BioCycle October 2007, Vol. 48, No. 10, p. 49
MAKING THE MOST OF GROWING PAINS
Mark Jenner

I JUST returned from the 7th Annual BioCycle Conference on Renewable Energy From Organics Recycling in Indianapolis and I am revved! The technical content of the program, the connections, and exposure to the energy of the innovators that participate, make each BioCycle conference worth the investment.
We are building an infrastructure for a green, locally-grown renewable energy economy from scratch. Infrastructure development is always the most expensive part of building new industries. Until an industry matures, market signals on supply and demand are not clear.
Today’s ethanol industry infrastructure is still developing. This creates fluctuations or imbalances in supply and demand. The industry has raced to meet the instant demand for ethanol created by the ban of the traditional fuel oxygenate, MTBE. As that demand imbalance has been met with rapid increases in production, a new imbalance (oversupply) has been created.
Is this the end of the green energy industry? No way. Since the beginning of the year, I have tracked 10 billion gallons of ethanol capacity that is being planned, under construction, or in operation. The last few months has produced a noticeable drop in new construction. Plants that are nearing completion will be finished up. There has been no change, however, in the percentage of new plants being proposed.
Existing ethanol plants are in for some tight economic times, but there are a lot of smart people involved in this industry. They will continue to innovate and lower their costs of production until demand begins to catch up again. They will do this by looking for new biomass energy sources to power their plants, more efficient conversion processes that produce fewer wastes, and cheaper recycled sources of water. There are many options.
BIODIESEL IMBALANCE
Biodiesel plants have a different supply and demand imbalance. There is plenty of demand for diesel fuel – especially as crude oil hovers near $80/barrel. The biodiesel industry is no longer expanding, and it faces input supply and demand issues. Virgin vegetable oil is the primary feedstock for most of the existing biodiesel plants. Vegetable oil was a high-valued commodity before the biodiesel industry began turning it into fuel. Now its value is even higher.
For the first eight months of 2007, nearly 2.5 billion gallons of biodiesel production capacity has been proposed, is under construction or is in operation. Although the biodiesel industry has a different supply and demand issue than the ethanol industry, they will address it in similar ways. Production efficiencies will be identified and new markets for the outputs already being produced will be explored.
One frontier is the development of “used” oil feedstocks. Restaurants, food processors and many other sources of used fats, oils and grease exist across the country. These are less expensive feedstocks, but are more complicated and variable to easily use in large-scale operations.
The high cost of virgin vegetable oil will provide the necessary incentive to fund the development of a new, used oil supply infrastructure. This process will identify the cleanest, least variable sources of used oil. As protocols and networks for these used inputs develop, biodiesel production costs will realign with the high demands for diesel fuels.
FUEL PELLET OUTLOOK
The 2007-2008 winter heating season is beginning and for now, the retail cost of fuel pellets is similar to last season’s prices. Sales of residential fuel pellet stoves continue to grow, increasing demand for pellet fuels.
Historically, fuel pellets were made from sawdust and other processed wood residuals. Because the retail price is attractive (over 10 cents per pound), new sources are entering the market. A large, 500,000 ton pellet mill is being constructed in Florida to use hurricane debris as a feedstock. Another 100,000 ton mill under construction in Missouri will utilize crop residue and energy crops. Overall, since January, 1.6 million tons of new production capacity has been announced, eventually creating a new supply imbalance.
These new, large pellet mills are targeting the European and Asian solid fuel markets. They are not worried about oversupply dropping their revenues.It’s possible that some of this new fuel pellet supply will find its way into U.S. markets, depressing prices. Lower prices would be a windfall for the residential fuel pellet buyers and a challenge for the innovators installing smaller pellet mill operations.
The supply and demand imbalances for each fuel market keep the economy going. When demand is high, prices go up, and so does production. When supply gets too high, prices go down and demand increases.
Imbalances are not all bad though. Like the recent MTBE demand-driven ethanol expansion, a major expansion is occurring with large-scale manure energy projects. After nearly four decades, some 80 U.S. manure digesters produce a total of 19 MW of electricity.
Now, five “next-generation” manure energy projects are coming on line or are under construction. These are Fibrominn (MN), Microgy (TX), Panda Ethanol (TX), E3 Biofuels (NE), and Bison Renewable Energy (IA). Each one will produce more energy than the 19 MW produced by a nation of manure digesters.
Change takes time and education is always expensive. Shifts in supply and demand are part of the process. But as the bioenergy infrastructure matures, the market swings will lessen.
Mark Jenner, PhD, is the owner of Biomass Rules, LLC and has over 25 years of biomass utilization expertise. Burning Bio News is Jenner’s monthly scorecard of bioenergy project adoption, available at www.biomassrules.com. Mark Jenner developed the locally grown biomass power plant concept for the Indiana Department of Agriculture’s BioTown, USA.