Today, the White House announced a US$510 million investment into biofuels for transportation. I’m wondering whether it was enough of a commitment to keep the industry moving forward in the absence of a comprehensive national energy policy.
The funding is surely welcomed news for biofuel start-ups, which are hungry for financing to break ground on commercial scale plants. Many are idling by waiting on investment to get off the ground - aside from a few notable exceptions such as Solazyme.
Politicians are talking about energy security, but no substantive actions are being taken, while oil remains heavily subsidized. Renewed government commitment may make a difference; however, $510 million does not convey any real sense of urgency.
I spoke with BlueFire Renewables CEO Arnold Klann about the state of the biofuel industry in July, and wasn’t encouraged that the promise of cellulosic ethanol technology would be realized within a reasonable timeframe.
The industry faces two fundamental problems: infrastructure and financing. I’d also include hyper partisan politics trumping science and logic.
The industry knows which sources of ethanol work best, but there’s a lack of demand for feedstock to supply commercial scale plant and a lack of infrastructure to harvest those crops, Klann said. In short, a purpose-grown crop is very expensive.
Cellulosic ethanol sources include wood wastes, urban trash, landscape residue, rice, and switch grass. Other biofuels are created using algae.
A handful biofuel companies have established themselves where infrastructure is already in place. BlueFire Renewables is one such example – it has a plant in Mississippi where timber is harvested, so woodchips are readily available. Corn based ethanol leveraged idle farmland.
Another positive is that the U.S already has infrastructure built out the wazoo for liquid fuels. Ethanol is a logical transition fuel from that perspective. A gas station won’t need to be rewired to fill up your tank.
But it all comes down to financing. Many banks don’t want to take risks on projects in the wake of the 2008 economic meltdown, Klann explained. “If government loan guarantees are not forthcoming technologies will never get a day in the sun even though there’s lots of money invested in R&D.”
Disparate interests ranging from the chemical industry to fuel producers and refineries must all be brought to the table, and more government loan guarantees are necessary unless Wall Street renews its enthusiasm to invest in ethanol, Klann explained.
While venture capital investments into green tech are increasing, VCs are very good at taking something that’s already been financed and commercializing it. It’s unlikely that investors would pony up to build a commercial plant from scratch.
Klann suggested that a national catalyst on par with the 1970’s oil embargo might be necessary for significant near term action. He also noted that biofuel techonlogy is also relatively new, having been invented within the past 20 years. It took solar and wind power decades to become commercialized.
“All the sudden we wake up and don’t have access to oil from the conventional places we’re getting it. Short of something like that it will putz along at some extent. Many companies won’t exist in year or two, and won’t get funding without a plant built and revenue being generated,” Klann said.
“We may be squandering opportunity already for this country… I just don’t know. Bureaucracy does not move quickly.”
That’s just one opinion.
Big names like Ford, the originator of car culture, are investing in biofuel research, and some biofuel companies are altering their business models by diversifying into food products and pharmaceuticals.
I’d like to hear your thoughts. Is the government doing too little, or should it step aside and let the market figure it out?
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