upon the success of its policies, the state has set a target to meet 100 percent of its electricity and space-heat demand with renewable energy sources by 2030. Egger hopes to see this through before she retires. &ldquo;Part of my work is also to share this at the European level,&rdquo; she says. &ldquo;In Europe, we also have some very good initiatives around renewables and energy efficiency, so there is a role that we have in this process by being the pioneers.&rdquo; Polluters Pay Principle Sweden began pioneering a market for biomass heat around the same time as Austria, with just as much success. One of the main reasons for the sector&rsquo;s growth, besides its expansive forest industry, is the broad political support and incentives pushed forward by companies like Svebio, which represents about 250 member companies. Melin spends most of his professional time in his role as CEO of Svebio, but also serves as chairman of AEBIOM. &ldquo;I actually have a very nice combination between business and policy in the positions that I have,&rdquo; he says. In 2014, 34.3 percent of energy use in Sweden came from bioenergy. This continual increase over the past 30 years, is partly due to the polluter pays principle (PPP), which means those who are responsible for an emission should pay for polluting. Aligned with this principle, a CO2 tax was introduced in 1991. &ldquo;It&rsquo;s so much easier to fee the problem, because then you include it in the market economy,&rdquo; Melin says. It&rsquo;s no surprise Melin ended up in the roles he serves now, with his interest early on in growing and cultivating wildlife and forestry. He was growing vegetables at the age of 12, he says, an interest that led him to study agriculture in Sweden. For a time, Melin developed plant material and machinery for short rotation coppice willows as CEO of Agrobr&auml;nsle AB, and he currently serves as director of the board in European Willow Breeding AB. Continuing his work with biomass, Melin had a short stint trading pellets as business area manager at TallOil AB in Stockholm. Melin uses those experiences in his position of CEO of Sveibo, which he assumed after 12 years on the board. Melin references Sweden&rsquo;s allemansr&auml;tten, or &ldquo;the everyman's right&rdquo; to describe the country&rsquo;s forestry mindset. Essentially, everyone should have the right to roam, but with it comes an equal emphasis upon the responsibility to not disturb the countryside. Although Melin believes nature should be preserved, he also believes its preservation can be maintained by using the land&rsquo;s resources in a sustainable and cost-efficient way. Mirroring Melin&rsquo;s stance is a campaign called Biomass Counts, launched by AEBIOM in December. The campaign seeks to balance the current debates on biomass by showcasing the reasons sustainable biomass counts in the EU policy debate. &nbsp; Biomass Heat Gold Rush Across the North Sea in Northumberland, England, Harrison&rsquo;s view on the allemansr&auml;tten altered as he moved away from nature conservation to the forestry and wood energy sector in 2003. &ldquo;I gradually got fed up with the whole &lsquo;let&rsquo;s just pickle nature&rsquo; angle,&rdquo; he remarks. Even though Harrison became disenchanted with the conservation movement, he still enjoys being outdoors with his children and sprocker spaniel Tess. Northumberland County holds a history in industrial energy and innovation and according to Harrison, has been able to preserve its independence