Cello Energy, the beleaguered, infamous biofuel company that was hit with fraud allegations, has finally dropped off of the Environmental Protection Agency’s (EPA) list of potential cellulosic ethanol suppliers for 2011. I seriously can’t believe the company was on the list for so long.
What’s the reason? Well, first off, bankruptcy. The EPA notes in its final rulemaking for the 2011 Renewable Fuel Standard (a mandate that determines the percentage of transportation fuels that has to be made up of biofuels), which it released this week, that Cello Energy filed for bankruptcy on Oct. 20, 2010. In addition, the EPA writes that Cello Energy has experienced “feedstock preparation and handling issues” at its plant in Bay Minette, Ala., and Cello’s former litigation issues have “also provided a set-back.”
Even up until this summer, the EPA was counting on Cello Energy to provide a significant amount of the projected cellulosic ethanol that the government agency thought would be produced in the U.S. in 2011. The EPA projected as recently as July that Cello Energy would contribute up to 5 million gallons (8.5 million ethanol-equivalent gallons) of cellulosic diesel, which would have worked out to up to a third of the total 25.5 million ethanol-equivalent gallons of cellulosic biofuel that the EPA saw as the potential upper bound of what could be produced in 2011.
Those 5 million gallons were down from the EPA’s previous estimates of 70 million gallons from Cello Energy, an eye-opening figure which grew strong criticism from analysts and reporters in 2009 after Cello’s fraud case came to light.
However, this week the EPA found in its final rulemaking that cellulosic ethanol companies in the U.S. would only be able to produce 6 million ethanol-equivalent gallons, from five companies, including Range Fuels, DuPont Danisco, Fiberight, KL Energy, and KiOR. In addition to removing Cello from the 2011 projection list, the EPA also cut out a project from Bell BioEnergy that it also used for 2011 projections as recently as this summer. The EPA states in its final rule making that Bell BioEnergy’s cellulosic diesel project “has been terminated.”
The tiny amount of cellulosic ethanol now being projected for 2011 by the EPA, and the removal of these two companies from the projections list, shows just how much uncertainty and risk still remains for next-generation biofuels. As the EPA writes in its rule making: “Announcements of new projects, changes in project plans, project delays, and cancellations occur with great regularity.” That’s the understatement of the year.
At the same time, the EPA still maintains many more companies, including 20 plants, could produce potentially 300 million gallons of cellulosic ethanol in 2012.
The risks are just as great for investors in the next-gen biofuels market. Vinod Khosla, founder of greentech VC firm Khosla Ventures, previously supplied Cello Energy with $12.5 million, and backed two of the companies still on the EPA list Range Fuels, and KioR. Cello Energy was previously run by Alabama’s former ethics chairman, Jack Boykin, and in 2007, projected that it could make $16-a-barrel fuel from cellulose derived from things like hay, switchgrass and wood chips.
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