Oregon Sen. Ron Wyden visited Boardman, an arid town along the southern side of the Columbia River, last April to tour a biorefinery that is designed to turn poplar wood into 250,000 gallons of fuel each year.
Wyden declared the demonstration plant, built by Colorado-based ZeaChem with the aid of a $25 million federal grant, a “success,” and “a perfect example of how Oregon is helping to lead our nation toward less reliance on fossil fuels.”
But his congratulations were premature. The demonstration plant was initially forecast to start producing ethanol in late 2011. At the time of his visit, it was not producing fuel — and nine months later still hasn’t come on line.
A ZeaChem spokeswoman says construction was completed in October, and it’s now on track to begin producing fuel in the first quarter of this year.
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ZeaChem’s delays are part of a broader pattern of setbacks in a high-stakes, taxpayer-subsidized effort to produce a new generation of low-carbon fuels from cellulose, nature’s basic building block for wood and fibrous plant materials.
So far, in terms of output, the cellulose-fuel industry has been largely a no-show.
In early 2012, the Environmental Protection Agency (EPA) forecast the industry would produce 8.65 million gallons of fuel during the year. The actual output was less than 22,000 gallons.
Industry proponents hope this year will be different.
“2013 is a big year,” said Brooke Coleman, executive director of the Advanced Ethanol Council, which represents ZeaChem and other cellulosic producers. “It’s crunchtime for the industry. We have to show the world we can produce on a commercial scale.”
Federal dollars flow
Cellulosic-fuel companies pitch their product as a renewable alternative to petroleum that sidesteps the bitter food-versus-fuel debate that has surrounded conventional ethanol production from corn. Studies indicate producing fuel from cellulosic ethanol could produce dramatically less greenhouse gases than the amount coming from petroleum.
In 2007, Congress bought into cellulosic fuels in a big way by requiring refiners to purchase escalating levels of cellulosic biofuels.
The Energy Department has since invested more than $1 billion in research, development and construction of cellulosic-fuel plants, and the U.S. Department of Agriculture has announced more than $1 billion in federal loan guarantees that companies — including ZeaChem — can use to help secure financing from lenders.
Federal money also has flowed to the University of Washington and Washington State University, which are administering $80 million in grants for research on cellulosic fuels.
Despite the federal dollars, no cellulosic fuel went to refineries in 2010 or 2011. And last year’s production was just a drop compared to the 500 million gallons that Congress envisaged.
The industry also suffered a significant defection in October when BP backed out of plans for a $350 million cellulosic-biofuel plant in Florida.
“If BP can’t make this work, there should be a message here,” said Charles Drevna, president of the American Fuel and Petrochemical Manufacturers, a trade organization for oil refiners.
In another measure of federal support for the technology, the EPA has required oil refiners to blend certain amounts of cellulosic ethanol into their gasoline. When they fall short, as they have since there is virtually no cellulosic ethanol being produced, they pay a penalty to the government.
The refiners’ trade organization won a partial victory in January when a U.S. Court of Appeals panel threw out the blending requirement set for 2012, ruling that the EPA had been overly optimistic.
Cellulosic-ethanol advocates say the federal mandate is essential to an industry still in its infancy, and note that the support they receive is dwarfed by the decades of subsidies extended to the oil industry.
“Congress recognized that the market is broke, and innovation is not rewarded,” said Coleman, of the Advanced Ethanol Council.
He predicts that this year will be a turning point, with several major projects expected to finally come on line.
They include a Florida plant developed by Ineos Bio, part of a major European chemical company, that will turn tree trimmings otherwise bound for a municipal waste site into 8 million gallons of fuel annually.
“We expect to reach full production rates this year,” said Dan Cummings, an Ineos vice president.
By 2022, under the congressional mandate, cellulosic production is supposed to soar to 16 billion gallons a year — an amount greater than today’s annual production of corn ethanol.
But cellulosic biofuel still has plenty of skeptics who question whether the industry will survive without the large infusions of federal cash.
“You have companies who have technologies that they are working on, and they have to tell you it’s wonderful and cheap because that is the only way they can get funding to continue to develop it,” said Wallace Tyner, a Purdue University professor who chaired a 2011 National Academy of Sciences panel that examined cellulosic ethanol.
In an interview in 2010, ZeaChem President Jim Imbler said his company could make fuel with production costs of less than $1 a gallon.
Tyner, however, said most cellulosic-ethanol production will not be competitive until retail-gasoline prices rise to more than $4.50 a gallon.
“These technologies are not viable today, unless the government is involved,” he said. “The reality is different from what a lot of us would like it to be.”
Since 2007, the Energy Department has awarded grants to 29 cellulosic-biofuel plants that use different technologies to break down cellulose so it can be converted into ethanol and other types of fuel.
But processes that work well in a laboratory may be difficult to scale up in a large plant, and companies also have had trouble raising private capital to complement the federal funding.
Six of the Energy Department grant projects have been terminated at a loss of $50 million to the taxpayers, according to Valerie Reed, a department official in the biomass program.
One of the most notable busts was Range Fuels, which in 2007 received a federal grant to help finance a wood-to-ethanol plant in Georgia. The biorefinery opened in 2010 and shut down the following year without ever producing fuel, amid technical and financial problems that triggered a foreclosure sale.
That failure troubles Norman Lewis, a Washington State University professor who has received federal grants to research development of poplar and alder that can be more easily converted to fuel and petrochemicals.
“When you see the funds get squandered, it is frankly revolting,” Lewis said. At Range Fuels, “the funding went into a project before the science and technology was developed.”
ZeaChem, founded in 2002, makes its cellulosic ethanol using gasification and fermentation aided by naturally occurring bacteria similar to those found in a termite’s gut. The process turns cellulose chemicals that can be used in paints and lacquers, and also can be converted to ethanol or other fuels.
Company officials say their technique gives off far less carbon dioxide than other processes that convert cellulose to ethanol, and can produce more fuel per ton of dry cellulose.
The Boardman demonstration plant will process poplar chips, wheat straw and other cellulose materials. ZeaChem also has received a $9.3 million federal grant to develop a process to turn the wood into jet fuel.
Carrie Atiyeh, a company spokeswoman, said that after construction was completed in October, delays in starting resulted from needed “adjustments and corrections.”
Reed, the Energy Department official, said construction costs came in on budget, and ZeaChem is “actually doing quite well.”
A Wyden spokesman said the Oregon senator, who now chairs the Senate Energy and Natural Resources Committee, has confidence in ZeaChem.
“This is complicated stuff. It’s a new industry,” said Tom Towslee, Wyden’s state communications director. “We continue to support them.”
If the current plant performs up to expectations, ZeaChem plans to build a commercial facility in Boardman with the help of a $232 million loan guarantee.
Initially, company officials said it would begin operating in 2014. That date has been pushed back to 2015.
Hal Bernton: 206-464-2581 or email@example.com