DOW Jones

Assailing key patents

by Siobhan Hughes ,
November 07, 2008

WASHINGTON (Dow Jones)--Ethanol makers are among the companies hoping that U.S. President-elect Barack Obama, who has made renewable energy a centerpiece of his campaign, will put money behind his promises.

BlueFire Ethanol (BFRE), which is among finalists for a U.S. Energy Department loan-guarantee program, is calling for Obama's administration to make direct loans to ethanol companies, as the U.S. is already doing for the banking system.

"There has to be a program in place similar to what the banks have," said BlueFire Chief Executive Arnold Klann. "That's what we would really like to see: that government becomes a lender of last resort, so to speak, for these projects."

The ethanol industry suffers from tough economics. Falling oil prices make ethanol less attractive to blenders, and a surge in corn prices earlier this year translated into high raw materials costs for companies such as VeraSun (VSUNQ), which locked in prices before corn prices dropped by half. VeraSun, among the top three ethanol producers, last week filed for bankruptcy protection after it was left with obligations to buy the grain for more than the prevailing market price.

Ethanol makers take hope from Obama's platform, which calls for requiring 60 billion gallons of advanced biofuels be phased in to the fuel supply by 2030. That would be almost triple the 21 billion gallons of advanced biofuels that a 2007 law ordered to be phased in by 2022.

BlueFire, which is working on setting up ethanol plants near landfills and using grass clippings, wood waste, and cardboard such as old cereal boxes, may fare better than other ethanol companies. Obama's platform also calls for establishing a low-carbon fuel standard, something that could disadvantage corn-based ethanol if a movement to factor in the effects of diverting food to fuel gains prominence.

"As long as it's not corn," said William Weld, the former Massachusetts governor who is currently at the law firm of McDermott Will & Emery LLP, which represents some renewables companies. "If it's corn-based ethanol, there's an issue about food supply and food prices, and I think Sen. Obama might be sensitive to that issue, so I would expect him to lean to the side of cellulosic ethanol."

In calling for government loans, ethanol makers face competition from environmental groups who hope that Obama will carry out his clean-energy agenda by funding other programs. Anna Aurilio, the director of Environment America, on Wednesday said that the new leadership should fund programs including $2 billion in block grants to cities, states and counties for energy efficiency and renewables and $125 million for programs aimed at training workers for jobs in the emerging clean-energy industry.

Ethanol makers may be able to argue that the credit crisis strangling the U.S. economy makes the need to go beyond loan guarantees urgent.

"Direct loans would be better," Klann said. "All the loan guarantee gives you is the ability to go into the commercial marketplace and try to raise the money. Right now you have credit markets that are very, very frozen."

-By Siobhan Hughes, Dow Jones Newswires; 202-862-6654; Siobhan.Hughes@dowjones.com