Green Car Congress recently had a quick conversation with John Warren, Director of Government Relations & Project Development for Osage Bio Energy in Glen Allen, VA.

We were founded back in 2007 as start-up company with the goal of establishing East Coast Ethanol Plants. We wanted to do something different and unique and winter barley gave us an excellent opportunity. It is a completely different story than the traditional ethanol plants constructed over the past twenty years throughout much of the MidWest corn-belt. We are excited to have such an advanced plant running within 3 years of being founded.

—John Warren

Winter barley’s footprint. Winter barley, as its name implies, is grown during the winter and represents an excellent incremental crop that can be grown in between a corn and soybean rotation system. Since the land has already been dedicated to growing summer crops, winter barley doesn’t result in any indirect land use changes (ILUC). In fact, growing barley is better than leaving the field fallow according to the Chesapeake Quarterly (published by the Maryland Sea Grant College, Vol 8, No. 1):

“Anytime you have a growing crop out there in the winter that is receiving relatively little nutrient input, it’s going to be positive,” says University of Maryland’s Coale [Frank Coale, the chair of the Department of Environmental Science and Technology]. “The bottom line”, agrees Chesapeake Bay Commission’s Swanson [Ann Swanson, Executive Director], “is that this will mean that all points during the year, there will be plants take up nitrogen in the soil versus no plants, where the only option (without a winter crop) is for that nitrogen is to become mobile and run off those fields in rainwater”.

One of the EPA’s initial requirements for RFS-2 involved being able to trace all of biofuel plant’s inputs back to individual farms but OBE joined others in convincing the EPA that the feedstock certification process would be costly and that biofuels were not resulting in the conversion of forestland to cropland. EPA accepted this logic and instead decided to focus on regional and national statistics and trends to make sure virgin land wasn’t being converted to supply biofuel facilities.

There are four reasons why ethanol made by OBE from barley has the potential to be considered an advanced biofuel, according to Warren:

1. Barley is a no-till or reduced-till winter crop and less nutrient intensive than corn. Nitrogen in nutrients contribute to the formation of nitrous oxide (N₂O)—a greenhouse gas approximately 300 times more potent than CO₂ on a mass basis over a 100-year period. Winter crops also help retain nutrients left behind by summer crops, where winter fallow fields would release nitrogen. These add up to reduced carbon impacts to grow/harvest feedstock. EPA RFS-2 has also recognized advantages of winter crops and has excluded them from ILUC impacts.

2. Grain is local and ethanol markets are local, so neither the raw material or the finished product have to be shipped long distances. This results in reduced carbon impact on transportation/distribution of the barley feedstock and finished fuel ethanol.

3. Barley has a hull which is removed and converted into a renewable biomass fuel pellet (50,000 tons per year). These will be sold into the utility markets and result in a life cycle carbon credit.

4. Part of the process btus come from the waste-steam from an electric cogeneration plant next to the facility. As a result, the carbon impact of the process is reduced.

When the EPA came out with their final rule they took all of the comments and agreed that winter barley is different than corn because it has no indirect land use impact. The EPA provided a pathway within RFS -2 for winter crop starches. It is not an advanced pathway, but it provides a petition pathway that based upon carbon performance we will be able to be considered an advanced biofuel.

—John Warren

Through an agreement with Drexel University and with help from the USDA, Drexel is performing an analysis that provides an initial estimate of the greenhouse gas (GHG) emissions for winter barley based ethanol. The Drexel team has collected scores of variables including: the operating parameters within the plant, details behind the nutrient applications used by barley farmers and the number of miles the barley has to travel from farm gate to plant entrance.

Drexel’s initial results are encouraging, suggesting that winter barley results in a 60% reduction in GHG vs. traditional gasoline (with a 50% reduction required for advanced fuel certification) but more work needs to be done. OBE needs to provide Drexel with actual data instead of projections once the plant is running, OBE would need to have an approved third party conduct the validation, and EPA has to approve the certification through their RFS-2 petition process.

OBE applauds EPA’s leadership and is concerned that low carbon fuel standards and regulations such as the California Low Carbon Fuel Standard (LCFS) and the memo of understanding signed by eleven states in the Northeast will not be consistent with the work of the EPA. “It will be inefficient and counterproductive if each group comes up with their own standard”, according to Warren.

