California rice farmers produce nearly 20 percent of all the rice grown in the United States, and they relish the thought of turning their troublesome crop residue into gold. Because markets are hard to find, rice farmers pay between $25 and $45 an acre to have the residue baled and removed from their fields. Livestock producers don't want the rice straw because it's high in silica, reaching 13 percent on a dry-matter basis. As forage, rice straw can cause excessive wear on bovine molars, but chances are the cows won't eat it anyway because it's not palatable. "Silica is one of nature's great abrasives," says Tom Bowers, president and CEO of Colusa Biomass Energy Corp. (CBEC), a company with industrial plans for this difficult agricultural waste. Rice straw is even destructive to farm equipment, wearing out implements 40 percent faster than wheat, he says. Simply leaving the straw on the ground for soil nutrition requires chopping it up and re-flooding the fields with water.
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"All that costs money," says Rick Nannen, CBEC vice president. Because state environmental regulations don't allow producers to burn their rice residue openly in the field, rice farmers in the Golden State fervently welcome new and cheaper means of disposal. Situated in the heart of California's Sacramento Valley, CBEC plans to alleviate farmers’ costly burden while turning a profit through the processing of 35,000 acres of rice straw into 12.5 MMgy of ethanol and 33 million pounds of sodium silicate. Considering the residue's current negative worth to growers, the value of CBEC's anticipated products might as well be that of gold.
Risk and Reward
CBEC may be fighting an uphill battle as a future producer. The public startup isn't getting a dime of the several hundred million dollars in grant money the U.S. DOE has awarded to ethanol producers to develop commercial cellulosic technologies. Bowers explains why. "The second question the U.S. DOE and USDA ask, after, 'What's your telephone number?' is, 'How many gallons of production will this be amortized across?'" he says. In the case of existing producers, like Poet LLC, Abengoa Bioenergy Corp. and Cargill, Bowers says the answer was "hundreds of millions of gallons" whereas the answer from CBEC was "none." The state of California also has specific grant money available for the utilization of rice straw. However, CBEC is ineligible because it has yet to build the means to utilize the straw commercially, says Steve Schaffer, a director in California's Department of Food and Agriculture. The company's lack of experience making ethanol on an industrial scale and its penny-stock status (9 cents a share in early June) may deter investors. The U.S. Securities and Exchange Commission requires brokers to inform potential investors that penny stocks can be risky investments. Also, the company's plan to move straight from the lab to commercialization may validate skepticism toward its aggressive claims.
Despite these risks, a respected engineering firm, Harris Group Inc. conducted a three-month-long preliminary engineering study of CBEC's plans that yielded favorable results, suggesting the company move forward with full-on engineering and construction of its first refinery. Doug Dudgeon, manager of process solutions for Harris, says the engineering firm will continue its role as owner-engineer on the project working side-by-side with CBEC's scientific staff. "The goal of the study was to give them a total technical and economical evaluation," Dudgeon says. "After looking at their plans from top to bottom to see if it made technical sense, and if they could make money doing it, we believe it's worth continuing to develop. Rice straw presents some unique challenges because of its silica content, but their business plan turns the problem into a valuable coproduct." Incidentally, Dudgeon says Harris doesn't own stock in CBEC. If the company's activities come to fruition next year as announced, and the plant is built and operational, it may cunningly have flown under the radar to establish the nation's first commercial-scale cellulosic ethanol plant without much fanfare to speak of—yet. Its low profile and recent successes also allow CBEC to see the potential risks of its weaknesses not as obstacles but as the means to great opportunities.
Harvesting the Opportunity
California state laws now prohibit farmers from burning rice straw in their fields. "It put a huge cramp in how farmers used to get rid of their rice harvest residues," Bowers says. About five years ago, he began researching a patented method to convert rice straw into ethanol. After seven months of investigations and talks with rice farmers, Bowers formed a company and bought that patent—U.S. Patent No. 5,735,916. In October 2004, faced with the $40 million cost of capitalizing this relatively small facility, he decided to take the company public. This approach seemed the best and easiest way to attract strategic partners, says Bowers, while raising money through the sale of capital stock in the marketplace.
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