Will nervous investors kill off the biodiesel industry in its infancy? It felt that way as I read the news this week. Story after story reported: "no plant to be built," or, "facility canceled", or "future in doubt." The last phrase was being polite. The actual case in that instance was one of a planned (proposed?) biodiesel processing plant for Sudbury, Ontario, Canada (you know, that incredibly ugly, smelter polluted stretch of land that produced the incredibly beautiful, country music superstar, Shania Twain) (see, and you thought you'd never heard of Sudbury before, didn't you?).

As usual, and frankly probably for the same reason that we saw such a precipitous drop in the Dow Industrial average this past week, reticent investors are afraid of the risks. The result is that many opportunities are missed. In this case, a deadline looms that was imposed by the federal Natural Resources Canada administration. They are requiring that the company planning on building the plant have already committed to spending CDN$3.8 million by the end of March, 2007. The entrepreneur says its like "pre-paying" for a contractor to build you a house, with darn little assurances that the house will ever be built. The problem, or at least part of the problem is that the deal is almost too good to believe. Natural Resources has offered them CDN$1.90 million if they meet this and a couple of other conditions by the March 31st deadline. Now I don't know whether that is an "additional" bonus funding of CDN$1.9 million or an (in effect) rebate of CDN$1.9 million but either way it represents an incredible opportunity for someone. If it is added to the investors' funds, it is turning $0.66 into full dollars, or if it is a rebate, it is turning $0.50 dollars into whole dollars. Either way that's about as good as the odds you get on a come/don't come bet at the craps table in Las Vegas. I would say that if you can't find a lawyer to write you a construction contract that is less risk than a roll of the dice, you better get out of the entrepreneurial role in business development.

Of course the sad part about biofuels in general and biodiesel and bioethanol in particular is that they are such hot topics now that we have a kind of gold rush of people trying to exploit the early market. Early market domination is a tremendous advantage, especially in this world of high speed internet communications. But just like any "gold rush" the fever is often hotter than the opportunities. The Sudbury project can't be approved without an environmental impact study. Not usually a major problem, but another hurdle nonetheless. On the other hand, the entrepreneur in this case is waffling over which location he is going to choose, which sure slows an impact study. He may or may not have underlying financing problems, but the local attitude as indicated in the web site that reports most of the above details seems to be that this is another "hustle" and "hype" that will amount to nothing. (see: especially, the reader reaction posted below the article) It certainly would be sad if that is the case.

On the other hand there is cause for optimism too. I was contacted this week by a gentleman who is trying to finance vast cultivation of a species of jatropha, the plant which has seed oil content of 40%, and looks so very promising for the biodiesel industry. Indeed some railroad tracks in India have already been planted with jatropha all along the railroad-owned right of way. The harvest is going to processing plants for the diesel-electric locomotives to burn as they travel from city to city (Source:Wikipedia article cited above: Mumbai to Delhi line burns 15-20% biodiesel). So far, it is a small percentage of the fuel they consume, but it is a good start on energy independence, and a great example of the advantage of localization of energy supply. They have virtually no transportation costs. They are making the fuel right along the rail lines where the locomotives travel, on land already owned by the railroad companies. Since there is an established need for this in India, I hope that some of the micro-credit institutions that help cooperatives of women from families in great poverty to become self-sustaining family businesses will recognize that this is a very viable opportunity for literally millions of Indian families. A small obstacle in these cases might be that it takes a couple of years for the jatropha bushes to mature enough to produce a few kilograms of seed per bush, but since they require a minimum of active-care cultivation, are resistant to disease, and, at least in India, are immune to browsing by local animals, they are a hardy bush that can be expected to produce a lifetime of income producing (inedible) oil.

But I have digressed, let me return to the gentleman who contacted me. He wants to finance the planting of vast areas of jatropha by selling a cash-flow discount or conversely, a discounted supply of biodiesel feedstock in exchange for the initial financing of his project. I still haven't learned all the details of his situation, but his proposal goes like this: You put up US$10 million for your future discounted delivery. He plants 25 million jatropha trees (yes, I said trees) on 22,000 hectares of land. You get a (roughly) 10% discount (against today's market price) on all his production for the next 10 years. Crop estimates expand fairly rapidly from 25 million kilograms of seed (with 40% oil content, remember) after 1 year to 250 million kilograms in the 8th year, amounting to a little over US$40 million spread over ten years. There are some pretty significant risks involved. Vast plantations producing, or rather intended to produce palm oil have been started in Indonesia but jatropha has never been cultivated on this scale to the best of my knowledge. Jatropha's low water requirements (after a year or two it can endure up to 3 years of severe drought) are a great plus, but nevertheless, crop failure is always an agricultural risk. Market risks are another factor. What if palm oil prices drop when these vast plantations come online in a few years? Do you want to be stuck with 103 million liters of jatropha oil in each of the 8th, 9th and 10th year if algae cultivation proves to be the economic champion at 5000 gallons of biodiesel per acre per year?

On the other hand, if you already have a biodiesel production facility, or have one ready to come online in a year, this kind of pre-purchase agreement could create an economic safe zone against other market factors. Certain European consumers of diesel fuels who are under government mandates to "green" up their operations could find this an attractive situation too. It seems obvious, to me, too, that Indian railroads could be a prime candidate for exactly this kind of proposal. In any case, US$10 million seems like a pretty modest request to kickstart a 25 million gallon a year production of biodiesel. It is, as I have clearly pointed out, not without risk, but don't you think that sounds like a bargain?

I would like to take a few lines to thank my readers and my publisher. I don't make much money writing this column, (nearly $0.00) but I do take a little satisfaction from it. I would like you to know that even though we often think that we are having very little influence in the world, just the fact that you are reading (or publishing) my column is making some small difference, hopefully for the better. Just that fact that you read what I have to say, making me a moderately popular columnist for the whole American Chronicle group, including World Sentinel online, helps keep spreading the news that you and I think is worth thinking about. I "Googled" myself the other day, looking for an old article I wrote and found that I have been quoted and referenced and pointed to (linked) all over the place, including huffingtonpost.com and bronsom.com. I don't know whether it was my own references to attending next week's PowerGen Renewable Energy and Fuels conference in Las Vegas, or that some organizations have rented the attendees list from the organizers, but I was also contacted by several (foreign) government organizations regarding investing in or partnering with renewable energy industry participants in their countries. I find it very encouraging that other countries consider "green energy" to be an important issue too. The fact of the matter is that many countries have made it a much higher priority than has the USA, and it is time we started to catch up.

I will be looking for match-making opportunities in Las Vegas. I expect there will be lots of interesting possibilities, and I am hoping that some concrete opportunities can be realized from these explorations. We are currently working on four locations which we have identified as exceptional potential projects or partnerships. We hope to find some others who will agree during the next few days in Las Vegas. It takes just a minute or two to plant a seed, but years to let it grow into a productive tree. However, you have to choose the right place and the right seed for the place. Businesses are much the same process.

Please wish me good fortune in the fertile fields of Mandalay Bay.

Love,

Stafford "Doc" Williamson