Sugar beets-to-ethanol

FARGO, N.D -- With planting less than a month away, a company hoping to contract with farmers in 2012 to convert sugar beets into ethanol at a defunct corn-based ethanol plant in Grafton, N.D., has only about 400 acres of its 12,000-acre goal, officials say.

Officials of Energae LP Holdings, based in Clear Lake, Iowa, have conducted a few informational and farmer meetings in the past couple of weeks to find investor/suppliers for the plant. The last farmer meeting was held March 23 in Grafton.

Energae (pronounced ener-GEE, and is Spanish for energy) officials are looking for about 12,000 acres of production, and are asking farmers to commit to a $10,000 minimum investment -- $500 per acre on a minimum of 20 acres. In early March, Energae announced that it had signed a purchase agreement to buy the plant, which produced ethanol from 1983 to 2007. The plant building originally was a Borden's potato flake plant.

Energae officials say they need to invest another $5 million to $6 million into the Grafton plant to make it work, including a $1 million investment to replace the roof. The company would pay farmers $50 a ton for sugar beets, plus the profit on ethanol production.

"I think it's an OK model," Darrell Smith, the projects director of operations, told farmers at the meeting. Energae claims to have experience in producing ethanol for advanced biofuels markets, which carry subsidy levels greater than standard corn-based ethanol.

In Grafton, however, they often struggled with basic questions about timing and logistics in the sugar beet market.

Futhermore, Energae LP is not registered to do business in North Dakota, according to the North Dakota Secretary of State's office. The company, then represented by Osmund T. Gjermeland of Clear Lake, Iowa, started the registration process in March 2010 but did not complete it and the agency terminated the process in November 2010.

Leader 'in negotiation'

On March 23, Smith said his company planned more informational meetings in surrounding towns. A week later, he said they still planned to conduct informational meetings, but he declined to list them. He said additional meetings depend on the return to the region of Duaine Espegard, a retired banker/legislator and community leader, who a week earlier he'd described as general manager "in negotiation" for the project, and the man to choose the team to answer farming and delivery logistics questions.

Meanwhile, he said his company has contracts with suppliers of other feedstocks -- perhaps wheat flour or other unspecified stocks -- and may need to go with those because of the timing issue on beets.

People at the meeting had many questions, and only some of them were answered. During the meeting, Smith acknowledged his company has no experience dealing with farmers for supplying ethanol-making feedstocks.

"That's why we're employing, you know, someone like Duaine. He lives here, he lives in Grand Forks (N.D.)," Smith told the group. "He knows the sugar beet market very well. That's why people like him, need to come in and model it for details."

He named Espegard, as "the one who is choosing" the team to determine details such as harvest schedules and rules. Those answers would be available "in the next 30 days," Smith said. His slides listed Espegard as "in negotiation" as their "project manager." Espegard wasn't immediately available, he said, because he was on vacation in Florida.

When Agweek contacted Espegard, a former Republican state senator from Grand Forks, he said he had no financial relationship with the company and didn't know anything about its process.

A current member of the North Dakota Board of Higher Education, Espegard told Agweek that the first time he'd ever spoken with the Energae people was on the day they were staging their grower event in Grafton, on March 23.

"I have no commitment at all to these guys," Espegard said on March 29 when reached by phone in Florida. "I'm on vacation and I won't look at it at all for a couple of weeks." He says he told them they would be "presumptuous" to mention his name in the program, and was surprised to learn that he was included on their slide presentation.

"I told them I would prefer they not use my name," says Espegard, who worked for 40 years in banking.

Energae's plan

Energae also operates PerMeate Refining of Hopkinton, Iowa, which produces ethanol from corn syrup, corn starch, whey and paper products. The company also owns BFC Gas and Electric in Cedar Rapids, Iowa, which produces low-Btu biogas from biomass materials for electricity production.

Smith said Energae plans to make ethanol from whole beets. He said that unlike beets for sugar, the sugar beets for the ethanol plant would be stored on the farms that grow them. The company would be responsible for insurance on the farm-stored piles, he said. They'd be collected through the winter by the company, and whatever is leftover in May would be collected by the company and stored at or near the plant, in a warehouse that would hold up to 200,000 tons a year. Smith said he has one off-site storage facility as part of the purchase deal, but is looking at other options.

In his meeting with farmers, Smith emphasized that his company paid "several million last year for" ethanol feedstocks. "We're not just coming up here wet between the ears," he says. "We know how to make it work."

Energae held two informational meetings in mid-March and then the grower-specific meeting in Grafton. Jerry Krause, the company's chief financial officer introduced Smith at the meeting and identified him as the "director of operations," but Smith described himself to Agweek as a "loan representative" for the project.

Farmers would buy one unit of stock per one acre of beets to be marketed, with one acre costing $500, but needed to buy 20 shares for a minimum investment of $10,000. Smith said that the price offers a "better value than what American Crystal Sugar Co. offered in the 1970s when it sold stock to make the company a cooperative.

Coming in 60 days?

