First U.S. cellulosic plant goes idle as EPA weighs production targets

Source: Amanda Peterka, E&E reporter • Posted: Thursday, January 16, 2014

The nation’s first commercial-scale cellulosic biofuel plant will sit idle in the first quarter of this year because the venture is not making enough money to justify its operation.KiOR Inc., which opened the plant in November 2012 in Columbus, Miss., said that the company will instead focus on making needed improvements to the plant that will boost its output”We do not believe it is prudent to fund the production of our cellulosic fuels out of Columbus at a significant loss relative to the prices we would expect to receive from our customers,” Fred Cannon, KiOR’s CEO, told investors late last week

Cellulosic biofuels are fuels made from plant-based materials such as agricultural residues, grasses, trees and municipal solid waste. Refiners are mandated to blend certain levels of them into gasoline and diesel through the federal renewable fuel standard .

KiOR has been one of the forerunners of the cellulosic industry in the United States. Last year, the company began producing the nation’s first commercial quantities of cellulosic biofuel at the Mississippi plant, drop-in gasoline and diesel that can be used in existing infrastructure for petroleum-based fuels. The company feeds Southern yellow pine into a proprietary catalyst system based on one used in oil refineries.

KiOR also got a boost last year when U.S. EPA said its fuel would qualify under the renewable fuel standard. EPA is currently counting on KiOR to meet the bulk of this year’s cellulosic biofuel target of 6 million ethanol-equivalent gallons.

But the 13-million-gallon plant in Mississippi has consistently failed to meet production goals. Though KiOR produced a record 385,000 gallons of fuel in the fourth quarter of last year, total production for the year was 894,000 gallons — well below EPA’s expectations. In all, KiOR shipped 597,000 of those gallons to customers.

Last year, shareholders filed a class-action lawsuit against the company for failing to meet its goals; the case is still ongoing (E&ENews PM, Aug. 21, 2013).

 

 

In the investor call last week, Cannon said that the company would use 2014 to make $10 million in improvements to increase the amount of yellow pine it can feed into its process from about 300 dry tons of biomass a day to 500 tons. KiOR also hopes to boost the overall yield of transportation fuels from each ton of biomass that is fed into the system, as well as recover yield from waste gases and process water.

 

 

 

“Our first initiative is to bring the Columbus facility up to the operational performance targets that we expected to achieve when we designed the facility over three years ago,” Cannon said. “We have learned from a year of operating the Columbus facility that additional work is required to bring Columbus from its current performance … to levels consistent with our expectations.”

 

 

 

KiOR also plans to spend $22 million this year on research and development efforts. It has not, however, secured funding yet for either the improvements or the research efforts. KiOR had $25 million in cash at the end of 2013.

 

 

 

The Columbus plant has been idled since Dec. 17 and will not produce commercial quantities of fuel in the first quarter of the new year. The plant will only run when the improvements need to be tested out, Cannon said.

 

 

 

KiOR’s lack of profit at the facility was a major factor in the decision to idle operations, he said. The low volumes produced by the plant have not been able to absorb the cost of production.

 

 

 

KiOR has also lost money on EPA’s recent proposal that refiners blend 2.2 billion gallons of advanced biofuels into petroleum-based fuel this year, 23 million of which must be cellulosic biofuel (E&ENews PM, Nov. 15, 2013). Producers such as KiOR believe the agency lowballed its targets for this year; as a result of the proposal, prices for the fuel credits known as Renewable Identification Numbers, or RINs, have plummeted.

 

 

 

“The mere announcement of this rulemaking dropped the value of our cellulosic RINs and significantly decreased the RIN value that we could receive for each gallon of our cellulosic fuel,” Cannon said.

 

 

 

Cannon said he would not publicly give any production targets for the year at this time.

 

 

 

The announcement last week was a U-turn from the company’s November 2013 earnings call, when Cannon said that the company had finally reached solid footing after a bumpy startup period (Greenwire, Nov. 8, 2013).

 

 

 

In response to the news last week, analysis from investment company Raymond James downgraded the publicly traded company, saying it was “throwing in the towel” despite being a fan of KiOR’s technology.

 

 

 

“KiOR’s first production in 2013 marked an important milestone for the company and the cellulosic biofuels industry as a whole,” wrote Raymond James analyst Pavel Molchanov on Friday. “However, inconsistent execution and lack of operational visibility have become a major source of frustration for investors.”

 

 

 

In response to the downgrade, KiOR’s stock price fell 9 percent, according to Seeking Alpha, a stock market news firm. KiOR stocks were trading at more than $6.50 a year ago; prices are now hovering around $1.50.

 

 

 

Cannon said that the company would not lay off any employees while the plant is undergoing improvements. KiOR expects to see “significant improvement” by the end of the year, interim Chief Financial Officer Christopher Artzer said.

 

 

 

KiOR is planning a second $225 million processing plant near the existing facility that it expects will double its production capability (Greenwire, Sept. 30, 2013).

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