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The "Range Fuels" Fiasco - WSJ

Discussion in 'World News & Politics' started by naranjaynegro, Feb 9, 2011.

  1. naranjaynegro

    naranjaynegro Deputy

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    The Range Fuels Fiasco

    A case study in the folly of politically directed investment.

    President Obama's budget next week is expected to include even more subsidies for renewable energy. Before Congress bellies up to that bar one more time, it ought to dissect the fate of Range Fuels and the wood chips fad.

    As taxpayer tragedies go, Broomfield, Colorado-based Range Fuels has all the plot elements—splashy headlines, subsidies and opportunistic venture capitalists. Range got its start in 2006 when George W. Bush used a State of the Union address to extol wood chips as a source for cellulosic ethanol that would break America's "addiction to oil." Mr. Bush pledged that with government funding cellulosic ethanol would be "practical and competitive within six years."

    Vinod Khosla stepped in with his hand out. The political venture capitalist founded Range Fuels and in March 2007 it received a $76 million grant from the Department of Energy—one of six cellulosic projects the Bush Administration selected for $385 million in grants. Range said it would build the nation's first commercial cellulosic plant, near Soperton, Georgia, using wood chips to produce 20 million gallons a year in 2008, with a goal of 100 million gallons. Estimated cost: $150 million.

    The media and political class swooned. Bush Energy Secretary Samuel Bodman attended the plant's groundbreaking in November 2007, hailing Range as a private-sector "pioneer" that would "reduce our dependence on foreign oil." Range was celebrated in the New York Times and Forbes.

    In 2007, Congress doubled down by mandating that the U.S. use 100 million gallons of cellulosic ethanol yearly by 2010, and 250 million gallons by 2011—though not a single commercial facility existed at the time. The Environmental Protection Agency explained in a subsequent report that the bulk of that initial 100 million gallons would come from Range Fuels and another Khosla-funded venture, Cello Energy.

    By spring 2008, Range had also attracted $130 million of private funding, the largest venture investment in the nation in the first quarter of that year. Investors included such prominent VC firms as Blue Mountain and Khosla Ventures and California's state pension fund, Calpers. The state of Georgia kicked in a $6 million grant, and all told Range raised $158 million in VC funding in 2008.

    The result has not been another Google. By the end of 2008 with no operational plant in sight, Range installed a new CEO, David Aldous. In early 2009, the company said production was not expected until 2010. Undeterred, President Obama's Department of Agriculture provided an $80 million loan. In May 2009, Range's former CEO, Mitch Mandich, explained that the problem was that nobody had figured out how to produce cellulosic ethanol in commercial quantities. Whoops.

    In early 2010, the EPA said Range would finally produce some fuel in 2010—but only four million gallons, not 100 million, and of methanol, not cellulosic ethanol. So taxpayers have committed $162 million (along with at least that much in private financing) to produce four million gallons of a biofuel that others have been making in quantity for decades. This politically directed investment might have gone to far more useful purposes.

    As a closely held firm, Range Fuels doesn't disclose financial details. But Range technical adviser Bud Klepper told Georgia Public Broadcasting last month that the company would create only one batch of cellulosic ethanol of unspecified size—then shut the Georgia plant and lay off all but four employees as it seeks to raise still more money and work through some technical issues. A Range Fuels spokesman didn't return calls seeking more details.

    As for current Range CEO Mr. Aldous, he's blaming this failure on—brace yourself—Washington's failure to impose a tax on carbon via cap and trade. "The critical issue is really that there's no mechanism to price carbon today," he told a Colorado newspaper. He also blamed "public apathy toward green fuels."

    Apathy? How many other products get the Presidential seal of approval, taxpayer subsidies, forced-purchase mandates and glowing media attention?

    As for Mr. Khosla's other great cellulosic hope, Cello Energy filed for bankruptcy last year. The EPA, which had projected that Cello would create 70 million gallons, has dropped Cello from its list of potential suppliers. More broadly, the EPA last year had no choice but to reduce the government's 100 million gallon target for 2010 to 6.6 million gallons. It is also fiddling with the definition of what qualifies as a "cellulosic" fuel. Perhaps Newt Gingrich will ask EPA to let corn ethanol make the cut.

    If there's a silver lining here, it is that the folly of this exercise in corporate welfare has been exposed so quickly. There is no excuse now for throwing more money after bad, or to listen to more self-serving pleas from superrich investors who want taxpayers to finance their politically correct attempts to get even richer.

    Wow....just wow...and we wonder why most American's have such a low opinion of government. They are experts at throwing away US taxpayer money on grand, unproven schemes. To top that off, they also want to do away with the "tax loopholes" provided to BIG OIL...because they make too much profit. I'm not sure why they aren't after the tax loopholes of the Microsofts, Google's, et.al of the world because of their "obscene profits" but I think we all know why.

    And then we have these rich investors types who are making a living off of government subsidizing these green boondoogles.
  2. SLVRBK

    Staff A/V Subscriber SLVRBK Moderator

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  3. naranjaynegro

    naranjaynegro Deputy

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    So, now we are going to use trees instead of corn to make fuel? I'd be interested to know the impact on: 1. water usage 2. emissions 3. energy required for the conversion process

    This technology....like ethanol...like solar....like wind..cannot stand on it's own merits (cost wise) and compete with existing forms of energy without huge payouts and guarantees by our government. Why is our government involved in picking winners (and losers) in the energy industry??

    I guess I just don't understand why this country is not using it's natural gas reserves to do the same thing. The only thing you'll have to get in place is re-fueling infrastructure as natural gas conversion kits is not new technology.
  4. Cimarron

    Cimarron It's not dying I'm talking about, it's living.

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    You just have to read the right words for a better understanding.
  5. Slugger926

    Slugger926 Cowboy

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    I took a serious look at trees in a business plan back in the fall of 2008 before oil prices nose dived (partially as a class team project). Since I had family in GA, I knew there were trees and pecan hulls that could be used in a gasification ethanol plant. The hulls were already being used to produce electricity, so they already had a market. The wood had multiple competition. I was called by one attorney late at night from the paper industry saying they would lobby against such an ethanol plant coming to GA. The paper industry didn't want competition on their wood.

    Second point comes down to pure economics. One can produce more $$$ in paper than they could in fuel grade ethanol for the same amount of natural resource.

    One would be better off using used paper to produce fuel grade ethanol than the virgin trees that would make virgin paper. Recycled paper involves too many chemicals and processes, and give off volatile carcinogenic fumes such as dioxins to be sustainable or good for users or environment. Green isn't always green, but actually hype.

    Gasification ethanol will make a nice profit, but will take a system and pipeline network a little more complex than most will want to risk to make it happen. The best places for the feed source, like wind, is no where near decent water supply and population centers. It would be best produced and used locally to the source, but the best places for it are anti anything but pure gasoline. To me it would make more sense to produce the ethanol in OK, and sell our oil resources for higher profits to other states.
  6. naranjaynegro

    naranjaynegro Deputy

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    Most net oil exporting countries (that have significant gas reserves) are running as fast as they can to develop indigenous natural gas production in order to fuel expanding domestic requirements so that they can save the oil production for the high $$ export market.
  7. SLVRBK

    Staff A/V Subscriber SLVRBK Moderator

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    When I was in Bangkok I was amazed to see the large number of nat gas refueling stations for vehicles. This is a switch that needs to start in this country and it will have a far greater impact than ethanol, wind or solar.

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