and, identity. &ldquo;We haven&rsquo;t been starbuckified yet,&rdquo; he chuckles. Although Harrison began his career in biomass heat slightly later than Egger and Melin, it too, began around the same time his country&rsquo;s industry started emerging. Harrison estimates the U.K. thermal industry to be about 15 to 20 years behind the Austrians and Swedes, but now with the renewable heat incentive (RHI) a gold rush for biomass heat has ensued. Across the U.K., over 9,000 new nondomestic systems have been registered since November 2011. Among all other technology covered under the RHI, solid biomass is in the lead by a huge margin at a ratio of 20-to-1. The RHI provides fixed subsidies per kilowatt hour (kWh) of heat produced, and to date most of its tariff payments have been to sub-200 kW boilers. The busy traffic with these boilers has resulted in aggressively reduced tariffs. Because of this, Harrison sees the biggest opportunity for biomass heat in the industrial market going forward. He says near-perfect-storm conditions exist, notwithstanding current oil prices. A massive investment in pellet infrastructure to serve the U.K. power station market and a mature industrial base are two of the conditions. &ldquo;I&rsquo;d just like to keep driving this industry forward,&rdquo; Harrison says. &ldquo;Its potential is enormous in the U.K. and I think we&rsquo;ve only just scratched the surface thus far.&rdquo; &nbsp;Before Harrison and business partner Ben Tansey cofounded re:heat in 2011, they worked together in the forest service, and developed the Ignite training program, the first formal training course in the wood heat sector. For the next few years Harrison occupied his time in New Zealand working for Living Energy. He helped pioneer the industry there by installing the first six woodchip boilers outside the timber processing sector, and helped provide the foundation for Living Energy to become the market leader in Australia. Soon after, Harrison worked for a few years as senior biomass consultant with the Scottish Agricultural College. Now, Harrison spends much of his time consulting, which he says has unfortunately become a lot of remedial work. Paucity of standards, regulation and appropriate training have led to a number of suboptimal installations. &ldquo;You have to start with standards, then you need the skilled individuals that deliver against those standards,&rdquo; Harrison says. He is passionate about professionalizing the industry, and believes the WHA will help. &ldquo;WHA was really a response to the lack of representation for the sector and the desire to actually create a sector that you can call an industry, not just a whole set of disparate business and individuals,&rdquo; Harrison says. Egger, Melin and Harrison have all helped an industry for biomass heat evolve in their respective countries, creating models for the rest of the world to emulate. Other countries, particularly in Europe, have made considerable advances as well, but the U.S. lags behind. All three believe the U.S. has potential, but battling external impacts like the price of oil and obtaining political support will take time. Maintaining the same level of political support is a challenge even in Europe. It keeps these three biomass heat frontrunners busy ensuring standards are set and proper training is in place, as they manage their growing companies dedicated to championing the benefits bioenergy has to offer. Author: Katie Fletcher Staff Writer, Biomass Magazine 701-738-4920 kfletcher@bbiinternational.com

