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Features - March 2007

The Future of Fuels

Change in Energy Policy is Driving Development of New Plants in the Southeast

By Bruce Buckley

With rising concerns over the nation's dependence on foreign oil, the pain of higher gas prices and warnings about global climate change, renewable and clean-burning fuels are taking center stage in the political arena - a trend that could lead to billions of dollars in new projects throughout the Southeast in the coming years.

The move toward renewable and alternative energy sources, such as biofuels and nuclear power, has gained traction ever since President Bush warned the nation during his 2006 State of the Union address that "America is addicted to oil."

During January's State of the Union, Bush backed up that assertion with aggressive new targets that would require increased production of new fuel sources. In his address, Bush asked Congress to set a goal of reducing projected gasoline usage in the United States by 20 percent in the next 10 years. To reach that goal, Bush suggested setting a mandatory fuels standard to require 35 billion gallons of renewable and alternative fuels in 2017.

That goal is nearly five times the current target of 7.5 billion gallons by 2012 as laid out in the Energy Policy Act of 2005.

With a Congressional shift in power to the Democrats, those policies could gain traction. During the Democratic response Bush's address, Sen. Jim Webb, D-Va., promised the party would help spur "a wave of entrepreneurial growth in the form of alternate energy programs."

U.S. Reps. Earl Pomeroy, D-N.D., and Kenny Hulshof, R-Mo., helped set the tone for energy policy early in the new Congress, proposing the Renewable Fuels and Energy Independence Promotion Act of 2007 on their first day in session. The bill would extend tax credits to biofuel producers.

With demand, regulations and incentives in place, the market is seeing a construction boom of homegrown solutions. There are 111 ethanol plants operating in the United States with the capacity to produce 5.4 billion gallons, according to the Renewable Fuels Association. But another 75 are under construction and eight are undergoing expansions, representing another 6.1 billion gallons of capacity.

The biodiesel market also experienced tremendous growth in 2006, expanding from fewer than 50 plants nationwide at the beginning of the year to 98 by late December, according to the National Biodiesel Board. During that time, production has nearly tripled as average output has grown from 6 million gallons annually per facility to 12 million gallons with some new plants producing up 80 million gallons.

To date, the bulk of activity has been in the Midwest where the dominant feedstock for ethanol production, corn, is abundant. However, growing demand has prompted companies to look at regional plants in areas such as the Southeast, says Matt Hartwig, spokesman for the Renewable Fuels Association.

"There are some large gasoline markets in the Southeast, especially when you look at places like Atlanta and parts of Florida," he says. "A lot of developers see a need for local plants to feed that demand."

Georgia is positioning itself as the hub of biofuel production in the region. The state is already home to the Southeast's only operating ethanol plant, Wind Gap Farms in Baconton, Ga. The plant produces 400,000 gallons annually using brewery waste from the Miller Brewing Co. and Anheuser-Busch.

But Gov. Sonny Purdue is looking to woo even more renewable-fuel producers, proposing tax credits for projects and funding for biofuel research. The state also guarantees permitting turnarounds within 90 days for biofuel projects.

Companies are hearing the message, says Jill Stuckey, director of alternative fuels for the state of Georgia. Stuckey says she is working with about 30 firms that are looking to build ethanol and biodiesel plants in the state.

"I've been working for 11 years in alternative fuels," she says. "For the first 10 years, nobody called me. Now the phone is ringing off the hook. We have the potential of being the Saudi Arabia of alternative fuels in this region."

In January, ground was broken on a $113 million ethanol plant in Camilla, Ga. Expected to produce 100 million gallons annually, it would be the first large-scale ethanol plant in the Southeast. Minnesota-based Fagen is the turnkey design-builder of the facility. The plant is scheduled to open in spring of 2008.

CoastalXethanol, a division of New York-based Xethanol Corp., is in discussions to build a plant near Savannah. The company formed the division to focus on opportunities in Georgia, South Carolina and northern Florida. The company plans to develop up to 250 million gallons of ethanol capacity in the Southeast.

Biodiesel is also growing. BullDog BioDiesel is converting a former tire plant in Ellenwood, Ga., into a $10 million biodiesel facility. Work began in late 2006. Alterra Bioenergy opened its 6-million-gallon plant in Wilkinson County, Ga., in 2006. U.S. Biofuels of Rome, Ga., expanded its facility last year as well.

In North Carolina, Raleigh-based Agri-Ethanol Products is looking to roll out up to 20 ethanol plants in the eastern U.S. The company is planning to build a $211 million, 108-million-gallon plant in Aurora, N.C. The company has also looked at sites in the Batesville-Leesville area.

