POET dismisses one DOE loan guarantee, rues absence of another

By Sara Wyant

© Copyright Agri-Pulse Communications, Inc.

WASHINGTON, January 25, 2012 -POET, one of the world's largest ethanol makers, has found itself in the odd position of not wanting the federal government loan guarantee it was tabbed to receive, and not getting the loan guarantee that it still wants. POET announced Monday that it was entering into a joint venture with Dutch-based bioscience company, Royal DSM N.V., to commercially demonstrate and license cellulosic ethanol, which the company says is the next step in biofuels development.

 Together we can feed the Bees

Company officials say POET-DSM Advanced Biofuels LLC will start production of cellulosic biofuel from crop residue in the second half of 2013 at Project LIBERTY, which is currently being constructed adjacent to POET's existing corn ethanol plant in Emmetsburg, Iowa. The initial capacity is expected to be 20 million gallons in the first year, growing to approximately 25 million gallons per year.

The two partners will produce the biofuel through a biological process using enzymatic hydrolysis followed by fermentation. The joint venture intends to replicate and license the technology to additional plants to be built at the other 26 corn ethanol facilities in POET's network and license it to other producers in the United States and the rest of the world.

DSM and POET will each hold a 50% share in the joint venture, which will be headquartered in Sioux Falls, South Dakota. The initial capital expenditure by the joint venture in Project Liberty will amount to about $250 million. The closing of the joint venture is subject to regulatory approvals and other customary closing conditions.

Because of the infusion of cash from the joint venture, POET says it no longer needs the loan guarantee from the DOE, which last September offered a full commitment for a $105 million loan guarantee to finance Project LIBERTY.

“The loan guarantee commitment from the DOE was an important milestone in our quest to commercialize cellulosic ethanol, and we are appreciative of the work they put into the due diligence process,” said POET founder and CEO Jeff Broin. “We believe that the joint venture with DSM positions us well to meet our ambitious cellulosic ethanol production goals, and thus the loan guarantee has become unnecessary,.”

The joint venture between POET and DSM is seen as a blow to Novozymes, the world's largest maker of enzymes for biofuels. The Danish company had long been forecast to be the provider of enzymes for POET's Project LIBERTY. But with POET bringing on DSM, another enzyme producer, Novozymes took a hit in the marketplace. “This could have a significantly negative effect on Novozymes' potential in second-generation biofuel enzymes in the U.S,” said DnB Markets analyst Rune M. Dahl in a note to investors.

Meanwhile, it was the “slim prospects” for a federal loan guarantee cited by POET officials in announcing last Friday that they were suspending plans for a $3.5 billion, 1,800-mile pipeline designed to transport ethanol from plants in the Midwest to terminals in the northeastern U.S.

In March, 2009, POET joined Magellan Midstream Partners to study the feasibility of the dedicated ethanol pipeline and found the project economically viable, estimating that transportation rates would run about 15% lower than rail rates, and become even more viable with increased use of 15% and 85% ethanol blends. But company officials said the pipeline could only become a reality with federal help. Loan guarantees have been the target of criticism among conservative lawmakers and budget hawks.

As congressional budget debates began to intensify last year, Magellan announced they were placing their interest in the project on hold. Environmental concerns raised in recent months about the Keystone XL oil pipeline proposed from Canada south into Texas has brought with them a controversial spotlight on fuel transport pipelines of any kind.



Original story printed in January 25, 2012 Agri-Pulse Newsletter.

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