ETHANOL:

Fledgling cellulosic industry puts down roots, raises hopes in Corn Belt

EMMETSBURG, Iowa -- The biofuels industry began building it, so Eric Woodford came.

Woodford sold his farm in Redwood Falls, Minn., and moved here with his wife, Mary, and their children almost four years ago to sell a contraption that chops and bales cornstalks -- feedstock for the nascent cellulosic biofuels industry.

Emmetsburg -- population 3,900 in northwestern Iowa -- is ground zero for that industry as Poet-DSM Advanced Biofuels puts the finishing touches on a commercial-scale plant that the company hopes can turn abundant residue from cornfields into liquid gold.

"I read all my farm magazines," Woodford recalled of his 140-mile move. "I knew that this was the hot spot on the planet for balers."

Industry boosters believe cellulosic biofuels will boom, creating jobs, helping reverse the flight of youth that has hollowed out rural towns in the American heartland, and ratcheting down emissions of heat-trapping gases linked to production of corn ethanol.

The industry's fortunes now hinge on whether companies can economically collect the corn crop residue -- best known as corn stover -- they'll need each year to get production plants up and running. They need to persuade corn farmers to see opportunity in scooping up cobs, leaves, husks and stalks they've usually left on their fields post-harvest.

But it's not been easy. And although several companies have successfully built sprawling stover-collection systems in recent years, they face uncertainty given the Obama administration's recent proposal to ease aggressive biofuel production mandates (E&ENews PM, Nov. 15).

Companies have little room for error. They're already facing criticism that they've rolled out technologies and production far slower than the time frame anticipated by the 2007 Energy Independence and Security Act. Its critics have dubbed cellulosic fuels "phantom fuels."

"Mandating the production of cellulosic biofuel has netted millions for the federal government for a product that barely exists, but it has placed a heavy financial burden on energy producers who simply pass along that cost to consumers," said Sen. Jeff Flake (R-Ariz.), who co-authored legislation earlier this year that would require U.S. EPA to tie cellulosic targets to actual production.

The cellulosic industry has slowly been coming of age. Earlier this year, KiOR Inc. began producing small quantities of drop-in cellulosic biofuel from woody biomass at a plant in Columbus, Miss. And in Florida, INEOS Bio began producing ethanol from municipal solid waste, lawn clippings and woody biomass.

In the Midwest, where corn is king, crop residues represent the great hope in the short term for launching the cellulosic ethanol industry.

Corn stover is increasingly abundant as biotechnology advances have allowed farmers to grow more corn per acre. Stover is all around corn ethanol infrastructure. Because it's already on the ground, companies don't have to start from scratch by establishing new fields of grasses specifically devoted for cellulosic biofuels.

"I don't want to say it's low-hanging fruit, but corn stover is lower-hanging fruit than ... energy grasses," said Steve Hartig, general manager for licensing at Poet-DSM. "We have to do a lot of work to collect it, but the fact is that it's already there. It's there to be gotten."

Poet-DSM -- a joint venture between ethanol giant Poet LLC and Dutch enzyme manufacturer Royal DSM -- plans to open a cellulosic ethanol facility here next year next to its conventional ethanol plant. The great hope of the cellulosic industry is now just a jumble of construction equipment and large tanks that will store plant mass and enzymes that will turn that material into alcohol.

Aside from Poet, DuPont Co.'s biofuel division also plans to open a corn-stover-based facility next year adjoining a coal-fired ethanol plant in central Iowa, about an hour outside the state capital, Des Moines. Abengoa Bioenergy SA, Europe's largest biofuel company, is finishing construction on a plant in Kansas. All will be capable of producing 25 million to 30 million gallons of cellulosic ethanol a year.

But successfully collecting enough stover and keeping it clean enough to go profitably through a cellulosic facility is a logistical feat.

"The challenges are this: How am I going to store it? How am I going to deliver it in the fewest amount of trucks I need to get it to my facility? How am I going to keep it in high quality?" said Andy Suby, a mechanical engineer and manager of Iowa State University's BioCentury Research Farm.

