By Tom Konrad, Ph.D., CFA

Because of rising fertilizer prices, farmers are planting more soybeans than corn.  Soybeans are a legume, meaning that they can fix their own nitrogen in the soil, meaning that they need less nitrogen fertilizer, the price of which is spiking due to rising natural gas prices.  Corn, in contrast, needs more nitrogen than most other crops.  

High gas prices are rising because of Putin’s war on Ukraine, which is also preventing Ukrainian farmers from planting this year’s wheat crop, while sanctions are likely to disrupt wheat supplies from Russia as well.

Corn and (to a lesser extent, wheat) are both major feedstocks for ethanol, so investors hoping that ethanol producers will benefit from rising gasoline prices (also caused by the war) may be disappointed.  

Agricultural disruptions will likely raise the prices of all agricultural commodities, including soy oil, but the large soy planting in the US will moderate this effect on soy oil.   Since soy oil is a common biodiesel feedstock, biodiesel producers will see a relative benefit compared to ethanol producers, who are more reliant on corn.

In short, investors looking to biofuels to benefit because of high oil prices should focus on biodiesel producers, rather than producers of ethanol.

ABOUT: Tom Konrad Ph.D., CFA is the Editor of AltEnergyStocks.com and the manager of the Foundation Green Income Fund.

DISCLOSURE: None.

DISCLAIMER: Past performance is not a guarantee or a reliable indicator of future results.  This article contains the current opinions of the author and such opinions are subject to change without notice.  This article has been distributed for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product.  Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.

The post Advantage Biodiesel appeared first on Alternative Energy Stocks.

By Jim Lane

The case

Last week’s decision stems from a May 2018 challenge brought against EPA in the U.S. Court of Appeals for the Tenth Circuit by the Renewable Fuels Association, the National Corn Growers Association, National Farmers Union, and the American Coalition for Ethanol, working together as the Biofuels Coalition. The petitioners argued that the small refinery exemptions were granted in direct contradiction to the statutory text and purpose of the RFS and challenged three waivers the EPA issued to refineries owned by HollyFrontier Corp. and CVR Energy Inc.’s Wynnewood Refining Co.

The case is HollyFrontier Cheyenne Refining, LLC v. Renewable Fuels Association, 20-472 and the high court heard oral arguments in April. The case involved exemptions given to units of HollyFrontier Corp (HFC) and CVR Energy Inc (CVI). Reuters reports that at issue in the case was whether the EPA impermissibly exempted units of HollyFrontier and CVR Energy in 2017 and 2018 when they had not received continuous prior extensions of an initial exemption.

In January 2020, the Denver-based 10th U.S. Circuit Court of Appeals found that the EPA exceeded its authority “because there was nothing for the agency to ‘extend.’” According to the Circuit Court ruling, “the statute limits exemptions to situations involving ‘extensions,’ with the goal of forcing the market to accept escalating amounts of renewable fuels over time.” The refineries appealed to the Supreme Court, and the federal government, under Biden, switched sides to favor the biofuel supporters.

The SCOTUS decision

The 6-3 ruling overturned a lower court decision that had faulted the U.S. Environmental Protection Agency for giving refineries in Wyoming, Utah and Oklahoma extensions on waivers from the Clean Air Act’s renewable fuel standard requirements even though the companies’ prior exemptions had expired, according to Reuters. Bloomberg reported that the justices rejected arguments that the EPA’s exemption power is limited to only a handful of refineries that have received uninterrupted annual waivers from the Renewable Fuel Standard.

Interestingly, Conservative Justice Amy Coney Barrett joined liberal justices Sonia Sotomayor and Elena Kagan, in dissenting from the decision.

What this means

It’s no secret that President Biden supported biofuels and was “expected to issue fewer waivers and force more refineries to satisfy annual biofuel quotas by either blending plant-based alternatives into their products or buying compliance credits from other companies that have. However, the new precedent will give future administrations wide clearance to exempt oil refineries from annual blending quotas,” according to Bloomberg. And let’s not forget that small refinery waivers surged under former President Trump which didn’t make biofuel producers happy.

But it’s not over yet. The Renewable Fuels Association points out that “While the Supreme Court failed to affirm a portion of the Tenth Circuit decision, the Biofuels Coalition pointed out that the appellate court also ruled that EPA’s exemption decisions must reconcile the agency’s consistent findings that all refineries recover the costs of compliance with the RFS, and that EPA may only use hardship caused by the RFS to justify granting exemptions. Despite today’s Supreme Court decision, EPA must still resolve those other aspects of the Tenth Circuit ruling.”

Reactions from the Industry

Disappointment for sure, but a huge sense of optimism too. Reminds us of the Tubthumping song lyrics, “I get knocked down, but I get up again, You are never gonna keep me down” from Chumbawamba.

Let’s hear from those involved directly first. The Renewable Fuels Association sent this statement on the SCOTUS decision from the Biofuels Coalition involved in the lawsuit:

“A coalition of renewable fuel and farm groups expressed “extreme disappointment” in today’s U.S. Supreme Court decision overturning a 2020 appellate court ruling that struck down three improper small refinery exemptions granted by previous EPA administrators. However, because certain elements of the appellate court ruling were left unchallenged and were not reviewed by the Supreme Court, the groups remain optimistic that the Biden administration will discontinue the past administration’s flagrant abuse of the refinery exemption program.

“Nearly a year and a half ago, the Tenth Circuit handed down a unanimous decision that was ultimately adopted by the very agency we took to court in the first place,” coalition members said. “While we are extremely disappointed in this unfortunate decision from the Supreme Court, we will not stop fighting for America’s farmers and renewable fuel producers. Further, we are optimistic that other elements of the Tenth Circuit decision, which were not reviewed by the Supreme Court, will compel the Biden administration and EPA’s new leadership to take a far more judicious and responsible approach to the refinery exemption program than their predecessors did.”

Irrespective of today’s decision, the Biofuels Coalition thanked President Biden and EPA Administrator Regan for taking swift action to rein in the previous administration’s mismanagement of the small refinery exemption program. After carefully reviewing the issue, new EPA leadership in February reversed the agency’s previous position and announced support for the Tenth Circuit decision. In April, EPA decided to revoke three last-minute refinery exemptions granted the day before President Biden’s inauguration; and in May, EPA announced it would cooperate with a Government Accountability Office investigation into the past administration’s adjudication of small refinery exemptions.

As of today, 70 small refinery exemption petitions remain pending with EPA, for the compliance years 2011-2020.”

So what do others in the industry have to say about this?

Growth Energy CEO Emily Skor told The Digest, “The Supreme Court disagreed with the lower court’s view of extensions, but today’s decision does nothing to change the 10th Circuit’s ruling that exemptions cannot be granted when refiners cannot properly trace their hardship to compliance with the Renewable Fuel Standard (RFS),” said Skor. “In the past, the biofuel industry has looked to the courts to halt abuse. Today, new leaders at the Environmental Protection Agency have shown a willingness to defend the RFS, most recently by reversing three improperly granted exemptions. We look forward to working with the Biden administration to keep a lid on exemptions, further strengthen the RFS, and fast-track our progress toward decarbonization. Engine smart and earth kind biofuels are vital to achieving the nation’s climate goals.”

Michael McAdams, President of the Advanced Biofuels Association said, “We are greatly disappointed by the Supreme Court’s ruling to overturn the 10th Circuit decision with regard to small refinery exemptions. Frankly, the Court got this one wrong. We do not expect, however, that this decision will impact the current Administration’s view on using SREs moving forward.”

Kurt Kovarik, National Biodiesel Board’s Vice President for Federal Affairs, said, “The Supreme Court decision is dismaying because it leaves uncertainty about when EPA may offer exemptions to small refineries. These exemptions harm biodiesel and renewable diesel producers when they reduce demand for advanced biofuels. EPA has provided multiple ways for refiners to meet the Clean Air Act’s RFS requirements, including an outsized bank of reserve RIN credits. The agency must issue the 2021 RFS rules as soon as possible and ensure that RFS volumes it sets are met, with full accounting for any small refinery exemptions in plans to grant.”

Doug Durante, Executive Director, Clean Fuels Development Coalition told The Digest, “Between the courts, the oil industry, and EPA chipping away at the RFS it only underscores that we need to create new demand beyond the confines of the RFS, which frankly may continue to shrink. Ethanol’s highest value is as an octane additive and to reduce the carbon in gasoline by replacing aromatics. The pending re-write of the fuel economy rule is a perfect opportunity to do that and the ethanol industry needs to make that case, as we are doing through the High Octane Low Carbon Alliance.”

