Hearings and Business Meetings

SD-366 Energy Committee Hearing Room 02:30 PM

Mr. Chris Standlee

Vice President, Abengoa Bioenergy

ABENGOA BIOENERGY
ABENGOA BIOENERGY CORPORATION
The United States Senate Committee on
Energy & Natural Resources
Hearing on the implementation of the Renewable Fuel Standard in the 2005 Energy Bill and the future potential of biofuels such as biodiesel, cellulosic ethanol, and E85.
Testimony of
Chris Standlee
Executive Vice President & General Counsel
Abengoa Bioenergy Corporation
and
Vice Chair of the Renewable Fuels Association
June 19, 2006
Good morning, Mr. Chairman and Members of the Committee. My name is Chris Standlee, and I am the Executive Vice President and General Counsel for Abengoa Bioenergy Corporation, which in the United States, is headquartered in Chesterfield, Missouri. I also serve as Vice Chairman on the Board of Directors for the Renewable Fuels Association, the national trade association representing the U.S. ethanol industry. I am here today to represent both Abengoa Bioenergy and the Renewable Fuels Association, and I am pleased to be here this morning to discuss the fastest growing energy resource in the world – the U.S. ethanol industry.
Abengoa Bioenergy
First, I must point out that Abengoa is a technology driven, highly diversified company committed to sustainable development. Abengoa Bioenergy primary business is the production of ethanol; we own and operate ethanol production plants in the United States and Europe. In the US we own and operate three plants, with a fourth under construction: one in New Mexico, two in Nebraska, and one in Kansas. We are also a world leader in the research and development of new ethanol technologies (both traditional starch based and cellulosic). This research commitment includes building the world’s first commercial demonstration cellulosic ethanol plant in Salamanca, Spain, which is now under construction and is expected to begin operation in mid 2007.
Our commitment to research is significant. First, we have formed a separate research company called Abengoa Bioenergy R& D, Inc. Second, we have committed over $100 million to research that will be spent over the next four years to help form cellulosic ethanol plants more practical and feasible. Finally, that company has formed partnerships with universities and federal research facilities such as Washington University in St Louis, Auburn University, Kansas State University, the National Renewable Energy Laboratory, and companies such as Novozymes, Syngenta, NatureWorks, LLC and UOP.
Currently, we are the largest ethanol producer in Europe, where we operate three ethanol plants, and have a fourth in the final stages of development. We are now constructing the commercial demonstration cellulosic ethanol plant in Salamanca, Spain where we expect to be producing ethanol from cellulose by June 2007. This plant should provide significant insight into efficiencies and technologies for biomass ethanol production that we can incorporate into a new cellulosic plant here in the U.S.
Abengoa is committed to making the cellulosic industry work in the U.S. As mentioned, our company is a world-wide leader in research and development and has committed to investing significant resources to produce biomass ethanol at a cost competitive price with gasoline, as well as DOE’s goal of producing 60 billion gallons of ethanol from cellulose by 2030. We expect to submit an application to compete for one of the three cellulosic demonstration plants the President proposed in the State of the Union address.
Abengoa became interested in ethanol in the mid-1990 and shortly thereafter built its first ethanol plant in Spain. To become a world leader in the renewable fuels industry, Abengoa targeted and completed the acquisition of High Plains Corporation in February 2002. High Plains Corporation was a U.S. public company and a pioneer in the ethanol industry, building its first plant in the early 1980’s. After the acquisition, High Plains Corporation changed its name to Abengoa Bioenergy Corporation in early 2003.
Senator Talent thank you for the opportunity to testify and Chairman Domenici and Senator Bingaman, it is good to see you again. I have had the honor of hosting both of you at our plant in Portales, New Mexico, and as you are aware, Abengoa Bioenergy is the only ethanol producer in New Mexico. Like so many other companies in our 2
industry, we have recently doubled the size of that plant. We are also developing at least two additional U.S. ethanol facilities which will almost triple our current capacity within the next few years. That growth is due largely to the passage of the Renewable Fuel Standard (RFS) in the Energy Bill. Our industry in general has accepted the responsibility you have given us and we are committed to diversifying our domestic energy transportation fuels supply to include substantial quantities of home grown renewable fuels.
