Despite having a marketing plan that wowed investors, top people leading the development team, and a market seemingly bursting at the seams, a 30,000 million gallon per year biodiesel plant in Mount Olive, N.C., is not going to happen.
The Mount Olive plant is testament that not all efforts to build biofuel plants will be successful. Increased demand for alternative fuels, a national euphoria over being able to supply our own energy needs, even an endorsement from the President of the United States won't make bioenergy an economic success, until technology and price merge to make biofuels competitive with hydrocarbon fuels.
Speaking at the recent annual meeting of the Southeastern Feed and Grain Dealers Association, Jeff Edwards, an officer with J&J Commodities in Greenville, N.C., shared his story about how a plan once so bright and optimistic for a biodiesel plant in eastern North Carolina has now burned out before it was ever started.
In 2005, Edwards was part of a group that had raised $43 million to build a $32 million, 30 million gallons per year biodiesel plant in Mount Olive, N.C. Their business plan showed plenty of profit for investors and was so good that despite doing a poor job of identifying investors, they raised the $43 million in a few months.
In the interim between getting the necessary permits and developing engineering plans, the ethanol boom hit and several of the original investors began looking at ethanol, instead of biodiesel, because of the higher profit potential.
“By February 2006, we had lost much of our cash, and we were ready to disband,” Edwards says. The business plan still looked good, but most of the original team had moved on, so the decision was made to disband in early 2006.
Instead of disbanding, a few of the original members of the investment group, including Edwards, decided to give the project one more shot.
“I was elected CEO, primarily because no one else wanted to do it,” Edwards recalls. “We literally went door to door contacting influential people in the agriculture industry. Unlike the first attempt at money-raising, we did it right this time, and we were successful,” he says.
Within a few months they had cash reserves built back up to $16 million and had commitments from solid investors for $52 million to build the plant. “By the time we got back in the game, the cost of building the plant had jumped to $50 million. Building costs had soared, but so had the cost of engineers, bioenergy consultants and anyone else who could provide input on building these plants.
“Technology for biodiesel and ethanol production is changing so fast that no proven technology or affordable technology is available,” Edwards contends. “We saw plenty of high tech equipment. When we asked for examples of how this equipment worked in actual operations we heard the same story — you will be the first to buy this technology,” Edwards says.
Working around the clock, the group struggled, but finally succeeded in cutting costs to build the plant back to $41 million. They had the cash on hand for operating costs, and by mid-year of 2006, they were optimistic the plant would be built.
When they applied the costs of building and operating the plant in 2007 to their business plan that looked so good in 2005, it was clear they would lose money faster than they had raised it.
For example, Edwards says, glycerin that in 2005 would have generated a million dollars or so of income was now going to cost us over $3 million to remove and dispose of. The business environment had changed dramatically in less than three years, making a plan that had no holes in it as late as 2005 financially impossible in 2007.
On February 19, 2007, the investment group officially disbanded. “My last duty as CEO was to write refund checks to our investors,” Edwards says reluctantly.
Jim King, who is a financial officer for J&J Commodities in addition to managing several agribusinesses, and also a member of Edwards' financial group, says “We are in the risk taking business, but we would never take risks like operating the biodiesel plant because you can't measure or quantify a risk in uncharted waters like this. We don't know what the negative market is for biofuels. If oil is $60 a barrel, it's a blood bath. It's not whether you can run a biodiesel plant for two or three years, you can't run it for six months at that rate before you are completely broke.”
King says it is highly unusual to have the money raised and still have the project fall through. In retrospect, he contends, not building the biodiesel plant in Mount Olive was the best thing.
Despite the failure of the Mount Olive plant to come into production, there are four operating biodiesel plants in North Carolina, as of January 2007. One group, Piedmont Biofuels, has established a small plant in Pittsboro, N.C. A company spokesman says, after years of successfully resisting the urge to go into commercial biodiesel production, we have finally succumbed, and have incorporated Piedmont Biofuels Industrial, LLC.
“As avid recyclers, and dedicated scrounges, we could not resist taking a run at this project. The industrial park contains four buildings, of which we only require one for biodiesel. We plan to recycle it into a million gallon per year plant,” the source says.
Whether or not smaller scale biodiesel plants will spring up in the state remains to be seen. North Carolina produces over a million acres of soybeans annually, by far the largest acreage in the Southeast. While the financial incentive may not be there, the raw product to make biodiesel is available.