Iowa Renewable Fuels Association Executive Director Monte Shaw said, “We are extremely disappointed the Supreme Court didn’t uphold the 10th Circuit Court ruling on eligibility to request RFS refinery exemption extensions. I am not a lawyer, but it sure seems like the 10th Circuit Court got it right when they determined that a refinery can’t extend something it no longer has. However, it is important to remember this case only applied to one of the three major findings from the 10th Circuit Court. Today’s decision allows refiners to apply to extend RFS exemptions that have lapsed. But this case did not impact the 10th Circuit’s ruling that refiners must still prove economic harm directly related to compliance with the RFS. Just as importantly, the 10th Circuit also found that EPA cannot use RIN costs as a cause of economic harm while simultaneously admitting RIN costs are recovered in the refiner’s crack spread. As the Biden EPA has pledged to follow the 10th Circuit Court ruling, today’s decision allows refiners to request an RFS exemption extension, but it does not make it easier for refiners to actually receive one. We fully expect the Biden EPA to keep their commitment to the RFS and to apply the 10th Circuit Court standards relating to economic harm, and as a result, to deny the vast majority of RFS exemption extension requests that are pending or that will be submitted in the future.”

Speaking of Iowa, the Iowa Biodiesel Board’s Executive Director, Grant Kimberley, said they were “extremely disappointed” too and “We believe today’s ruling opens the door for oil refiners to intentionally circumvent the RFS. However, the Supreme Court did not consider nor overturn the economic harm arguments decided in the 10th Circuit, and the EPA is still bound by them. The only question is how many refiners can seek exemptions each year and at what point in the year—or ‘at any time’—they can be granted. The EPA must consider only whether the Renewable Fuel Standard itself causes ‘disproportionate economic harm’ to a small refinery requesting exemption; and the EPA must consider its own evidence that refineries recoup the costs of RFS compliance. As green energy becomes a national priority, we are hopeful that the Biden EPA will keep its commitment to the RFS, fulfilling the promise that a green future depends on a stable and strong biofuels industry.”

Steve Roberts, Director, Opportune LLP, told The Digest, “This is the first of two key decision points expected this summer, with the second being the RFS blending requirements for 2021 and 2022. Additionally, there is a backlog of Small Refinery Exemptions (SREs) to be reviewed and decided upon by the EPA. So, while the SCOTUS ruling provides some clarity for the Small Refiners Exemption, both the biofuel industry and oil refiners are still in a ‘wait and see’ mode, which will continue to drive volatility in the biofuel and RINs markets.”

Former Deputy Undersecretary of Agriculture and now Managing Director of Ocean Park, an Investment Bank that has advised on many biofuels transactions, John Campbell told The Digest, “All eyes will be on EPA’s rulemaking proposal for RVO’s in 2021 and 2022 now that the SRE issue has been settled by the highest court. The 2007 RFS legislation anticipated 150 billion gallons of gasoline demand with traditional corn ethanol at 10% or 15 billion gallons.  Despite gains in E-15 demand the 10% blend wall has been problematic when EPA considers the overall RVO landscape and imipact on RIN prices.  The RFS has served the biofuels industry well but the time has come to consider reform that takes into account new fuel demand realities and increasing need for decarbonization of the liquid fuel supply.”

“Today’s decision still does not resolve the question of regulatory certainty for the Renewable Fuel Standard,” Michael Newman, Chief Operating Officer of Parhelion Underwriting Inc. told The Digest. “A sudden change of policy is an unwelcome surprise in any market and the interests of policymakers, regulators, market participants and the public should be aligned in wanting a stable market with an orderly, gradually rising trend. A sudden drop in value hurts companies holding RIN assets and impacts government revenues that support sustainable projects; a spike in value is passed on to consumers at the gas pump, eroding public support for the program.”

“A possible alternative is a national clean fuel standard, along the lines of California Low Carbon Fuels Standard, to supercede the RFS at the end of 2022,” said Newman. “It is a program with flexibility for how the government’s goals are achieved – including through the purchase of carbon credits generated by electrical vehicle producers, a price cap to fix the ‘price spike’ and a focus on carbon intensity.”

Some other good news

Another hopeful sign was the Senate’s passage of the Growing Climate Solutions Act, legislation that would break down barriers for farmers and foresters interested in participating in carbon markets.

Growth Energy CEO Emily Skor applauded that news and said, “Farmers have already been making big investments in new technology to reduce their carbon emissions. As reducing greenhouse gas emissions is top of mind for the biofuels industry, we are working with our ag partners to use sustainable farming practices to reduce emissions throughout the entire production lifecycle. The Growing Climate Solutions Act will rightly reward farmers nationwide for their efforts to reduce emissions.”

“Our industry truly is from nature and for nature. We thank Senators Stabenow (D-MI) and Braun (R-IN) for their leadership in passing this legislation.”

Former Sens. Saxby Chambliss (R) and Heidi Heitkamp (D), co-chairs of the Bipartisan Policy Center’s Farm and Forest Climate Solutions Task Force, hailed Senate passage of the Growing Climate Solutions Act of 2021.

“The bill provides USDA with clear bipartisan direction to help producers and forest landowners implement practices that capture carbon, reduce emissions, improve soil health, and make their operations more sustainable,” noted former Sen. Heitkamp.

The Growing Climate Solutions Act creates a certification program at USDA to bolster technical assistance and help address challenges that can prevent farmer and forest landowners from fully participating in voluntary environmental credit markets.

“America’s farmers, ranchers, and forest landowners can play a pivotal role in capturing carbon while creating another income stream for their operations. The 92-8 vote in the Senate indicates the strong support for helping producers access new carbon market opportunities,” former Sen. Chambliss said.

And hey, Oregon approved E15 for customers too! Governor Kate Brown signed into law an important measure that will help clean Oregon’s air and reduce their carbon footprint immediately while saving motorists money at the pump. The new law, HB 3051, revises state law to clarify that gasoline sold in Oregon must contain at least 10 percent ethanol and gives retailers the ability to offer higher ethanol blends, like E15, across the state benefitting consumers and the environment.

“We applaud the state of Oregon and Gov. Brown on clarifying that E15 is approved for sale and giving drivers across the state access to a more affordable, better for the environment option at the pump,” said Skor. “Oregon’s approval of E15 comes just weeks after recent news from neighboring Nevada, who enacted legislation to approve E15. We look forward to working with West Coast retailers to offer drivers an engine smart, earth kind fuel.”

The United States House of Representatives doesn’t want to be left out of the good news too! Also on Friday, they voted to utilize the Congressional Review Act to reinstate regulations preventing unnecessary methane leaks in the oil and gas industry, which were rolled back by the Trump administration.

BlueGreen Alliance’s Executive Director Jason Walsh said of the news, “Preventing unnecessary methane leaks is a no brainer; it’s good for workers, communities, the environment, and the economy. Nobody benefited from rolling back this regulation. Reinstating it is the right move. We know that full deployment of existing practices and technologies at new and modified oil and gas facilities will reduce methane emissions in the United States and could create 50,000 jobs over the next ten years. As our nation works to build back from the COVID-19 pandemic, throwing away tens of thousands of good-paying jobs manufacturing and installing the technology needed to stop leaks that are wasteful and unnecessary would be senseless.”

International policy good news

In case you missed this positive piece of news last week, the UK aviation industry launched the first interim decarbonization targets of at least 15% by 2030 and 40% by 2040, having reaffirmed their commitment to net zero by 2050. The new interim targets lay foundations for rapid acceleration of aviation decarbonization in the coming decades, with new data on the impact of Covid-19 on aviation demand. The focus is on ramping up SAF, permanent carbon removal, and new low and zero carbon technologies – such as electric and hydrogen powered aircraft – so that they can become mainstream in the 2030s.

These milestones are reflected on a new chart taking account of the effects of Covid-19 on aviation demand, and complement an ever-growing set of voluntary industry pledges to drive down emissions fast. Importantly, the announcement also kickstarts detailed work to update by the middle of next year the sector’s Decarbonisation Road Map, first published in 2020, that is expected to demonstrate even faster potential to decarbonise aviation through technology innovation.

Another piece of good news is that the Swiss government renewed the GRI partnership to spread sustainability reporting globally. through a new €3.8 million (US$4.6m) program to increase high-quality sustainability disclosure and accountability by organizations in Africa, Hispanic America and South East Asia. The key aims of the four-year Sustainability Reporting for Responsible Business (SRRB) program are to enhance the capacity of companies for reporting; create and improve the environment for transparency and disclosure; and increase the application of corporate sustainability data by stakeholders.

