Future of Fuel Series: Ethanol’s Struggles
Posted by Mary | Filed under Alternative Fuels, Economy, Green, Innovators, Investing
Almost 3 years after my visit to an ethanol plant in Central NY, the plant owners have filed for bankruptcy. The condition of the credit markets for the last six months have been incredibly difficult for many businesses. But the timing may also be a reflection of the political winds shifting in renewables. Promises for better efficiency have yet to materialize to the degree many had hoped in the ethanol business. Despite these setbacks, I would not count ethanol out. Just look for fewer mom and pop shops. Bigger businesses that are better equipped to weather financial and political storms will become the dominant players.
In 2006 I visited the plant that was gearing up to be the future of fuel. It was an old Miller Brewing plant that had been converted to produce ethanol. It’s investors believed in the near-future they would be producing, not just corn-based ethanol, but something much more important, cellulosic ethanol. Cellulosic ethanol is so much more efficient, because it doesn’t use corn or sugar, it uses the agricultural waste to make fuel. Three years later, it is still not commercially viable. The question is, can it get to market before the ship sails completely on ethanol?
The pressure on the smaller ethanol producers goes beyond the credit markets. The price of corn has squeezed margins. About half the cost of goods sold for distillers comes from the price of corn. At last check corn feedstock was making up about 80% of a distiller’s COG. So it is not surprising that companies like Northeast Biofuels can’t stay in the game. Larger players in the sector are snapping up the bankrupt companies. Sunoco is reportedly purchasing NEB and there have been other deals like Valero’s move to get VeraSun’s assets. They see what the operators of NEB saw, there will be a future at least in the mid-run for ethanol. It may not be today, and corn based-ethanol may not be the long-term solution, but it will have a role to play during the transition period away from oil. The small guys may have been right, but their timing was off. Now the bigger players are buying their expensive assets cheap and can handle the unattractive margins for a longer period of time than the small shops. As you will see in my video report, the cost of getting a plant built is huge in both time and materials. Valero and Sunoco are in a better position to wait for higher ethanol standards to kick in (like raising gasoline blends from E10 to E15).
http://maryandmoney.com/videos/the-future-of-fuel-cellulosic-ethanol/
Tags: cellulosic ethanol, ethanol, NEB, Sunoco, Valero, VeraSun
