March 2007 Crop Formations Will the current national focus on alternative energy research last, and if so, how much does Tennessee stand to benefit from it? By Alexei Smirnov
Cleveland businessmen Lynn Jones and Toby McKenzie haven’t got much time if they want to make a buck selling a rusty old plant in Marion County. Spread across 225 acres, the assortment of industrial buildings and silos began as the Tennol Energy Co. in 1980, when the U.S. Congress passed the Energy Security Act. That edict fueled one of the U.S. Department of Energy’s many efforts to reduce America’s dependence on foreign oil—a dependence that since has grown to about 60% of America’s oil supplies. From the 57 business applications that ensued under the act, DoE approved only three. (The two other finalists were Agrifuels Refining Corp. near New Liberia in southern Louisiana and New Energy Co. of South Bend, Ind.) Unfortunately for Tennessee, and despite the DoE loan guarantees and good intentions—the Tennol plant was to make 25 million gallons of ethanol fuel a year—the project ran into equipment problems and stopped producing ethanol after one year of operation. Unable to reach full capacity, the owners defaulted on the federally guaranteed $64 million loan and went bankrupt in 1989. The site was eventually auctioned off to Ag Processing, a farmers’ cooperative of Omaha, Neb., which took much of Tennol’s equipment to one of its facilities up north.
Marion County farmer Howell Moss, who sold corn to the Tennol plant for several months in the 1980s, knows what went wrong. “It took $3 worth of corn to make $1 worth of fuel.” Now Marion County’s mayor, Moss has been busy showing the plant to two-dozen curious investors, helping Jones and McKenzie to get some economic development going. The pair bought the plant two years ago for a price they decline to disclose but which their broker terms “a bargain.” Now, Moss is urging them to drop their asking price from $20 million, convinced that Jones and McKenzie have but “a one-year window to sell it.”
One can’t blame Moss for being skeptical concerning the stability of the current climate. Last year, crude oil peaked at $78.40 per barrel, but in January it hovered barely above $50. Politicians and scientists agree that OPEC-driven oil prices have always seemed to drop just in time during the past decades to keep production of alternative fuels, as well as research and its modest funding, in check. This time, however, economists predict that demand for oil in the fast-growing economies of India and China will forever change the balance of the world’s energy supply. With these new consumers in mind, experts across the board predict that oil prices will never drop below the $30-to-$40-a-barrel range. There’s evidence the oil companies agree. Speaking in Nashville while on a 50-city tour in January, John Hofmeister, president of the U.S. subsidiary of British oil giant Royal Dutch Shell, said that increasing investment in alternative energy is crucial to domestic energy security in the United States. “The easy days of gas and oil that we enjoyed the last 50 years are over,” Hofmeister told a group of local business and community leaders.
Entrepreneurs around the world are listening. Sir Richard Branson, the celebrated British founder of Virgin Group, which includes air carrier Virgin Atlantic, has set aside a fund to invest specifically in ethanol production plants. Ethanol, the clean-burning fuel additive currently produced from corn and sugar cane, as well as biodiesel, which is made from cooking grease and soy, are looked upon as the most promising alternatives to petroleum in transportation fuel. A 85%/15% ethanol/gasoline mix dubbed E85 is widely used today in corporate and government fleets. Biodiesel mixtures are labeled much the same, with ranges between B5 and B99. Branson has made two investments thus far in the United States—in the California-based Cilion and in Ethanol Grain Products (EGP) of Obion, Tenn.—of $75 million and $40 million, respectively. With a total construction price tag of $140 million, the Obion plant is slated to produce 100 million gallons of ethanol annually. Elsewhere in America, such investments have fared well, selling every gallon of ethanol produced. But Branson, a well-known environmental activist, is setting his sights on loftier goals. His interest in ethanol appears to be as a stepping-stone towards a new biofuel for the aviation industry, which would replace kerosene as the basic jet fuel. Not surprisingly, EGP is being built near a major air transportation hub in Memphis and could become a beacon of new fuels research for the airline industry. It’s not a coincidence that Branson is now attempting to establish a domestic U.S. airline, Virgin America.
But not all enlightened entrepreneurs come from Europe. Adding another feather to West Tennessee’s economic development cap, Memphian Ken Arnold recently spent $5 million converting an old Procter & Gamble site in Orange Mount, reopening it as Memphis Biofuels last December. With a contract to produce 30 million gallons of biodiesel a year, Arnold is already building an impressive client roster. Pilot Oil chief Jimmy Haslam is rumored to be eying Arnold’s company as a supplier, while his growing network of fueling stations adds biofuel as a new line of business.