What this means for those in the bio-world is that those three key world regions will have more training, improved access to sustainability professional development, engagement with government on integrating ESG in the public sector, and more programs like those that will further biobased industry in developing markets.

Bottom Line

This is far from good news for biofuels producers in the U.S. but the Senate and House news, Oregon’s bump up in ethanol blending, and other good news like that offers some light in the dark. And like the saying goes, it ain’t over til it’s over, so stay tuned on the other pieces and decisions yet to come from SCOTUS and keep your fingers crossed for more good news next time.

Jim Lane is editor and publisher  of Biofuels Digest where this article was originally published. Biofuels Digest is the most widely read  Biofuels daily read by 14,000+ organizations. Subscribe here.

The post A Disappointing Supreme Court Biofuel Decision. Why It’s Not Over Yet appeared first on Alternative Energy Stocks.

by Tom Konrad, Ph.D., CFA

Earnings Season Continues

Below are three more updates on second quarter earnings which I’ve been sharing with my Patreon supporters.  If you’d like to support my writing and see those thoughts in a more timely manner, consider becoming a patron. becoming a patron.

For everyone else, I’m reprinting those thoughts below.

Disclosure: Long NFYEF, CVA, GPP, GPRE.

DISCLAIMER: Past performance is not a guarantee or a reliable indicator of future results.  This article contains the current opinions of the author and such opinions are subject to change without notice.  This article has been distributed for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product.  Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.

The post Earnings Roundup: Covanta, NFI Group, Green Plains Partners appeared first on Alternative Energy Stocks.

by Tom Konrad, Ph.D., CFA

Market Decline

Last week I warned “The risks in today’s stock market outweigh the possibility of future potential gains.”  Looks like we’re seeing those risks manifest in short order.  The last couple days’ decline have me looking at a few stocks to start adding to my positions again, especially MiX Telematics (MIXT) discussed on June 2nd and Green Plain Partners (GPP), discussed below.

Note that this pullback could easily be very early days of a much larger market decline.  We might even see the market fall far enough to test the March lows… any of my buying now is just small amounts, with most of my buying power held in reserve.  As I wrote last month, I balance the level of my buying or selling against my confidence in the valuations of the stocks in question and my predictions of market trends.  Right now I think we’re starting to see some good values in a few stocks again, but I think it’s likely that we will see much better valuations in the weeks or months to come, so I am mostly holding on to my cash and waiting for better values to be created by continued declines.

On the other hand, there’s also a chance that we’ll see an immediate rebound in the next week, which is why I’m doing a little buying now.

The three updates on the individual stocks in the model portfolio which I wrote for my Patreon supporters earlier this week:

Green Plains Partners (GPP) Secures Financing

Disclosure: Long positions all the stocks mentioned.

DISCLAIMER: Past performance is not a guarantee or a reliable indicator of future results.  This article contains the current opinions of the author and such opinions are subject to change without notice.  This article has been distributed for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product.  Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.

The post 10 Clean Energy Stocks for 2020: Updates on GPP, HASI, CVA appeared first on Alternative Energy Stocks.

by Tom Konrad, Ph.D., CFA

Last week, two of the stocks in my Ten Clean Energy Stocks model portfolio cut their dividends.  Covanta Holding Corp (CVA) dropped its quarterly payout from $0.25 to $0.08 (a 68% cut) while Green Plains Partners (GPP) slashed its quarterly distribution from $0.475 to $0.12, a drop of 74.75%.

Before reducing their dividends, both companies had payout ratios near 100%, meaning that substantially all of their free cash flow was going to pay dividends.  In general, companies are very reluctant to cut their dividends because it is a signal that their management thinks they cannot grow without retaining more cash, and it typically sends the stock price tumbling.

I initially included both in the model portfolio because I believed that there were unlikely to be any near term factors that would force either to cut its dividend.  For Green Plains, I felt that a possible recovery of the ethanol market would lead to substantial capital gains, and that the then 14.3% dividend yield was sufficient compensation for the risk if the ethanol market remained in its then miserable state.  For Covanta, I saw a company with solid growth plans which would likely allow it to increase its cash flow in 2 to 3 years, after which it could start paying down its substantial debt load without having to cut its dividend.

The Coronavirus pandemic changed this calculation: all companies are experiencing business disruption, and dividend cuts for both became priced in when their stock prices fell more than 50%.  Investors’ no longer were concerned that these companies might not be able to maintain their dividends: they knew dividend cuts were coming as a near certainty.

Note: My supporters on Patreon got an early look at this article.  Want to support my work and get previews of my writing?  Join them here.

Differences

While the parallels are obvious, a deeper dive reveals significant contrasts.  Ethanol is a direct competitor for gasoline, so the large drop changed what had already been some of the toughest ethanol market conditions in years into one where even the most efficient producers lose money on every gallon of ethanol they sell.  With ethanol producers shutting down refineries, GPP’s transportation and storage facilities are also seeing less business.

Covanta

In contrast, energy from waste firm Covanta’s revenues are much more stable.  Approximately three quarters of Covanta’s revenue comes from tip fees- the money the company is paid by haulers to accept trash.  Of the remaining, most is revenue from electricity sales, plus small slice from the sale of metals recovered from the ash left after incineration.

The majority of Covanta’s trash is residential.  At least in my New York town, the the stay at home order has led to higher residential trash volumes being taken to the transfer station.  Apparently, now that people are spending more time at home, they are taking the opportunity to declutter.  This trend may also be a boon to another recent stock pick, Ebay (EBAY).  If this local increase in trash volume is indicative of the general trend across the Northeast (where the majority of Covanta’s plants are located), the tipping fee portion of its revenues are likely safe.  The company’s medical waste disposal business even offers some potential for upside out of the crisis

While the quarter of Covanta’s revenue which comes from energy and recycling is likely to fall in the short term, the majority of its revenue seems safe.  If the government decides to do an infrastructure program to stimulate the economy as the crisis abates, that should lead to a recovery of the prices Covanta is able to get for its recycled metals.

Green Plains Partners

The Green Plains Partners also can expect its revenues to remain relatively stable despite the miserable state of the ethanol industry.  This is because GPP enjoys take-or-pay arrangements with its parent, Green Plains (GPRE).  As long as GPRE remains solvent, Green Plains Partners’ revenue should remain relatively stable.

With ethanol producers operating at negative margins, and rapidly taking ethanol facilities offline, it would not do to take GPRE’s solvency for granted.  However, the company is relatively well capitalized and has also been taking steps to improve its capital resources.

Green Plains, Inc. suspended its own dividend in mid 2019.  In a presentation to investors on March 4th, the company summarized its efforts to improve its balance sheet.  It realized approximately $780 million in proceeds from asset sales between October 2018 and December 2019.  It used these sales to reduce or deconsolidate debt by nearly $1 billion, and had $270 million in cash on hand.

Other than Green Plains Partners’ revolving credit facility, Green Plains, Inc, does not have significant debt maturing before 2022.  Green Plains Partners needs to replace its revolving credit facility before it matures on July 1st.  Under normal circumstances, I would not be concerned about the prospects of replacing the facility, but this year is not what anyone would consider normal circumstances.

The April 16th press release which announced the dividend cut also quoted Todd Becker, president and chief executive officer of Green Plains Partners: “We believe this decision by our board of directors will strengthen our balance sheet for the benefit of all stakeholders and create long term value for our unit holders.  We are currently working with our existing lender group to extend our credit line which will likely include a change to overall commitment levels and pricing, as well as require principal amortization as part of the transaction. Our goal is to pay off the debt within the next 18 months through this distribution reduction and other actions.”

I take this quote to mean that GPP has made significant progress in its negotiations with lenders, and that the dividend cut is part of what was needed to get the lenders to agree to extend credit.

Given all these factors, it is no surprise that GPP cut its dividend.  However, both GPP and GPRE seem to be doing what it takes to make it through this crisis.  Long term, GPP is likely to come out of this as a stronger company with less debt.

Conclusion

Given the hard times the ethanol industry is experiencing – due both to low price of gasoline (with which it competes) and political favors to oil refiners from the Trump administration, it’s no wonder than Green Plains Partners is trading at about a third of its already-depressed price from the start of the year.  I don’t expect the company to recover its losses, but I expect to see significant stock price gains in the near term if the company announces new financing to replace the expiring revolving credit facility.

