Ace Ethanol

Source: Energy Digital

Date :6/1/2007 4:01:17 PM

Ace Ethanol has enjoyed immediate success in rural Wisconsin by working closely with the community, and dispelling myths about ethanol production

Written and produced by David Weldon & Glen White

Robert Sather has learned a lot of valuable management lessons over the years, but the lesson that is perhaps serving him best right now is that of managing expectations.

As board chair and a cofounder of Ace Ethanol, in Stanley, Wis., Sather is enjoying a tremendous growth in the interest in, and production by, the ethanol fuel industry. That certainly bodes well for Ace Ethanol, which at six-years-old this June, was the first large size ethanol plant built in the state.

But with national growth in ethanol production has sprouted complaints by dozens of other industries. A common concern: greater materials costs they say they are experiencing as a result of rising corn prices. In the past few weeks alone, industries as disperse as cattle ranching, breakfast cereal manufacturers and Mexican tortilla importers have all complained about the growing ethanol industry.

But those concerns are groundless, Sather says.

“There will be 15 percent more corn planted this year,” Sather says, “and last year there was a near record crop. The market has already adjusted to the demand.”

Indeed, the prospective plantings report released by the U.S. Department of Agriculture reported on March 30 indicates that that corn farmers intend to plant 90.5 million acres in 2007. Last year, corn growers planted 78.6 million acres.

“Strong demand for corn in all market sectors — exports, livestock and ethanol — has put corn in the spotlight as producers get planting under way,” says Ken McCauley, president of The National Corn Growers Association (NCGA). “We’re confident corn farmers will produce another big crop given good weather.”

If the Department of Agriculture estimates are correct, corn producers would be on track to produce 12,692 billion bushels in 2007, the largest crop on record, McCauley says. The forecast would also be the largest corn acreage since 1944, when producers planted 95.5 million acres, and plenty to supply the ethanol industry and all other corn-dependent industries.

Sather says he shares that optimism, and he is also confident that Ace Ethanol will quickly rise to become one of the premier ethanol producers. Working in its favor to do exactly that: a combination of large size, no debt, and long-term commitment. And the short history of Ace Ethanol already provides many valuable lessons to the other plants now coming online, or being proposed.

“In 2002, in the first phase of production, we produced 20 million gallons per annum of ethanol,” Sather says. “After expansion in 2003, we were able to immediately produce an additional 20 million gallons per year. Because of increased efficiencies we anticipated producing 45 million gallons by the end of this year.”

To put this into perspective, Sather said the ethanol industry produced $5.3 billion gallons in 2006. This production represents 117 production plants nationally, most of which are owned by small farmer cooperatives. He says another 70 ethanol production plants are also under construction now, illustrating how fast the industry is growing. By the end of 2008, industry forecasts are for a total production of seven billion gallons.

What has helped Ace Ethanol be successful already is its deliberate approach to working with the local community, educating both the public and permitting officials on the process of ethanol production, on its environmental impacts, on its economic benefits to the region, and in building efficiencies into all aspects of its production, and distribution.

There were two important lessons learned from the early process of siting the plant in Stanley, Sather says. First was to be as open and forthcoming as possible with residents on what was being proposed, and how it would tie to the local community. This includes “creating about 40 full time jobs,” Sather says.

“We held a series of meetings to explain clearly who we are, Sather says. “We were able to bus all the Stanley residents to Bensen, Minnesota, to see a plant in operation. It was a plant owned by a different company, but it was the same type of plant.”

That site visit was apparently invaluable in the process, as Sather says there was no recorded opposition to the Ace Ethanol plant when the final permitting hearings were held.

Another facet of the Ace Ethanol plant design that works in its favor with the community is that it is a “highly efficient, completely closed loop,” Sather says, meaning that there is no water discharge from the process.

This is important for three reasons:

First, the plant is relying on local municipal water, and many other plants find themselves unpopular with neighboring farmers who compete for the same water resources.

Second, it eliminates concerns over discharge into the local land. This was a major concern with MTBE, an early competitor to ethanol, which has now been phased out as an alternative fuel. The concern with MTBE, a suspected carcinogenic is that during production, the spilling of even a small amount could put vast quantities of contaminants into local ground water supplies.

Third, it reduces operational costs for the plant, which uses three times more water in the process than it produces in finished ethanol.

Ace Ethanol initially looked at three locations for the plant. Ethanol plants are always targeted where there are clusters of local corn farmers to supply the plant. Equally important, Stanley won out because of the access to a major gas line to supply the plant utilities, access to a rail line, proximity to an interstate highway, and access to adequate electrical power.

In addition to confusion about the impact of the ethanol industry on prices of corn used in other industries, Sather says he also sees a great deal of misunderstanding about what ethanol fuel is, how much it really costs to make, and what role it can play in reducing the nation’s current dependence on foreign oil.

“There is a very large myth that it takes more energy to produce ethanol than what we get from it,” Sather says. “It’s not true.”

Ethanol fuel can be produced from virtually any organic substance, Sather says, though corn is certainly the most common ingredient. The reason is simple: starch.

There are several steps involved in the production of ethanol fuel. The early stages involve grinding corn kernels into a flour base, cooking that base, injecting it with enzymes (a yeast organic catalyst), and extracting the starch. The C5 and C6 sugar carbon molecules are fermented to about 17 percent alcohol, and thereafter, the product is distilled to 200 proof — or 100 percent — alcohol. Before the ethanol leaves the plant for marketing, the federal government requires adulterating the ethanol with approximately 5 percent gasoline.

Because of new federal regulations, and the government’s desire to bolster alternative fuels, ethanol fuel is very hot right now. There is a virtual gold rush underway for investors to build, or buy, new and existing ethanol plants.

That would seem to make the competitive landscape look bad for current producers, but Sather says Ace Ethanol is confident it will remain a top player.

Others apparently agree, since the company routinely receives bids for merger or acquiring by other companies and investment firms. One of the latest came in early April, when Crystal Inc. announced it was negotiating to acquire Ace Ethanol. That word came fresh on the heels of the Crystal announcement that it had just completed acquisition of ALL Energy Company, a Johnson, Iowa ethanol company.

Again, managing expectations, Sather shrugs off such speculation about the fate of Ace Ethanol.

“There are proposals coming to us from all avenues all the time,” Sather says. “But there are no active acquisition negations going on with Ace Ethanol, and there are no proposals in front of us that I would take to the member owners.”