If it happened in West Tennessee, why are Jones and McKenzie having such a hard time finding a buyer for the old Tennol site in Jasper? One drawback is the location, according to Ed Harlan of the Tennessee Department of Agriculture. There is not enough arable land to grow thousands upon thousands of acres of corn, as it is done in the Midwest. But, as it turns out, corn isn’t the be-all and end-all of ethanol production. In fact, Tennessee’s inability to grow corn in abundance may prove a strengths in the nation’s efforts to research and produce new types of biofuel.
Beyond the Cornfields
At present, all ethanol produced and commercially available in the United States is made from the fruit of corn. But edible crops are not the ideal sources of biofuel—corn takes too many nutrients out of the soil, and both soy and corn are seasonal crops, which makes them susceptible to price fluctuations. The real prize in biofuel research is to develop enzymes to process perennial crops that could be harvested in all areas of the United States year-round. Scientists have been looking into switchgrass (see above sidebar), or cold-hardy sugar cane fit for the U.S. climate (unlike sugar cane grown in the subtropical climate of Brazil, which is the natural source of fuel for the majority of Brazil’s flex-fuel vehicles).
The U.S. Department of Energy has been working on solving the cellulosic formula of switchgrass and cold-hardy sugar cane for decades. Oak Ridge National Laboratory has been a major, albeit little-known, player in these efforts. ORNL scientists, in partnership with other national laboratories across the country, say they are closer than ever to figuring out how to grow large crops, harvest them inexpensively and convert them into cellulosic sugars to make ethanol.
To boost these efforts, DoE is prepared to dole out $250 million in grants this spring to establish two bioenergy centers, which will set the tone for next-generation fuel and energy research for decades to come. ORNL, in partnership with the University of Tennessee and five other institutions, has applied to become one of these centers, but competition is fierce. (Purdue, the University of California-Berkeley and the Massachusetts Institute of Technology are also in the running for the grants.)
Given ORNL’s accomplishments thus far, coupled with proper funding and support from state and federal government, Tennessee has a couple of things going for it in this race. The state already has an established network of research facilities that have been working on alternative energy and fuels issues for decades. Also of note are the state’s much-touted central location and diverse geography, which allow for easy access and endless research opportunities for scientists from across the country. “Tennessee is poised to become a leader in renewable energy production, as well as in natural resources procured and grown to produce that renewable energy,” says Mark Downing of ORNL’s Environmental Services Division. Downing communicated similar sentiments in writing to Gov. Phil Bredesen a couple of months ago.
The governor listened, and in January proposed to set aside $61 million of the 2007-2008 budget to support alternative energy research in the state. Nearly $12 million of that funding has been previously approved to help ongoing biomass research in Oak Ridge.
Chiming in with Bredesen, Tennessee Sen. Rosalind Kurita filed legislation late last year to create the Energy Center at the University of Tennessee. For Kurita, energy research is as much a matter of national security as a business decision. “We’re not going to let the Middle East control us,” she told Business Tennessee in January. “I can assure you that taxpayers would more likely pay for research than for another war.”
One More Into the Breach
That renewable energy is once again in vogue in political circles must be heartening for scientists the world over, let alone those in Oak Ridge and elsewhere in Tennessee, even if the rhetoric has been heard before. Yet, in some ways, matters are more complicated than the first time around, due, ironically, to the very remnants of previous efforts. A renewed rush to subsidize first-generation ethanol plants across the country is not going to help America secure its energy future. So far, says ORNL’s Downing, producing renewable energy costs more than it does to make fossil fuel, and that’s a bad business proposition. Further research is needed to make renewable energy a solidly profitable business, and it is only possible with unbiased funding, that is, funding procured with as little lobbying as possible from special-interest groups. “Corn-based ethanol is border-line efficient,” agrees Gil Melear-Hough, Tennessee director of Renewable Programs at the Southern Alliance for Clean Energy. “It almost takes as much energy to go through the process of making it as you get out of it.”
Both scientists and alternative energy activists have sounded enough alarms to gain the attention of at least one U.S. Congressman, Jim Cooper of Nashville.
“Already we’re hearing that first-generation alt-fuels are inefficient—that’s going to disappoint our corn and soybean growers,” Cooper says. “Folks say only second generation technology has the potential to solve [energy problems].” Cooper cautions against the potential bubble of subsidies for first-generation ethanol makers, calling it “a well-organized raid on the treasury.”