In contrast, I am at a loss to explain the full extent of Covanta’s recent decline.  When a stock declines and I can’t explain it, my usual reaction is to buy.  Which is what I am doing.

Disclosure: Long CVA, GPP, GPRE, EBAY.

DISCLAIMER: Past performance is not a guarantee or a reliable indicator of future results.  This article contains the current opinions of the author and such opinions are subject to change without notice.  This article has been distributed for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product.  Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.

The post Covanta and Green Plains Partners Don’t Let A Crisis Go To Waste appeared first on Alternative Energy Stocks.

by Jim Lane

If you’ve not heard, NuGenTec is looking for Distillers to help supply Ethanol for Hand Sanitizers in California! We have two automated bottling lines waiting for ethanol to produce 8oz and 16oz gel type hand sanitizers, they write. You can learn more here.

And as we reported this morning, Aemetis (AMTX) is one of those companies jumping into the market, even as transport fuel demand falls off, driving fuel ethanol prices into an all-time low range of around $0.70 per gallon.

The shortage is real

If you’ve been trying to buy hand-sanitizer, it’s been hard to find. Here in Digestville, we’ve been making our own from 25 percent Aloe Vera and 75 percent rubbing alcohol. Most authorities have emphasized a 2:1 alcohol to Aloe Vera ratio, but Aloe Vera has also been hard to find near Digest HQ. On Friday, a shipment arrived but it was the industrial bags that go in large dispensers at offices and hospitals, not the individual spray bottle variety.

The catalyst

The catalyst? In response to the Coronavirus Disease 2019 (COVID-19) pandemic, the Alcohol and Tobacco Tax and Trade Bureau (TTB) created exemptions allowing certain alcohol fuel permit holders to sell ethanol (alcohol) for use in the production of hand sanitizers.

Consequently. Aemetis, Inc. said its 65 million gallon per year ethanol plant near Modesto, California has begun shipments of 200 proof alcohol for use in the production of hand sanitizer, which is in a significant shortage created by the worldwide spread of Coronavirus (COVID-19).

“Can’t hand sanitizer save the industry now?”

As an Argus media reporter asked at an emergency RFA online press conference on the coronavirus crisis, “why can’t the whole industry pivot to industrial ethanol production? Why can’t hand sanitizer save the industry now?”

The response from Randy Doyal, CEO, Al-Corn Clean Fuel, based in Minnesota was that there would be less vodka but more hand sanitizer coming in the next week to 10 days.

The good news

As Raymond James’ Pavel Molchanov observed this week, “Just as automakers converted their plants to supply tanks and fighter jets during World War II, and those same companies are now looking at supplying ventilators, many other enterprises amid the COVID-19 crisis are looking for creative ways to address the public health emergency. Here is one that, we admit, we would not ordinarily think about: producing hand sanitizer from corn ethanol.

“Aemetis, an early entrant into this market, points to prospective pricing of $70+ per gallon (yes, really). Amid oil prices at nearly 20-year lows, well below $30/Bbl, it goes without saying that ethanol prices are depressed: currently around $1.00/gallon. Selling into the hand sanitizer market can offer pricing that is 70x higher. Yes, you read that right. To be sure, the economics vary on a site-by-site basis, based on (among other things) proximity to hand sanitizer production facilities. Aemetis (AMTX), which produces ethanol in California, has the advantage of being located on the West Coast, and last week it became one of the first ethanol players to take advantage of the Treasury’s authorization. From our conversation with Aemetis, here is the economic proposition, in general terms… Retail stores are selling hand sanitizer at around $1.50/ oz. Of that, $0.50 goes to the retailer and distribution, $0.20 for packaging, and $0.20 for the compounder. That leaves $0.60 for the ethanol feedstock. With 128 ounces in a gallon, the implied selling price is upwards of $70/gallon.”

Raymond James rates this as as “a textbook ESG business opportunity” for which the economics look very lucrative. “At a time when ethanol prices are ultra-depressed due to the oil price meltdown, this is a fascinating, below-the-radar opportunity for ethanol producers, including Green Plains,” Molchanov writes.

Some market sizing

Hmm. Let’s quickly demolish the thought that this is anything but a small-scale opportunity.

The recommended usage, by the CDC, is 1.5 mL per application. Assuming, say, two usages per day by everyone in the United States, that would add up to around 45 million gallons of sanitizer over the next 6 months. Now, sanitizer is around 1/3 alcohol — so consider the maximum market size to be around 30 million gallons.

That’s US ethanol production for about 17 hours.

Now, we’ve assumed a perfect market. Imperfections abound. Two could make the market bigger, and that’s over application or simply stocking up on extra hand sanitizer. But many more factors could make the market smaller. First, not every person in America may hand-sanitize twice a day – they might wash their hands, do nothing, or the expected usage may not apply to children or people sheltering in place. Also, there are the existing suppliers of industrial alcohols. And, there is the problem of offtake contracting, manufacturing, shipping, retail display contracting and so forth.

And, the more ethanol producers that qualify for this market, the lower the price will go. Not to mention that the entire market is predicated on a waiver granted by the Alcohol and Tobacco Tax and Trade Bureau. And we know how reliable the US government has been on waivers that are friendly to the US ethanol industry.

To pivot entirely to producing hand sanitizer, every adult in the United States would have to sanitize more than 625 times per day.

Doesn’t mean it’s not a clever, niche opportunity. A 60-million-gallon ethanol plant like Aemetis’ Keyes facility could switch over say 33 percent of its production over the next 6 months or so, and the potential upside is very lucrative. So long as everyone doesn’t jump into the market and crash the price. Which presumably they will.

Donation in the offing

Some producers are simply donating ethanol to support the community.

Today, we hear that two Iowa Renewable Fuels Association members sent the first donated shipment of Iowa ethanol and glycerin to the state of Iowa to be used by Iowa Prison Industries for the production of hand sanitizer during the national shortage. The donation is made by Iowa ethanol producer Absolute Energy and Iowa biodiesel producer Western Iowa Energy. The Iowa Renewable Fuels Association (IRFA) worked with Iowa Prison Industries to secure the shipment of these products and other necessary ingredients. Templeton Rye is also providing distilled water for the project. The finished product will be distributed free of charge by the state of Iowa for priority use.

Reaction from the stakeholders

“Aemetis is moving quickly to help address the significant demand for hand sanitizer products in light of the COVID-19 pandemic during this time of national emergency,” said Andy Foster, President of Aemetis Advanced Fuels Keyes, Inc. “As the WHO and CDC strongly recommend the use of hand sanitizer products to help prevent the spread of Coronavirus, Aemetis is utilizing our ethanol production capability to address the current shortage of hand sanitizer by increasing the supply of high-proof alcohol used in the manufacturing of sanitizer products,” said Foster.

Jim Lane is editor and publisher  of Biofuels Digest where this article was originally published. Biofuels Digest is the most widely read  Biofuels daily read by 14,000+ organizations. Subscribe here.

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Yay or Nay for EPA? RFS Volumes out for 2020, Biodiesel for 2021 – What’s the reaction from industry?

by Jim Lane

What’s the reaction from industry? Coal for Christmas?

Should Santa bring coal for EPA’s stocking this year? Do the biofuels and agriculture industries think the EPA just put coal in their stocking? Is it thumbs up or thumbs down from biofuel industry advocates on last week’s U.S. Environmental Protection Agency renewable fuel volumes? What about the exempted volumes?

The Ruling – Rotten or Respectable?

First, a bit on the EPA ruling that establishes the required renewable volumes under the Renewable Fuel Standard (RFS) program for 2020, and the biomass-based diesel volume for 2021. Here are the numbers from EPA:

^a All values are ethanol-equivalent on an energy content basis, except for BBD which is biodiesel-equivalent.

The key elements of the EPA action are as follows:

• “Conventional” biofuel volumes, primarily met by corn ethanol, will be maintained at the 15 billion gallon target set by Congress for 2020.
• Cellulosic biofuel volumes for 2020, and thus advanced biofuel volumes, will increase by almost 170 million gallons over the 2019 standard.
• Biomass-based diesel volumes for 2021 will be equivalent to the standard for 2020, still more than double the statutory requirement.
• EPA will closely examine the labeling requirements for E15 fuel and move forward with clarifying regulations as needed.

