Ethanol: Is it coming or going?

Ethanol: Is it coming or going?

August 20, 2008- Investorideas.com

Green Investor at Investorideas.com
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Column by Paulo Nery Exclusively for Investorideas.com


I’ve been an ethanol skeptic for quite some time now. The basic problem lies in the use of corn as the principal feedstock. Converting a large proportion of our food supplies into driving fuel tends to pressure the commodity market and increases the price. With corn being ubiquitous in processed foods (corn starch, dextrose, fructose, the list goes on) it increases costs across the board. But with the recent performance of Verasun Energy, perhaps I need to modify my view, or at least re-examine it.

Verasun (VSE) reported its quarterly numbers on August 12th and came in at 16 cents per share, well above analysts’ expectations of 2 cents. Its profits grew an impressive 58% due to higher production volumes and the higher prices they could charge in line with higher oil prices. While their raw material costs increased more than the prices they could charge for ethanol, they more than made up for that in increased volume of business.

According to Verasun’s CEO, Don Edres, part of what’s driving increased business for ethanol producers is the great economics of ethanol for marketers. The fact that they can earn margins of around 25 cents for ethanol-blended gasoline, compared to less than 10 cents per gallon for unleaded gasoline is a real incentive for marketers and blenders. Part of that difference is made up of a 51 cent blender’s credit and part from the higher per gallon margins on ethanol, which are around 70 cents now.

Another big player in ethanol is Aventine (AVR) reported its quarterly earnings on July 31st. While they experienced record sales, profits fell to a loss of 5 cents per share compared to a year ago figure of 30 cents profit per share. Discounting for its one-time loss connected with auction rate securities, the company would have earned 16 cents per share, which beat the expectations of 12 cents. They also cited higher corn costs as a factor in the lowered profits.

A third player in the market, Pacific Ethanol (PEIX) reported its quarterly earnings on August 11th and missed with a 23 cent per share loss compared to a 3 cent per share profit a year ago. The loss came in spite of a 74% increase in revenues and a 52% increase in sales volume versus the previous year. As with Aventine, higher corn costs were a factor. Pacific Ethanol had paid 67% more this quarter for their corn than the previous year. Their business model however places plants in locations like Colorado, Oregon and California which, while close to the end market, adds transport cost to the raw material.

All of this news and activity makes me wonder again about the longer-term viability of ethanol. It has many critics, but it has many strident supporters too. Once production can switch to non-food sources as raw material then the main problems evaporate. Hence, cellulosic ethanol looks like the story to follow. The potential of converting huge quantities of low value bio waste into fuel is simply fantastic. What’s more green than getting value out of rubbish and displacing something more toxic at the same time?

The Earth Policy Institute, which is a frequent critic of corn based ethanol, calculated in June 2005 that just one third of agricultural residues like stalks and straw would yield 14.5 billion gallons per year – more than twice current production.

Already a handful of companies are building cellulosic ethanol plants.

Range Fuels announced in March this year that they had completed $100 million in series B financing to complete the construction of a cellulosic plant in Soperton, Georgia. Plans are for the plant to be completed in 2009.

Poet LLC, announced recently that they will have a 20,000 gallon per year pilot plant operational by the end of the year. This will help them perfect their processes for the commercial plant they expect to be operational in Emmetsburg, Iowa by 2011.

Verenium (VRNM) has just agreed a venture with BP who will invest $90 million to develop technologies and refineries to produce cellulosic ethanol. Verenium had opened a $70 million demonstration plant in May which can produce 1.4 million gallons per year from switchgrass, wood products and other bio-mass. They’re now setting up a pilot plant and expect production to start in the fourth quarter of this year. They too plan for a commercially viable plant in operation by 2011 which should be capable of producing 30 million gallons per year.

Coskata, say they are building a 40,000 gallon demonstration facility near Pittsburgh. The company claims they will be able to produce cellulosic ethanol for less than $1 per gallon. They recently raised $19.5 million in a second round of funding for the project which is expected to begin delivering product in early 2009.

The Alternative Energy Technology Center, (AETE) has matched Coskata’s claim saying they too can market cellulosic ethanol for less than $1 per gallon – half the cost of corn ethanol. They announced in March that they are in the "completion phase" of designing and building a biorefining system that will make 20-100 tons of ethanol, gasoline, diesel and other products per day. That’s roughly 50,000-250,000 gallons per year.

Finally, BlueFire Ethanol (BFRE), having been granted permits in July, will soon begin construction on its first commercial plant next to a Southern California landfill. They expect to be delivering up to 3.2 million gallons per year of cellulosic ethanol, starting in June next year.

One of the big challenges with cellulosic ethanol is collecting and sorting the feedstock. In the case of agricultural waste like stalks, it’s typically left on the field. New systems and processes need to be developed to capture these materials for processing. Some of the easiest material to obtain now are corn cobs, which several companies are using to start up operations. BlueFire’s approach is to site next to landfill sites that already separate out bio-mass waste.

Many of the companies mentioned here are privately held. And those that are listed are Over-The-Counter listings that trade thinly. The safer investments in the ethanol space remain the larger players, most of whom have yet to say much at all about cellulosic ethanol.


