Gap Between Corn, Cellulose Emerges

By Craig A. Johnson | June 02, 2008
This month's plant construction list includes five plants that have recently started production. This is great news, and the teams that worked hard to bring these projects to fruition deserve a pat on the back. However, the elephant in the room is the lack of new projects filling the list's vacant spaces.

The lastest corn-fed plant to break ground was Clean Burn Fuels in Raeford, N.C., in January. Will this be the last corn-based ethanol plant to break ground? Some in the industry think it's likely. "That's probably it until the cellulosic plants start coming," said one project coordinator.

Verenium Biofuels Louisiana, the first U.S. cellulosic ethanol commercial demonstration production plant, came on line in May. At 1.4 MMgy, the plant may portend a sea change in industry growth. The newest plants on this construction list are slated to complete construction by the third quarter of 2009. After that, a void may occur or this list may contain more cellulosic ethanol plants than corn-fed plants.

The reasons for the slowdown in corn-fed ethanol plant construction are myriad. The Federal Reserve Board recently said 80 percent of domestic banks are tightening their lending standards on commercial real estate loans. This increase in equity to debt may ultimately make it too cumbersome for new projects to be financed in "traditional" ways. This, and the soaring cost of construction materials and the fuel needed to bring them to a site, makes the cost of building a plant an overwhelming burden. Ethanol facilities that may have been marginal competitors if they had come on line a year ago are no longer viable projects.

One of the most significant costs for construction is the cost of diesel. Between April 2007 and April 2008, the retail cost of diesel rose by nearly 31 percent, according to the Bureau of Labor and Statistics. In the past four years, the price has shot up 61 percent. These costs are transferred directly from suppliers to consumers in the form of additional shipping fees, driving up the cost of all construction materials substantially.

In April, Pacific Ethanol Magic Valley LLC finished construction of its 50 MMgy facility in Burley, Idaho. In May, Glacial Lakes Energy-Mina (formerly Aberdeen Energy LLC) completed construction of its 100 MMgy plant near Mina, S.D. One month after it brought a 60 MMgy ethanol plant on line in Coshocton, Ohio, AltraBiofuels Inc., finished its second facility: Altra Indiana LLC, a 92 MMgy plant in Cloverdale, Ind., which may be expanded in the future. EPM was able to confirm that Marysville Ethanol LLC, a 50 MMgy plant in Marysville, Mich., completed construction in late 2007. Finally, Show Me Ethanol LLC's 55 MMgy plant in Carrollton, Mo., also started production in May.