On the biodiesel-powered road again with the legendary Willie Nelson

Willies Place exit signBiodiesel has provided inspiration for many, including the legendary singer/songwriter Willie Nelson. It’s also been enough to motivate his music industry colleague, Neil Young, to roll out the Lincvolt, a biodiesel-powered hybrid. There was also Josh Tickell touring the country in the mid-2000s in his Veggie Van, powered by biodiesel made from cooking oil taken from restaurants. For some, biodiesel has a do-it-yourself appeal; these are people living outside the mainstream and wanting to live outside the power of the oil industry.

But it’s also an industry, one suffering through several blows and challenges. Biodiesel has shot up in production volume, with the federal mandate bringing it from 500 million gallons in 2009 to 1.28 billion last year. Biodiesel producers saw conditions changing in recent years with a federal tax credit expiring, and the US Environmental Protection Agency deciding to scale down the production volume. Nelson’s story is a telling one highlighting the difficulties in succeeding in a new and risky business like biodiesel.

By 2007, Willie Nelson became committed to biodiesel in a book he’d written and through releasing his BioWillie biodiesel product. Having been an organizer of farm aid fundraising concerts since the 1980s, Nelson saw biodiesel as a logical continuation. BioWillie would help “reduce our dependency on foreign oil while simultaneously saving the American family farm,” he said.

Nelson had joined the board of Earth Biofuels, a Dallas company that left a trail of unpaid debts, delayed securities filings, and disgruntled investors. He forfeited six million shares of stock to resign in 2007. In 2008, Nelson and his business partners transformed a landmark truck stop on Interstate 35 in Texas into Willie’s Place, a biodiesel theme park. People stopped for the fuel and to view Nelson’s display that included gold records and occasionally a chance to meet the legend himself.

To come up with funding, Nelson and his partners took out a $4.75 million loan to finance construction of Willie’s Place. The group defaulted on the loan and Nelson put up $35,000 of his own money to make a payment. Willie’s Place was sold in 2011 during foreclosure proceedings.

Nelson, at 81 years old, has not given up on biodiesel. He has an ownership stake in Big Island Biodiesel of Hawaii and SeQuential-Pacific Biodiesel of Salem, Ore. Nelson also controls the trademark for BioWillie, sold at pump stations on the islands of Maui and Hawaii.

Boy, was I wrong about KiOR as a biofuels success story

KiOR plant in ColumbusKiOR Inc., which operates a commercial-scale cellulosic biofuel plant, may be closing its shutters very soon. Backed by venture capitalist Vinod Khosla, there’s been a lot of hope in KiOR as a symbol for possibility in advanced biofuels as a clean transportation fuel. Its catalytic process converts woody biomass and non-food crops into gasoline and diesel and can be fueled through the existing US infrastructure. Khosla just made a commitment for near-term financing, but the company needs more additional capital by April 1 to stay in operation. The company needs to meet certain milestones to bring in at least $25 million by the end of this month; part of that milestone performance is bringing its Columbus, Miss., biofuel plant through an upgrade. If additional funding doesn’t come through, it’s likely to default on its debts and may file for bankruptcy. All of this was announced not long after the company reported a $347 million loss for 2013.

In October, this advanced biofuels producer received $100 million from Khosla Ventures LLC and Gates Ventures LLC to expand production at the Columbus plant. As I wrote about back at that time, it looked very promising for KiOR, being the first US company to build its own commercial scale cellulosic biofuel plant – creating jobs, economic growth, and clean transportation fuel. If KiOR goes belly up, it will provide more ammunition for biofuels critics (and there are quite a few out there). The biofuels industry has only produced a small fraction of the level envisioned in 2007 by the renewable fuel standard. Even with the US Environmental Protection Agency’s cutbacks on ethanol blend and advanced biofuels proposed in November, that’s not the real problem. It’s a startup industry that needs more success stories, so this one would hurt. For several months, I had KiOR on the green transportation stock market index that I show monthly in Green Auto Market Extended Edition. The company’s stock has not been performing well lately. The company may need to be removed from the chart.

How the troubles at KiOR will affect the advanced biofuels industry is still unknown. There are a few biofuels companies that are performing very well financially, and are giving hope to investors. One of them, Aemetis, another publicly traded company, also produces advanced biofuels for the US market – and deployed commercial-scale production in the past two years. Aemetis recently announced record quarterly and annual gross profit. It’s used a different business model than KiOR, and there are several other highly profitable domestic biofuels producers, according to Biofuels Digest’s Jim Lane.