Paulo J. Nery
Bio: http://www.investorideas.com/GI/pn.asp

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Renewable Energy Stocks Sector Close- Up on Ethanol Stocks and Sustainable & Electric Transportation, Green Automotive Stocks

Renewable Energy Stocks Sector Close- Up on Ethanol Stocks and Sustainable & Electric Transportation, Green Automotive Stocks

Energy Bill Drives Green Car Fuels and Technologies


POINT ROBERTS, WA and DELTA, BC – December 21, 2007, www.RenewableEnergyStocks.com, a leading investor news and research portal for the renewable energy sector within Investorideas.com, presents a sector close- up on alternative fuel and fuel efficient technology stocks following the passage of the Energy Bill. Ethanol stocks received a much needed boost, on the mandate of higher fuel economy standards, reduction of dependence on foreign oil and annual production of renewable fuels to increase to 36 Billion gallons by 2022.

According to Calyon Securities analyst, Kelly Dougherty, “The ethanol stocks should respond favorably to the recent passage of the Energy Bill as the sector should benefit from the increased domestic RFS which mandates use of 36 billion gallons annually by 2022. This should alleviate oversupply fears as more demand will be mandated with a funded path toward further infrastructure build-out and commercialization of cellulosic ethanol, which should support higher future ethanol prices.”

Additionally Calyon Securities commented,” The increased RFS should result in continued infrastructure build-out, opening of new markets, and increased discretionary blending along the path to commercialization of cellulosic which should support higher ethanol prices. We believe VSE/USBE will be well-positioned given its larger scale and potential for lower costs as well as its innovative stance on new technologies (corn oil extraction and investments in cellulosic ethanol).”

VeraSun Energy Corporation (VSE) issued the following statement December 19th, “We applaud the work of our leaders in Washington, D.C., for their vision in putting our country on a path toward greater energy diversity and sustainability. The expanded Renewable Fuels Standard will significantly reduce our country’s dependence on foreign oil and extend our nation’s fuel stream.”

Another milestone in the Energy Bill is the requirement for a significant increase in average fuel economy to a 35 mpg fuel economy standard by 2020.

Electric Vehicle manufacturer ZAP (OTCBB: ZAAP) CEO Steve Schneider, noted, “Our plug- in electric cars and trucks exceed current and future standards with zero emissions and costs at 3 cents per mile for electricity.”

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Sector Close-Up – Ethanol and Sustainable & Electric Transportation, Green Automotive Stocks
(As of close December 20th, 2007)

Pacific Ethanol, Inc. (Market, News), with a 52 week range of $4.20 - $18.79, closed at $9.14.
Verasun Energy, Corp. (Market, News) closed at $15.71, up $0.45 (2.95%) for the day.
Green Plains Renewable Energy Inc., (Market, News) another ethanol stock with a 52 week range of $8.52 -$ 25.00 and closed up $1.20 at $11.74 .
Archer-Daniels-Midland Co. (Market, News) closed at $43.29, up 1.91 (4.62%).
BlueFire Ethanol Fuels, Inc., a cellulose ethanol company, also issued a statement relating to the Energy Bill, closed at $3.20.
Clean Energy Fuels Corp (Market, News),a provider of natural gas (CNG and LNG) for transportation in North America closed at $15.00.
Advanced Battery Technologies Inc. (Market, News), a company that manufactures, and distributes rechargeable PLI battery cells using lithium cobalt oxide anodes, has a 52 week range of $ 0.56 - $9.66.
Altair Nanotechnologies Inc., (Market, News) recently funded by Dubai conglomerate, Al Yousuf L.L.C. for $40 million, the battery maker has a 52 week range of $2.48 - $5.45 and closed at $4.25.
ZAP (OTCBB: ZAAP), electric car manufacturer, also announced a $5 million Private Placement with the Dubai conglomerate, Al Yousuf L.L.C., as well as the addition of Mr. Eqbal Al-Yousuf to the Board of Directors, has a 52 week range of $0.68- $1.47 .

Additionally RenewableEnergyStocks.com features the Driving Green Podcast, providing insight into the highways of the future. Recent audio interviews/Podcasts include:
“Driving Green, Interview with Christina Page, Yahoo!’s Director of Climate and Energy Strategy”
http://investorideas.com/Podcasts/audio/102607.mp3
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“Investorideas.com renewable energy and environmental interview with Mary Nichols, Chairman of the California Air Resources Board, recognized as one of Governor Schwarzenegger's most senior advisors on climate change.”
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About Featured Showcase Company, Electric car pioneer ZAP (OTCBB: ZAAP):
ZAP has been a leader in advanced transportation technologies since 1994, delivering over 100,000 vehicles to consumers in more than 75 countries. At the forefront of fuel-efficient transportation with new technologies including energy efficient gas systems, hydrogen, electric, fuel cell, ethanol, hybrid and other innovative power systems, ZAP has a joint venture to manufacture electric and hybrid vehicles with Youngman Automotive Group, one of China's leading manufacturers of buses and trucks. ZAP is developing a high-performance crossover SUV electric car concept called ZAP-X engineered by Lotus Engineering. ZAP is also developing a new generation of vehicles using advanced nanotech batteries with Advanced Battery Technologies. The Company recently announced a strategic partnership with Dubai-based Al Yousuf Group to expand its international vehicle distribution. ZAP also makes an innovative, new portable energy technology that manages power for mobile electronics from cell phones to laptops. (Advertisement)

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Disclaimer: Our sites do not make recommendations. Nothing on our sites should be construed as an offer or solicitation to buy or sell products or securities. We attempt to research thoroughly, but we offer no guarantees as to the accuracy of information presented. All Information relating to featured companies is sourced from public documents and/ or the company and is not the opinion of our web sites. This site is currently compensated by featured companies, news submissions and online advertising. ZAP currently pays the equivalent of two thousand five hundred in 144 shares and has provided promotional EV’s for the Greentech Investor Contest. www.InvestorIdeas.com/About/Disclaimer.asp

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Source: RenewableEnergyStocks.com, ZAP