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Ethanol glut hits home in BioTown, USA

Douglas BelkinWall Street Journal/Associated PessVail, CO Colorado

Two years ago, Indiana Governor Mitch Daniels came to the small farm town of Reynolds in northwestern Indiana corn country to christen it BioTown, USA. The goal: to attract bioenergy companies and set an example by fueling the town’s cars, homes and businesses with cheap, environmentally friendly energy.”This is America’s first BioTown in the making,” Gov. Daniels declared in front of about 300 people at Reynolds’s fairgrounds. But like dozens of U.S. farm towns counting on bioenergy to revitalize their economies, Reynolds is now learning a tough lesson about the difficulties alternative fuels face. Last month, VeraSun Energy Corp. announced it was stopping construction on an ethanol plant nearby.”I think this has made everyone a little nervous,” says Janice Farrell, manager of a BP gas station in Reynolds that features ethanol fuel pumps. Her lunch-time food sales had jumped since last spring when construction workers from the ethanol site started coming in. Recently, her revenue has dropped by $1,000 a week.A boom in corn-based ethanol has boosted prices for grain farmers and lifted farm incomes as the industry nearly doubled capacity since January 2005. But now a glut of ethanol supply and a sharp drop in price is reining in expansion.Recently, proposed facilities in Minnesota, South Dakota and Iowa have put construction plans on hold. An older plant in North Dakota has stopped making ethanol, laying off most of its 34 workers. Seventy-three plants are under construction nationwide, according to the Renewable Fuels Association in Washington. But dozens of other planned projects are stalled leaving towns hoping for more jobs in limbo.Seven of Nebraska’s 19 ethanol plants opened this year and seven more are scheduled to open by the second quarter of next year. But in the past few months, only one plant has begun construction, says Steve Sorum, project manager for the Nebraska Ethanol Board. Another 43 are stuck in planning stages. “The pace of building has slowed,” he says.Alchem Ethanol in Grafton, N.D., last month halted production at its nearly 25-year-old plant housed in a former potato-storage facility. The plant couldn’t make a profit amid high corn prices and dropping ethanol prices, which have slid 55 cents since May to $1.75 a gallon, according to Oil Price Information Service. Alchem’s general manager Kevin Rauser says he hopes the plant will reopen in the spring.Reynolds, population 521, seems an ideal location for an experiment in biofuels. It is at the intersection of two highways and two rail lines, near research facilities at Purdue University and close to an abundance of corn, hogs and cattle.The town is hungry for growth. The Midwest farm crisis of the 1980s decimated the town center that older residents remember, and now downtown Reynolds is little more than a two-block intersection anchored on one end by the BP station and a Frosty Freeze and the USA Restaurant on the other.Gov. Daniels’s plan was cautiously welcomed. “BioTown, USA: Fingers Crossed but Eyes Open” was the headline in a September 2005 editorial in the local Journal & Courier.The state put up about $500,000 to start the project, helping to install pumps for E-85 fuel 85 percent ethanol and 15 percent gasoline and converting fire trucks to use E-85. General Motors Corp. backed giveaways and discounts for local residents on cars that can use E-85.By this spring, about 160 of the cars and trucks in Reynolds were running on E-85. A new plant to turn pig waste into electricity was expected to be online by next summer. Another facility to turn manure into home-heating fuel was being planned.The BioTown buzz seemed to be spreading. Connie Neininger, director of economic development in White County, where Reynolds is located, says she fielded about 200 phone calls from different companies interested in moving to the area to take advantage of the cheaper energy the bioenergy infrastructure would produce. Proposals ranged from a tilapia fish farm to manufacturing facilities to a fertilizer plant.Then VeraSun Chairman and Chief Executive Don Endres announced in April that his company intended to build an ethanol plant nearby, in part because “the town is clearly forward-thinking.” A deal was worked out for a portion of VeraSun’s tax payments to go toward construction of its plant and to nearby public infrastructure improvements that would support the facility. VeraSun bought 320 acres and graded a parking lot big enough to handle cars for 400 construction and plant workers.Rising prices for corn and the prospect of the new plant helped push up the price of farm land in the area by $1,000 an acre.When VeraSun announced it was suspending construction of the plant, a measure of anxiety crept back into town. Though Mr. Endres says construction will begin again in the spring, the steady stream of workers stopping in Reynolds for a meal or to inquire about buying a truck slowed down.Many locals remain optimistic about prospects for bioenergy. “You want to keep fighting in the Mideast for oil?” asks Tom Westfall, whose family has owned land in Reynolds for 120 years and today farms about 500 acres of corn, soybeans and wheat. “I hope this whole town develops around BioTown.”VeraSun this week announced the start-up of a 110-million-gallon-per-year plant near Albion, Neb., its fifth to be up and running. The company says the Albion plant was near completion when the ethanol market dropped, while only a few months of construction had been done at the plant near Reynolds, making it more economical to stop work there.”A lot of what we’re doing right now is managing expectations,” says John Heimlich, a farmer and president of the White County Commissioners. “This is a revolutionary period. It’s going to take years to really start to assess the impact.”The ethanol industry could get help from the new energy bill if Congress lifts the amount of renewable fuels that the oil industry is required to blend into gasoline, but prospects are unclear. Some analysts think ethanol prices could remain depressed for a year or more even though ethanol is now priced much lower than gasoline, which is hovering around $2.90 a gallon.However, Jeff Broin, chief executive of closely held Poet, the biggest U.S. ethanol maker, with 21 plants, says the company will build plants at its traditional steady pace.In August, a unit of Little Sioux Corn Processors LLC of Marcus, Iowa, shelved plans for a stock offering to build a 100-million-gallon ethanol plant in Akron, Iowa. But Akron Mayor Harold Higman says the town will continue to benefit from the biofuels industry. A plant to make biodiesel which can be sold directly to gas stations without going through blending facilities, as ethanol does is on track for ground-breaking in the spring. And local farmers are still benefiting from high grain prices, he notes.The ethanol plant “would have certainly been frosting on the cake,” he says. But “we can still eat cake,” he adds. “We don’t have frosting on it, but someday we will.”


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