Kyle Geissler talks with Janesville Gazette reporter Kayla Bunge about an update to plans for an ethanol plant in Sharon.
SHARON — Record-high corn prices caused by recent flooding in the Midwest, among other market conditions, have many ethanol producers halting expansion.
But Global Renewable is forging ahead with plans to build an ethanol plant in Sharon with a careful eye on the numbers.
“We’re still in the hunt, but we’re realistic about the challenges we face,” said Jeff Knight, director of Global Renewable. “There’s a better than 50-50 chance we’re still going to build.”
The company said in late December it had secured 80 percent to 90 percent of the $237 million needed to build the facility on a 200-acre parcel on Highway 67 on the western edge of the village.
The Sharon Village Board in April 2007 approved the sale of $60 million in tax-exempt industrial revenue bonds for the project.
But as financial institutions face losses as a result of the spiraling economy, they’re less willing to invest in risky industrial revenue bonds, and ethanol companies that relied on the bonds for funding are forced to find more investors.
“It changed how much we could borrow and how much we had to raise,” Knight said.
He said the market is volatile, but Global Renewable is convinced that, with time, the markets will right themselves.
“We’re in the worst economy for ethanol you could be in, and we still feel this is good plan,” Knight said.
Randy Fortenbery, the RENK professor of agribusiness at UW-Madison, said ethanol companies are in the midst of a “very challenging time” because they’re losing money.
“Corn prices are 22 times higher than they were in the fall of 2006, when we were going through an ethanol boom,” he said.
With corn at about $7.50 per bushel, ethanol needs to be at about $3 per gallon to make production worth it, Fortenbery said.
“And it’s just not there,” he said.
Knight said the Sharon site is competitive because of its proximity to an abundant corn supply and needed infrastructure including highways for trucks to bring corn to the plant, railroad tracks to transport processed ethanol to ports on the East Coast and a granary to accept corn remnants that can be sold for high-protein livestock feed.
The area’s “tremendous” corn yield per acre makes the Sharon plant poised to turn a profit, Knight said.
“Some of the news you see about plants not starting up is in areas with not as good of a corn supply,” he said. “You’re going to see some of those plants shut down because of inefficiency.”
Knight gave this example: Global Renewable pays $1 for a bushel of corn, from which it is able to produce 3 gallons of ethanol—a cost of 33 cents a gallon. At the same time, the price of ethanol rose 35 cents.
He said that’s enough of an increase to make ethanol production profitable.
“It’s a matter of doing the math, and we do that on a daily basis,” Knight said.
Fortenbery said most ethanol companies aren’t as confident as Global Renewable and have reached the point where ethanol production is no longer lucrative.
“It’s a function of how deep their pockets are and how much risk they’re willing to take before they reach a breaking point,” he said.
Global Renewable must secure the remaining financing before it can make any predictions for when it will break ground on the Sharon plant—a task Fortenbery said could be difficult given the state of the ethanol industry.
“It’s a much more challenging environment today than it was a year and a half ago,” he said. “The trend right now is not to build … That’s not to say there’s someone out there who’s swimming against the current.”
Knight said Global Renewable hopes to “have iron in the ground” this fall. Construction could take up to 18 months.
When completed, the plant will produce 110 to 120 million gallons of ethanol and 365,000 tons of dried distillers grain annually from 38 million bushels of corn grown within a 50-mile radius.