Same Vision: Neil Harrison and Christiane Egger, above, and Gustav Melin, next page, have put their stamp on Europeâ€™s biomass heat market, which has grown tremendously over the past few decades.

2015/05/IBCE-Biomass2015_14317046137334_largethumb.jpg

2015/05/IBCE-Biomass2015_14317046137334_thumb.jpg

2015/05/IBCE-Biomass2015_14317046137334.jpg

2015/05/Gustav-Melin_14317046126246.jpg

In Europe, the stage for biomass heat is set and industry leaders are engaging crowds, ready for the next act.

Setting the Scene

Four months after the fanfare and excitement of the grand opening of Poet-DSM&rsquo;s flagship cellulosic ethanol facility in Emmetsburg, Iowa, Dan Cummings was invited to sit in the joint venture&rsquo;s driver&rsquo;s seat. Recognizing that the job would require more than the part-time attention of executives from the parent companies, Cummings was named the organization&rsquo;s first president. The role entails a broad set of responsibilities, including overseeing day-to-day operations, public engagement and stoking legislative support for next generation biofuels. On top of all that, Cummings will be charged with carrying POET-DSM&rsquo;s technology into the marketplace and spearheading licensing agreements. The mandate is a broad one, but Cummings is well-suited for the role, armed with vast experience in both energy and clean technology. In 25 years, Cummings has built an impressive resume peppered with roles at some of the biggest companies in the energy space. After earning a law degree from Temple University, he began his career as legal counsel and advisor to energy giants such as BP. In 2005, Cummings joined INEOS and eventually logged time as counsel, vice president and, most recently, president of INEOS New Planet Bioenergy. Throughout his career, Cummings has contributed to both company and industry boards, serving as the cochair of the Biotechnology Industrial Organization&rsquo;s Biofuels Working Group. Cummings joins POET-DSM at a critical time in both the company and the industry&rsquo;s development. He and his team must bring steady-state operation to the Emmetsburg facility in order to build confidence with future licensing customers. While doing that, Cummings must continue to advocate for the continuation of the industry&rsquo;s expansion as outlined by the renewable fuel standard (RFS). It&rsquo;s an ambitious uptake, and it will require all of Cummings&rsquo; amassed knowledge to get it done. First of all, congratulations. You&rsquo;ve been president of the POET-DSM joint venture for just over 100 days. How have you spent your first few months on the job? Thanks.&nbsp; I&rsquo;ve spent the past few months getting to know our people and partner companies, understanding our technology and talking with our potential customers as we move this world-class technology forward. You&rsquo;ve spent the majority of your career in the energy space. What attracted you to this industry? The energy space is one of the key areas where a person can make a difference with the environment and providing for a lower-carbon future.&nbsp; I&rsquo;ve been fortunate, over my career, to be involved with advancing new energy technologies that lower greenhouse gas emissions, improve our mobility and provide for a cleaner, healthier environment. You joined the POET-DSM team after Project Liberty was built and had celebrated a grand opening. How did the existing team in Emmetsburg bring you up-to-speed on their progress with plant startup? &nbsp;First of all, as the president of the joint venture, I&rsquo;ve spent a lot of time familiarizing myself with both of the parent companies, getting a sense of their respective visions, values and cultures. What I&rsquo;ve found is that POET and DSM share a vision for the role of bioenergy in the world and the importance of it for our future. The companies themselves may have different backgrounds and reached this point in the new energy space through different means, but they share a vision of moving this great technology forward on a global scale. The team in Emmetsburg has been excellent in bringing me up-to-speed on their progress with plant startup and improvements in the technology as we have moved ahead.&nbsp; With all new technologies, the commissioning and startup take time, and you have to be patient as you work through the systems and optimize the processes.&nbsp; We have a great team on the ground, and I&rsquo;m impressed with what&rsquo;s been accomplished. Looking forward into the rest of your first year in the role, what are a couple of the biggest items on your to-do list? &nbsp;After a successful startup of Project Liberty, the biggest items are to move forward with more plants and license this technology on a global scale.&nbsp; Global demand for lower-carbon fuels continues to rise, and millions of tons of biomass are either underutilized or are not efficiently used from a carbon efficiency standpoint.&nbsp; We can help countries with a need to better utilize their biomass, provide a lower-carbon fuel source and help lower their overall greenhouse gas emissions. Of course, many of my future efforts here in the U.S. depend on whether we get consistent long-term support for the RFS from Washington, so we&rsquo;ll be watching that closely. How important to the broader biofuels industry is the success of first-of-a-kind plants like Project Liberty? These first plants are important for demonstrating commercial production to the broader public, and for providing crucial experience for building out this industry. The conventional wisdom is new technologies like these take 20 years to bring forward to a full commercial scale.&nbsp; Scaling up technology like this is always a challenge, and we have learned so many lessons through Project Liberty that will lower costs and improve efficiencies in the next cellulosic ethanol plants. How much time do you spend thinking about the policy landscape? By the time this issue lands in people&rsquo;s mailboxes, there should be some decisions on the RFS renewable volume obligation numbers? &nbsp;I spend a good portion of my time educating policymakers in Washington and abroad about policies to support the long-term viability of this sector. The support provided to renewable fuel development in the RFS was a driving force behind building Project Liberty. and forming this joint venture. Hundreds of millions of dollars have been invested by the parent companies to make this technology a reality, and we are determined to see it replicated. The EPA&rsquo;s decision will likely be a major factor in determining whether that happens in the U.S. or in another country with a better market for cellulosic biofuel.

2015/05/Dan-Cummings-BiomassJUNE_14317040052817_largethumb.jpg

2015/05/Dan-Cummings-BiomassJUNE_14317040052817_thumb.jpg

2015/05/Dan-Cummings-BiomassJUNE_14317040052817.jpg

Leveraging Dan Cummings' 25-year career in energy and clean technologies, POET-DSM names him first president of the joint venture.

