Great article in TechnologyReview on the cellulosic ethanol industry
This article makes some great points, but there are some other elements in it that are missing, I think.
The context of the article can be summed up by the following point:
But experts from industry and environmental groups say that without loan guarantees and other incentives, the nascent industry will fail to emerge from the current demonstration phase to produce commercial-scale quantities of ethanol. And without that, it may be impossible to meet President Bush’s ambitious goal of producing 35 billion gallons of renewable fuels a year by 2017.
The article notes the relatively small scale demonstration plants that are being constructed to prove-out technology. This is a necessary step in developing any process technology. If there’s anything that Americans can do is build and start-up large production facilities. We’re about the best in the world at it. As long as there’s a Fluor and a Shaw Group we can handle it.
The issue about the loan guarantees, however, is a problem. Getting a plant up and running is a big risk for any financial backer to make. So whereas investors are willing to put money up to own the equity, and the government is willing to give grants for technology research, no one is giving money to ensure the vendors and suppliers to this industry that they will get paid by these companies. Raw materials still cost a lot of money as do industrial supplies. A loan guarantee would allow these companies to get give some assurances to creditors that they can make things right should something go wrong. This is a long-term, high dollar commitment that an organization would have to make for these companies. The investment community can’t/won’t provide that type of financial support. The government purports to have financial incentives according to their latest budget.
What’s missing in this article is the mention of companies that might do such a thing. Mainly, the oil companies. The article makes a mention of Iogen:
By “national effort,” he partly means money for loan guarantees that will encourage financiers to fund the building of large commercial-scale plants. Company executives and cellulosic-ethanol advocates agree on the need for such government help. Iogen Corporation, in Ottawa, Canada, is a case in point. The company has been producing cellulosic ethanol since 2004 and already has an almost 700,000-gallon-per-year demonstration plant. But Iogen’s plans for a 20-million-gallon commercial-scale plant are now on hold as the company awaits legislation to be passed in Canada, the United States, or Germany that will provide the financial incentives Iogen needs to build such a big operation.
Iogen is backed by Shell Oil, who certainly has the financial resources to back the building of a large-scale plant. Iogen has done everything that any cellulosic producer should be expected to do in bringing their product to market. They have proven out their technologies, they have an operating history, they are owned in part by a big oil company, and are looking to build a large facility in the U.S. (bringing new jobs for Americans and new customers for American businesses). Let’s compare this with Mascoma – a start-up bioethanol producer with plans of developing a desmonstration facility. Masoma is backed by venture capital firms KPCB and Khosla Ventures. These two funds combined don’t match the financial resources of a Shell Oil. Not to mention that Shell has much more long-term vested interest in Iogen’s success. So how should Mascoma be expected to succeed if Iogen ultimately can’t?
This speaks more to the detriment of the American (and perhaps Canadian) investment community and governmental programming. We have the money (For crying out loud, KKR and TPG just bought TXU, a utility company, this morning). Creating a new industry is hard and costly, but the promise of returns are there. This isn’t something that these new ventures should be expected to solve by themselves. The government and investment community have a part to play. I think they should get on the field already.
My call, it’ll happen. Let’s be patient. I mean, afterall, it took 20+ years to get a computer into everyone’s home. That’s a long way from Steve Wozniac and Steve Jobs’ garage. We’ll get it.
Doug
