The problem with ethanol is one most potential business investors would like to have — there's not enough of it being produced.
That's why the American Coalition for Ethanol is pushing hard for ethanol production to expand to the South and Mid-South using feed stocks such as corn, wood chips, rice hulls or even small diameter trees.
The 600-member organization represents ethanol producers and businesses in 41 states. Brian Jennings, the coalition's executive vice president, Sioux Falls, S.D., spoke on the need for more ethanol production during the Mid-South Farm and Gin Show Exhibit, in Memphis.
Ethanol's basic form is grain alcohol, and is combined with gasoline to make fuel for internal combustion engines. E-10 — 10 percent ethanol and 90 percent gasoline — is the most common form of ethanol consumed in the United States. “But we want to get to higher blends like E-85 so we can do a better job of displacing foreign oil supplies,” Jennings said.
E-85 is 85 percent ethanol and 15 percent gasoline. About 2 million cars on the road today are able to use E-85. “But automakers are taking advantage of incentives and are producing more and more vehicles that can use it,” Jennings said.
Ninety percent of all ethanol in the United States is produced from corn, Jennings noted. “Ten percent comes from sugar. Brazil is the No. 1 producer of ethanol in the world, and uses half of its sugar crop to produce it.”
He noted that using cellulose in wood chips, rice hulls or trees as feed stocks versus corn, “is taking something of low value and turning into something that's very profitable. We have the technology and there are some pilot projects to make it profitable.”
Today U.S. ethanol production exceeds 3 billion gallons annually, according to Jennings. “We're setting records monthly. We have 72 plants, with others coming on line.”
Jennings says there are plenty of incentives for potential investors in ethanol production available through USDA and in various states. “Many of the newer plants are forming as limited liability companies (LLC). In other cases, feed stocks suppliers will form a cooperative and marry up with an LLC.”
Those interested in building an ethanol plant have several factors to consider. For example, an ethanol plant should be close to adequate supplies of feed stocks, such as rice hulls or corn.
A good marketing strategy is paramount not only for the sale of ethanol, but for its co-products, which includes carbon dioxide for sale to the beverage industry.
“Transportation is absolutely critical,” Jennings added. “You need good roads to haul your feed stock into your facility. Most of the plants being constructed in the United States right now are centered around good rail hubs. We're transporting ethanol through rail, barge and truck.”
Proximity to an adequate water supply and energy source are also important. “Most ethanol plants in the United States use natural gas. We have had some volatility in our natural gas markets, so a lot of them are looking to alternative ways to power up, using co-generation, or using the by-products of ethanol and turning them around in closed-loop systems.”
The construction of a facility that would produce 40 million gallons of ethanol annually requires 50 to 80 acres for a site, according to Jennings. Construction of a facility takes about a year, “but could be less in the South because there is more favorable weather for construction.”
Capital investments for a 40 million gallon facility are between $50 million and $60 million, said Jennings. But costs are increasing.
He noted that many lenders are requiring a 40 percent investor equity, although many are concerned that Congress has not passed an energy bill — which could provide additional incentives.
According to a study cited by Jennings, there are significant economic impacts to be gleaned from an ethanol facility. “There is a one time booster shot in the arm of over $140 million for the community. On an annual basis, on average, an ethanol facility will spend over $50 million in your community.”
Some of that would come from purchasing feed stocks and buying supplies and services. In addition, an ethanol plant will create between 35 and 40 new jobs. “These are high skill, high paying jobs. If you want to attract young people back into your community, ethanol production is one way to do it.
“Economic activity from ethanol also increases household income significantly,” Jennings said. “And in areas where we use corn as a feed stock, it increases the local price of corn.
In addition, “investors have been able to see an average 13 percent return on their investment. It's very profitable.”
Ethanol — a history lesson
The initial push for ethanol began during the oil embargo of the 1970s, when investors began to look toward developing a homegrown solution to the energy problem.
“Two-thirds of our fuel comes from the Middle East,” Jennings said. “We want to promote home-grown biodiesel, ethanol and other homegrown feed stocks that we can produce energy from. It's critically important that we do that.”
Environmental benefits of ethanol includes reduced greenhouse gas emissions and reduced toxic emissions, notes Jennings. Studies have shown that ethanol can make “a significant improvement in air quality in this country.”
Still, ethanol consumption in the United States is currently being driven more by federal and state requirements than voluntary use, according to Jennings.
“A big reason for that is due to the MTBE ban, noted Jennings. “MTBE has done wonderful things in terms of air emissions and adding oxygen to fuel. But the problem is that it leaks into groundwater and some believe it causes cancer. Several states are banning it.
“The only alternative out there right now in terms of adding oxygen to a fuel is ethanol. So we've been able to transition into markets that MTBE has left.”
Required use of ethanol comprises about 2 billion gallons of annual consumption. Voluntary consumption accounts for around one billion gallons of E-10.
“Ethanol has wonderful support in Congress,” noted Jennings. “Both the House and Senate and President Bush has been a strong supporter of energy independence, renewable fuels.
“A new ‘light’ energy bill has been introduced in the Senate with contains the renewable fuel standard for ethanol and biodiesel. We're hoping that they will take this legislation up very soon.”
The bill would guarantee production of up to 5 billion gallons of renewable fuel in this country, biodiesel or ethanol. “That's the roadmap we're looking for. If we pass an energy bill with an RFS, bankers in the country will be ready to step up to the plate and help finance new ethanol projects.”