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| F/A 18 fueled with 50/50 biofuel blend |
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WALL STREET JOURNAL
Led By DoD, Federal Government Hoping To Fund Biorefineries
Yuliya Chemova, 30 June 2011
The Department of Defense, an emerging market force in biofuels, is working on a new program to finance non-petroleum fuel production, in collaboration with the departments of energy and agriculture, according to people familiar with the situation.
The Defense Department is considering invoking the Defense Production Act--a 1950 law created to enable the military to source essential materials in a timely matter--to gain flexibility in how it buys biofuels and invests in biorefineries, according to these people.
Three departments--Defense, Energy and Agriculture--are close to signing a memorandum of understanding for a joint venture that would invest directly in new U.S.-based production facilities for advanced biofuels, these people said.
Program organizers are hoping to fund it with $300 million to $500 million from all three departments, and that money would be leveraged by private investments in each project, according to these people. There are roughly 500 venture capital-backed start-ups in the biofuels space, and many are undercapitalized.
The focus is on biofuels that are replicas of petroleum-based jet fuel and diesel, and less on ethanol.
In March, President Obama tasked these three department to work with the private industry to boost the production of biofuels.
"The Departments are exploring a variety of options to work with the private sector to provide alternate fuels to meet military and commercial needs," wrote Lt. Col. Melinda F. Morgan, spokeswoman for the Defense Department, in an email. She declined to comment further. Representatives of the departments of Agriculture and Energy declined to comment.
The Defense Department has recently stressed in hearings on Capitol Hill that advanced biofuels are of strategic importance to the U.S. "Diversification to advanced biofuels is essential to sustain the U.S. military's mission capabilities," said Tom Hicks, deputy assistant secretary of Navy for Energy, before the House Subcommittee on energy and power on June 3. The Navy has a goal of replacing half of petroleum-fuel with domestically sourced biofuels by 2020.
But the current biofuels industry is young and does not have enough production capacity to meet such demand. That is why, these people said, the Defense Department is stepping in to help.
Federal money would help resolve the predicament of many start-up biofuel producers that cannot find standard project financing, even as they see growing interest from the airline and other industries to purchase such fuels.
"Traditional project finance [for biorefineries] is still challenged," said Jonathan Wolfson, chief executive of Solazyme Inc., a venture-capital backed company that recently held an initial public offering. Solazyme's algae-based oils are currently being tested by the Navy.
However, the capital goal for the new program of up to $500 million may be more aspirational than realistic, as the federal government grapples with a huge deficit and Congress has marked down numerous existing programs at the Energy and Agriculture Departments that currently support clean technologies.
As the new program is being contemplated, other methods of support are weakening. Loan guarantees from the Agriculture Department, for example, have no new appropriations for either fiscal 2011 or 2012. That program, titled 9003, has supported projects from venture-capital backed companies such as Coskata Inc. and Enerkem Inc. And the Energy Department's Biomass and Biorefinery research and development programs, which helped such companies as Solazyme, Elevance Renewable Sciences Inc. and Sapphire Energy Inc., are scheduled to receive about half of what the President asked for in his budget request, per the latest appropriations from the House.
Invoking the Defense Production Act would make it easier to circumvent certain appropriations requirements in Congress. The Act may also give flexibility to the military in how it funds biorefineries -- for example, by either investing equity in such facilities or providing loan guarantees, as it sees fit, said two people.
Several bills pending in Congress may also extend the Defense Department's ability to lengthen contract terms for fuels.
"What you want to see are longer-term commitments for purchasing," Wolfson said. Banks are reluctant to fund biorefineries because these are large capital investments that have pay back times of 10 to 15 years, and yet, there is no guarantee the fuel they produce would be bought, and at the right price. Traditionally, fuels are bought on the spot market.
The Defense Department is considering invoking the Defense Production Act--a 1950 law created to enable the military to source essential materials in a timely matter--to gain flexibility in how it buys biofuels and invests in biorefineries, according to these people.
