California Ethanol and Power to Build First Ethanol Plant Using Sugar Cane as Feedstock

Source: BY HOWARD FINE, Los Angeles Business Journal • Posted: Monday, July 4, 2022

A Manhattan Beach company is attempting to build the first-ever ethanol plant in the U.S. that uses sugar cane as feedstock.

California Ethanol and Power is planning to build the $650 million plant on a 160-acre parcel in the Imperial Valley. It’s part of a larger $1.1 billion project that also includes crafting agreements cumulatively worth more than $100 million with local Imperial Valley farmers to grow the sugar cane for the ethanol plant and an agreement with a major farming cooperative to market the ethanol once it’s produced.

Assuming the company obtains the financing it’s seeking for the project, it hopes to have the plant up and running by late 2025, producing about 68 million gallons of ethanol annually and, as byproducts, generating about 49 megawatts of electricity and roughly 740 million gallons of biomethane that can be transported through pipelines to ultimately heat businesses and homes.

In addition, the plant would produce about 200,000 tons of carbon dioxide gas that the company intends to capture and then sell to companies needing CO2 emission offsets.
“We will be producing the lowest-carbon ethanol at commercial scale in the U.S.,” said David Rubenstein, California Ethanol and Power’s chief executive. “We will be supplying into the California market the ethanol that helps fuel companies meet the state’s low-carbon fuel standard.”

Rubenstein added that the project will help financially strapped Imperial Valley farmers and the overall Imperial Valley economy. In May, Imperial County’s unemployment rate was the highest in the state, at 11.4%. The poverty rate in 2019, the last year for which federal data was available, was roughly 24%.

“This project will give struggling farmers a viable crop option and bring economic development to one of the most economically challenged counties in the country,” Rubenstein said.

But those farmers could face another significant issue as they weigh whether to participate in the project: sugar cane requires a lot of water to produce. And while the Imperial Irrigation District that supplies water to farmers now has enough water to go around, the concern is that if the drought continues and water allocations shrink, water costs will go up and growing sugar cane may become a less attractive option.

“The question is, ‘Will the farmers be able to obtain enough water allocations to grow the sugar cane?’” said Surya Prakash, professor of hydrocarbon chemistry at USC and director of the USC Dornsife Loker Hydrocarbon Research Institute.

The sugar cane option

Rubenstein said the company has been growing sugar cane on about 100 acres of land in the Imperial Valley on a test basis for several years. “We have found that the water use was equivalent to the water used to grow alfalfa, which is the crop grown by many of the farmers we are seeking contracts with.”

He added that by signing long-term contracts with California Energy and Power, the farmers would have guaranteed prices for their sugar cane crops for several years, longer than the year-to-year contracts alfalfa growers now have.

California Ethanol and Power was founded in 2007 by a group of Imperial Valley farmers looking for a more financially feasible crop to grow. According to Rubenstein, who came on board as an early investor shortly afterward, the farmers were struggling amid immigration crackdowns to find enough workers to harvest their leafy vegetable crops that are the mainstay of the Imperial Valley agricultural economy. They were also facing the prospect of paying ever-increasing wages to their farm workers.

Sugar Valley Energy Planting Ceremony & VIP Reception Sugarcane field north of Brawley, CA L-R 1. Stephen Benson, Benson Farms 2. Phil Vandermost 3. David Rubenstein, President/CEO 4. Camille Soriano, Vice President Marketing 5. Nathan deBoom, Vice President JOSELITO N. VILLERO PHOTO  Monday, October 18, 2021
Farmers with sugar cane in the Imperial Valley.

“The key problem they were facing was that the crops they were growing were too labor intensive,” Rubenstein said. “They were looking for a less labor-intensive crop.”
Some turned to alfalfa, the legume that’s primarily used for grazing, making hay and silage. But some also began to consider sugar cane.

Unlike the leafy vegetable crops that are harvested mostly by hand, sugar cane harvesting is heavily mechanized, requiring far less manpower. It’s even more mechanized than the harvesting of alfalfa.

But there was one more problem: In the U.S., sugar cane production is heavily regulated, with strict limits on how much can be grown for table sugar and other human consumption. Under federal laws and regulations meant to support price levels for sugar crops, anyone wanting to start growing sugar cane for human consumption must obtain allocations from a limited pool.

Rubenstein said that instead of growing sugar cane for human consumption, this group of Imperial Valley farmers decided to follow the example of farmers in Brazil, who had been growing the crop as a feedstock for ethanol production for several years. In California, all gasoline sold must have 10% ethanol content, providing a ready-made market for ethanol.

According to the California Energy Commission, in 2021 only about 10% of ethanol used in the state was produced within its borders; the rest was imported either from other parts of the country or from Brazil. That makes the state vulnerable to ethanol supply shortages elsewhere or to sudden increases in transportation costs.

Long road

By 2009, the fledgling company started the planning process for the ethanol plant. Over the next decade, it secured all the entitlements and cleared environmental reviews for the project.

In 2020, California Ethanol and Power inked two major agreements with private parties for the project. The first was an agreement with MasTec Power Corp., a subsidiary of Coral Gables, Fla.-based infrastructure and energy development company MasTec Inc., to build the plant for $610 million. The second, in December 2020, was an exclusive 15-year contract signed with farming cooperative giant CHS Inc. of Inver Grove Heights, Minn., to market and sell the 68 million gallons of ethanol produced by the plant.

In late June, the company received a sales-tax exemption from the state for production equipment to be used in the plant; the company estimates that will save about $10 million on the purchase of $235 million in equipment.

But California Ethanol and Power still faces one key final hurdle before construction can begin: obtaining the necessary financing. So far, it has raised only about $30 million — $27 million in financing from family and friends of the key principals and a $2.5 million grant from the Imperial Irrigation District, which supplies water to the thousands of farms in the Imperial Valley.

The company is seeking the lion’s share of the funding through a loan program administered by the U.S. Department of Energy to foster innovative energy projects. According to Rubenstein, the company has applied for an $800 million loan through this DOE program and has cleared some preliminary hurdles.

“We hope to have the loan in hand by the end of this year,” he said.
But the loan is not a sure thing. And even if the DOE does approve a loan for the project, it might not be for the full $800 million.
Rubenstein said the company aims to fill much of any remaining funding gap with the sale of tax-exempt bonds – tax exempt because the project would also include an onsite wastewater treatment plant that would provide a larger benefit to the community.

Big market

USC’s Prakash said the market is certainly there for additional ethanol production, especially for ethanol produced within California.

“This is primarily an import substitution,” Prakash said.He also noted that in the overall picture, the amount of ethanol this plant would produce – 68 million gallons a year – is tiny compared to the overall volume of ethanol needed in the state to comply with the 10% blend requirement. That 68 million gallons could be blended into roughly 680 million gallons of gasoline.

According to the U.S. Energy Information Administration, in 2018, Californians consumed roughly 48 million gallons of gasoline each day, meaning the ethanol produced by California Ethanol Energy and Power’s plant would cover only a couple of weeks of the state’s gasoline use.

“This is only going to have a minor impact on the supply of ethanol in California,” he said. “But it will help at the margins.”

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