Yet the biggest problem of all in plucking alternative fuel and energy research out of obscurity, according to state officials and scientists interviewed for this article, is the lack of national leadership on the issue. That’s why it is not surprising that Tennessee has its work cut out in alternative energy education. “We’re so far behind [some other states]—we’d have to run to catch up to the bottom of the bucket,” says Downing, who has been working in alternative fuels for decades. Downing cites examples of ignorance as close as Knoxville, where some “auto dealers sell flex-fuel vehicles but are not even aware of what they are.” In the meantime, the Smoky Mountains are choked with a bouquet of harmful emissions (oxides of nitrogen, hydrocarbon and carbon monoxide), some of which are blown into East Tennessee with prevailing winds from as far as Detroit.
In the ratings of the federal government’s Energy Information Administration, Tennessee homes rank as the least energy-efficient in the nation, burning 1,240 kilowatts per hour a month, far ahead the national average of 850 kilowatts an hour. One reason for this may be that, thanks to the Tennessee Valley Authority, the state averages some of the cheapest electric power in the nation. To help the emerging energy-conscious class of Tennesseans, TVA designed a Green Power Switch program that allows residents to buy electricity from plants that run on methane gas, wind and solar power.
Panels and Turbines
In the arena of renewable energy, Tennessee has more going for it than ground cover. Experts such as Melear-Hough point to how lucky the state has been, without putting forth much of the usual business-recruitment hoopla, to land some of the world’s leading manufacturers of solar and wind power equipment. In Memphis, Japanese electronics giant Sharp Corp. opened its only solar-panel manufacturing operation in the U.S. four years ago. That plant used to make microwaves, while the company imported its solar panels from Japan, but in response to growing demand stateside, Sharp converted its 50,000-square-foot facility on South Mendenhall. The facility currently makes solar panels with total generation capacity of 60 megawatts a year. Once the plant reaches its full capacity of 120 megawatts a year, Sharp officials have said they would like to expand near the existing location.
On the Southeastern edge of the state, Chattanooga has become the hub of wind power manufacturing. Alternative energy company Aerisyn of Wisconsin spent $7 million last year on converting the old Alstom nuclear-vessel plant to make towers for wind turbines, such as those used at TVA’s Buffalo Mountain wind farm. Generating 27 megawatts of electricity a year, the Buffalo Mountain site is managed by Invenergy of Chicago, which owns and manages electricity-generating plants across the United States
and in Poland. Chattanooga-based Tennessee Valley Infrastructure Group and Bountiful Energy of Bon Aqua near Nashville are also big players in the wind-power industry. The two companies specialize in financing and building infrastructure for wind sites like Buffalo Mountain around the world.
Between a Memphis biodiesel plant, Oak Ridge science and Chattanooga wind turbines, Ten- nessee appears well-positioned and well-equipped to take the leading role in America’s quest for clean and renewable energy. Scientists have called Gov. Bredesen’s funding effort a good start, even though states like California and Pennsyl- vania have spent considerably more state dollars on boosting alternative energy. California buys most of the solar panels made in Memphis, and, building on Gov. Arnold Schwarzenegger’s unsuccessful “million solar roofs plan,” California’s energy regulators recently approved a $3 billion, 12-year incentive program for installations of solar-power generators in private homes and businesses. California now generates 100 megawatts of capacity from rooftop panels on 15,000 homes and businesses, or 0.3% of the state’s energy supply. Solar power usage in Tennessee has yet to be measured.
One thing is certain: alternative energy is more the product of baby steps than revolution. Perhaps Lynn Jones and Toby McKenzie should become the early adopters of solar systems at their homes in Cleveland. At $20,000 a piece, it doesn’t seem like much, especially if they end up selling their mothballed Jasper plant for big bucks. tn
What Is Ethanol?
Moonshine’s Child
- Ethanol (CH3CH2OH) is the active ingredient in alcoholic drinks, produced by fermentation—the metabolism of carbo-hydrates by certain species of yeast in the absence of oxygen.
- U.S. producers of ethanol use corn as their main feedstock.(One bushel of corn makes roughly 2.8 gallons of ethanol.)
- A plant producing 25 million gallons of ethanol per year would cost $30 million to build.
- Once operational, it costs up to $1.75 to make one gallon of ethanol, which currently retails at $3.50 per gallon.
- Current ethanol production methods also require burning considerable amounts of fossil fuels.
What Is Biodiesel?
From the Frying Pan
- Biodiesel is produced from any source of fat, such as vegetable oil, or even cooking grease.