According to the EPA press release:

Through this rule, EPA has modified the RFS program by projecting small refinery relief to ensure that these final volumes are met, while adjudicating small refinery relief when appropriate. As proposed, we are finalizing a projection methodology based on the 2016-2018 annual average of exempted volumes had EPA strictly followed the Department of Energy (DOE) recommendations of 770 million Renewable Identification Numbers (RINs) in those years, including granting 50 percent relief where DOE recommended 50 percent relief. This is our general approach to adjudicating Small Refinery Exemption (SRE) petitions going forward, beginning with 2019 SRE petitions and including 2020 SRE petitions and beyond, we are committed to following the DOE recommendations. By proposing effectively 15.8 billion gallons for 2020 we will ensure meeting our target of 15 billion gallons.

“Through President Trump’s leadership, this Administration continues to promote domestic ethanol and biodiesel production, supporting our Nation’s farmers and providing greater energy security,” said EPA Administrator Andrew Wheeler. “President Trump committed to our nation’s farmers that biofuel requirements would be expanded in 2020. At the EPA we are delivering on that promise and ensuring a net of 15 billion gallons of conventional biofuel are blended into the nation’s fuel supply.”

EPA has modified the way RFS obligations are determined to better ensure that these volumes are met, while still allowing for relief for small refineries consistent with the direction provided by Congress under the statute. By proposing effectively 15. 8 billion gallons we will net out at 15 billion.

More information can be found on the EPA website here.

Reactions from the Industry

Ok, so now that we know the numbers, what’s the reaction? Sure, there are increases in the volumes but is it enough?

Overall consensus is no, not even close. But it’s not just the volume numbers that have folks up in arms – it’s the small refinery exemptions. The EPA is counting only half of the exempted volumes actually granted over the past three years.

Just a taste of what they are saying:

The EPA is playing games…

They blew it…

They’ve missed the mark…

Disappointed, frustrated, and quite frankly angry…

This is not what we agreed to in that meeting on Sept. 12 or Oct. 4…

Trust has been lost…

EPA has decimated demand for more than 4 billion gallons of renewable fuel…

We’ve gone from promises of a giant package to the reality of a lump of coal…

Stifles investment in green energy breakthroughs…

Leads to more uncertainty for renewable fuels…

We will keep holding EPA’s feet to the fire…

I don’t think the White House truly understands the depth of discontent in farm country…

Here’s more on what key players in the biofuels industry had to say:

Growth Energy asks EPA to take further action

“While the final rule provides an uptick in federal biofuel targets and signals an intent to account for demand lost to oil refinery exemptions, Growth Energy stressed that the agency must enforce those volumes by accounting for exemptions accurately and that EPA Administrator Wheeler must take additional steps to uphold the administration’s October 4th commitments to rural America.”

“President Trump pledged to deliver certainty and stability for America’s farmers and biofuel producers by restoring integrity to the RFS,” said Growth Energy CEO Emily Skor. “While we’re encouraged that EPA is finally taking steps to follow the law and account for biofuel demand lost to secretive oil refinery exemptions, this rule leaves important work unfinished.

“Integrity is restored to the RFS only if the agency accurately accounts for exemptions it will grant. The rule uses an accounting formula based on Department of Energy recommendations, which EPA has a poor track record of following. All eyes will now be on EPA’s next round of refinery exemptions and future targets, which will signal whether Administrator Wheeler is truly committed to ending demand destruction.

“Additionally, Administrator Wheeler must act swiftly to break down remaining market barriers to E15 as promised in the October 4th EPA announcement. When the RFS is working as intended and government has eliminated market access barriers, drivers across the nation will able to take full advantage of the administration’s move to unleash sales of E15 year-round.”

National Biodiesel Board disappointed with lack of growth in 2020 RFS volumes

The NBB said that the EPA rule blocks growth for the biodiesel industry and Kurt Kovarik, NBB’s VP of Federal Affairs, said, “EPA’s final rule for the 2020 RFS volumes is simply out of step with Congressional intent and President Trump’s promises. This week, Congress and the president are extending the biodiesel tax incentive through 2022 and sending an unmistakable signal that they support continued growth of biodiesel and renewable diesel. At the same time, EPA Administrator Wheeler is doing everything he can to block that growth.”

Kovarik continued, “Despite his statement to the press, Administrator Wheeler’s method for estimating future small refinery exemptions does not provide assurance to the biodiesel and renewable diesel market. The best estimate of future exemptions is an average of the 38 billion gallons exempted over the past three years. Even if EPA had included that estimate, though, there is nothing in today’s rule to ensure that the agency will get these exemptions under control.”

BIO says EPA’s rules are leading to more uncertainty, stifles investment in green energy

“Unfortunately, this final rule from EPA does not alleviate concerns we had when the draft rule was published earlier this year,” said Stephanie Batchelor, VP of BIO’s Industrial and Environmental Section. “The lack of growth for advanced and cellulosic biofuels, and the failure to fully reallocate the gallons lost from the drastic expansion of small refinery exemptions, will continue to stifle investment in green energy breakthroughs. This final rule will have a long-lasting negative impact on the country’s renewable fuels industry as we’ve already seen plants close because of the agency’s manipulation of the policy to date.”

Iowa Biodiesel Board says biodiesel flatlined in final rule and future small refinery exemptions underestimated

Grant Kimberley, executive director of the Iowa Biodiesel Board, said, “The EPA rule does not provide positive signals to a market longing for assurance. EPA’s actions have already decimated demand for more than 4 billion gallons of renewable fuel, including biodiesel and renewable diesel. With this final rule, the agency has once again declined to uphold the integrity of a federal law meant to encourage the use of renewable fuels in America, siding with oil company interests at the expense of family farmers. Ten biodiesel producers have closed their doors or drastically cut production due to loss of demand.”

“In addition to our discouragement over lack of growth, the industry does not have confidence in EPA Administrator Andrew Wheeler’s plan for estimating future small refinery exemptions, based on EPA’s past actions. There is no assurance these exemptions will be brought under control or properly accounted for. Meanwhile, we stand ready to meet continued sustainable growth of several hundred million gallons every year.”

Iowa Renewable Fuels Association says EPA rule fails to restore RFS integrity, Trump turns back on previous promises

“President Trump turned his back on certainty for farmers and failed to keep the September 12 deal,” stated Iowa Renewable Fuels Association (IRFA) Executive Director Monte Shaw. “Instead of certainty, we are essentially being told to trust the EPA to uphold the RFS in the future even though for the past three years the EPA has routinely undermined the program. Every farmer and biofuel supporter I have talked to is deeply disappointed, frustrated, and quite frankly angry. I don’t think the White House truly understands the depth of discontent in farm country.”

In order to remove EPA discretion from the process, biofuels supporters united behind a plan to account for SREs using a three-year rolling average of actual refinery exemptions granted. President Trump agreed to this plan in a September 12 Oval Office meeting with Midwestern elected officials, including Iowa’s Governor and Senators. Today, however, President Trump sided with EPA’s alternative plan which relies on using a three-year rolling average of U.S. Department of Energy (DOE) recommendations for SREs, which EPA has routinely ignored and is under no legal obligation to follow.

“IRFA today called upon the EPA to immediately post DOE recommendations – past, present and future – on their SRE website dashboard,” stated Shaw. “Market participants must have faith in the process and must know whether or not EPA is following the DOE recommendations. Further, to prevent any entity from gaming the system, this information should be made public to all market participants at the same time. In just a few months, EPA will begin adjudicating the 2019 compliance year SREs. It will be their first opportunity to demonstrate good faith and we’ll be watching very, very closely.”

Click here to see IRFA’s full letter to the EPA.

American Coalition for Ethanol calls RFS rule a failure to uphold President’s biofuel deal

American Coalition for Ethanol (ACE) CEO Brian Jennings said, “Over the course of the past few months, we’ve gone from promises of a ‘giant package’ to the reality of a lump of coal. To say we are disappointed is an understatement. While it was well understood this rulemaking would not make farmers and the ethanol industry ‘whole’ for the damage EPA has done by abusing the small refinery exemption provision of the RFS, we were led to believe the rule would represent a step in the right direction, an opportunity to account in a meaningful way for refinery waivers.

“We are forced yet again to continue defending the RFS and fighting EPA’s mismanagement of the program in the third branch of government, but this is another painful reminder our industry needs to go on offense with a new plan to increase demand on ethanol’s low carbon and high octane advantages.”

National Corn Growers Association’s President, Kevin Ross, said, “The Administration has chosen to move forward with a final rule that corn farmers believe falls short of adequately addressing the demand destruction caused by EPA’s abuse of RFS refinery waivers. While using the DOE recommendations to account for waivers is an improvement over the status quo, it is now on corn farmers to hold the Administration to their commitment of a minimum of 15 billion gallon volume, as the law requires. We will use future rulemakings and other opportunities to hold the EPA accountable.”

