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Credit crisis may delay biofuels development

London, September 29, 2008

A global pull-back from bank lending may dent the commercialisation of biofuel technologies to replace conventional gasoline, said the chief executive of US cellulosic ethanol firm BlueFire Ethanol.

A credit crisis which claimed more bank victims on Monday has raised project finance costs and made ambitious targets to replace fossil fuels with renewable energy sources look less achievable.

'Longer term, yes... the issue of capital may slow us down,' Arnold Klann told Reuters on Monday. BlueFire Ethanol was hoping alternative investors including hedge funds may bridge any shortfall in bank lending, he added.

A global transition to renewable sources of energy, including waste, to replace gasoline and wind and solar power to replace gas and coal-fired power generation, is meant to cut carbon emissions and improve security of energy supply.

The credit crisis could slow that transition both through more costly finance and by diverting subsidies from renewables, which are often more expensive than conventional fossil fuels.

US Democratic presidential candidate Barack Obama on Friday said that he may have to scale back his US energy investment plans, if elected, in order to help pay for a planned $700 billion financial market bailout.

Obama did not detail which aspect of his plans may be trimmed. He has previously promised to invest $150 billion over the next decade to develop affordable, renewable energy sources and clean coal, touting these as a long-term energy solution rather than new, off-shore oil drilling.

BlueFire Ethanol is targeting up to 84 plants by 2022 producing more than 4 billion gallons annually of second generation biofuels, which consume waste rather than crops and so do not stoke food prices as corn and oil seed-based biofuels.

The United States has mandated 16 billion gallons a year of such cellulosic ethanol production by 2022, to ease the pressure of biofuels on agricultural land struggling to feed a growing, more prosperous world population.

That compares with about 150 billion gallons annual gasoline consumption in the United States now, Klann said.
        
Mandate 

Cellulosic ethanol producers use enzymes or acid to convert waste from plants, including grass, wood chips and cardboard, to produce sugar and ethanol, but the infant industry so far is producing next to nothing on a commercial scale.
  
BlueFire Ethanol is targeting two demonstration-scale plants using concentrated acid to convert municipal waste into a little over 3 million and 17 million gallons of ethanol annually, to come on line in 2009 and 2010 respectively.

'We're good on these, I think,' said Klann, referring to those deadlines.
   
The capital costs of the two plants would be $30 million and $150 million respectively, and would produce cellulosic ethanol at a cost of $1.4 and $1 per gallon, which compares with ethanol prices of over $2.20 a gallon.

Some analysts already doubt the practicality of ambitious European Union goals to get a fifth of all energy consumption from renewable sources by 2020.

The EU renewable energy sector faced an annual 21 billion euros shortfall in debt finance to meet that goal by 2020, both because of the credit crisis and the pace of growth of the sector, a Rabobank banker said earlier this month.-Reuters




Tags: ethanol | Biofuels | renewable energy sources |

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