Smith said his company needs at least 12,100 acres of beets to get the plant going, and would like 14,000 acres for the first year. The company will make the ethanol with a combination of beet and other feedstocks. He said the company could start operating the plant "60 days from today (March 23)" with non-beet feedstocks.

The 12,100 units offered would be enough for farmers to purchase 50 percent of the plant. The farmers would receive a per ton beet payment of $50, but divided into monthly installments. (American Crystal payments, to compare, are made in three installments -- the fall, the spring and a final fall payment, based on updated information on the sugar selling price.)

Smith said the company has U.S. Environmental Protection Agency approval to make D5 advanced biofuels, making ethanol from wheat byproducts, which is eligible for a 70 cent per gallon subsidy.

He said the company is also applying for D3 cellulosic biofuel approval, which would increase subsidies to $1.40 per gallon of ethanol, if approved. The D3 approval would put it on the same footing as ethanol produced from corn stover. At the higher subsidy level, sugar beets for ethanol would be worth more than they are for sugar. Beets are considered a specialty crop and more profitable than cereal grains due to market protections from imported sugar.

Smith said Energae's process "attacks the cellulose and hemicellulose" available in sugar beets. Byproducts of the process would be an organic fertilizer, cattle feed and biogas.

Energae figures the U.S. must make 21 billion gallons of advanced biofuels by 2022. So far, the nation is falling short of its Renewable Fuel Standard goals for the ethanol classes.

Meanwhile, oil companies buy the advanced biofuels from suppliers based on Renewable Identification Numbers or RINs assigned to every gallon made. Those gallons are in limited supply, but the oil companies buy them to reduce their penalty tax for greenhouse gas emissions.

Alchem background

The Grafton plant was built as a Borden Foods Co. potato flake plant in the 1960s, or earlier. In 1982, Harold Newman, an outdoor advertising company owner from Jamestown, N.D., and a group of investors bought it and produced ethanol from cull potatoes. Plagued by potato wastewater problems, they tried barley and eventually shifted to corn. In 1993, Newman became the primary owner.

Alchem, rated at about 10 million gallons a year, is about one-tenth the size of the last two corn ethanol plants built in North Dakota. It fell idle until the fall of 2010, when it was sold at an auction to Borchart Steel of New Germany, Minn., according to the Grand Forks (N.D.) Herald. Soon afterward, it was purchased by Northeast Energy, whose registered agent is Rick Newman of Mayville, N.D. Rick Newman is related to Harold Newman and was involved in a corn procurement entity for Alchem.

Sugar beet vs. energy beet

Officials of Green Vision Group Inc., a separate North Dakota company, is also talking about making ethanol from "energy beet" juice in 12 potential plants in North Dakota. They want it understood they are not connected to Energae. Maynard Helgaas, of West Fargo, N.D., president of Green Vision, says he's met officials of Energae.

Helgaas says he met with Krause in St. Cloud, Minn., earlier this month, at the request of Rick Newman, who had informed the Iowans that Green Vision had studied the plant and passed on it. Also in the meeting was Rod Holth, a Grand Forks, N.D., agribusinessman who is a partner in Green Vision.

"They're not connected with us, whatsoever," Helgaas says. "I don't know much more than that, other than that they're going to try to get beets for ethanol use. I hope they're successful because they could be a benefit for our project as well."

In his meeting with Energae, Helgaas says he told Krause that Green Vision had looked at the Alchem plant in the spring of 2010 as a potential "demonstration plant" for its business concept.

Green Vision brought engineers to the Grafton plant and studied it for three or four days, Helgaas says, deciding whether equipment from the corn plant might be retrofitted for handling beets. Part of the roof had caved in and there was an insurance claim pending.

"It's a whole different process, compared to corn," Helgaas says, of beet-ethanol processing. "It didn't look good for us to pursue. We were looking for a demonstration plant we could scale according to the processes we planned to use at Energy Beet Ethanol, and could be attractive to investors."

Energae's new way

Smith said his organization started looking at its model in 2006. Sugar beets work for ethanol, Smith says. "They work in Europe. There's no reason why they don't work here. Why aren't we doing it, especially since the U.S. government is going to pay us an extra 70 cents a gallon to make it?"

He said ethanol is a much less price-sensitive than other commodities because the "government is supporting it with a 70-cent-per-gallon or $1.40-per-gallon credit.

"At $1.40 a gallon, you all would be crazy not to do it, you know," Smith said.

Smith said the Grafton plant offers a great opportunity with a brand new coal bed gasification system, brand new methanators and other new equipment. "The plant's just sitting there, waiting for someone to turn the key. That can be you, if you want it to. If you don't want it to happen -- heck, neither do we."

Scott LeClerc, who farms east of Grafton, wasn't satisfied that all of the answers are available about the plant. "We're kind of running out of time for deciding," LeClerc said. "How do we go plant 20 acres of beets, or plant 300 acres of beets not knowing if we're going to dig them and dump them on our headlands, or haul them to our yard and pile them?" He said he wasn't clear what model the program would emulate.

LeClerc says the only "model" growers believe in is the American Crystal Sugar Co. model, where harvest, storage and marketing schedules are spelled out.