Q&A - Taking the Reins

Every biomass business must have ways to measure success, output and efficiency improvements. But how easy is it to compare those measures across an entire industry? It may be a simple matter of dry weight tonnage and market value, but it can also become vastly more complicated. In the biobased business&mdash;where products must prove levels of sustainability to qualify for certifications, tax incentives, and other regulatory issues&mdash;measurement is key. Because algae are some of the most flexible biomass sources available, there is an incredible range of algae products on the market today, and an even greater number and variety slated to appear in the near future. As such, it&rsquo;s impossible to create a simple impact measurement. We often field inquires at the Algae Biomass Organization such as: &bull; What is the going rate for a ton of algae? &bull; How much algae can be produced per gallon of water, or per ton of CO2? &bull; What are the land requirements for an algae farm? These questions have answers, but those answers are not the blanket declarations we might expect when asking about output on biomass pellet values, or any commoditized industry for that matter. Algae are unique in their diversity. They can be raised indoors or out, and their energy source can be sunlight, sugar or something else entirely. Other inputs include CO2 at varied concentrations, perhaps proprietary enhancers, and water that may be salt, brackish, fresh or sourced from wastewater facilities. The outputs of algae cultivation can be even more diverse than their production methods, making measurement comparisons even more daunting. Algae production methods can produce varied ratios of oils, carbohydrates and proteins. One strain might produce an oil profile with a market value of a few dollars or few pennies per gallon, another might produce a specialty oil valued at hundreds or thousands of dollars per ounce. Every algae company is pursuing a different combination of these inputs and outputs. So how do we attempt to standardize measurements to compare technologies and products? The Algae Biomass Organization has taken the challenge head-on by developing a tool that offers a methodology to break down the different components of algae production into measurable blocks. The latest published iteration of this tool is the Industrial Algae Measurements Version 6.0, an all-volunteer effort from academic and industry experts on ABO&rsquo;s Technical Standards Committee who recognize the key to managing the algae industry is measuring all the pieces that make success possible. The IAM methodology sets the stage for standardized descriptions of the economic and environmental impact of almost any algae production facility, including all inputs and outputs. It provides the industry with a common descriptive language that can be applied across a variety of algae operations, regardless of size, technology or end products. Comparisons between similar methods or production segments now become possible. This year, the IAM is being revised and updated to become an even more comprehensive reference document, and will include a comparative introduction of production systems as well as a standardized framework for lifecycle analysis discussions along with carbon allocation mechanisms. IAM has been called the &ldquo;operator&rsquo;s manual&rdquo; for building the algae industry, and it can even help reframe the aforementioned questions into different but more meaningful inquiries that can inform a particular market operator, investor or regulator about what they might expect from the algae-derived products that are now becoming commercially available. For example, the value of a ton of dry algae can vary widely, from a few dollars to thousands upon thousands. Acknowledging the variety of production methods and outputs that IAM 6.0 compartmentalizes for us may lead to a reformulation of the question through the lens of a particular market or end-use: What is the cost of producing 1 gram of algae-derived Omega-3 fatty acids, or 1 ton of high-protein animal feed? The old adage of &ldquo;You can&rsquo;t manage what you can&rsquo;t measure&rdquo; is well understood by those of us in the algae industry who are working with so many different approaches. The IAM 6.0 is an important tool as a new wave of algae-derived products become available for purchase, driving revenues and competing alongside existing products.&nbsp; &nbsp;Thanks to the common language these standards are establishing, the algae industry is ready to measure up to commercial scale. Author: Matt Carr Executive Birector, Algae Biomass Organization www.algaebiomass.org 877-531-5512

2015/05/Colmun-Biofuels-Biomass-Carr_14317041968468_largethumb.jpg

2015/05/Colmun-Biofuels-Biomass-Carr_14317041968468_thumb.jpg

2015/05/Colmun-Biofuels-Biomass-Carr_14317041968468.jpg

Algae Biomass Organization Executive Director Matt Carr discusses the importance of establishing common language in the algae sector.