Terry Ruse, chief operating officer of AEP, says the company has financing available for up to 20 plants and plans to build at least 10 facilities from Mississippi to New York. Ruse estimates that based on current standards of 10 percent ethanol blends in gasoline, there is annual demand for up to 1.9 billion gallons in Florida, Georgia and the Carolinas.

"We're starting in North Carolina and will go in concentric circles outward," he says.

Like Georgia, Florida is looking to attract biofuel producers with incentives. The state's proposed Renewable Energy Technologies & Energy Efficiency Act offers up to $6.5 million in tax credits for ethanol construction. But so far, few producers are stepping up to the table. U.S. EnviroFuels is planning to build an $80 million plant near Tampa, but recently put plans to build a second facility near Port Manatee on hold.

Meanwhile Gate Ethanol, a division of Jacksonville-based Gate Petroleum, scrapped its plans to build a $160 million 30 million gallon ethanol plant in Jacksonville, citing costs escalations.

Ruse says his company is wary of Florida because of the cost of shipping corn to plants in the state.

"We would only build in the far north of Florida," he says.

The real promise for biofuel production in the region is based on emerging technologies. Although corn is the prominent feedstock for facilities, researchers are working on new "cellulosic" processes that will use more indigenous resources. Analysts argue that development of such technologies is essential to meet recommended standards proposed by the Bush administration. Production of 35 billion gallons of ethanol would use up the entire U.S. production of corn, according to industry estimates.

C2 Biofuels of Atlanta is working with researchers at the Georgia Institute of Technology to build a plant that would use wood pulp. Other researchers have suggested the future use of plant waste from the citrus industry as feedstock for biofuel plants in Florida.

The potential nationwide capacity for corn ethanol plants based on available corn supplies is between 15 billion and 20 billion gallons, says Paul Kamp, regional sales manager with Williamsburg, Va.-based ethanol plant design-builder Delta-T. But once cellulosic techniques emerge, the market could hit 60 billion gallons.

"Corn ethanol is just the beginning - the bigger opportunities have yet to unfold," he says.

Major investment banks could also spur significant development of production facilities. While co-ops of farmers and other local businessmen have overseen the bulk of biofuel production in the past, Wall Street now sees significant upside to investment.

"Wall Street has all of a sudden taken a look at what's going on in the Midwest," the Renewable Fuel Association's Hartwig says. "They are saying, 'If the farmers out there can figure out how to make money off of this, what are we missing?'"

With expanding opportunities, more contractors and designers are expected to enter the market. Several turnkey companies like Fagen and Delta-T offer standard facility designs, overseeing permitting through construction. Fagen has opened a regional office in Greenville, S.C. Another firm, Lurgi PSI, is based in Tennessee.

Going Nuclear

While biofuels are starting to mature in the marketplace, nuclear plants are experiencing a renaissance in the public energy debate. The Bush administration helped pave the way for the first nuclear plants to be built in the country in nearly 25 years with the Energy Policy Act of 2005. The legislation provides $4.3 billion in tax breaks for nuclear projects, $2 billion for support of delays and cost-overruns and loan guarantees for innovative technologies.

Dozens of power companies are lining up to add nuclear plants to their grids. Progress Energy is considering several projects, including a 3,000-acre site in Levy County, Fla., near its existing Crystal River Energy Complex.

Although Progress Energy has not decided to build on the site yet, permits could be filed in 2008 with construction possible by 2010.

Progress Energy is also considering a nuclear site near New Hill, N.C. Applications could be filed this year with approvals possible by 2010.

The population boom in the Southeast is a main driver for Southern Company's plans to expand its nuclear generation. The company estimates that by 2030, 40 percent of the U.S. population is projected to live in the region with four million new residents expected in Georgia alone.

"We're not really considering the government incentives - we have clear business drivers for pursuing nuclear generation based on need for additional base load," a company spokesperson says. In August, the company filed an application for an early site permit for two new nuclear units at its Plant Vogtle site in Waynesboro, Ga.

The company is also working on a joint agreement with Duke Energy for a potential nuclear station in Cherokee County, S.C. Duke is the developer and licensed operator, but the Southern Company would be a co-owner. Construction would begin no sooner than 2010.

Santee Cooper and South Carolina Electric & Gas are also considering building a new reactor at their co-owned V.C. Summer Nuclear Station site near Jenkinsville, S.C. Permitting could be completed by 2010.


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