Renewable Fuels Association’s President and CEO, Geoff Cooper, “After EPA’s overwrought abuse of the SRE program in recent years, agency officials had a chance to finally make things right with this final rule—but they blew it. EPA’s rule fails to deliver on President Trump’s commitment to restore integrity to the RFS, and it fails to provide the market certainty desperately needed by ethanol producers, farmers, and consumers looking for lower-cost, cleaner fuel options. While the final rule is an improvement over the original proposal, it still does not guarantee that the law’s 15-billion-gallon conventional biofuel blending requirement will be fully enforced by EPA in 2020.”

POET’s Senior Vice President of External Affairs and Communications, Kyle Gilley, said “Today was a missed opportunity to finally restore clarity to the ethanol and grain markets, but more opportunities lie ahead in 2020. With these 2020 RVO levels now finalized, our near-term focus shifts to implementation of the remainder of the President’s critical biofuels package: ensuring 15 billion gallons means 15 billion blended, deploying an infrastructure package, changing the pump label, and reforming the fuel survey.”

Iowa Senator Chuck Grassley said, “Once again, EPA is playing games and not helping President Trump with farmers. An agreement was reached on September 12 in an Oval Office meeting between several Midwest leaders, President Trump and other members of his Administration. This does not reflect what we agreed to in that meeting.”

“The magic words from the Oval Office meeting were three-year rolling average based on hard data and actual waived gallons. Abiding by this would have solved all the problem’s EPA has created.”

Iowa Senator Joni Ernst said, “Throughout this process, I, along with Senator Grassley and Governor Reynolds have made it crystal clear that Iowa’s farmers and biofuel producers need certainty that EPA will follow the law. After shaking hands in the Oval Office this fall, EPA had an opportunity to restore the broken trust of farmers and to follow through on the president’s commitment, but it appears they’ve missed the mark…again. We were guaranteed a deal in September, and we were assured of that same deal in October, yet EPA rolled out, and has now finalized, a different proposal. It’s no wonder trust has been lost.

“We will keep holding EPA’s feet to the fire to ensure they truly uphold the RFS, the law, as intended and fully implement the other critical aspects of this rule.”

U.S. Rep. Collin Peterson (D-MN), Chairman of the House Agriculture Committee, said, “At a time when our agriculture economy is struggling, the EPA has ripped 4 billion gallons of ethanol out of the market and impacted corn prices and rural communities. We also have yet to see the other things that were promised to the biofuels industry and corn farmers to get more ethanol into the market via infrastructure incentives and policies related to higher ethanol blends.”

RNG Coalition welcomes EPA’s biofuel targets

On the other hand, the Coalition for Renewable Natural Gas (RNG Coalition) said they welcomed the EPA cellulosic biofuel targets for 2020, but they are certainly not in the majority among the biofuel and agriculture industries.

“The RFS has helped spur the remarkable growth of America’s RNG industry. We welcome today’s final rule providing for a 41% percent increase in the program’s cellulosic biofuel target, and we appreciate the Administration’s willingness to promote the expanded production and use of cellulosic biofuels,” stated Escudero.

Jim Lane is editor and publisher  of Biofuels Digest where this article was originally published. Biofuels Digest is the most widely read  Biofuels daily read by 14,000+ organizations. Subscribe here.

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Challenges and Opportunities in Biofuels

By Steve Hartig, Former VP of Technology Development at ICM

The North American biofuels market can be split into three main segments all of which have major dynamics.  What I would like to do is give a high-level overview of what I see as some of both the challenges and opportunities across these.

• Ethanol which is a produced from corn and sorghum in about 200 plants mainly across the Midwest and blended at about 10% with gas.  Majors such as POET, Green Plains, Flint Hills, Valero, ADM and Cargill do a bit more than half of the 16 billion gallons production with the rest done mainly by farmer co-op plants.  An average plant size is about 80 mln gpy.  About 10% of gasoline is ethanol.   Cellulosic ethanol is the newer area which has had many challenges but companies such as POET DSM are producing some volumes from crop residues and Lanzatech from gas streams.
• Biomass based diesel produced mainly from vegetable oils and waste fat in a large number of plants, typically rather small, across the US with the market leader being REG.  Total volume sold in the US, per the EPA was 2.3 bin gallons, in 2018 or about 4-5% of the total diesel supply.  Actual capacity is much larger at 4.1 bln gallons.
• Bio jet fuel which is still embryonic but an interesting are with about 25 bln gallons of potential.  What is exciting is that this area is likely to grow in volume over time and alternative approaches such as electrification are difficult for aircraft given the weight of batteries so this is a long term and growing market for biofuels

Challenges for the corn ethanol and biodiesel producers are very much around profitability and the regulatory environment while the embryonic cellulosic and jet fuel areas still has many technical challenges to prove viability.

Corn Ethanol

There is a huge challenge today due to oversupply versus demand driving prices down.  There is much arguing as to the cause of this but it seems to be a combination of low or no growth in gasoline demand, significantly added ethanol capacity, a slow uptake of higher-level ethanol blends and the EPA Small Refinery Exemptions.  This is aggravated by the dynamics in corn pricing this year due to weather.

Unless E15 volume increases significantly, things are only going to get worse as essentially all forecasts show gasoline volume decreasing over the coming five to ten years driven by increased fuel economy in the short run and vehicle electrification in the long term.

Forecasting what will happen is difficult as ethanol is very different than most commodity chemicals due to the relatively small plant size, driven by corn supply economics, and the large number of companies active in it.  In most commodity chemicals markets, a handful of companies control the market and new entrants are difficult due to the lack of economies of scale.  However, continued consolidation and the closing of smaller, less efficient and poorly located plants will continue.

The starting point for surviving any downturn and long term sustainable profit will be having a plant with a low cost position driven by a combination of scale, plant technology, location, operational excellence and strong maintenance.  The difference between leaders and laggards here can be over $.10 per gallon, which is huge.

However, the likely winners will be those that also embrace some form of specialization next to the commodity markets for ethanol, distillers grains and corn oil.

A number of options exist and this is also an exciting area of focus for many companies.

Main areas include:

• Moving towards higher value animal feed by fractionating the distillers grains into more focused animal feeds.   Options for this exist from many suppliers including ICM and Fluid Quip Process Technologies.  Both companies take an approach of splitting the DDGS into two streams, one a high protein feed product targeted at poultry, swine and aquaculture and the remainder being either a DDGS at the low end of the protein specification or a wet fiber and syrup product targeted at cattle.   The value comes from the fact that the higher protein product more competes with soy rather than corn and  can capture a higher price.  Both companies have multiple installations in place and claim paybacks in the 2-4 year range.  Considerations for installing these technologies would include plant scale and geographic location with proximity to cattle allowing the use of wet feed an advantage.

• Towards the future, options will include using stillage as a fermentation broth such as both White Dog Labs and KnipBio are developing.  Both companies are focused on using the relatively inexpensive stillage to produce single cell proteins aimed at aquaculture.  These products can potentially compete with fish meal which a$1500/ton and is also limited in growth potential. White Dog Labs has announced an initial installation in Nebraska while KnipBio has announced a cooperation with ICM towards commercializing their technology.

• Focusing on California and the increasing low carbon fuel markets.  Today, with the value of a carbon credit close to $200, a plant with a CI of 75 can get a premium of over $.25 per gallon.  There are only a few plants in the 60’s but many in the mid 70’s.  Typical approaches include alternative power sources such as land fill gas or anaerobic digestion to biomethane combined with cogeneration of electricity and steam.  Other options include solar or biomass boilers.  A newer approach is the use of membrane technology to reduce the energy used in the molecular sieves or alternatively modifications to the evaporators.  The keys when considering this approach would include a good starting point with plant efficiency and the cost of west coast shipment.

• Using the ethanol plant as a platform to produce other products.  Edeniq has a number of plants producing cellulosic ethanol from corn fiber while both ICM and D3Max have their first, larger scale, plants under construction.   Cellulosic ethanol from corn fiber is much lower cost to produce than cellulosic ethanol from crop residues or energy crops.  Edeniq has no capex and claims a cellulosic ethanol amount of 3-4% while both D3Max and ICM indicate levels more in the range of 7-8% but have significant capital.   However, the payback can be short given a combination of a D3 RIN and potential LCFS credit.  Another alternative in the future may be butanol with Gevo (NASD:GEVO) and Butamax both having demonstration facilities up and running.

