Summary of Cellulosic Biofuels Finance & Investment Forum

by Joanne Ivancic (Advanced Biofuels USA) Faith and Belief. Most impressive about the 2010 Cellulosic Biofuels Finance & Investment Forum, as compared to the 2009 event, was the whiff of positive belief that somehow, some way, cellulosic biofuels are becoming a reality-- and somehow, some way production will be financed.

My most vivid memory from last year was hearing one of the financiers of Gevo say that if that proposal landed on his desk that day, he wouldn't touch it with a 10 foot pole. Government presentations were even less encouraging.

This November, with "shovels pushin' dirt" as an INEOS Bio attendee said, there's a bit more optimism. Even though Jonathan Silver, Executive Director of the Loan Programs Office for DOE explained the significant changes in the administration of the loan guarantee program, moving from 15 staff to almost 100 employees plus 75 consultants and contractors, no biofuels programs have received loan guarantees. Nevertheless, many panelists insisted on the importance of loan guarantees to the success of cellulosic biofuels production. And a belief that before the program, and related ones, sunset, some good will come of them.

Kelley Oehler of the USDA Rural Development Office presented encouraging news about 2010 funds coming available "right away" with two funding cycles to follow in 2011. However, nothing can occur until the final regulations are published. Negotiations continue with the Office of Management and Budget, including key issues such as how to calculate greenhouse gas emissions reductions. He expects the Rule to be published in December, but didn't sound absoluetly convinced that it would happen then.

Les Krone of Stern Brothers, and Mark Riedy of Mintz Levin, explained the advantages of USDA's programs application process as compared to DOE's. No environmental assessments or impact statements (saving great expense and 6-18 months), no need for OMB review for loan requests under $125 million, no Buy America requirements, no enormous up-front non-refundable application fees, etc. Yet, they explained, the 9003 loan guarantee program still has onerous requirements, not typical for other, non-biofuels programs. For example instead of a requirement that banks retain 50% of the unguaranteed portion of the loan, other programs require only 5%.

The non-competitive 9006 Business & Industry Guaranteed Loan Program requires only that applications meet criteria to be funded; first come, first served as long as the funding lasts. Mark Riedy provided details of a bond-based funding mechanism which he, Les Krone and John May developed and have used to successfully create adequate funding arrangements incorporating the byzantine requirements of the various programs, actually making them work.

A couple of years ago, feedstock producers' perspectives had no place at advanced biofuels conferences. It was as if technology developers and deal-makers just assumed that when they needed it, feedstock would appear. Two afternoon sessions at this conference were dedicated to discussing some of the particulars of getting municipal solid waste, woody biomass, agriculture residues (corn stover) and energy crops to conversion facilities. From tippping fees to crop insurance, to offtake agreements to price volatility in commodities markets to soil nurtient management, to growers' interest in spreads, etc.

One problem in fianancing biofuel production is that commodities and variable, volatile commodities prices determine both the cost of inputs and the price of outputs. One panelist took this a step further explaining that agricultural residues and biomass crops are really not commodities becasue they can't be easily transported in the way that grains and petroleum are. They may seem to be priced like commodities, but they have a geographically limited market.

In that vein, Justin van Rooyen, Director of Business Development for Mascoma, explained that one reason they focused on woody biomass as a feedstock was its established supply chain. This meant that they minimized risk in that element of the process as they concentrated on developing innovative technologies.

The final session of The Path Forward reinforced the impression of faith and belief in the face of a mountain of obstacles to financing biofuels production and distribution.

Denny DeVos of POET express the sentiments of many toiling on this mountain. He said that he is in this because it is important for the US's energy security, important to the US maintaing a place of leadership in the world. He'll work to accomplish that through business opportunities; the important thing is that it get done.

During sessions and during breaks I heard repeatedly that this is important work, and even without strong government support, we have to make it happen.