House Subcommittee Hears about Challenges to Next-Gen Fuels

Ag subcommittee members get an ear-full about the roadblocks to cellulosic, and other forms of biofuels.

Published on: Oct 30, 2009

Just what will it take to get the next-generation of biofuels off and running? The U.S. House agriculture subcommittee got perspective on that question Thursday and the answers include on big factor: money. A volatile market, uncertainty over the industry and worries about the future of biofuels in general has dried up funding for many projects, according to wire reports.

Venture capitalists and bankers aren't interested in taking the risk on the industry unless they see some security in the market, House members were told. Reuters reports that this insecurity is one reason advanced biofuels will miss targets set by the 2007 energy bill. In many cases advanced biofuel production is still in demonstration-size plants with little capacity.

The bankruptcy of the largest ethanol producer in the country and the collapse of energy prices in the recession added insult to injury for the fledgling industry. The industry shake-up means there's plenty of traditional biofuel production capacity idled.

So far, USDA has awarded only two loan guarantees for $105 million for advanced biofuels projects. Some have been rejected because they lack a lender behind the project. The cost of next-generation biofuels on a per-gallon basis remain much higher than corn-based ethanol, but the industry told the subcommittee that's mainly because production comes from small-scale demo plants and that prices will drop as production ramps up to commercial levels.

Dallas Tonsager, USDA Undersecretary for Rural Development, when visiting the Farm Progress Show in August, told media that the agency is committed to moving forward with viable next generation biofuel plants. But lack of credit could choke the process considerably.

However, during testimony, some complained that the loan guarantee program has been a stumbling block because as a project's size goes up, the amount of the loan guarantee falls. This limits how commercial lenders will get involved in the new industry.

Those testifying before the subcommittee also called on Congress to extend the cellulosic fuels production tax credit to cover all fuels produced before 2022 instead of the current 2012 cutoff. In effect, the industry is asking for more time to get this market started.