Industry remains optimistic, despite Range Fuels’ collapse

Source: Tiffany Stecker • E&E  • Posted: Thursday, January 12, 2012

The initial creation and federal backing of the Range Fuels ethanol refinery in southeast Georgia led the wave of wood ethanol plants across the region, but the company’s misfortune won’t necessarily stall the others, say company experts.

A handful of plants in the southeastern United States, from Georgia to Tennessee, are slated to begin producing cellulosic ethanol — fuel made from tough, fibrous biodegradable matter — in the next few years. The region is rich with timber and easily accessible wood waste to turn into ethanol, driving a number of wood-based energy plants that are under construction.

“There’s going to be continued interest in building in that area,” said Brooke Coleman, executive director of the Advanced Ethanol Council. “The Southeast is a feedstock-rich environment, and that doesn’t change.”

Last week, Khosla Ventures-backed Range Fuels sold its lone Soperton, Ga., plant for a mere $5.1 million to LanzaTech NZ Ltd., a New Zealand renewable energy company also backed financially by Khosla. LanzaTech will use the plant to convert gas to ethanol. Range Fuels received up to $156 million in federal grants and loans, as well as more than $160 million in private investment.

Although cautious, companies continue to see opportunity. BlueFire Renewables expects to open an ethanol plant in Fulton, Miss., by November 2013, with an output of 18.6 million gallons per year derived from from wood waste, forestry slash, seasonal agricultural waste and manufacturing waste. Coskata Inc., who recently launched an initial public offering to become a publicly traded company, is planning a 55-million-to-60-million-gallon-per-year plant in Alabama.

“It is not totally known how it has hurt the ability to finance new plants not only in the Southeast but elsewhere,” said Arnold Klann, CEO of BlueFire Renewables, whose company has closed on financing the plant. “We do know that the financing market was very reticent to finance the new, first-of-a-kind facility with new technology before the failure.”

 ‘A black eye for the industry’

Wood to ethanol, within the broader scope of cellulosic biofuels, was a promising alternative in the region, due to the abundance of raw material. But trial and error in the technology to break up tough cellulose in wood and other material into simpler sugars has delayed commercial deployment to date.

Days before the new year, U.S. EPA passed its final 2012 targets for the renewable fuel standard that promotes the development of 36 billion gallons of renewable fuels by 2022. EPA requires cellulosic ethanol producers to make 8.65 million gallons of biofuels to be blended into the domestic fuel supply this year, a far cry from the 500 million gallons agreed in the 2007 Energy Independence and Security Act.

The market has not progressed as many had planned, said Andrew Soare, alternative fuels analyst for the advisory firm Lux Research. Success is critical for the long-term viability.

“The Range Fuels situation was a black eye for the industry,” he said. “It’s very likely that [investors] would be less likely to get on risky technologies.”

While the Department of Energy’s loan to Range Fuels will restrict funds on the federal level, the impact will be less severe on the state level, said Soare.

The region has “optimum zones for production of dedicated biomass crops,” and “assistance for biomass growers and generators would support further development of a dedicated energy crop market,” according to a National Renewable Energy Laboratory analysis of 10 Southeastern states. Currently, eight states of the 10 have loan programs, six have corporate tax incentive policies and five have personal tax incentive policies to promote renewable energy.

But the U.S. government is more of a burden than a boon, said one industry head.

Approximately two years ago, long before Range Fuels’ sale of its wood-based ethanol plant, Allied Energy Services scrapped plans to build a 20-million-gallon cellulosic ethanol plant in Bleckley County, Ga., initially proposed for 2015.

It wasn’t a question of funding, support or technology, said Allied President and CEO Dean Alford, but of a highly uncertain outlook for renewable fuels. Debate over the mandates in the renewable fuel standard created an uneasy atmosphere.

The rigidity in the market that Washington regulations could instate would be much more damaging than Range Fuels’ operations coming to a halt, said Alford.

“On one hand, you hear them promote renewables, and other hand, they promote [difficult] standards all across the board,” he said.

 A technology that’s sticky

To make ethanol, Range Fuels used a process called gasification that burned wood chips and waste from the timber industry in a low-oxygen environment, a method often used for coal energy. The result is a synthesis gas of hydrogen and carbon monoxide that can then be converted into ethanol with the help of chemicals.

The technology had its drawbacks. Tar formation during the gasification process slowed the rate of conversion from gas to fuel, especially on a large scale.

But there are a variety of methods to reach to a common goal — large-scale ethanol production. BlueFire Renewables, for example, uses an acid-based process that has existed since the 1900s, said Klann, CEO of the company.

Range Fuels’ technology is “notorious for their cost and contamination residues that blind catalysts from producing the intended products,” said Klann in an email. “Because of the different approach BlueFire uses to unlock the cellulosic sugars, it can process mixed streams of feedstock simultaneously without degradation of performance.”

Alejandro Zamorano Cadavid, a biofuels analyst with Bloomberg New Energy Finance, remains convinced that technology remain the predominant problem plaguing cellulosic biofuel.

“You might have the technology in the small scale figured out,” he said. “But scaling up is very difficult. Just because it works on a medium-sized scale, it doesn’t guarantee it’s going to work on the larger scale.”

Funding has been conservative, due to the economic circumstances in general. The failure to extend renewable energy credit programs like the Section 1603 program is an example.

“There’s a huge cloud on it,” said Zamorano.

Coleman, of the Renewable Ethanol Council, disagrees.

“People tend to assume there’s a technical reason for a failure in any new marketplace,” he said of Range Fuels specifically and the cellulosic industry broadly. But the overall economic outlook and demand along the supply chain are equally as important.

“People are throwing [technological] processes under the bus when they should be looking at the microeconomics, looking at the banks,” he said.