Three departments--Defense, Energy and Agriculture--are close to signing a memorandum of understanding for a joint venture that would invest directly in new U.S.-based production facilities for advanced biofuels, these people said.
Program organizers are hoping to fund it with $300 million to $500 million from all three departments, and that money would be leveraged by private investments in each project, according to these people. There are roughly 500 venture capital-backed start-ups in the biofuels space, and many are undercapitalized.
The focus is on biofuels that are replicas of petroleum-based jet fuel and diesel, and less on ethanol.
In March, President Obama tasked these three department to work with the private industry to boost the production of biofuels.
"The Departments are exploring a variety of options to work with the private sector to provide alternate fuels to meet military and commercial needs," wrote Lt. Col. Melinda F. Morgan, spokeswoman for the Defense Department, in an email. She declined to comment further. Representatives of the departments of Agriculture and Energy declined to comment.
The Defense Department has recently stressed in hearings on Capitol Hill that advanced biofuels are of strategic importance to the U.S. "Diversification to advanced biofuels is essential to sustain the U.S. military's mission capabilities," said Tom Hicks, deputy assistant secretary of Navy for Energy, before the House Subcommittee on energy and power on June 3. The Navy has a goal of replacing half of petroleum-fuel with domestically sourced biofuels by 2020.
But the current biofuels industry is young and does not have enough production capacity to meet such demand. That is why, these people said, the Defense Department is stepping in to help.
Federal money would help resolve the predicament of many start-up biofuel producers that cannot find standard project financing, even as they see growing interest from the airline and other industries to purchase such fuels.
"Traditional project finance [for biorefineries] is still challenged," said Jonathan Wolfson, chief executive of Solazyme Inc., a venture-capital backed company that recently held an initial public offering. Solazyme's algae-based oils are currently being tested by the Navy.
However, the capital goal for the new program of up to $500 million may be more aspirational than realistic, as the federal government grapples with a huge deficit and Congress has marked down numerous existing programs at the Energy and Agriculture Departments that currently support clean technologies.
As the new program is being contemplated, other methods of support are weakening. Loan guarantees from the Agriculture Department, for example, have no new appropriations for either fiscal 2011 or 2012. That program, titled 9003, has supported projects from venture-capital backed companies such as Coskata Inc. and Enerkem Inc. And the Energy Department's Biomass and Biorefinery research and development programs, which helped such companies as Solazyme, Elevance Renewable Sciences Inc. and Sapphire Energy Inc., are scheduled to receive about half of what the President asked for in his budget request, per the latest appropriations from the House.
Invoking the Defense Production Act would make it easier to circumvent certain appropriations requirements in Congress. The Act may also give flexibility to the military in how it funds biorefineries -- for example, by either investing equity in such facilities or providing loan guarantees, as it sees fit, said two people.
Several bills pending in Congress may also extend the Defense Department's ability to lengthen contract terms for fuels.
"What you want to see are longer-term commitments for purchasing," Wolfson said. Banks are reluctant to fund biorefineries because these are large capital investments that have pay back times of 10 to 15 years, and yet, there is no guarantee the fuel they produce would be bought, and at the right price. Traditionally, fuels are bought on the spot market.
Three departments--Defense, Energy and Agriculture--are close to signing an agreement for a joint venture that would invest directly in new U.S.-based production facilities, VentureWire has learned. The program could fund start-ups through a pool of as much as $500 million from the agencies.
(c) 2011 Dow Jones & Company, Inc.
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(1) Actually, the capture of the Pueblo happened in my eighth grade year - I had to look it up.
(2) The Woodward and Bernstein papers associated with the Watergate scandal.
(3) This effort is an expansion of earlier partnerships in this arena. For a perspective about one of the kinds of feedstocks to be used to produce jet biofuels, see the earlier blog by clicking here, and agriculture working with aviation by clicking here.
(3) This effort is an expansion of earlier partnerships in this arena. For a perspective about one of the kinds of feedstocks to be used to produce jet biofuels, see the earlier blog by clicking here, and agriculture working with aviation by clicking here.
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