Second-generation producers plea for improved federal loan programs

By Kris Bevill | October 06, 2009
Report posted Oct. 30, 2009, at 9:11 a.m. CST

The CEOs of several cellulosic ethanol production facilities testified before a U.S. House Committee on Agriculture subcommittee Oct. 29 to explain the challenges facing second-generation ethanol projects and to suggest Congressional improvements. Topics addressed included the ethanol blend wall, producer tax credits, and greenhouse gas emissions analysis, but the majority of comments focused on financing and the lack of adequate federal grant programs.

Mascoma CEO Bruce Jamerson offered the Representatives a first-hand account of how difficult it can be for second-generation projects to obtain funding, even with governmental support. "Earlier this year, Mascoma and its financial advisors contacted 174 commercial lenders seeking a bank partner to apply for a USDA loan guarantee," he stated. "Only two lenders were willing to work with us. We selected one, but in the end were unable to move forward due to structural problems with the USDA loan guarantee requirements." Jamerson reported to the panel that lenders requested several adjustments be made to the USDA's loan program, including:

  • Holding a minimum of 50 percent of the non-guaranteed portion of the loan
  • Requiring identical terms for the non-guaranteed and guaranteed loan portions
  • Limiting the difference between the interest rate on the guaranteed portion of the loan and weighted average interest rate of the full loan amount to 1 percent

    "The cellulosic industry will develop as quickly as the first plants are constructed and proven" Jamerson said. "To speed the current trajectory of construction, more direct, risk-tolerant assistance will be required."

    Craig Shealy, CEO of Osage Bio Energy LLC, told panel members that existing federal loan programs are too restrictive and specific to certain technologies to effectively aid commercial-scale biofuels projects. Shealy said his company has spent considerable time researching and trying to apply for the USDA Biorefinery Assistance Program and has come to the conclusion that it is ineffective. "In good times, you don't need it. In bad times, you can't use it," he said. "Osage stands ready to commit $100 million of equity toward a second project. In order to proceed, we need $100 million of debt. A 70 percent BAP loan doesn't help, because no bank will take the risk on the remaining $30 million."

    Shealy also said the DOE loan guarantee program is of no use to biofuels because it is structured around renewable electricity technologies and excludes biofuels from eligibility. "In fact, it appears to us that DOE is abandoning alternative fuels altogether in pursuit of hybrid and battery/electric technologies."

    Coskata Inc. President and CEO Bill Roe stressed the need for significant governmental support of the industry. "Biofuels producers have had a hard time planning future projects because of the lack of a consistent, transparent and fair government policy toward biofuels," he stated. Specifically, Roe requested that Congress work to set an inclusive definition for biomass, adding that the energy acts of 2005 and 2007 and the 2008 Farm Bill all have different definitions for "renewable biomass," which could limit the potential for some advanced biofuels. Additionally, Roe asked that Congress persuade the U.S. EPA to increase the ethanol blend limit to E15; to exclude biofuels from greenhouse gas emissions regulations; to establish a Green Bank that is not under the authority of the U.S. DOE; to extend the cellulosic producer tax credit to 2022; and to restructure those credits to mirror the option being offered to the solar and wind industries, which allows the option of taking a one-time, upfront credit that can then be used to finance projects. "We have the ability to meet the primary energy goals of Congress what we need is enduring government policy that will help stimulate the significant capital investment that it will take to ensure this change," he said.

    After the hearing, Subcommittee Chairman Tim Holden, D-Penn., said the panel understood that it is critical to build and strengthen public and private partnerships as a way to address the challenges facing the development of second-generation biofuels. "If we are serious about the next generation of biofuels, we must seek constant and stable federal policies, do more to spur private investment and encourage further research on feedstock development," he said. "I am optimistic about agriculture's continued role in promoting production and use of renewable energy here at home."

    Subcommittee Ranking Member Bob Goodlatte, R-Va., said research in advanced biofuels technology has the potential to be a bridge technology between agriculture, energy and biotechnology. "[However,] these goals can only be accomplished if we can meet our energy needs without the requirement of government mandates."