Changes in the ethanol construction equation brought some bad news this fall to backers of a proposed plant in northwest Minnesota. Don Sargeant is board chair of Agassiz Energy. He says the company hopes to build a 55 million gallon a year ethanol plant in the town of Erskine.
"The builder we'd been talking with for over 14 months submitted a cost for the plant that was significantly higher, almost double than what we'd been talking about," says Sargeant. "So we knew that no one would invest in such a plant and it didn't make sense financially so we ceased to move down that path with that builder."
Sargeant says demand for new ethanol plants is so strong it's affected cost. The price of ethanol production equipment has increased. Worker wages too. The price of corn, ethanol's basic ingredient, has increased more than 60 percent in the last few months alone. Despite the uncertainties Sargeant says his company still plans to build.
"As soon as we've reconfirmed that we have a builder and a timetable with a builder and an estimated price that we feel pretty comfortable with we would conduct an equity drive," says Sargeant.
Sargeant says that search for investors probably needs to raise about $60 million before construction can begin. Other companies face similar obstacles. In southern Minnesota a proposed plant near Springfield has an uncertain future. Springfield City Manager Mac Tilberg says initial optimism about a $160 million ethanol plant has given way to disappointment.
"I think the plant is on hold and that they are not going to be building an ethanol plant in Brown County until further notice," says Tilberg.
Twin Cities based US BioEnergy announced plans for the plant earlier this year.
Company communications director Kristi Lee admits the pace of the project has slowed, but says US BioEnergy does intend to build the facility.
"We still have a build slot, fourth quarter of 2007, set aside for US Bio Springfield," says Lee. "I wouldn't want to give someone the impression that this project is off the table completely, that certainly is not the case."
Lee says the company must resolve several issues. Among them, corn supplies, worker availability and water sources. The company also plans a second Minnesota ethanol plant near Janesville. Development of that plant has been slowed by environmental questions, mainly whether there is enough water in the area.
Other ethanol projects are moving forward.
“We currently have so many projects under development that we couldn't possibly build them all.”William Tierney Jr.
Four plants are under construction in Minnesota, near the towns of Heron Lake, Fergus Falls, Fairmont and Welcome. Four other projects are in the planning stages.
Ethanol consultant William Tierney Jr. says there's been a slowdown nationwide. He says there's a long list of projects around the U.S. that have been cancelled or postponed. He says rising costs and other factors have exposed a basic flaw in the U.S. ethanol boom; too many companies jumped in too quickly.
"We currently have so many projects under development that we couldn't possibly build them all even if we used 100 percent of our corn supply," says Tierney.
Scores of companies announced construction plans soon after congress mandated more ethanol production last year. Wall Street investors followed.
Tierney says investor interest in ethanol has declined in recent months.
He says the biggest reason for that has been falling gasoline prices. That's caused a drop in ethanol prices as well, trimming profits.
Even with that, Tierney says ethanol production has risen faster than anyone imagined.
In last year's energy bill, Congress' goal was seven and a half billion gallons of ethanol production by 2012. It looks now like that figure could be reached in 2007, five years ahead of schedule.