POET ethanol plant declines DOE loan guarantee

Wednesday, January 25, 2012

Cellulosic ethanol producer POET LLC has declined a $105 million federal loan guarantee for its planned "Project LIBERTY" facility in Emmetsburg, Iowa, instead turning to private funding from Dutch company Royal DSM NV.  This choice has implications both for energy policy and for the biofuels industry.

Last year brought an end to a US Department of Energy program to help fund innovative energy projects with loan guarantees.  Before it ended in September 2011, DOE's Section 1705 loan guarantee program backstopped a total of $16 billion in loans for 28 projects ranging from nuclear power to solar, wind to transmission, biofuels to energy efficiency.  Questions about the value and implementation of the loan program grew after the recipient of the first loan guarantee, solar panel maker Solyndra LLC, failed and went bankrupt.

Before the Section 1705 loan program ended, POET was awarded a guarantee for $105 million.  POET is developing the Project LIBERTY plant, which aims to use cutting-edge enzymatic hydrolysis to produce fermentable sugars from corn crop waste, and then to use special yeasts to transform the sugar into usable ethanol.  By 2013, the plant could be producing up to 25 million gallons per year.

This week POET announced that it was declining the DOE loan guarantee.  Instead, POET will partner with Royal DSM, a private business that grew out of a former Dutch national coal-mining company.  Together, the companies will invest up to $250 million in initial capital expenditures for Project LIBERTY.

What does POET's choice mean?  For POET, the terms of the joint venture with Royal DSM are presumably more favorable than the alternative.  Royal DSM's money is likely what made it most attractive to POET, but its experience and markets may have also played a role.

For Iowa, any financial arrangement that realizes $250 million in capital investments in the state is likely to be greeted with open arms.

For other ethanol producers, the deal may signal increased interest in ethanol from the investment community.  The  U.S. Environmental Protection Agency estimates that its renewable fuels standards will require 16 billion gallons of advanced cellulosic biofuel per year by 2022; using the Project LIBERTY plant as a model, this could mean up to 400 new biorefineries will be built by 2022 to meet these standards.  By extension, other recipients of DOE loan guarantees may similarly partner with private-sector entities to complete project financing.

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