Domestic, diversified military fuels or affordable fuels?
"False choice!" says Obama.
It's finally here. The Obama Administration has laid out an
integrated strategy for commercializing advanced biofuels, with
a focus in this phase on military advanced biofuels at
cost-competitive prices with conventional fuels.
The vehicle is a joint program between the DOE, USDA
and the Department of Defense (principally, starring the
US Navy, though, as we’ll see, critically including
other elements).
In his Blueprint for a Secure Energy Future released
in March 2011, President Obama set a goal of reducing
oil imports by one-third by 2025 and laid out an
all-of-the-above energy plan to achieve that goal by
developing domestic oil and gas energy resources,
increasing energy efficiency, and speeding development
of biofuels and other alternatives.
It’s a huge step in the journey toward those goals
— a multi-step, integrated program that we’ll
investigate in today’s Digest, and provide to you in a
convenient 10-Minute Guide with links to the full
funding announcements.
The program
On June 27, the Air Force announced a funding
opportunity announcement (FOA) for $30 million under its
Defense Production Act authority. Because the desired
fuels will be for military operational use, they must be
approved and certified JP-5, JP-8, and/or F-76
equivalents by the time the commercial-scale biofuel
production facility would become operational.
The funding
The Defense Department is committing $210 million
between two phases.
The first phase is expected to include five awards at
up to $6 million each. Only those applicants selected
for Phase 1 can compete for the Phase 2 awards. Up to
three Phase 2 awards are expected at approximately $70
million each ($180 million total). Only $100 million is
allocated for Fiscal Year 2012, so total Phase 2 funding
depends on future appropriations.
The big however
No more than $70 million of funding may be available
for Phase 2, as FY13 and future years are not yet
appropriated. “The funding profile is an estimate only
and will not be a contractual obligation for funding as
all funding is subject to change due to Government
discretion and availability,” the FOA states.
But as Navy Secretary Mabus notes, “we’re still early
in the appropriations process.”
The phases
Phase 1 will involve the planning and preliminary
design for a domestic Integrated Biofuels Production
Enterprise (IBPE) that meets a target of at least 10
million gallons per year neat biofuel production
capacity. Performance is expected within one year. Phase
2 involves the construction, commissioning, and
performance testing of such a facility. Performance is
expected to be completed within three years of the Phase
2 award.
Additionally, the total enterprise envisioned in this
effort must include a capability to blend the neat
biofuel product with petroleum-based equivalent fuels in
order to meet approved certifications and
specifications, which must include blends of up to a
maximum 50/50 ratio. Capabilities and/or facilities to
store and transport the resulting product must also be
an element of the project.
The location
From the FOA: “The proposed refinery must be located
within the United States or Canada and use a
domestically-produced acceptable feedstock. To
qualify as a domestic source under Title III of the
Defense Production Act, the IBPE must be located within
the United States or Canada (territories and
protectorates are not considered domestic). Supply
chains that will import feedstock from outside the
United States or Canada (including sugars used for
microbial conversion processes) will not be considered.
The feedstocks
1. Renewable biomass. Materials, pre-commercial
thinning, or invasive species from National Forest
System land and public lands (with significant caveats –
see the full FOA). Trees; algae and other microorganisms
(grown non-heterotrophic for biomass or direct
products); Crop residue (including cobs, stover, bagasse
and other residues); vegetative waste, wood waste and
wood residues; Animal waste and byproducts (including
fats, oils, greases, and manure); and Food waste and
yard waste.
2. MSW and sludge. The organic fraction therein can
be used.
3. Other “transitional feedstocks,” e.g. Corn starch,
cane, beet or sorghum sugars, or oils derived from
soybean, canola, sunflower, corn, peanut or DDGS can be
used, but must offer “a credible 'transition plan' that
demonstrates how subsequent commercial production
facilities (built after the one built under the DPA
Title III Program) could be economically designed and
constructed utilizing 'renewable biomass' materials.”
The cost-share
Awardees selected for phases 1 and 2 will be required
to share at least 50 percent of the cost.
The due dates
Responses are due to the DPA Title III executive
agent by August 13, 2012. The Air Force expects to
announce awards by March 1, 2013. This is for the “Phase
I” portion of the DPA program, $30 million to go to
awardees for architectural and engineering expenses for
integrated supply chains.
Phase II would apply the balance of the $240 million
($100 million of which has been appropriated to date)
from the Navy and DOE toward physical construction,
shakedown, and operation.
The DPA as a funding authority
The Defense Production Act is an authority that dates
back to 1950 and has been used to boost industries such
as steel, aluminum, titanium, semiconductors, beryllium,
and radiation-hardened electronics.
Title III of the Defense Production Act (DPA)
provides unique authorities, under which the Government
may provide appropriate incentives to create, maintain,
protect, expand, or restore the productive capacities of
domestic sources for critical components, critical
technology items, and industrial resources essential for
the execution of the national security strategy of the
United States, including energy.
Why is the Air Force managing this program?
As the Executive Agent for DoD’s DPA Title III
Program, the Air Force is responsible for executing
programs that ensure domestic production capability for
technology items that are essential to national defense.
Agencies participating in this initiative will make
additional funding requests to Congress to support the
initiative, including President Obama’s FY 2013 budget
request of $110 million.
