Hot technologies, RFS power US biodiesel revival

In Iowa, the long suffering biodiesel industry is undergoing a significant revival.

The roots causes of the biodiesel industry’s difficulties are now widely understood. The fast rise of soybean prices in 2007-09, which put traditional soy biodiesel out of the cost range of most buyers. The disappearance of a key $1.00 per gallon federal tax credit that did must to keep many small operators afloat when soy prices started their rise. The collapse of European markets amidst charges of US biodiesel dumping by enraged rapeseed biodiesel producers in Europe, inflamed over what became known as “splash and dash” and “conceal and deal” practices that were alleged but rarely proven.

Down to a handful of active producers by ’09

With the collapse in markets, rising prices and the evaporation of the tax credits, condition were ripe for the end of biodiesel 1.0. By early 2010, only two major producers were left standing, Imperium Renewables in Washington state and the Renewable Energy Group, which controlled a network of plants throughout the Midwest.

Estimates of biodiesel capacity were in the 3 billion gallon range, and the market was estimated at around 300 million to 500 million gallons, and numerous producers went idle, bankrupt, or were produce at a fraction of their capacity.

Optimism revives with RFS2

Optimism began to return this year when the EPA finally issued rules for the revised Renewable Fuel Standard, which called for a rapid expansion in biodiesel blending, and also qualified biodiesel as an advanced biofuel, since it easily satisfied the 50 percent emissions improvement required under RFS2.

Something most interesting happened this year with the RFS. The EPA waived down the cellulosic ethanol mandate when it was cleat that production capacity was not availability. But the standard as a whole was not waived down, and a main reason was the availability of biodiesel to fill the gap.

Not every gallon can come back. Estimates range from 750 million to 1.5 billion gallons in terms of the actual potential to revive production capacity in the US. With the delays in cellulosic ethanol, there is the chance that even more production capacity from biodiesel will be called for as the RFS bites deeper and deeper into the US fuel supply over the next ten years.

Imperium and REG

We profiled the recovery of Imperium Renewables earlier in the summer, identifying its focus on developing markets in British Columbia (taking advantage of the biodiesel mandate in that province), as well as continuing to invest in advanced technology and looking at opportunities to develop drop-in fuels at its Hoquiam-based 100 Mgy facility in Washington state.

Over at REG, different tactics have emerged. Digest readers have noted throughout this year that REG has been acquiring additional capacity through acquisition and is proceeding on a consolidation of existing US biodiesel capacity. Just last week, they announced the acquisition of the Clovis, NM biodiesel project, although the company did not identify a timeline for re-starting production at the plant.

But the other key to its strategy has been flying to some extent under the headlines, which is REG’s high FFA stripping technology. What does this accomplish? It allows the company to take in low-cost, high-volume feedstocks that have traditionally posed challenges for biodiesel conversion, and to strip out the free fatty acids (FFA) that are the root of the problem. The resulting oils are, essentially, homogenized, making it possible to put relatively exotic feedstocks into production equipment that was originally developed for virgin veggie oils that have, ultimately, become too expensive for the fuel markets.

Result?

REG has been able to source, acquire and utilize low-cost feedstocks from a huge inventory of suppliers – for example, the company has been acquiring not only yellow grease, but can increasingly handle brown trap greases that are often associated with tipping fees or extremely low feedstock prices. The company, according to reports, is sourcing feedstock from as far away as the Alaskan fishing industry, which produces waste fish oils as a residue and is now distributing those to REG.

Waste as a key to the future

It’s not entirely clear how much waste fats, oils and greases (FOG) is available in the US – in addition to major sources such as Tyson and renderers such as Darling, there is the municipal market as well as the restaurant trade, where volumes are less easy to predict. But, for sure, there is enough to significantly reduce the dependence of the biodiesel industry on virgin oil feedstocks, and re-open the market for biodiesel just as the RFS kicks in. As evidence, ARES has just invested $8 million in REG.

Biodiesel as an advanced biofuel

One of the messages that the National Biodiesel Board, along with the companies, is conveying, is biodiesel’s position within the group of “advanced biofuels,” based on the EPA’s definition, which focuses not on production technology, feedstock, or fuel, but on the carbon intensity. 50 percent lower greenhouse gas emissions than gasoline, and made from biomass? You have an advanced biofuel.

It’s a trend we see from California as well – as flawed as their process for defining qualifying fuels may be, the state is using a low-carbon fuel standard, under which an infinite number of fuel and feedstock combinations may compete for business, with the mandate creating the market, the emissions standard creating the threshold, and price and marketing determining winners and losers among the competing fuels.

The tax credit issue

As REG’s Alicia Clancy explains, “It’s not just the dollars from biodiesel tax credit that are the issue. It is the uncertainty, and the impact that has on lenders and partners. That’s more of an impact on us.”

The bottom line

How will biodiesel fare? It’s always been a sublime fuel under normal operating conditions – and EPA has signaled that as long as there is sufficient biodiesel production capacity in the country, the overall RFS mandate will not be waived down irrespective of the difficulties in financing cellulosic ethanol or other advanced biofuels capacity expansion. That’s good news for all the fuels and feedstocks, providing market stability for all, and especially good news for biodiesel’s many supporters. And not a moment too soon.