The Financial Future of Fractionation

Just a year ago, dry fractionation providers were educating ethanol plant managers and owners about the technique's potential for generating multiple revenue streams. Today, fractionation is still causing excitement in the industry, but finding equity sources to finance the installation of fractionation equipment is a challenge.
By Hope Deutscher | June 03, 2009
With high commodity prices coupled with lower revenue and tightened financial markets, ethanol plant managers and owners are looking for new revenue sources. One way to help an ethanol plant diversify is dry fractionation, which involves separating a kernel of corn into endosperm, germ and bran to provide more coproducts, such as corn oil, high protein distillers grains, and feed or fuel. At a fractionated dry mill ethanol plant, using either mechanical or abrasion milling equipment, incoming corn is separated into its main components - starch, germ, and bran. Further particle size reduction and refining cleans and isolates the streams of endosperm (mostly starch), germ and pericarp bran.

With dry fractionation installed, technology providers say an ethanol plant could survive high feedstock and lower energy costs, while seeing an increase in the facility's efficiency, capacity and coproduct revenue.

A Changed Industry
"I can go out and talk to every ethanol plant out there and give a presentation [on dry fractionation] and at the end they'll say great, I understand this, this makes perfect sense.

Do you have money for me?' And that's the key thing right there. No one has the money to invest in it," says Neal Jakel, fractionation program manager for Delta-T Corp.

Jakel says ethanol producers understand and accept dry fractionation as a proven technology; however, with the current economic situation in the U.S., the challenge is finding potential funding sources, especially non-bank investors, to finance the installation. One option, he says, is to work with the USDA to include investments in the form of federal funding and low interest loan guarantees for such technology.

"The concern that's out there today is - is the base ethanol plant stable?" Jakel says. "The banks say the technology can benefit ethanol plants but question investing $15 to $30 million dollars in a technology at an ethanol plant where its base financial stability is uncertain," he says.

Since 2002, Delta-T and milling partner Ocrim of Italy have been developing a dry separation technology that retains as much starch as possible going into the ethanol plant and adds as little water as possible into the process, while producing high quality coproducts, such as bran and germ. Ocrim currently has more than 1,300 milling systems installed at dry milling facilities around the world; however its dry separation technology is not installed in an ethanol plant yet. Delta-T is currently working with several ethanol companies that want to install dry fractionation. Jakel says the companies are examining alternative funding, such as looking at back-end integrators who could use the coproducts. "Most of my time is spent talking to people that I think might have an interest in investing in fractionation because either they want the coproduct, i.e., they want the germ to process it for corn oil, or they want to take the fiber and process it for making cellulosic ethanol," Jakel says.

Fractionation is the most expensive and the single most important risk management tool an ethanol producer can invest in, Jakel says but it also allows an ethanol plant to more tightly hedge or price the coproducts to raw material price. "It gives [ethanol plants] hedging mechanisms because instead of just putting in corn and coming out with distillers grains and ethanol, you now have corn in and you have germ, bran, high protein distillers and various combinations that you can mix and match. And so now you've got flexibility."

Had ethanol plants installed dry fractionation a year ago, their financial picture today might be different. With dry fractionation, Jakel says plants could see an approximate savings of 9 to 15 cents per gallon. "A lot of them are now saying I've got to find a way. How do I do this? Because when this market turns around I want to make sure that I'm in a position to fully capitalize on it.' Because we will have another downturn like we have today where we've got low ethanol prices and high corn prices that will happen. It's happened several times over the last 20 plus years and it will happen several times over the next 20 plus years."

Evolving Technology
In an effort to provide dry fractionation to more ethanol facilities, ethanol technology firm and fractionation pioneer ICM Inc. recently agreed to have Minnesota-based Crown Iron Works Co. as a preferred technology provider. "We are working closely with Crown Iron Works Co., both for their dry fractionation and their food-grade corn oil extraction system.

And that goes into our trademarked TKO - Total Kernel Optimization - package," says Jeff Scharping, director of product management and sales for ICM.

The Crown Iron fractionation system is a combination of de-germinators, aspirators, screeners and roller mills in sequence to refine a germ and starch stream from whole corn. In analyzing a dry fractionation system, producers and technology providers look at the ideal cut or yield of each pile of endosperm, bran and germ; evaluate how the fractionation system handles the various corn moistures; determine the system's flexibility in fluctuating between piles; and examine the economics of installing such a system. "ICM really likes the Crown Iron system because it has met those requirements for us," says Scharping. He admits that many potential customers may have difficulty in acquiring $1 million, much less the potential $30 million or more for dry fractionation or $100 million for the entire TKO process, which includes dry fractionation of corn, solid fuel combustion, corn-oil extraction, food-grade protein extraction from the germ, single-cell protein feed from syrup, and cellulosic ethanol capabilities.