My testimony today includes a review of EPA’s implementation of the Renewable Fuels Standard and the cellulosic industry. But first, I need to update you on the renewable fuels industry, since it is changing so rapidly.
Today’s Ethanol Industry
Today’s ethanol industry consists of 101 biorefineries located in 19 different states with the capacity to process more than 1.7 billion bushels of grain into nearly 4.7 billion gallons of high octane, clean burning motor fuel and 9 million metric tons of livestock and poultry feed. It is a dynamic and growing industry that is revitalizing rural America, reducing emissions in our nation’s cities, and lowering our dependence on imported petroleum.
Ethanol has become an ubiquitous component of the 140 billion gallon U.S. gasoline marketplace. Today, ethanol is blended into more than 40% of the nation’s fuel supply, and is virtually sold from coast to coast and border to border.
In 2005, the U.S. ethanol industry consumed more than 1.4 billion bushels of corn in the production of 4 billion gallons of ethanol. This represents approximately 12% of last year’s 11 billion bushel crop. The industry also used 55 million bushels of sorghum, or about 14% of that crop. Finally, ethanol is produced from a variety of agricultural waste products, including cheese whey, beer and beverage waste.
The 4 billion gallons of ethanol produced and sold in the U.S. last year significantly contributed to the nation’s economic, environmental and energy security. According to an analysis completed for the RFA, the 4 billion gallons of ethanol produced in 2005 resulted in the following impacts:
• Added $32 Billion to gross output;
• Created 153,725 jobs in all sectors of the economy;
• Increased economic activity and new jobs from ethanol increased household income by $5.7 Billion, money that flows directly into consumers’ pockets;
• Contributed $1.9 Billion to tax revenue for the Federal government and $1.6 Billion for State and Local governments; and,
• Reduced oil imports by 170 million barrels of oil, valued at $8.7 Billion.
But we are not finished yet. There are currently 32 plants under construction. Twenty-one of those have broken ground just since last August when Congress passed and
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President Bush signed last year’s Energy Policy Act into law. With existing biorefineries that are expanding, the industry expects more than 2 billion gallons of new production capacity to be in operation within the next 12 to 18 months.
The potential for the ethanol industry to continue to build infrastructure and become a substantial volume of our domestic motor fuels supply is enormous and if we truly are working towards energy independence, then we must continue moving forward. In 2006 alone, we will add more than 1.1 billion gallons of new ethanol to the marketplace, which means that without any new technological breakthroughs the industry already has the potential to grow to more than 11 billion gallons by 2012.
Renewable Fuels Standard Implementation
Our company and in particular our CEO Javier Salgado, is extremely excited about the opportunities for ethanol and the commitment to the industry shown by Congress in creating the RFS. It was only a few short months ago, when this Committee worked with Senator Talent from Missouri and others on a bipartisan basis to accept an amendment that created an 8 billion gallon (RFS). The President added to my CEO’s enthusiasm when he proposed three demonstration plants in his State of the Union earlier this year.
The RFS has done exactly what Congress intended. It has provided our industry with the stimulation to grow and expand, and to attract federal and private funds for the all important research and development. It convinced the petroleum industry that ethanol would be a significant part of future motor fuel markets and moved them toward incorporating renewable fuels into their future plans. It persuaded the financial community that biofuels companies are growth market opportunities, encouraging significant new investment from Wall Street and other institutional investors. While farmers have been and will continue to be the foundation of this industry, teachers, truck drivers, police officers and now all Americans have the opportunity to invest in our nation’s energy future.
The Environmental Protection Agency has been working diligently to promulgate the rules implementing the RFS. The RFA and Abengoa, along with every other stakeholder, supported the Agency’s interim rule, which allowed the RFS to move forward in the absence of final rules for credit banking and trading on the assumption that more than the required 4 billion gallons of renewable fuels would most certainly be used in 2006. Indeed, the industry anticipates that more than 5 billion gallons of ethanol will be sold this year, and with a projected 200 million gallons of biodiesel sales, the biofuels industry will be more than 25% over the required RFS level in 2006.
