Coskata side-steps credit crunch

Coskata is the company that is at the forefront of developing an inexpensive and commercially viable process to extract ethanol from agricultural waste.

The beauty of the process is we no longer need endure a tearful farmer on the TV, angrily denouncing supermarkets, cheap labour in developing countries and apathetic governments -- not necessarily in that order -- as he pulps his unsellable crop of oranges.

If Coskata gets its way, even crops that have been ruined by hail or drought can just go into the big vat to produce ethanol for road transport -- and the farmer gets paid for it anyway!

In our report yesterday (more here), we introduced Wes Bolsen, Coskata's Chief Marketing Officer Government Affairs. Bolsen is out here on a whistlestop tour, drumming up interest in his employer's process.

Coskata's method of extracting ethanol from agricultural waste, broadly explained in the earlier report, has the potential to extend the life of the internal combustion (IC) engine for road transport beyond the year 2020 -- even should 'peak oil' production arrive before then (more here) and the engine technology reaches the upper limits of efficiency by that time.

It's a win-win situation in many respects. Take something useless, make ethanol from it on a large scale -- and use said ethanol to provide a clean-burning fuel for existing IC engines powering road transport. Almost carbon-neutral, cheap and renewable. What's not to like about it?

There's one little 'niggle' in the woodpile though. Expansion into Australia is not currently funded and Coskata doesn't expect finance for commercial operations here to be forthcoming from the local banks and financial institutions. That has been the company's experience in the US, where Coskata's head office is based.

"First-of-kind facilities -- until someone can see a commercial facility built, a bank is like: 'Don't know, haven't seen a great big one built'," says Bolsen.

"We have a multi-million dollar semi-scale facility in the US and [the banks say]: 'show me when I see a commercial [facility] and then I'll invest'. Well, we can't wait. We don't have time to wait two and a half years that it takes to build a facility...

"We need to start now. Give me the chance to build one plant in Australia and there will not be a financial problem.

"Give an Australian company the chance to deploy Coskata technology in Australia and that will be hopefully the only assistance that is needed -- because then the banks will see -- and greed does set in -- and someone who can see a 20 to 30 per cent return on a facility will finance every project forever.

"It will work, but you've got to get the first one built. And you need that deployment to happen relatively quickly."

The way for things to progress rapidly, according to Bolsen, is for forward-looking governments to get involved.

"You need some government intervention to get this off the ground today," he says, continuing with the observation that the US government is supporting the company already in the US -- and has provided Coskata with loans.

"We're not asking for free dollars... If we're going to have to displace 30 per cent of oil globally, it has to be viable..."

The US government's 'fatigue' from supporting unsympathetic oil-producing nations in OPEC and fighting distant wars for the sake of "energy security" provides Coskata with the argument it needs to win willing acquiescence from government in America.

"This is as high a priority of the United States government as any other priority," says Bolsen, mentioning too that the Americans had set aside US$15 Billion for biofuel development in the country's recently announced economic stimulus package.

Coskata has plans to establish a working conversion plant in the US by 2012, but it's seeking investors in Australia to set up similar facilities here. Those investors could come from the private sector or they could come from the public sector; Coskata doesn't discriminate. Bolsen is out here currently talking to state governments and private investors about underwriting facilities in this country.

So far, says Bolsen, Victoria and Queensland governments have expressed a strong desire to be involved, with Bolsen describing Victoria's interest in the process as "very aggressive", introducing Coskata to potential investors and feedstock suppliers located in the state.

"What we're doing is we're putting this technology into the hands of different feedstock suppliers, chemical companies, manufacturers..." says Bolsen.

"We talk about our licensing model, putting this into the hands of what we'll call partners, to enable the rapid scale-up of this technology -- and establish Coskata as the industry leader with technology, which is ready today, to do all those things... Providing environmental sustainability.

"We truly believe this is the best way to deploy this technology in China, Australia, Brazil, the US, Europe -- all at the same time.

"You want to pull together about $300 million to do something like this. You're building a refinery. This isn't a little toy that we're building here. You are starting to deploy 'renewable' refineries around the globe. You're starting to put jobs in rural areas."

Bolsen, using the US example to illustrate, declares that it would take government subsidies to keep start-up costs down to the point where ethanol can compete on a cost basis with petroleum at US $40 a barrel.

Without government subsidies to support the roll-out of the Coskata process, ethanol production by this means would cost around US$60 to $70 a barrel, which is not economically competitive with petroleum at current pricing levels. However, with the Australian dollar export-competitive against other units of currency at the present, ethanol produced here might well be competitive against imported petroleum, even without government subsidies. It all depends on how long and how low the local dollar stays.

"What we're looking at, in Australia, is a true partnership -- coming together -- between government, automaker, flexible technology and the ability to bring in that feedstock," Bolsen evangelises.

Despite the prospect of cheap and plentiful ethanol promising much, there's little doubt that Coskata is pushing for a fast roll-out to capitalise rapidly on that promise -- with "bridging" funding from regional governments. Does that make the biotech company any more avaricious than 'big oil'?

Probably not...