RDA Happenings June 2011
Posted on June 1, 2011 – By Emporia RDA
Several weeks ago I just happened upon a CNBC program about bio-diesel – it gave a brief history over the past decade as a renewable fuel source, and focused on a U.S. student Josh Tickell, who was a foreign exchange student in Germany who learned about using bio-diesel from his host family. The German family, which operated an organic farm, converted used vegetable oil to power some of their farm equipment. His strong interest in this renewable energy source ignited a passion for bio-diesel and sustainability.
Upon his return from Germany, he purchased a Winnebago with a diesel engine and began a promotional journey across the U.S. He had a small converter system on his Veggie Van that could take vegetable oil from fast food restaurants and produce bio-diesel. The beauty of bio-diesel is that it does not generate any greenhouse gas such as CO2. In the event of an accidental spill of bio-diesel, it is 100% biodegradable. As the CNBC program continued, the bio-diesel industry began to grow on the “coattails” of the ethanol industry. Bio-diesel was beginning to gain traction as an important component as a renewable energy source.
You are probably wondering what does this have to do with the Emporia, Kansas, region. In the spring of 2007 the Renewable Energy Group from Ames, Iowa, announced the construction of a $65 million, 60 million gallon per year bio-diesel plant. The primary feed stock was unrefined soy oil of which a portion of the feed stock was going to be obtained from the Bunge soy bean plant in Emporia. Construction began in 2007, then ceased in the first quarter of 2008. In the CNBC report on bio-diesel, they indicated at about that time (in addition to debt financing capital ceasing to be available) as the “great financial crisis” of 2008. Certain “think tanks” asserted that using a “food quality soy oil” would place an undue hardship on the poor of the world so the use of soy oil fell out of favor. The cost of soy oil doubled in price, so the “thin margin” of converting soy oil into bio-diesel to be competitive with petroleum-based diesel fuel became highly unprofitable.
To date on the REG project, soy oil prices remain high, conventional debt financing on bio-diesel projects requires large amounts of equity to debt. If the federal government could provide debt guarantees, it would help the REG projects in Emporia and the New Orleans area. The REG project did utilize performance-based incentives to assist on the plant construction. The largest commitment from the City of Emporia was to fund the construction of a 12” natural gas main from west to east along South Avenue. The infrastructure investment was $792,000 up front cost to the city funded by General Obligation Bonds. Kansas Gas provided an economic development incentive to assist the City of Emporia by recovering up to 90% of the cost of the natural gas main over a 7 year time period. REG entered into an agreement with Kansas Gas that REG, regardless of the amount of nat-ral gas used, would begin paying a transportation fee of over $100,000 beginning in 2010 for the next 7 years. Then Kansas Gas would reimburse the City of Emporia $100,403 over the next several years or until 90% of the cost of construction was recouped by the City of Emporia. To date, the City of Emporia has received $200,806 from Kansas Gas from REG payments to them.
As per the terms of the incentive compliance agreement with the City of Emporia, REG has not been eligible for property tax abatement, so they have paid property taxes in 2008-2010 of $39,004.54. In addition, REG pays to the city annually over 10 years $40,200. To date REG has paid the city $120,600. The total paid back from REG to the City of Emporia is $360,410.
We are optimistic that REG will complete the project; however, the City of Emporia and REG renewed the Incentive Compliance Agreement (ICA) in 2010. The agreement expires on July 1, 2013, and it was agreed to by both parties if the project hasn’t been completed and operational by July 1, 2013, then the project is over.
It is projected that REG will have paid $602,000 back to the City of Emporia, which will cover the majority of the natural gas main. The natural gas main was needed by the Hill’s Pet Nutrition project and future businesses in Park III.
We all live in a world of finite resources. Choices have to be made about the sources of renewable energy. It is too bad that bio-diesel has fallen out of favor. I believe that bio-diesel is part of the sustainable energy solution.