OBE is motivated to achieve the advanced fuel designation because there are carve-outs in RFS-2 that may result in the RINs (Renewable Identification Number) for advanced fuels selling at a price premium. With commercial scale cellulosic ethanol still a longer term solution, OBE sees an opportunity to be an early advanced biofuel market participant.

Launch Plan. OBE is a project deployment company and not a technology development firm. They are “technology agnostic” and have partnered with KATZEN International which provides the technology packages and consulting. Equipment can run a variety of small grain cereals including corn, milo, barley, wheat and rye. OBE has flexibility that isn’t seen with other plants in the US and through the use of KATZEN’s technology.

The technology involves converting starch into sugars and fermenting the sugars. Processing barley is a little more difficult than corn in regards to hull separation and the milling process required to isolate the starches. As a result, the front end milling process is a little more robust than what a corn plant needs to do.

OBE product streams. Click to enlarge.

OBE is a small operation with a core group of 20 people in the corporate office, most of who have been on board for the past two years. For the first plant in Hopewell, Virginia, OBE has hired 44 of the eventual 55 people with 86% of the people being local to Hopewell area community.

Each plant will require 30 million bushels of barley to produce 65 million gallons of ethanol/year. OBE is expecting barley yields of approximately 100 bushels per acre. A barley bushel weighs 48 lbs (21.8 kg) while a corn bushel weighs 56 lbs (25.4 kg). Normalizing the weight of the bushel to the 56 lbs of a corn bushel, OBE expects 2.67 gallons/bushel—very similar to the yield from a corn ethanol plant.

“We’re losing approximately 100,000 acres of farmland/year in Virginia and 400,000 acres/year in the mid-Atlantic region overall to developers because farmer’s can’t make a buck” says OBE’s Warren. With each plant purchasing $100M/year worth of barley spread over 300,000 acres, OBE hopes to prevent some of those acres from being turned into “sub-divisions, golf courses and parking lots”.

OBE is working with Perdue’s (the third-largest poultry company in the US) agri business group to supply the plant’s grain requirements. “We have spent a lot of time going to conferences and workshops attended by farmers from the Mid-Atlantic region to provide out reach and education on the benefits of winter barley. We are confident we can get the 30 million bushels of barley we need per year from local farmers within the first several growing seasons”, says Warren.

OBE views their financials as proprietary, but here are some publicly available numbers. According to indexmundi.com barley has ranged from $100-$157/metric ton over the past 6 months. At its most recent price of $137/metric ton Osage would be paying approximately $1.30 for each gallon for their barley (assuming the local price follows the national price). Corn has similar gallons/mass yields as barley and over the same period corn has ranged from $150-$173/metric ton.

OBE has received no federal funding and doesn’t expect to receive any in the near future.

All of the Department of Energy money is focused on advanced technologies and we aren’t inventing new technologies, just trying to apply existing technologies more efficiently. There are USDA loan guarantees, but the way they are structured is “In good times you don’t need it, in bad times you can’t use it”. The USDA guarantees cover a percentage of the debt but they insist the loan’s supplier provide a large portion of the debt with no guarantee, a risk that in today’s financial markets, lenders are unwilling to take.

We even received interest from several states to backstop the loan and for them to be subordinate to the USDA (in which case if the project were to default the order of reimbursement would be USDA first) but that still isn’t acceptable.

There is some logic behind the rules. When the loan guarantee was created, the idea was for the banks to have “skin in the game” so that the bank would apply typical due diligence to the loans and act as a safeguard against projects with dubious financials being funded. The reality is that within the last year or two banks have gotten overly conservative.

—John Warren

Next Steps. The focus for 2010 is to get the Hopewell plant up and running and to start the petition process for an advanced biofuel designation. OBE believes having a functioning plant with a clear path to advanced biofuels designation will help them secure financing for a second project, one of which could be a shovel ready site in South Carolina.

Longer term, OBE expects to have as many as four plants in the Mid-Atlantic. Sites will be selected to keep plants from competing against each other for barley feedstock.

Like all ethanol producers, OBE supports raising the blend limit from 10% to 15% to enable the potential market for ethanol products to grow. Vehicle manufacturers would prefer an alternative approach to growing the ethanol market, they want to increase the availability of E85 beyond the Midwest to support flex fuel vehicles. The EPA is in the process of conducting durability testing to understand the impact to legacy vehicles of various levels of ethanol blends.