I believe these options will be a game changer for the industry but companies must make the right choice based on starting position, plant location, scale and technology, risk tolerance, operational capabilities and capital availability.  A key item for many of these is that they will typically create a more complex plant and business environment which can require a higher level of staffing, capability and management expertise.

I think the future can be bright for ethanol but I foresee a future that likely has fewer, larger and more sophisticated plants than are in place today.

Biomass based diesel

Biomass based diesel (BBD) has very different dynamics with about 100 plants in the US, some of which are very small, less than 10 mln gallons per year.  Many of the plants are driven by location by feedstocks, either soy or corn oil or waste fats and greases.  Demand for BBD is very much driven by the RFS as it typically costs more than petroleum-based diesel but can fulfill either the D4 BBD RIN or the Advanced D5 RIN.  This is particularly the case with the biodiesel tax credit lapsing in 2017 and, at least so far, not being renewed.

The big change going on now is the shift towards renewable diesel, presently about 15% of total BBD, which is more costly to produce but is essentially a drop in for diesel and can have lower carbon numbers, depending on feedstocks.  Due to the lower CI it is being heavily targeted at California for sale under the Low Carbon Fuel Standard.  In addition, it can capture a greater RIN value.

The plants scheduled to come on line over the next few years is mind boggling given today’s position.  Expansions planned or proposed by Diamond Green (a joint venture between Darling Ingredients (DAR:  NYSE) and its joint venture partner Valero Energy (VLO:  NYSE)), NEXT Renewables, RYZE, Philips 66 (NYSE:PSX)/Renewable Energy Group (NASD:REGI) and others could add up to 2 bln gallons of new Renewable Diesel volume focused on West Coast markets and almost doubling the total volume of BBD volume.  This is in addition to global expansions in biodiesel by companies such as Neste and companies coprocessing it in oil refineries.

Selected US Renewable Diesel Projects

Note:  Project information from company websites and public announcements

This will have significant impacts on the market:

• The total diesel fuel market is not expected to grow much, per the EIA, so this fuel will need to displace petroleum-based diesel which may negatively impact pricing.   There also is more capacity than there are RINs available which will have a downward impact on that.  On the plus side, is the LCFS which is spreading beyond California and will bring a carbon credit.  REG indicated in their 10k that the 2018 value was between $.40-.80 per gallon.

• Regulation unclarity will continue between the RFS volume obligations, tax credits, trade policy, and the Small Refinery Exemptions which appear to have more impact on BBD than ethanol.  Right now, several smaller BBD producers are not operating due to lack of profitability.

• How about feedstocks?  Right now BBD uses a combination of soy oil, corn oil and waste fats and greases.  BBD today uses about a third of the US soy oil supply so this will clearly impact pricing and availability certainly in the shorter run.  What will aggravate this is that all the feed streams are byproducts of other processes so cannot be increased on their own along with all the dynamics hitting soy on the trade side.  The EPA in their draft 2020 RVO estimates that from 2019 to 2020 feedstock availability would be enough to produce about 144 men gallons of advanced biodiesel and renewable diesel.

I think this business will continue to have challenges in the future and it is also likely not all the plants proposed will be built but the trend towards renewable diesel will continue.

Bio-jet Fuel

Bio jet fuels have a completely different environment that ethanol and biodiesel both as they are presently not mandated by the government and also as they are in an earlier stage of technical development.

There are three broad technology areas that cover much of the effort.  Most technologies would produce a fuel that could be blended at some level with standard jet fuel.

1. Renewable diesel/oil to jet—This process is an additive process to biobased diesel taking the diesel and cracking it, isomerizing it and then purifying the end product.
2. Alcohol to jet—Basically taking an alcohol, either ethanol or butanol, and then dehydrating it to remove the extra oxygen and then catalytically or chemically converting this to jet fuel.  The advantage of this is the ethanol routes are well developed so only the final process step is new.  Potentially this could consume some of the excess ethanol in the market but that would likely be with a penalty to CI compared to routes such as LanzaTechs using cellulosic feed streams.  Players here include Gevo, LanzaTech and Byogy.
3. Gas to liquids—the typical routes here are gasifying a biomass or MSW stream into syngas and then using technology such as Fischer Tropsch to convert it to jet fuel.  Pyrolysis is another alternative.  This is earlier stage technology but has the potential for very low carbon due to feedstocks and will have wide feedstock availability.  Players here include Red Rock Biofuels and Fulcrum.

Selected US Jet Fuel Projects

The diesel fuel route is clearly the one with the fewest technical hurdles but will run into the same feedstock issues that biodiesel has if it moves to any significant volumes.  Alcohol to jet would be the next most straightforward while it seems like the gas the liquids route has the best carbon footprint and also feedstock potential.  However, it is unclear what the cost will be and what technical hurdles they will hit.

The next five years will see major learning taking place as commercial plants for many of these technologies are underway.

What makes bio jet particularly interesting and challenging is that it really is a global market so any regulations put in place by a single country could be very challenging to implement and enforce.  Conversely, given the global trade environment it seems unlikely that a global pact will appear anytime soon.

Without a mandate, it appears the airlines are broadly experimenting with biofuels but not making any major commitments.  My cynical view would be that they are doing everything they can to show progress while putting minimal money on the table.  Given the impact of fuel prices on airline profitability and the fact today that most or all biojet fuels will be more expensive than fossil-based fuels I would guess progress will move slowly.

Looking at the RFS, the pathways exist to capture a D4 RIN for biodiesel type approaches, a D5 RIN for Renewable diesel approaches and a D7 when using cellulosic feedstocks.  It does not appear that there is an existing pathway for a corn-based ethanol to jet fuel.

The question is what the RFS will do if biojet fuel grows significantly in volume as they presently define all their mandates based on surface transportation.  If there were suddenly an extra billion gallons of RIN’s available without the obligated parties needing to purchase them this would crash the value of the RINs.  California is working on routes within the LCFS but this presumably would be restricted to California.  Overall, this could provide benefits would not want to bet a business on the availability of RINs.

Long term, I think bio jet fuel will be a large and important market but it will take some form of carbon charge or other mandate.  Until that it will likely stay small.

I think today is an exciting time in biofuels, as always, with lots of dynamics and opportunities for companies to succeed but also fail.

Author Notes

Steve Hartig is an experienced executive with almost 40 years of experience across DuPont, DSM and ICM in leadership roles.  He is presently acting as an advisor/consultant to companies in the biofuels and other segments.

This post first appeared on Biofuels Digest. Biofuels Digest is the most widely read  Biofuels daily read by 14,000+ organizations. Subscribe here.

The post North American Outlook on Biofuels Challenges and Opportunities appeared first on Alternative Energy Stocks.

by Jim Lane

“EPA Reneges on Trump’s Biofuels Deal”, said the Iowa Renewable Fuels Association in reacting to the US Environmental Protection Agency’s new plans for fulfilling federal renewable fuel requirements. EPA released a proposed supplemental rule for the Renewable Fuel Standard today, and the bioeconomy is up in arms, and the outrage is centered in farm country, once a Trump bastion of support.

“IRFA members continue to stand by President Trump’s strong biofuels deal announced on Oct. 4, which was worked out with our elected champions and provided the necessary certainty that 15 billion gallons would mean 15 billion gallons, even after accounting for SREs. Unfortunately, only 11 days after President Trump’s landmark announcement, the EPA proposal reneges on the core principal of the deal.

“Instead of standing by President Trump’s transparent and accountable deal, EPA is proposing to use heretofore secret DOE recommendations that EPA doesn’t have to follow. That means there is no guarantee that RFS exemptions will be accounted for in the RFS.”

Is the EPA’s action an outright about face from the Trump deal announced recently?

As we mentioned at the time of the deal, the operative meme for the Trump Administration’s rural policy is, “sort of”. The deal a couple of weeks ago sorted out the bioeconomy’s problems with small refinery waivers, sort of. The EPA’s actions run counter to the announced Grand Bargain, sort of.

As IRFA explains, “the proposal today essentially asks Iowa farmers and biofuels producers to trust that EPA will do the right thing on SREs in 2021 when they have spent the last two years weaponizing SREs to unfairly undermine the RFS. It is unreasonable and counterproductive to expect Iowans to put their faith in EPA to fix the SRE problem when they were the ones who created the crisis in the first place.

“As this proposal goes against the core of President Trump’s deal that we continue to support, we will work with our elected champions and the President to get the deal he proposed, and we all celebrated, back on track. There must be certainty that 15 billion gallons will mean 15 billion gallons to restore integrity to the RFS.”

