Show Us the Money

By Mike Bryan | November 11, 2009
Financing will be the hot topic in the ethanol industry in 2010. If just one reason were pinpointed for the inability of producers to meet the 2010 cellulosic biofuel mandates, it would be lack of financing. The technology is available but producers' ability to get bank loans or federal grants to make the technological capability a commercial reality has been elusive. It has been frustrating, but fortunately, the situation is finally getting the attention of government leaders.

During an October U.S. House of Representatives subcommittee hearing, cellulosic ethanol producers pointed out many errors in the USDA and U.S. DOE loan guarantee programs. I sat in on previous Capitol Hill hearings so I know this is not the first time our nation's leaders have heard these funding complaints, yet nothing has changed. The reality is, Congress needs to work quickly to make these loan guarantee programs relatable to biofuels projects before the private sector gets completely scared off. The chances of securing private financing for a previously unproven biofuels technology project, even if the technology is brilliant, are zero, as any of the many struggling producers will tell you. Banks are simply unwilling to offer their support during these continuing difficult economic conditions. A government grant could help, but the programs first need to be restructured.

As Associate Editor Erin Voegele points out in her article, "A Flood of Funding," on page 80 many of the government funding programs are oversubscribed as well as extremely difficult to navigate without a team of experts on staff to guide producers through the process. And there is no point in applying for government funding unless the project is capable of being financed without it, which means producers need to get banks on board with their projects.

It is also possible that the financial difficulties facing many producers will spur an increase in consolidation during 2010. The question of what types of consolidation, however, remains to be answered. Editor Kris Bevill addresses this topic in her article, "Putting it Back Together" and concludes that while consolidation is not necessarily a bad thing, we are seeing a trend forming that has unknown consequences. Large corporations new to the industry are taking control of the majority of the production capacity and while this could lead to otherwise nearly impossible expansions, the smaller producers could begin to be squeezed out of the equation.

Of course, this would all be moot if the U.S. EPA fails to recognize the need for an increased allowable rate of ethanol blending. I am confident that the administrator will rule in ethanol's favor, however, and the USDA has made it clear that it supports an increase to E15. Still, producers need to continue vigilance in making it clear that they can support an increased demand for their product.

All difficulties aside, though, conditions are ripe for the industry's return to the bountiful production we've experienced in the past. Margins have steadily improved throughout the second half of 2009, idle facilities have returned to production and a few banks are beginning to test the lending waters again. Ethanol producers are no strangers to hard work, and next year will be another test, but if this industry has proven only one thing in the past 10 years it's that we can weather any storm.

That's the way I see it.