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Commentary By Robert Bryce

Another Failed Energy Loan

Economics, Economics, Energy Tax & Budget

Taxpayers are being stuck with the losses.

The biofuels bust continues. The latest failure: Range Fuels.

Last week, the company defaulted on a government-guaranteed $80 million loan that it had used to build an ethanol plant in Georgia. AgSouth Farm Credit, the servicer of the loan, will begin a foreclosure sale on the plant in January. The foreclosure provides yet another indictment of the Obama administration’s energy policies.

Twenty-one months ago, the Department of Agriculture trumpeted its $80 million loan guarantee to Range — which claimed it could produce millions of gallons of ethanol from wood chips — by saying it demonstrates the administration’s “goal to make the United States a leader in renewable energy production.” That loan guarantee followed a $76 million grant given to Range by the Department of Energy in 2007.

Last Thursday, David Aldous, the CEO of Range, responded to a request for comment with an e-mail that said the company “has no immediate plans to declare bankruptcy.” He also claimed that Range was “working towards a new business model which would spin off” the Georgia plant. But he refused to elaborate on how the company could spin off a plant that will soon belong to someone else.

Aldous said that Range has spent $38 million of the $80 million loan and “about half the grant” from the Department of Energy, but refused to be more specific. Fine. Using Aldous’s numbers, federal taxpayers are now on the hook for something like $76 million. How many employees are still on the company’s payroll? Aldous refused to say. In fact, he refused to answer any specific questions.

Spokesmen at the departments of Agriculture and Energy did not respond to e-mailed questions about Range.

The key financial backer and political mover behind Range: Vinod Khosla, a wealthy California venture capitalist who has been among America’s biggest biofuel boosters. In 2006, Khosla claimed that making ethanol from cellulosic material was “brain-dead simple to do” and that commercial production of cellulosic ethanol was “just around the corner.” A few months later, Kholsa was again hyping cellulosic ethanol, saying that biofuels could completely replace oil for transportation and that cellulosic ethanol would be cost-competitive with corn ethanol by 2009. Khosla — who says on his website that he is “passionate about alternative energy, petroleum independence, and the environment” — did not respond to repeated requests for comment.

There’s ample reason for outrage here. Range had claimed it could make ethanol at efficiencies far greater than those being achieved by corn-based ethanol producers. Tad Patzek, chair of the petroleum and geosystems engineering department at the University of Texas at Austin and a veteran critic of the biofuel craze, told me that Range’s failure “was easily predictable based on the thermodynamic inefficiencies of the refineries. But no one in the Department of Energy paid any attention.”

Instead, federal bureaucrats were once again gulled by extravagant claims from people like Khosla and a cadre of high-profile national-security types, who continue to claim that ethanol and other biofuels will somehow save America from the evils of foreign oil. And the federal bureaucrats were convinced even though a small dose of sixth-grade math would have shown that large-scale development of wood-based biofuels was little more than a pipe dream.

Proving that statement is simple. Let’s assume the U.S. wanted to replace just 10 percent of its oil needs with wood-based biofuels.

Here’s the math: The U.S. consumes now consumes about 19.1 million barrels — about 802 million gallons — of oil per day. Ten percent of that volume would be 80 million gallons. In 2007, Range was claiming that its new plant in Georgia would require 1,200 tons of wood per day while producing 40 million gallons of ethanol and 9 million gallons of methanol (which is more corrosive and has lower heat content than ethanol) per year, or about 134,000 gallons of fuel per day. But ethanol contains only about two-thirds of the heat energy of gasoline. Therefore, the plant’s output would equal about 88,000 gallons of gasoline.

Thus, to replace just 10 percent of America’s oil needs with wood-based biofuels would require about 900 ethanol plants like the one in Georgia that’s now in foreclosure. Those plants would require about 1 million tons of wood per day. That’s about 50 percent more wood than all of America currently consumes (about 236.4 million tons per year or 647,000 tons per day). Even if the U.S. were somehow able to more than double its wood production in order to feed all those new ethanol plants, the logistical challenge of moving that huge volume of material would be enormous and would undoubtedly require the burning of millions of gallons of diesel fuel. And yet, President Obama and his Nobel Prize–winning secretary of energy, Steve Chu, continue to claim that biofuels are the future.

Patzek says the Range fiasco is, in some ways, worse than Solyndra: “At least Solyndra was producing solar panels. Their panels were too expensive, but at least they had a product. Range never produced anything. The biofuels business was insane five years ago, and it’s still insane today.”

Alas, the insanity will continue. During his State of the Union speech in January, President Obama declared that “we can break our dependence on oil with biofuels.” Since then, the administration has committed hundreds of millions of dollars to new biofuel projects, including up to $510 million for the Defense Department. Just last month, the administration finalized a $50 million grant and a $54.5 million loan guarantee to a company that plans to produce biofuel from algae. The company building the plant, Sapphire Energy, is putting up just $30 million toward the $135 million project. Taxpayers are on the hook for the rest.

Like the failure of Solyndra, the collapse of Range Fuels shows that the Obama administration has let wishful thinking, not hard-nosed technical analysis — or even simple mathematics — determine its energy policies. And unfortunately, taxpayers are being stuck with the losses.

This piece originally appeared in National Review Online

This piece originally appeared in National Review Online