Managing What You  Measure

Growing up, Chris Voell lived the all-American childhood outside Buffalo, New York, with two caring parents and three younger siblings. Long, carefree bicycle rides, baseball and family camp outings defined those fleeting summer days while ice skating helped ward off the hard Buffalo winter chills. His baseball team at St. Francis Catholic School went 30-0, a passionate high point of his young playing days. His love of fishing and hiking manifested in his desire to become a park ranger, but Voell&rsquo;s plans were thwarted early on&mdash;something he regrets to this day. &ldquo;Two of my true loves in life are the outdoors and talking to people, especially meeting folks I don&rsquo;t know,&rdquo; Voell says. &ldquo;I got scared away when someone told me something like &lsquo;Only one out of a thousand who want to be a park ranger get to do that.&rsquo; I think I would have made a great one.&rdquo; Voell&rsquo;s father was an environmental engineer before the phrase was even coined, he says. &ldquo;We would visit landfill and wastewater treatment plants while on family vacations and learn about how we manage our waste streams,&rdquo; Voell tells Biomass Magazine. After high school, Voell earned his associate&rsquo;s degree in the forestry preprofessional program from Paul Smith&rsquo;s College in the Adirondacks. &ldquo;When I finished, I still wasn&rsquo;t sure what to do,&rdquo; he says. He moved to the Washington, D.C., area and began working for the Governmental Refuse Collection and Disposal Association&mdash;now the Solid Waste Association of North America&mdash;in 1986. Later, while still with SWANA, he attended to University of Maryland and received his bachelor&rsquo;s degree in natural resources management. &ldquo;When I joined SWANA, the Landfill Gas Committee was the strongest and most influential member-based organization within the association,&rdquo; Voell says. Therefore, the control and use of landfill gas was at the forefront of many of SWANA&rsquo;s efforts, providing the 21-year-old Voell his initial education on producing, controlling and using renewable energy. &ldquo;The people who began and fostered the landfill gas energy industry into what it is today were a very innovative and hard working group,&rdquo; he says. Lenny Hickman, executive director, was Voell&rsquo;s mentor for a decade and taught him most of what he knows about solid waste&mdash;and provided Voell with instrumental introductions to others such as N.C. Vasuki with Delaware Solid Waste Authority, Tim Hunt with Palm Beach County Solid Waste Authority and Davis Myers with Monterey Regional Waste Management District. &ldquo;All of these innovators were providing baseline management services to the citizens of their communities through landfills and waste-to-energy facilities, but also pushing the envelope in terms of recovering resources through recycling, composting, source reduction and energy recovery,&rdquo; he says. SWANA primarily represented the public sector, but Voell also worked closely with the private waste sector. &ldquo;While we sometimes did not see eye to eye, we regularly collaborated with the National Waste &amp; Recycling Association,&rdquo; he says. &ldquo;I certainly learned a lot from NSWMA on how the private sector viewed the industry and how public-private partnerships can be an asset.&rdquo; At SWANA, Voell regularly interfaced with a variety of other groups. &ldquo;When National Recycling day was launched, I served as SWANA&rsquo;s rep to the group,&rdquo; he says. &ldquo;I think what I learned working with SWANA is that I truly love working with the professionals in the solid waste industry. They are some of the most dedicated and genuine people I know.&rdquo; Three years after leaving SWANA, Voell joined the U.S. EPA&rsquo;s Climate Change Division as manager of voluntary methane programs (Landfill Methane Outreach Program, AgSTAR), &ldquo;some of the best programs the agency ever launched,&rdquo; he says. Voell was instrumental in progressing landfill gas, aenorobic digestion and wastewater treatment biosolids digestion projects and education. &ldquo;I treated my role each day at EPA as a chance to help grow the biogas energy industry in the U.S., and later when the Global Methane Initiative was formed, a chance to share what we&rsquo;d learned internationally,&rdquo; he says. Much of his time abroad was spent in Ukraine. &ldquo;While not easy, we eventually found a landfill in the south of the country at which to install a landfill-gas-fired infrared heating system that uses a relatively small amount of gas to supply heat to on-site and adjacent buildings,&rdquo; Voell says. &ldquo;This has become a showpiece for the efforts in Ukraine.&rdquo; In 2012, Voell left EPA and joined BioCNG LLC as its eastern sales manager, where he presented at approximately 20 regional and national solid waste and alternate vehicle shows regarding biogas-to-CNG possibilities. In the same year, he became a board member at the American Biogas Council and served two years in that role. &ldquo;Most people aren&rsquo;t aware that biogas can be upgraded to pipeline quality, much less compressed and used for natural gas vehicles,&rdquo; he says. &ldquo;Probably the biggest impact I had personally was helping to educate people on this and dispel rumors that this cannot be done.&rdquo; Today, Voell is business development manager for Aria Energy, one of a handful of landfill gas energy developers that has built its business exclusively on landfill gas energy project development, with more than 50 projects since its inception. Aria currently owns and operates 44 electricity and renewable natural gas projects across 16 states. When asked what his greatest professional accomplishments have been, Voell says, &ldquo;I&rsquo;m not going to try to point to one big thing or large project I&rsquo;ve done, because my career hasn&rsquo;t been defined in that way. I&rsquo;d like to think that in a million little ways I&rsquo;ve really helped move all of the sectors I&rsquo;ve been involved in advance. One of my greatest joys comes from helping people become connected and better educated.&rdquo; Author: Ron Kotrba Senior Editor, Biomass Magazine 218-745-8347 rkotrba@bbiinternational.com