EPA backs off pushing for E15 through Renewable Fuel Standard

Up to E10 gasoline onlyYou may have noticed that a number of new cars have a graphic image placed right on the gas cap that states: “E15—E85 – Up to E10 Gasoline Only.” The “E15—E85” text is placed inside an oval and has a slash mark cutting through it. That means the automaker is recommending you don’t use E15 gasoline (or anything higher up to E85, which is the amount used in flex-fuel vehicles) in your tank, and stick with the blend wall that’s in nearly all US gas stations – up to 10% ethanol in the gasoline, or E10. The US Environmental Protection Agency (EPA) had been pushing for E15 with the support of ethanol producers and against the lobbying efforts of oil companies and refineries. Automakers haven’t been fighting ethanol producers in Washington like oil company have been, but they have been warning about the potentially corrosive damaging effects of E15 on engines. The new EPA ruling, released on Friday, doesn’t explicitly speak to the E10 versus E15 debate; the agency appears to be accepting that E10 is as good as it gets for now.

The new EPA ruling caps renewable fuel targets for 2014 at 15.21 billion gallons – instead of the 18.15 billion gallon target that Congress had originally set in 2007 with its Renewable Fuel Standard. The EPA says its accepting the E10 blend wall for now because advances in fuel economy and other economic factors have pushed gasoline consumption to a much lower level than expected when the standard was passed in 2007. “As a result, we are now at the E10 blend wall,” EPA said in a statement.

The 15.21 billion gallon ceiling is also below the 16.55 billion gallon requirement for this year. Corn-based ethanol makes up the lion’s share of that total – it’s limited to 13 billion of next year’s total and 13.8 billion for this year. The limitations on corn ethanol have also been influenced by the amount of corn grown in the US that will end up in gas tanks versus food. Ethanol is expected to use up 38% of the corn crop this year. Cellulosic ethanol is also seeing cuts in volume for next year with the EPA’s revised ruling. Cellulosic and other next-generation biofuels, made from agricultural waste such as wood chips and corncobs, have not taken off as quickly as Congress had built into the 2007 act.

Oil companies and refineries weren’t thrilled with the EPA decision and may still continue to fight the Renewable Fuel Standard, but the groups were pretty much satisfied with the EPA’s decision on the E10 blend wall. Farmers and corn ethanol producers were angry about it, arguing that mixing higher blends of ethanol will not harm vehicles. The EPA has given in to “big oil.” The EPA’s revised targets will hurt farmers and violate the spirit of the Renewable Fuel Standard, according to Bob Dineen, president of the Renewable Fuels Association. “They’re capitulating to the oil companies,” Dineen said to The Washington Post.

Ethanol producers had disputed an Associated Press investigation released earlier last week that linked corn-based fuel production to environmental hazards. Ethanol groups attacked the accuracy of the AP findings for using dubious tactics while conducting the investigation for its report. The AP investigation report stated that the surge to find new areas to plant corn for the needed ethanol had eliminated five million acres of conservation land, destroyed natural habitat, and polluted water supplies.

The oil versus biofuels industry battle highlights the struggle nearly every alternative fuel faces. The arguments speak to environmental, safety, reliability, and economic issues. It’s very difficult to sift through all the lobbying messages, studies, and media reports to determine accuracy. For people buying the vehicles and fuels, it’s tough to make an informed decision and trust that it’s accurate. As an example, an argument comes up occasionally about the logic of buying an electric vehicle when the source of the energy (especially coal-powered electric power plants) takes away the gains offered by the zero emissions vehicle. All of the clean transportation vehicles, fuels, and technologies are in a transitional phase – none of them are perfect and their advocates usually support a pragmatic approach that is likely to lead to a better option years from now. A number of biofuels advocates, including the EPA, say that using corn-based ethanol in E15 is a step forward away from gasoline consumption and is necessary to transition over to advanced biofuels. For now, the EPA is stepping back from its earlier mandate.

Are advanced biofuels really just fading away?

advanced biofuel plantThe battle over the amount of ethanol that the US Environmental Protection Agency (EPA) is targeting for production this year and next is still being fought out in Washington; then there’s always the question of whether advanced biofuels have any shot at being produced at scale and selling enough volume to make the investments profitable. Initially, the Renewable Fuel Standard had ambitious goals for next-generation biofuels made from corn stalks, switch grass, wood chips, municipal waste, and other biomass to produce cellulosic, algae, and other advanced biofuels. The EPA has cut down the production volume numbers for advanced biofuels including cellulosic.