The RFA has been meeting regularly with EPA and other stakeholders to craft final credit banking and trading program. We are confident the Agency will be in a position to promulgate a rule in time for the 2007 program, and we give you our commitment that we will work with the Agency to complete this rule in a timely manner since it is vital to the future development of this infant industry. We are also confident, given the
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Agency’s yeoman’s work to include all stakeholders in this discussion, that the rule will be supported by all.
E85
E85 (an 85% ethanol to gasoline blend) is a true alternative fuel that shows a great deal of promise. While still a relatively small part of the nations fuel supply, it has the capacity to replace more gasoline than the standard 10% blend, and further lessen the country’s dependence on imported oil. Abengoa Bioenergy believes there is a strong future for E85, and recently announced a partnership with General Motors, Kroger Stores, and the State of Texas to bring E85 fuel to the Dallas and Houston markets. General Motors, Ford and other automobile manufacturers are steadily increasing the number of vehicles that can burn E85 (Flexible Fuel Vehicles, or FFV’s) and incentives provided by the Energy Bill and the Jobs Bill, as well as legislation being considered in several states, are promoting the expansion of the fueling infrastructure which will make E85 a more prevalent and viable fuel option.
Cellulosic Biomass
To date, the ethanol industry has developed almost exclusively from fermentation of grain starch, and this production of ethanol from grain fermentation will continue to grow. However, in the near future ethanol will need to be produced from other feedstocks, such as cellulose, to provide greater variety and volumes of feedstock and to sustain continued industry growth. Abengoa believes in the future of cellulosic ethanol and is committed to that future.
Cellulose is the main component of plant cell walls and is the most common organic compound on earth. However, it is much more difficult to break down cellulose than starch and convert it into usable sugars for ethanol. Yet, making ethanol from cellulose dramatically expands the types of material, the geographic region those materials are produced, and the amount of available material for ethanol production. At some point in the future, the materials now regarded as wastes that require disposal, as well as corn stalks, rice straw sorghum stalks and wood chips or "energy crops" of fast-growing trees and grasses will be feed stocks. Cellulosic ethanol production will augment, not replace, grain-based ethanol, and ultimately will exponentially expand potential ethanol supplies.
Abengoa plans to be a leader in the commercialization of ethanol production from cellulosic materials. Our commitment to cellulosic technology was first made at the end of the 1990s, with our first investment in an emerging cellulosic ethanol company. Soon after the acquisition of High Plains Corp in 2002, we incorporated Abengoa Bioenergy R&D, Inc. to further the development and commercialization of the cellulosic biomass technology. Our objective is to have the first commercial operating facility by 2011. This facility will use agricultural residues and switchgrass to manufacture cellulosic biomass ethanol. Like Abengoa Bioenergy, many other ethanol companies in the U.S. are working to commercialize cellulosic ethanol production: first, because we already have cellulose materials coming into the plant and second, because we are working to meet the goals of the 250 million gallons of ethanol from cellulosic feedstocks by 2013, as established by the Energy Bill.
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The cornerstones of Abengoa Bioenergy’s efforts are the two biomass ethanol facilities which are presently under construction, one in Spain and the other here in the U.S. Our goal is to enable the commercialization of the technology by 2011. The engineering and research pilot plant facility in York, Nebraska will demonstrate our new biomass fractionation and fermentation technology. This facility will be operating by the end of the year. The biomass demonstration facility being constructed in Salamanca Spain will demonstrate the enzymatic hydrolysis technology at the commercial scale. This facility will use wheat straw as the primary feedstock and will have the capacity to produce approximately 2 million gallons of ethanol annually. The knowledge gained and lessons learned from these two facilities will be the basis for the design of our first commercial scale biomass ethanol facility which will be located in the U.S. grain belt. The site for this facility is being finalized and will be announced later this summer.
Research Needs
The only thing more astonishing than the growth of the ethanol industry is the technological revolution happening at every biorefinery and every ethanol construction site across the country. Technology is moving ahead at a very rapid pace for the companies that are conducting the research. Abengoa believes in the future of cellulosic ethanol. It is vital to the future of the renewable industry and because of that important role, Abengoa Bioenergy has committed over $100 million to be spent over the next four years to research that will be important to making cellulosic ethanol more practical and feasible.