- Large-scale manufacturers of biodiesel crush soybeans, making on average 20 million gallons a year (per facility).
- While an ethanol plant is like a distillery, a biodiesel operation is pretty much like a chemical plant.
- Instead of fermentation, biodiesel makers break up the vegetable oil molecule, remove the glycerin and replace it with another suitable alcohol, such as methanol.
- It takes $1 per gallon of annual production capacity to build a biodiesel plant ($10 million for 10 million gallons in annual output).
- Thus far, the majority of ethanol and biodiesel plants rely on state and federal subsidies to remain in business.
State of the State
Biodiesel
It is much easier to buy biodiesel than ethanol, in part because it’s local production is on the increase. Milagro Biofuels recently kicked off its three-million-gallons-a-year biodiesel operation in Memphis. Northington Energy of Cheyenne, Wyo., broke ground on a 7,500-square-foot plant that would make between one million and six million gallons of biodiesel a year, and Agri Energy is beginning production of five million gallons a year on 41 acres in the Lewisburg Industrial Park. The company was formed in August 2005 with plans to eventually expand to 20 plants (making 140 million gallons of fuel a year), but an equipment holdup put them slightly behind schedule in Lewisburg. According to Terry Ellis, program manager of Tennessee’s Economic and Community Development department, 10 other biodiesel plants have been proposed, though none have yet materialized.
State of the State
Ethanol
Most of ethanol currently sold in Tennessee comes from a terminal in Hopkinsville, Ky. While on average two new ethanol plants open every month across the nation, Tennessee has made do with a single ethanol facility for year—the Tate & Lyle plant in Loudon. Another first-generation ethanol plant has been proposed in Lake County, but it hasn’t yet reached the construction stage. Today, Tennessee only has one public-access E85 fueling station (which sells an 85%/15% ethanol/gasoline mix), at Citgo on Main Street in Nashville. The station’s clerk says that state vehicles are their main customers, buying roughly 12,000 gallons in three months. The three other functioning E85 stations lie behind the checkpoints and fences of Oak Ridge National Laboratory.
Three more E85 stations are on the way under the U.S. Department of Energy’s Clean Cities program, with one of them planned at a Shell station in Clarksville.
The Silver Lining
As much promise as ethanol holds, it’s probably a good thing that Tennessee hasn’t strained itself building the soon-to-be-obsolete first-generation ethanol plants. Worrying about the potential raid on the treasury by the farm lobby, Jim Cooper says it’s better to wait than rush to subsidize flawed projects. “The research can be conducted and there is money to do that,” he says. “What I worry about is our inferior technologies begging for subsidies, which really means they are more expensive than our old-fashioned fuels.” From the purely economic standpoint, Cooper says that if the goal is to move away from fossil fuels, then the government should raise the price of that fuel by stopping subsidies to the oil industry and instituting a gas tax. Then the next best rival will emerge. If history is any guide, it shows that efforts to reduce America’s dependence on foreign oil during the Jimmy Carter administration were stymied by over-subsidizing of the inefficient synthetic fuel technology. Both politicians and scientists agree that private industry has the capacity to invent the next best fuel of the future, and there are signs that business leaders are already taking some initiative on these issues. The day before President Bush’s State of the Union address, ten major U.S. corporations called for a mandatory federal cap on greenhouse emission. Locally, transportation fuel distributor Pilot Oil, which sells E10 fuel at its 34 stations in East Tennessee, is looking to expand to biodiesel, but not until a large plant is built near Middle or East Tennessee. Pilot Oil chief Jimmy Haslam says that Northington Energy’s plant in Wartburg, which, once built, will produce three million gallons of biodiesel in 2009, is too small for his company’s needs. Pilot is looking for a supplier of 30 million gallons of biodiesel just for its fueling stations in East Tennessee. The Wartburg location will be the first biodiesel plant in East Tennessee, and will rely on farmers from five surrounding counties to grow soybeans on some 20,000 acres of land, some of which was previously used to grow tobacco. Northington will receive a $1.10-per-gallon federal tax credit for its operation in Wartburg.
In the meantime, Cooper observes that Tennessee would benefit from a
concerted effort to take advantage of its many resources in alternative energy research—a unifying sweep that hasn’t occurred yet. There are many pockets of activity—alt-fuels plants popping up here and there, Oak Ridge and University of Tennessee researchers doing their thing, but no leader has emerged to put these efforts under one umbrella. ORNL’s proposed Energy Center, if it wins the
$125-million DoE grant, will be a good place to start coordinating alternative energy efforts in Tennessee.
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