Parallel USDA support
USDA’s additional $170 million in commodity credit
corporation funds can also be used by Phase II awardees
but will be administered directly through the USDA
program. Neither CCC funds nor Defense Logistics Agency
Offtake Agreements will be awarded as part of the DPA
Title III Advanced Drop-In Biofuels Production Project.
Parallel DOE announcements
The Energy Department is also announcing $32 million
in new investments in earlier stage biofuels research
that complement the commercial-scale efforts announced
today by the Navy and USDA.
The funding announced by DOE includes $20 million to
support innovative pilot-scale and demonstration-scale
biorefineries that could produce renewable biofuels that
meet military specifications for jet fuel and shipboard
diesel using a variety of non-food biomass feedstocks,
waste-based materials and algae. These projects may
support new plant construction, retrofits on existing
U.S. biorefineries or operation at plants ready to begin
production at the pilot- or pre-commercial scale.
In addition, the Energy Department also announced $12
million to support up to eight projects focused on
researching ways to develop biobased transportation
fuels and products using synthetic biological
processing.
Heather Zichal, Deputy Assistant to the
President for Energy and Climate Change
“Since the President unveiled the Administrations
'all of the above' energy strategy, we have more oil,
gas, biofuels, solar, wind and other sources than at any
time in our history, with domestic oil production at its
highest point in decades, and more natural gas than any
time in our history, while doubling the production of
renewable energy. More home grown biofuels will mean
high-pay jobs for thousands of workers, plus cleaner
safer, more affordable choices for consumers, while
making the US the global leader in new energy.”
Navy Secretary Ray Mabus
“This is about creating competitively-priced, drop in
fuels, that reduce dependence on imported oil, enhance
national security, and fosters the creation of a
defense-critical industry.
“Since 1950, the DPA has been used to support
industrialization of defense-critical industries,
including steel, aluminum, titanium, and
radiation-hardened electronics. Energy is specifically
called out in DPA and, as the US Navy prepares for our
maritime-centric strategy in the Pacific and the Gulf,
based on innovative, low-cost, light footprint
engagements, energy security has to be at the top of
agenda.
“Every time the price of oil goes up $1 per barrel,
it costs the Navy $30 million per year, and the spikes
this year have cost hundreds of millions of dollars; we
don’t want to trade readiness for fuel. It’s a
vulnerability we have got to address and diversity of
supply is one of the keys to energy security."
Secretary of Agriculture Tom Vilsack
“It’s not only a matter of national security, it is
good news for rural America. It opens up great promise
for new cash crops for farmers based on non-food
feedstock, and the refineries are likely to be located
in rural areas.
"The USDA will use CCC resources to make sure the
fuels are cost competitive, and we are grateful with the
Navy’s decision to move this forward. Today, consumers
are spending between 20 cents and to $1.30 less
per gallon for fuels because of biofuels, and the
industry now has created 400,000 jobs directly or
indirectly.
“With the CCC (Commodity Credit Corporation) funds,
we have authority at any time to use them, and we will
use CCC resources to buy down the cost of the feedstock
to the producers, which is an appropriate and authorized
use of CCC funds.”
Secretary of Energy Steve Chu
“Advanced biofuels are an important part of President
Obama’s all-of-the-above strategy to reduce America’s
dependence on foreign oil and support American
industries and American jobs. By pursuing new processes
and technologies for producing next-generation biofuels,
we are working to accelerate innovation in a critical
and growing sector that will help to improve U.S. energy
security and protect our air and water.”
Brent Erickson, executive vice president of
BIO’s Industrial & Environmental Section
“The domestic advanced biofuel industry can play a
huge part in promoting energy security, which is
critical for military readiness and national security.
Ensuring the reliability and affordability of fuel
supplies through diversification to advanced drop-in
alternative fuels is essential to sustain the U.S.
military’s readiness, since oil price volatility has
already negatively impacted military readiness. This
year alone, the $30 increase in oil prices resulted in
more than $3 billion in additional, unplanned costs to
DoD.”
The bottom line
It has all the hallmarks of what President Obama
believes that government-led programs should have.
A commitment to building a new industry that
creates jobs and exports, through new fuels that are
cost-competitive with conventional fuels;
Focused on bold steps to change the the US
strategic position, in this case by addressing its
liquid energy dependence;
Addressing Valley of Death issues that impede
the creation of nationally significant industries;
Synchronizing project timelines to delivering on
material national goals;
A commitment to innovative research, both in
style and substance;
Using existing authorities where possible, yet
in bold ways that change outcomes;
Establishing limits on federal exposure through
phasing, cost-share and relying on the market to
supply affordable project debt;
Using the government’s role as a customer where
possible;
Portfolio-style investments by the Federal
Government that reduce risk and thereby leverage
private investment;
Finally, a coordinated, multi-department funding
and oversight system that crosses traditional
barriers between government units.
Also, it features an exceedingly clever use of CCC
funds to assure feedstock costs that lead to a
cost-competitive fuel for the military. That’s the
assurance of an end, we hope, to the specter of $26 per
gallon fuels. We’ll all have to become closer students
of CCC market operations, which are managed by a CCC
board and through the Farm Service Agency.
Ultimately, it creates what are generally termed
“smart goals”: specific, measurable, attainable,
realistic and time sensitive. And its an elegant
instrument that deserves of more bi-partisan support
than it is likely to receive in this fractious US
political cycle.
Note: Any project developer
even thinking about proposing a non cost-competitive
advanced military biofuel shall report immediately to
the Digest for disciplinary action.