'Kind of a disaster'

Emmetsburg corn farmer Bruce Nelson is still hammering out the details of the stover harvest.

At the end of a corn harvest, stover is typically rolled up into a mat that's about 2 to 3 inches thick. Farmers with livestock operations bale up some residue to use as bedding for animals, but much is tilled into the ground to make way for the new crop in the spring.

Too much residue can be a headache for farmers as new corn seedlings attempt to poke their way aboveground and find their way blocked by the matter that's lying in their way.

About five years ago, Nelson -- a customer of Woodford -- began hearing about the cellulosic plant at equipment dealerships. Salespeople came to Nelson's farm to try out their equipment and express interest in harvesting extra residue.

Nelson, 34, who was forced to retire because of hip injuries after just two seasons with the NFL's Carolina Panthers, returned to his hometown to coach high school football and farm with his father and uncles.

Seeing the growing interest in the region four years ago, the University of Iowa graduate and a friend decided to jump into the stover business. They bought equipment, hired a few junior college students and offered services to farmers.

In his first year, Nelson collected and baled stover from his and four other farm operations. His team stacked the bales in the wrong location, did not have the proper equipment specialized for stover collection and spent a particularly harsh winter digging bales out of snow drifts.

"I'd love it if it was a home run, but it actually turned out to be kind of a disaster," he said. "It's a project. And the first phase of our project wasn't very good. We didn't know exactly how to do it."

This year, the team is collecting its fourth season's worth of stover, and Nelson believes the operation has finally hit its stride. He's hired more seasonal help and expanded his equipment supply.

"I kind of think it's like when the computer age started with Bill Gates and things were changing really fast and you couldn't keep up -- I kind of feel like that's the way it is in agriculture right now," Nelson said. "It's not driving a tractor, it's not driving a combine anymore. There's a lot of technology that goes into it, and it's turning a lot of farmers into business guys, and it has spawned more jobs."

Nelson and other custom balers are still experimenting with the best way to collect residue.

One of the chief unanswered questions is the deceptively simple matter of whether it's best to store stover in round or square bales. Other basic questions: what type of netting to use to wrap the bales and how to get it off efficiently.

There has been "an enormous amount of research you'd think we didn't have to do -- from which bale works best to how to stack those bales to how high you can stack them to how rain flows off them," said Wade Robey, Poet's chief technology officer. "Do you cover them or do you not cover them? What is the composition of that bale over the course of the year during storage?"

Two years ago, Poet-DSM collected about 50,000 acres' worth of bales; last year, it collected about 80,000 acres' worth.

For the startup of its 20-million-gallon-a-year cellulosic plant here next year, the company plans to collect stover from about 120,000 acres within a 30-mile radius. Farmers will bale extra residue on their fields, store it during the year and transfer it over to Poet as it's needed at the cellulosic facility.

At full capacity, the company will have about 425 farmers in its collection program and will collect close to 600,000 bales of stover a year.

The typical farm here is between 500 and 750 acres, and the company will take about a ton of stover off each acre -- or about a quarter of the residue -- on fields that are involved in the program.

"This plant means a lot for our local farmers," Emmetsburg Mayor Myrna Heddinger said. "It lets them utilize every aspect of the corn or crops that they grow."

Same goal, different means

Across Iowa, in the town of Nevada -- about an hour out of Des Moines -- DuPont is building a $260 million cellulosic facility that is expected to be the eighth-largest building in Iowa.

The plant will produce 30 million gallons of cellulosic ethanol a year and will feed lignin byproducts, part of the tough part of plants, to the adjacent coal-fired conventional ethanol plant.

The Nevada plant represents the company's first large-scale foray into renewable fuel. When completed, it will take annually 160,000 to 170,000 acres of corn stover -- or 600,000 stacked bales, enough to cover 80 acres. The DuPont plant is hoping to take stover from 20 percent of the acreage in a 30-mile radius around the plant.

Like Poet, DuPont is taking about a ton of residue from each acre. Unlike its competitor to the northwest, though, DuPont has decided to control the process. Instead of allowing farmers like Nelson to bale their own and others' stover, DuPont is sending its own employees to individual farms each fall to collect.

