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Biofuel plants hitting an economic road block

LILBOURN, Mo. — It's one of the newest buildings in this small agricultural town. Aligned between two city water towers, the 120-foot long biodiesel plant gleams in the sun. The paint on its sign hasn't even chipped.

But weeds have begun to encroach on the Great River Soy biodiesel plant, which produced just 94,000 gallons over two weeks before it ran out of money and was shuttered.

It's a scene that has been repeated throughout the United States: Clovis, N.M.; Nevada, Mo.; Hartsburg, Ill.; Lamoni, Iowa; Evansville, Wis.; Greybull, Wyo.; Rock Port, Mo.; Belle Fourche, S.D. All were supposed to have biofuels plants operating or under construction by now. None do.

The $42 million plant proposed in Evansville attracted about 900 Wisconsin investors, many of them from Rock, Dane and Jefferson counties. A groundbreaking in March 2007 featured Gov. Jim Doyle, but trouble slowly brewed afterward.

Financing and construction plans delayed the start of construction, though workers poured concrete and installed underground piping and wiring before construction was halted in November.

The project never restarted.

In June, North Prairie Productions announced it was ending the project because of "rapidly rising commodity prices and the decision by a key lender to withdraw from its loan commitment."

This week, another ethanol plant, in Pratt, Kan., declared bankruptcy. Prospects for another in San Pierre, Ind., have grown dim.

Hopes ran high in many small towns amid an explosive interest in biofuels and a rush to build large plants. Unseen by planners, however, was the coming spike in crop prices and a financial meltdown unlike any that America has seen since the Great Depression.

Wall Street has been reshaped, banks have vanished and with them, the money to hold over nascent projects such as the Great River Soy plant.

An Iowa ethanol company said last week that with money drying up, it had scrapped plans for a 110 million gallon ethanol plant in the state capital.

In Missouri alone, more than a dozen ethanol and biodiesel companies sought state regulatory approval in 2006 to recruit investors for projects in South Dakota, Nebraska, Minnesota, Illinois, Indiana and Iowa. Two years later, as many companies have failed or stalled as have finished their projects.

"The market just exploded and got so crowded," said Kerry Rose, the president of Ozark Ethanol, which has abandoned plans for a plant near the Kansas border.

"We had been working on it for going on three years, and then, dozens of people were popping up everywhere and everyone wanted a plant," he said. "Things were just too good for a time."

Investors watched as profits rolled in at biofuel plants in 2005, when hurricanes Katrina and Rita cut off gasoline supplies and prices jumped.

"It was a perfect storm of opportunity for the ethanol industry, and a perfect combination of every single element that they have counted on turning against them," said David Swenson, a researcher at Iowa State University. "The infrastructure isn't there and wholesale patriotic demand for ethanol didn't materialize."

There were ominous signs for the industry even before the Wall Street meltdown.

By 2007, corn and soybean prices charged upward, cutting into the profit margin for biofuels and leaving some plants without enough cash to operate.

Plant operators in Lilbourn said doubling soybean prices wiped out cash reserves just as the first batch of biofuel was produced.

"We couldn't see where it would ever pay off," said Don King, the president of Great River Soy's board of directors.

Mayor Dale Ray said that at least the town, which donated the land, doesn't have to mow and weed the property, but it was hoping for about a dozen jobs paying $13 an hour.

In the southeast Missouri town of about 1,000, open stores on the main drag are the exception.

In addition to the donated land, the plant received about $28,000 in state incentive payments. The plant's investors also received $924,000 in tax credits over two years.

The company tried to sell the plant for $6.5 million, but an auction has been scheduled for next month.

Many other projects never got off the ground, with investors pulling back cash.

Still, there is an even greater push for alternative energy after a summer energy shock that sent gasoline prices over $4 per gallon.

And with commodity prices dropping, construction for some stalled biofuels plants has restarted.

Cole Gustafson, a bioproducts specialist at North Dakota State University, said the biofuels industry has gone through several stages.

"Now it's kind of at a standstill as it goes from a mature industry into almost a new kind of industry," Gustafson said.

Dave Durham, president of Show Me Ethanol, which opened in Carrolton, Mo., earlier this year, said he doesn't envy companies trying to get off the ground now because "the investor pool is not near what it was."

"I think the economics of the ethanol industry became a lot more realistic," Durham said.

Lilbourn is hoping for a second chance. Police regularly patrol the vacant biodiesel plant. And city leaders expect the gravel parking lot to be busy someday.

"Someone will eventually buy this plant and probably start up," Ray said. "It was just an economic situation. Nobody swindled anything; nobody took anything extra. It was strictly economics."