In 2004, ICM and Applied Milling Systems Inc. began collaborating on a food-grade fractionation system. One of those systems is operating at LifeLine Foods LLC in St. Joseph, Mo., which is the first facility in the country to use ICM's proprietary technology to produce both food and fuel coproducts. ICM is technology neutral, meaning that if through due diligence a customer wants to have a fractionation system from another dry fractionation technology provider, ICM will make sure that the system can be integrated into ICM's proprietary design.

"Nearly 15 months ago the market was phenomenal for justification of the TKO process and dry fractionation," Scharping says. "What we are ultimately doing is creating more revenue streams for the plant. What we want to accomplish with our TKO process, besides feeding the world and bringing food-grade proteins and food products to the world, is to diversify. We want to diversify the plants so that they are not so dependent on two commodities - corn and ethanol prices. When you get into food-grade proteins, they actually have no correlation to corn or ethanol. So one market can be down and the other market can be up."

Scharping says there is a lot of interest from both existing ethanol plants and potential funders to add dry fractionation to a facility. "Equity says we want an existing ethanol plant that is running profitably and is stable so that we can have something nice and secure to partner with. ICM is very diligent in coming at this from that angle. It's not a situation any more where we can just build it and they will come. We are going to the markets first and bringing back to our customers something that is viable and proven."

The Cellulosic Fractionation Future
Since 1999 when PureVision Technology Inc.'s chief scientist Dr. Dick Wingerson conceived the company's biomass fractionation system, it has been preparing for the future of cellulosic ethanol. Throughout the years, the company has conducted lab-scale proof of concept testing in Colorado; applied for patents; received a U.S. DOE grant to increase from lab-scale to bench-top scale scale doing batch fractionation work at the Western Research Institute in Laramie, Wyo.; procured its continuous process development unit; and in 2004 through a second DOE grant, pursued fractionation of corn stover. "Since 2004 we have developed a lot of favorable data on extracting the hemicelluloses and most of the lignin and all of the extractives from the biomass and ended up with primarily a purified cellulose solid product," says Ed Lehrburger, founder, president and CEO of PureVision Technology. "This relatively pure cellulose, which is a pulp and can be sold as a pulp, is easily hydrolyzed into glucose, which is then the basic raw material to make industrial chemicals and biofuels such as ethanol and butanol. We have had successes with extracting out lignin that can be used either as a boiler fuel or a coproduct and we have had successes with a collaborator utilizing all of the C5 sugars in our fractionation process."

In 2008, after developing significant data at the process development unit scale, PureVision completed the design of a scale-up unit and procured the equipment for a half-ton per day reactor. Shakedown began in March and the company expects to be completed by the second quarter of 2009. With the financial support of strategic partners, the company is already planning to build its next-scale unit - a 20-ton-per-day fractionation reactor that will be part of a fully integrated cellulosics-to-biofuels pilot plant that should be operational by early 2011.

The company has received quite a few inquiries about its technology and is currently working with a number of industrial clients, including some internationally, to make inexpensive fermentation sugars from a variety of cellulosics, such as corn stover, wheat straw, bagasse, trees, and energy crops. "We are planning to be able to come up with the design specifications to build any size biorefinery with any kind of cellulosic feedstock to make biofuels and raw materials to make industrial chemicals and consumer products," Lehrburger says.

"When we started using biomass fractionation in 1999 nobody had ever heard of that and now it's kind of become a buzzword. But we have stuck with it and that's what we do.

We're taking biomass and we're taking the different fractions apart so we end up with a fraction of cellulose, a fraction of lignin and a fraction of hemicellulose or xylose-rich liquor.

We've got a very elegant technology and an elegant way to fractionate the cellulosics," he adds.

Lehrburger says the future of fractionation in the ethanol industry looks bright. "What we are advocating is taking non-edible plants and abundant cellulosics to convert those into liquid fuels, chemicals and animal feed. One of our coproducts we're advocating is to actually make protein from the fermentation sugars. So as the world needs more and more protein to feed animals and human beings, we believe converting abundant cellulosics into fuel, chemicals and feed is a logical roadmap."

Hope Deutscher is an Ethanol Producer Magazine associate editor. Reach her at hdeutscher@bbiinternational.com or (701) 373-8046.