"Both of us understand that we need to have clean, dry feedstock for the plant," said John Pieper, DuPont Pioneer director of cellulosic ethanol. "We're attempting to get it by controlling the process upfront, understanding the process before we release it to be used widely. They're doing the same thing, only they've designed a process that has a little bit better opportunity for farmers to adopt right away."

In various locations around the town of Nevada, DuPont has stacked bales of stover at least five bales high and three bales wide covered in white tarp. The company keeps close watch over the bales through security cameras aimed at preventing fires and other calamities.

DuPont is partnering with the BioCentury Research Farm -- a mini-scale field-to-fuel facility -- to tag and analyze individual bales of stover with the goal of creating quality controls. The company, for example, doesn't want to purchase a bale that contains so much dirt that the price of cleaning the bale before use makes it unprofitable for the company.

"I know exactly where it came from, what town, what field, I know when it was harvested, I know the weather that day, I know everything about soil ash content, moisture content, everything," said Iowa State's Suby, who's overseeing the project. "Part of establishing a market is, what's this bale worth? What do I pay for it? We're analyzing this over time and trying to measure what the qualities of that bale are."

Farmers are starting to buy into the program.

Howard Hill and his son Eric, who both grow corn and operate a large-scale hog facility in central Iowa, are in their third year working with DuPont. They opted to try the program more out of curiosity than out of any financial reasons.

"We've been very conservative on how and where we do it," Eric Hill said one evening as the sun set over the farms. "It has to line up with certain parameters as far as soil type, what we're trying to accomplish as far as crop rotation. We're monitoring it to make sure we don't see losses, long-term disadvantages."

Although they expected to see some gain in production last year, the yields on the lands where stover was removed were not much different from the fields where the residue was all tilled into the ground. But the Hills blame that more on the drought year and the type of corn they were planting than a flaw with the program and anticipated seeing yield increases during this year's corn harvest.

Economic boost for Emmetsburg

Across rural America, there was no net employment growth in 2012 and the first half of 2013, according to a survey released this month by the Department of Agriculture.

Annualized weekly wages and salary for full-time rural workers remained about 20 percent lower than in metropolitan areas.

The rural poverty rate is 17.7 percent.

As they have faced a downturn, rural areas are shrinking. Between April 2010 and July 2012, rural America lost 44,000 people, a decrease of 0.09 percent. In contrast, those areas grew 1.3 percent between 2004 and 2006.

Woodford -- the farmer and equipment salesman -- said the cellulosic industry is shielding his new hometown from economic misery.

"We're retaining population here," he said. "And ... we're starting new businesses where jobs never existed at all."

Since Woodford arrived from Minnesota, there's been a huge amount of innovation and experimentation with farm equipment, he said. This fall, he's tested a half-dozen new devices aimed at improving the efficiency of stover harvesting, and he's hired six employees.

Poet-DSM says it has spent more than $200 million to build the plant and will have 40 full-time jobs once it is running at full capacity. It plans to spend millions more a year in the collection of agricultural residue from farm fields.

"What we'll spend in biomass, both in paying farmers to be able to collect it from their field but also for custom harvesters for the farmers themselves, is about $20 million a year for biomass acquisition," Hartig said. "So when you look at what a plant like this means for a community like Emmetsburg, which is a pretty small town -- it's a big impact economically."

Construction of the plant has had a "huge impact" on Emmetsburg, the mayor said.

"About 300 men employed out there on the building are looking for places to eat, places to live," Heddinger said, "and it has been a financial boon for the whole county as our city ourself cannot house that many people at this time."

In Nevada, DuPont expects that its plant will provide 80 permanent jobs, from lab technicians to logistics to maintenance, or about one-third more jobs per gallon of fuel than a conventional corn ethanol plant.

There's still hesitation, though, among older farmers about buying into cellulosic ethanol, Nelson said.

"A lot of the guys, they were afraid of it because it was different. They farmed 40 years, it was different, they didn't want to get involved with it, they didn't know if the project was going to go even though there'd been a lot of talk that it was going to," Nelson said.