The Big Switcheroo: Those pesky DOE recommendations

As IRFA noted, “prior to supporting President Trump’s October 4th deal, biofuels producers and farmers were briefed by the White House and EPA that EPA would account for SREs using a three-year rolling average of actual refinery exemptions granted. Today’s draft rule proposes using a three-year rolling average of U.S. Department of Energy (DOE) recommendations for SREs,

Why all the heated reaction to that proviso?

Bottom line, EPA has ignored DOE recommendations in the past, as we reported here, and is under no legal obligation to follow them. Which undermines the “15 billion means 15 billion” thesis of the October 4th deal.

How did EPA put it?

The EPA painted a far rosier picture.

The agency said in an official statement: “Today’s notice does not change the proposed volumes for 2020 and 2021. Instead, it proposes and seeks comment on adjustments to the way that annual renewable fuel percentages are calculated. Annual renewable fuel percentage standards are used to calculate the number of gallons each obligated party is required to blend into their fuel or to otherwise obtain renewable identification numbers (RINs) to demonstrate compliance.

Specifically, the agency is seeking comment on projecting the volume of gasoline and diesel that will be exempt in 2020 due to small refinery exemptions based on a three-year average of the relief recommended by the Department of Energy (DOE), including where DOE had recommended partial exemptions. The agency intends to grant partial exemptions in appropriate circumstances when adjudicating 2020 exemption petitions. The agency proposes to use this value to adjust the way we calculate renewable fuel percentages.”

Biodiesel “skeptical” over “never-before-discussed” proviso that “lack transparency” and “can’t be trusted”.

In biodiesel country, the National Biodiesel Board said it is skeptical the Environmental Protection Agency’s proposed supplemental rule will ensure that 2020 and future biomass-based diesel volume obligations are fully met. The supplemental notice contains a never-before-discussed proposal to estimate small refinery exemptions for 2020, with no assurance that the estimate will come close to actual future exemptions. The biodiesel industry does not believe the proposal meets President Donald Trump’s October 4 promise to American farmers and biodiesel producers.

Kurt Kovarik, NBB Vice President of Federal Affairs, added, “The notice that EPA issued today is significantly different from the agreement that biofuel industry champions negotiated with President Trump just two weeks ago, which was to estimate future exempted RFS volumes based on the average of actual volumes exempted over the past three years. EPA is proposing a brand-new method for making the estimate – one that was never previously proposed or discussed and significantly undercounts past exemptions. Once again, EPA is sending a signal to the biofuel industry that the volumes it sets in annual rules can’t be trusted.”

Advanced biofuels: “the Administration took back two thirds of what it promised just a week ago”

Over at the Advanced Biofuels Association, there were fighting words.

“Today, the Administration took back two thirds of what it promised just a week ago, and the irony is rich,” said ABFA president Mike McAdams. “In this rule, EPA has based SRE reallocation on DOE recommendations when the Agency ignored those recommendations in its August 9 decision to grant 31 exemptions for compliance year 2018. Furthermore, EPA has proposed to reallocate only 580-770 million gallons when 1.4 billion were ultimately displaced by those SREs. We doubt the legality of this action, and the Administration’s good faith in proposing this ‘deal.’

“ABFA will argue its case later this month before the D.C. Appellate Court challenging the SREs granted over the last several compliance years. We look forward to the Court’s judgment on the Administration’s efforts to undercut the congressional intent of the RFS program.”

Ethanol: “unconscionable” proposal “betrays President Trump’s promise to rural America”

Growth Energy CEO Emily Skor blasted the EPA proposal in no uncertain terms. “It is unconscionable that EPA’s proposal betrays President Trump’s promise to rural America” she said. “A week ago, Administrator Wheeler personally took to the airwaves and promised Iowa farmers that he would accurately account for lost gallons moving forward based on the ‘last three years of the waivers.’ Administration officials repeatedly said that 15 billion gallons will mean 15 billion gallons and this proposal fails to ensure that farm families and biofuel producers have the certainty they need to reinvest and rebuild after three years of massive demand destruction at the hands of EPA.

From Iowa: “Apprehension” over “dramatic departure” proposal that “appears to run contrary to a previously agreed-upon deal with President Trump”

In Iowa, the Iowa Biodiesel Board expressed apprehension over the Trump Administration’s new plans for fulfilling federal renewable fuel requirements, saying it appears to run contrary to a previously agreed-upon deal with President Trump. The group will join other renewable fuel and farm advocates in examining the Environmental Protection Agency’s proposed supplemental rule for the Renewable Fuel Standard, released today.

“We are deeply concerned by EPA’s new proposal to address renewable fuel gallons lost through refinery exemptions to the RFS, said Iowa Biodiesel Board executive director Grant Kimberley. “The solution President Trump previously promised us would have estimated future exempted RFS volumes based on the average of actual volumes exempted over the past three years. That is the remedy we need to steady the renewable fuels market, help plants re-open their doors, and infuse rural economies still in crisis.

“This new plan from EPA appears to be a dramatic departure from the agreement struck with the President, and we expect markets to react accordingly. This is likely to inflict further damage on the already struggling biodiesel industry and farm economy. We will join our Iowa political champions, the National Biodiesel Board and other groups in scrutinizing this new proposal, and in ensuring the final rule fulfills the deal President Trump agreed to earlier this very month.”

The Bottom Line

One of the classic Trumpisms is “you’ll find out”.

11 days ago, we cautioned industry against excessive celebration over the October 4th biofuels deal while we awaited the hard details. Then, we wrote,”This is a plan with an awful lot of ‘EPA will take comments‘ in it, so there are good reasons to wait and see how this deal plays out.”

So, now, we found out. On the other hand, did we? This Administration likes a cliffhanger more than any before it, and we’ll have to wait for next week’s episode to find out what comes of all the frothing and frustration roiling the industry now.

The stakes are Yuge. Tremendous. This story has zero finished.

Jim Lane is editor and publisher  of Biofuels Digest where this article was originally published. Biofuels Digest is the most widely read  Biofuels daily read by 14,000+ organizations. Subscribe here.

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As quickly as the ethanol producer jumped into the cattle business, Green Plains (GPRE:  Nasdaq) has sold off half of its Green Plains Cattle Company to a group of investment funds for $77 million.  Operating at six locations in Colorado, Kansas, Texas and Missouri, the company has the capacity to feed 355,000 head of cattle each year.  The cattle business contributed $271 million to total revenue in the most recently reported quarter ending June 2019, delivering a modest operating profit near $7.3 million.

There has been considerable stress in the feed cattle industry.  The number of cattle in feedlots is down compared to last year, an unusual development in recent years.  New placements fell short of releases by 3% in early September 2019.  As is the case in most industries there is a China trade angle.  The Chinese are keenly interested in U.S. agriculture products, but have been frustrated in moving forward with purchase agreements by the tariff bluster of Donald Trump.  Nonetheless, a Chinese delegation has been set to tour agriculture operations in Montana and Nebraska this month in hopes of striking a deal even as disputes continue over tariffs and intellectual property protection.

The stress that the China trade dust up has place on the U.S. agriculture sector is beginning to wear on the cattle industry.  Everyone is out to protect their profits.  Certain beef producers are looking jealously at the profits earned by the packers even as producers are beginning to suffer losses.

Green Plains may have been looking over this environment when choosing to reduce their position in the cattle business.  Most likely it was more a matter of adjusting risk and shoring up the company’s overall financial position.  In making the announcement Green Plains management was quick to mention the impact of the sale on the company’s balance sheet.  Even with an ample bank account balance, few would turn away an incremental $77 million in cash.  Green Plains had $193.3 million in cash on its balance sheet at the end of June 2019, but long-term debt of $370.9 million puts the company in a negative net debt situation.  Deleveraging must have seemed like a worthwhile goal as management has made a point of using the proceeds of the cattle sale for a pay down in debt.

Reducing the risk on its balance sheet should be a plus for GPRE.  The stock hit a 52-week low of $7.01 in mid-August 2019, but has since staged a strong recovery.  The shares made a strong move back higher until meeting a line of strong volume-related resistance at the $11.00 price level The stock price movement may be mostly in sympathy with the rest of the small-cap sector that experienced a clear-sell off in the four months ending August 2019.  However, the announcement of the cattle-operation sale may have played a part in improving sentiment toward the company.

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.

This article was first published on the Small Cap Strategist weblog on 9/13/19 as “Green Plains’ Cattle Drive”.

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