For now, the US is focused on corn ethanol and biodiesel, and Brazil on sugarcane ethanol. Biofuels have a much broader future than ethanol, according to Thomas Foust, director of biofuels development at the National Bioenergy Center, which is part of the National Renewable Energy Laboratory. He thinks that new methods of making fuels directly from biomass “look promising from an economic perspective.”

The appeal of advanced biofuels has been very strong to many people – it’s considered greener and more efficient than ethanol. It’s much cleaner and more domestic than gasoline and diesel, and could play a sizable role in reducing transportation’s carbon footprint. There are lots of companies out there gaining investors and building facilities in the US, Europe, and Brazil, with the benefits of job creation and producing fascinating, advanced, clean fuels. Still, the challenges are great with many of these companies failing financially, and others taking a long time to build commercial production plants and find the right client base to purchase the fuel.

Advanced biofuel companies have ramped up production to the development stage and have had large financial backers from brand-name equity partners; some have gone public in the past three years. They’re being taken a lot more seriously now for transportation, including jet fuel. The advanced fuels do have their share of skeptics and critics who have watched several companies fail financially in recent years. Biofuel advocates have their own skepticism and arguments over what methods make the most sense; for example, cellulosic ethanol  is thought by some analysts to be far too expensive, but other cellulosic fuels make a lot more sense.

Here’s the latest on companies worth following and on a trade association that you should know about……

KiOR: As mentioned recently, this company that produces and sells cellulosic gasoline and diesel from non-food biomass has been getting financial backing from one of the leading venture capitalists out there, Vinod Khosla. The company is doing much better now facing challenges including a class-action lawsuit by investors unhappy with the company. The company operators one of the nation’s first cellulosic facilities in Mississippi, and just had its best production quarter ever – 324,000 gallons of fuel from woody biomass that’s identical to gasoline and diesel and is called drop-in fuel. KiOR shipped 245,000 gallons to customers in the oil industry during that quarter. The company just received $100 million in committed equity commitment for its Columbus, Miss., production plant. About $85 million of it came from Khosla Ventures and other Khosla entities.

Novozymes: is in partnership with Italian biofuels company Beta Renewables and will be opening in northern Italy what could be the world’s largest biofuels facility. Made from agricultural residues and energy crops at a commercial scale, the facility is expected to product over 20 million gallons of cellulosic ethanol a year. Novozymes’ role is providing the industrial enzymes needed to break down materials that the Italian plant will be using.

Solazyme: The company’s proprietary technology produces renewable oil and bioproducts from a range of plant-based sugars. The company has provided algae diesel with Propel Fuels, other ground transportation clients, and for air travel. The company is set to reach commercial-scale production in the US and Brazil in the first quarter of 2014. California-based Solazyme has custom-made algae tanks to develop better biofuels, and it has sold thousands of gallons to the Navy for use in its ships. Solazyme has also branched into making oils for higher profit products like cosmetics, food, and petrochemicals. The company will provide about three million gallons of algal oil for Unilever’s consumer products.

Gevo: A lot of the company’s business comes from providing isobutanol for the specialty chemicals market and converting it into bio-based jet fuel for the US military including the US Air Force and US Army. In September, Gevo signed an agreement with the US Navy to supply them with 20,000 gallons of Gevo’s alcohol-to-jet-5 fuel. The company previously supplied AT J-8 jet fuel – 56,000 gallons to the US Air Force and 16,150 gallons to the US Army. Gevo will supply the US Coast Guard with up to 18,600 gallons of finished 16% renewable isobutanol-blended gasoline. Gevo has also signed a contract to supply fuel to The Coca-Cola Co.

Amyris: has produced products such as squalene for the cosmetic industry and renewable diesel for Brazilian transportation authorities. Brazilian airline GOL will be using Amyris’ renewable jet fuel in 2014. GOL and Amyris will work together to establish a framework for bringing Amyris renewable jet fuel produced from Brazilian sugarcane to GOL’s flights following regulatory approvals by standard-setting bodies.

Advanced Biofuels Association (ABFA): Nearly every one of these companies listed above are members of ABFA. The organization helps members meet the Renewable Fuel Standard (RFS) for advanced biofuel consumption in the US. Members have built or purchased commercial-scale plants as advanced and/or cellulosic under the RFS; many of the members will be bringing commercial plants in operation by 2015. It’s membership is impressive; along with leading companies listed above, the list includes Intertek, which provides testing, inspection, and certification for advanced biofuels – and also plays a leading role in testing electric vehicles and charging stations; Oberon Fuels, which has the big dimethyl ether (DME) contract with Volvo and Mack trucks; Sapphire Energy and its algae and replacement transportation fuels; and Cool Planet, which converts non-food biomass into gasoline.