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The Battle of the Beltway: DoD awards $16M towards parity-cost, drop-in, non-food biofuels

| May 27, 2013

F-18-aviation-biofuelsDoD goes forward, after internal wrangle, with advanced biofuels program via $16M phase 1 investment.

With industry cost share, project totals $33M: aims for sub-$4, drop-in military biofuels. 

In Washington, the DoD will award three contracts totaling $16 million to Emerald Biofuels, Natures BioReserve and Fulcrum Biofuels for drop-in military biofuels, according to Sharon Burke, assistant secretary of defense for operational energy, who relayed the news initially to Bloomberg.

Under the grants, the companies will develop plans for up to 150 million gallon biorefineries that will cost the US military less than $4 per gallon. The biorefineries are expected to supply aviation and marine diesel fuel.

The grants will be matched by $17 million in investments by the companies, which have proposed making biofuels primarily from oil seed crops and waste residues.

The overall Defense Production Act Title II program is divided into two phases: this phase, for plan development. A second phase, which would be funded out of FY 2013 and later year funds, would award up to $180 million in additional contracts to accelerate the construction of at least one biorefinery capable of providing the US military with sufficient sub-$4 renewable fuels to meet its Great Green Fleet plans.

Tussle at the Pentagon, White House

The news comes after a weeks-long behind the scenes tussle as DoD officials struggled with the investment in a biofuels program at a time when other defense spending was being cut. At the Pentagon, an effort had been underway, initially, to repurpose the biofuels program funds to alleviate cuts in other areas as sequestration took hold. Key Senate leaders and the White House weighed in with pressure to maintain the advanced biofuels program — but ultimately, according to multiple Digest sources, it was the structure of the Defense Production Act Title III office’s funding that provided a key assist in saving the program.

According to law, the DPA program receives its funding directly from a Congressional appropriation, and DPA funds can’t be shifted to other DoD programs or funding needs without congressional approval. At the same time, the DPA program is supporting the commercialization of more than two dozen technologies deemed vital to national security interests — and cutting DPA funding would ultimately run the risk of sharply driving up the cost of STACOM receivers, flexible aerogel materials, carbon foams, titanium and beryllium supplies — among many other DPA projects aimed at reducing costs of materials needed by the Pentagon but not currently available at commercial scale and costs.

A report by Annie Snider last week in EE News provides an excellent look at the back-and-forth of the battle.

Next steps for the Pentagon biofuels program

According to the original funding opportunity announcement:

“There will be a down-select among Phase 1 Recipients for the Phase 2 award(s). Recipients are cautioned that there is no guarantee that a Phase 1 recipient will be selected to proceed into Phase 2.

“The process will entail: Receipt of Phase 2 proposals required as deliverable under Phase 1; application of standard Technical Evaluation processes using established evaluation criteria; negotiation and potential Award(s) of Phase 2 agreements based on overall merit of proposal and pending availability of funding.”

The lack of a guarantee that Phase 1 recipients would automatically be granted a Phase 2 project if the plans met DoD targets and milestones — or even that Phase 1 projects would be the automatic finalists for Phase 2 grants — is reported by Digest sources to have cooled ardor amongst potential bidders. Yet the DoD received, ultimately, more than a dozen proposals.

Ultimate goals

Originally, the DPA funding announcement was outlined in terms of a small-scale, [at least] 10 million gallon biorefinery – but the news from DC in indicating a 150 million gallon target. As originally outlined:

The ultimate goal of this project is: “to establish one or more complete domestic value chains capable of producing drop-in replacement biofuels. This includes feedstock production and logistics, conversion facilities (Integrated Biorefineries), and fuel blending, transportation, and logistics. The Government intends to form an Integrated Biofuels Production Enterprise (IBPE) comprised of partnerships that establish the complete value chain.

“The contemplated effort will include the design, construction and/or retrofit, validation, qualification and operation of a domestic commercial-scale IBPE that meets a target of at least 10 million gallons per year neat biofuel production capacity. The IBPE will be capable of producing drop-in liquid transportation fuels targeted for military operational use, and as such, must be approved and certified MILSPEC JP-5, JP-8 and/or F-76 equivalents by the time the IBPE becomes operational.

The FOA can be downloaded here.

More about Emerald Biofuels, Nature’s BioReserve and Fulcrum Brighton Biofuels

Nature’s BioReserves

In 2011, we reported that South Sioux City officials had given the green light to the issue of $25 million in municipal bonds to support a 60 million gallon biodiesel plant proposed by  Nature’s BioReserves, which will use beef tallow from the Beef Products Inc rendering plant. The $100 million project is expected to provide between 30 and 40 jobs, and the plant was expected to open in early fall 2012.

Emerald Biofuels

In 2012, we reported an announcement that Emerald Biofuels intended to build a 85 million gallon renewable-diesel refineries at a Dow Chemical site in Plaquemine, Louisiana. The company said at the time that it would use Honeywell’s UOP/Eni EcoFining process technology for the production of Honeywell Green Diesel Fuel. The process also is capable of making renewable jet fuel. At the time, Emerald had Fieldstone Private Capital Group, Inc. to assist in completing the financing of the Plaquemine refinery and expects to have the financing closed later this year. Final engineering and the construction cycle are to begin immediately upon financial closing.

Fulcrum Brighton Biofuels

Fulcrum is, among the three awardees, the best-known, last appeared in the newsflow when it announced last December that it had successfully secured commitments and is proceeding toward closing $175 million in financing to fund construction of its first municipal solid waste to low-carbon fuels plant, the Sierra BioFuels Plant and to fund the development of future projects. The project is expected to be completed in 2015. $105 million of the $175 million is the USDA loan guarantee, which the company secured in a conditional commitment in August 2012.

The reference to Fulcrum Brighton Biofuels is, as the Digest understands, a reference to a second commercial-scale project — located in Brighton, Colorado, a few miles north of Denver International Airport. Fulcrum has not detailed plans on the project, nor on how it will adapt its technology from the production of ethanol to renewable jet fuel – although the Air Force last July concluded a successful test flight using jet fuel made by Gevo from isubutanol.

The Bottom Line

A beltway battle should be expected to continue over the lion’s share of the DoD biofuels program’s funding. But for now, the Pentagon is going forward with the first phase of the project. It’s been a long time coming — but for the industry, will have been well worth the wait as producers gear up to supply sub-$4 fuels to the US military, in large volumes, commencing in 2015-16.

Two key take-aways. It’s drop-in fuel, primarily from waste and not using, for example, corn or other grains — and the cost is sub-$4. The military has not wavered from its goal of parity-cost, drop-in fuels made outside of the food chain and primarily from residues.

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