There are also farmers, such as Mark Kenney, who are worried about the long-term sustainability of removing residue from their fields each year. Kenney, who farms 3,000 acres in central Iowa, said he won't join DuPont's program until there's more research on its benefits.

"I don't want to be the first. We'll see how it works out," said Kenney, who has a farm across the road from a DuPont stover-storage site.

"I really don't know about removing plant matter from the soil. That's what builds soil, and when you remove it, what are you doing?" he said. "What are you doing to the soil? I don't know yet."

Sustainability issues

Although it can be a headache in the spring, residue left on the field over winter reduces both wind and water erosion, as well as helps replenish nutrients in soil.

Companies like Poet-DSM, DuPont and Abengoa have poured money into research into exactly how much residue they can remove for their uses without compromising the health of the soil. That sweet spot is likely about 2 tons an acre.

"If there's an opportunity to take more, we'll take more," Poet's Robey said. "But it's got to be balanced with the sustainability and the fertilizer replacement costs."

Stover has become more abundant as farmers boost corn yields.

This year, U.S. farmers will average 160.4 bushels of corn per acre, the most since the 2009-2010 growing season, USDA said. Thanks to modern biotechnology that has, for example, engineered crops to be drought-tolerant, experts say yields as high as 250 or 300 bushels an acre in the near future might be possible.

That will create both opportunities and challenges for farmers, Pieper said.

"We're talking about an immense increase in these residues," he said. "And we're also talking about the possibility that we really won't be able to manage them. It'll probably be more tillage, more passes, very aggressive tillage to manage it."

Eventually, companies foresee moving from corn stover to perennial grasses such as switch grass and miscanthus that are specifically grown for biofuels production. But while universities such as Iowa State are pouring funding into researching grasses, the days of planting acres of fields in the Midwest specifically for biofuels crops are likely years in the future.

Iowa farmers aren't likely to take cornfields out of production if they can draw prices above what's being paid for switch grass.

"You don't really want to give up a lot of potential profit just to raise some grass," said Howard Hill, the farmer in DuPont's collection program.

'Poor signal from Washington'

Researchers say the potential is enormous for farmers and companies that have spent the past several years building up the cellulosic industry.

"There's no question in my mind that science and capability in this country are not limiting adoption and use of biofuels. It's all the stuff that goes around modern agriculture and modern energy systems," said Emily Heaton, an Iowa State researcher who specializes in energy grasses. "We have the people. We have the capability. We can get it done quickly if we really wanted to."

But like wind power and other new technologies, the industry is still heavily dependent on stable federal policy in the form of the national biofuel mandate and its production tax credit.

The Obama administration's proposed rollback of renewable fuel targets for the first time since Congress updated the biofuel mandate in 2007 has angered many here. U.S. EPA has proposed to require just 2.2 billion gallons of advanced biofuels -- those made from inputs other than corn -- compared with the 3.75-billion-gallon target set in the statute that created the standard.

The proposed backtrack has stymied investment in second-generation technologies, according to companies and their trade groups. Cellulosic ethanol producers also say EPA has hurt potential business partners for future licensing agreements by also proposing to scale back conventional corn ethanol requirements.

"The grain ethanol industry must remain strong in order to build cellulosic capacity," said James Moe, board chairman of Poet-DSM. "The poor signal from Washington today makes that work more challenging."

Rep. Steve King (R-Iowa), who represents Emmetsburg in Congress, said in a recent interview that he was encouraged to see where the cellulosic ethanol industry is today.

But he hesitated in answering a question about whether he thought the industry would ultimately be successful given the administration's proposal.

"What I've seen is in all of these industries, it would be impossible to get into the marketplace if we didn't have the support from government to open doors, open the market access, provide an incentive," King said.

Already one cellulosic company, KiOR, has been sued by investors for failing to meet goals it outlined in enthusiastic shareholder calls and press releases.

"The real question now is, we build those five plants -- then what?" said Jeremy Martin, senior scientist in the clean vehicles program at the Union of Concerned Scientists. "Do we take what we learned with those five plants and keep going? Or is that sort of the end of the line?"

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