In 2003, Abengoa was awarded a $35 million competitively awarded cost share project by the DOE to improve efficiencies of traditional ethanol production from grains, and to evaluate and develop new biomass ethanol technologies. Because of the DOE grant, we were able to form partnerships and look into new ventures with companies like Nature Works to develop a new pentose fermenting yeast, essential for the biomass technology. In addition, we have partnerships with several other companies that will assist in the development of ethanol synthesis technology.
Historically, DOE's competitively awarded grants, funded through the Biomass and Biorefinery Systems research and development program have been essential to the industry developing new technologies that will move the industry forward. Some of the previously mentioned partnerships were competitively selected projects to be funded by the DOE, but are on hold due to lack of funds.
Recently, the DOE has informed our industry that it intends to cancel many of these competitively awarded research programs, while simultaneously proposing new solicitations to fund similar research. We believe that both the DOE and the industry are frustrated with this situation because it sends the wrong message to the winners of those competitive awards.
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This DOE program is an excellent way to provide federal cost-share funds to the most promising and innovative technologies to move the renewable fuels industry forward. The program has allowed Abengoa Bioenergy to build a pilot plant near our York, Nebraska facility that promotes research to increase the efficiencies of both the traditional starch fermentation process and the cellulosic ethanol production. We believe that competitively awarded programs are one of the most efficient ways to encourage development of new and unproven technologies that cannot be financed in traditional ways, and to facilitate growth in a new industry. We have asked Congress to continue to allow for additional funds for competitive solicitations. This money will provide very valuable research if the DOE is able to fund new awards and continues funding the previously awarded grants.
Next Step
It is our belief that biofuels will play a vital role to reduce carbon emissions in the transportation sector in the near to mid term (the longer term may have additional options such as hydrogen).
The cellulose ethanol industry will develop in the Midwest around the existing starch ethanol industry, but biomass exists in vast quantities everywhere, and we expect significant geographical expansion after it is initially established. As documented by the USDA. There is sufficient biomass resources to make over 50 billion gallons per year of ethanol, in addition to traditional fermentation gallons.
After construction of a full commercial scale cellulosic ethanol facility, our deployment plan calls for the addition of cellulosic biomass processing capacity to our existing production facilities in both the U.S. and Europe. The plan also calls for the geographical expansion of ethanol by constructing greenfield cellulosic biomass facilities in the eastern and western parts of the U.S. where biomass is abundant.
Abengoa Bioenergy also intends to license its technology to qualified partners to further expand biomass technology.
With the incentives, biomass ethanol could quickly grow to 20 or 30 billion gallons of production in the mid-term, replacing a significant amount of our imported oil needs, and approaching DOE’s goal of 60 million gallons. While biomass ethanol is competitive with oil even as low $50 per barrel, the industry needs incentives to insure growth and to protect against the possibility that oil prices could temporarily dip below $50 per barrel. Without these incentives, private new technologies and unproven plant designs are difficult to finance.
One of the main obstacles facing a new industry is securing capital from the financial markets to invest in the physical infrastructure needed to determine what technology works in the plant. Financial markets look for signals from the federal government to show that it is serious about developing a new industry. The RFS was a significant step in the right direction, but more needs to be done to meet the goals set forth in the Energy bill and the goals set by the Administration. Another important signal is 7
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funding the biorefineries commercial demonstration, the biomass production credits and the loan guarantee program in a manner so that they can complement each other and provide the necessary support and resources for the industry to grow. Of course, we would ask that you fully fund those programs; however, we also understand the realities of the current budget situation. The President’s Energy Initiative has recommended a $150 million investment over three years to fund the construction of three commercial demonstration biomass biorefineries in partnership with industry and we support that recommendation.
Conclusion
In the State of the Union Address, President Bush acknowledged the nation “is addicted to oil” and pledged to greatly reduce our oil imports by increasing the production and use of domestic renewable fuels such as ethanol and biodiesel.
Due to the vision and hard work of this Committee, the Energy Policy Act of 2005 clearly put this nation on a new path toward greater energy diversity and national security through the RFS. We appreciate your commitment to the hardworking men and woman across America who are today’s newest energy producers and we understand our responsibility as we work to diversify our energy supply.
With that in mind, additional and more focused research and the continued commitment of this Committee will make the President’s vision of a more energy secure America a reality.
Thank you.