EDUCATING YOUTH: On Earth Day 2013, Chris Voell, then with BioCNG LLC, helped educate 150 children in Sussex County, New Jersey, on how landfills work and how biogas from landfills can be used for electricity or vehicle fuel. 

2015/05/EducatingYouth-Biomass2015_14317043125212_largethumb.jpg

2015/05/EducatingYouth-Biomass2015_14317043125212_thumb.jpg

2015/05/EducatingYouth-Biomass2015_14317043125212.jpg

Aria Energy Business Development Manager Chris Voell discusses his long, impactful career in waste management and landfill gas energy development. 

June 2015

Business Briefs

Business Briefs

Business Briefs

Columns

Weathering Tight Margins

End the Food Vs Fuel Debate

Following the Cool Guys

Matchmaking, Money And Makeovers

Present Day Ethanol Trumps Good Ol' Days

Waves of Ethanol Misinformation

High Hurdle Race

Targets, Policy for State-Level Thermal Energy Markets

Team RNG: Bringing a New Fuel to Market

Managing What You Measure

Annual Fly-In Covers Pressing Industry Issues

A People-Powered Industry

Featured

'Back to the Future' With N-butanol

How Deals Square Up

Stepping Up to a Currency Molecule

Follow the Money

Riding the Performance Curve

Contributions

Ethanol Biorefinery Boosts Local Corn Production

Long-Term Planning Mitigates Risks from Prolonged Downturns

New Laws, Rules Offer Options for Raising Capital

Market Tools Help Identify, Manage Margins

Small Changes Affect Sampling Methods

Departments

Setting the Scene

Q&A - Taking the Reins

Advancing Landfill Gas

Words from the Wise

OPG's Biomass Brothers

PHOTO REVIEW: International Biomass Conference & Expo

June 2015.css-7jxktu{position:absolute;bottom:0px;left:0px;right:0px;height:3px;border-radius:3px;background-color:var(--chakra-colors-brandBlack);}

Business Briefs

Business Briefs

Business Briefs

Columns

Weathering Tight Margins

End the Food Vs Fuel Debate

Following the Cool Guys

Matchmaking, Money And Makeovers

Present Day Ethanol Trumps Good Ol' Days

Waves of Ethanol Misinformation

High Hurdle Race

Targets, Policy for State-Level Thermal Energy Markets

Team RNG: Bringing a New Fuel to Market

Managing What You Measure

Annual Fly-In Covers Pressing Industry Issues

A People-Powered Industry

Featured

'Back to the Future' With N-butanol

How Deals Square Up

Stepping Up to a Currency Molecule

Follow the Money

Riding the Performance Curve

Contributions

Ethanol Biorefinery Boosts Local Corn Production

Long-Term Planning Mitigates Risks from Prolonged Downturns

New Laws, Rules Offer Options for Raising Capital

Market Tools Help Identify, Manage Margins

Small Changes Affect Sampling Methods

Departments

Setting the Scene

Q&A - Taking the Reins

Advancing Landfill Gas

Words from the Wise

OPG's Biomass Brothers

PHOTO REVIEW: International Biomass Conference & Expo

June 2015