The two surviving ventures face high hurdles
POSTED: 01:30 a.m. HST, Jun 27, 2010
Ask just about anyone involved in the effort to start a home-grown ethanol industry in Hawaii and invariably the word "challenging" comes up.
Challenging, it turns out, is an understatement.
Four years ago companies were lining up to build ethanol production facilities in Hawaii after the state launched a program that offered generous tax credits and set a mandate that most gasoline sold in the state must contain 10 percent of the renewable fuel. Soaring ethanol prices, which hit a record $4.23 a gallon in the summer of 2006, also spurred interest. On the mainland, dozens of corn-based ethanol plants sprouted up across the Great Plains.
In Hawaii, meanwhile, plans were moving forward to erect ethanol plants that would mostly use sugar cane or sugar cane byproducts as a feedstock. Before any of the companies could get their permits approved, however, the price of ethanol collapsed, falling as low as $1.40 a gallon in late 2008. In addition to falling prices, difficulty in securing land to grow feedstocks and dwindling investor interest have made it difficult to get any new processing facilities up and running.
There were plans in recent years to build at least six plants in Hawaii to produce ethanol, an alcohol-based renewable fuel that can be made from a variety of organic materials, including sugar cane. Of the original six that were planned, only two are still on the books, and neither has a target date to begin construction.
The one venture that appears closest to launching is Pacific West Energy LLC, but the Kauai-based project still faces a number of hurdles, including finding enough acreage to grow crops to be used as feedstock. State Energy Administrator Ted Peck said Pacific West represents the state's best chance to jump-start a local ethanol industry.
"Point of fact is that we need ethanol, and right now we're not able to grow the feedstock locally. If Pac West is able to execute its business plan, it will change that," Peck said.
In a move partly aimed at weaning Hawaii off of foreign oil, the state, on April 1, 2006, began requiring 85 percent of the gasoline sold here include 10 percent ethanol.
In addition to guaranteeing ethanol producers a market of at least 40 million gallons a year, the state also offered them a tax credit that would cover 100 percent of their construction costs. The mandate also was supposed to generate more than $100 million in manufacturing plants and create 700 jobs.
The ethanol mandate did succeed in cutting Hawaii's dependence on foreign oil imports but replaced it with a dependence on foreign ethanol imports - which amounted to about 45 million gallons last year. Most of the imported ethanol was sugar cane-based fuel from Central and South America, as well as the Caribbean. Shipments of corn-based ethanol from the mainland began picking up this year because falling prices have made the product more competitive with foreign imports.
For Pacific West Energy the twists and turns of the ethanol market have forced it to delay construction several times and refine its business plan. Pacific West initially hoped to break ground on the 12-million-gallon-a-year plant in the summer of 2007 but never got the necessary permits.
The company then suffered a major setback in 2008 when an agreement collapsed that would have allowed it to lease sugar cane land owned by Gay & Robinson and retrofit the former sugar cane producer's mill in Kaumakani to process the cane. Gay & Robinson broke the agreement and later signed deals to lease large chunks of its land to Dow Agrosciences and Pioneer Hi-Bred to grow seed corn.
Pacific West has been working since then to find new landowners to partner with. It is in talks with the Department of Hawaiian Home Lands, the Department of Land and Natural Resources and the state Agribusiness Development Corp., said William Maloney, company president. Pacific West will need to secure at least 10,000 acres to make its operation viable, he said.
"The project is progressing slowly but surely," Maloney said. "We're hoping within the next month or two to have some tangible results to announce."
In addition to producing ethanol, Pacific West is looking into constructing a power plant that would use biomass materials, such as trees, grass and sugar cane waste, to generate electricity. Pacific West has signed a preliminary agreement with the Kauai Island Utility Cooperative for a 20-megawatt biomass-to-energy project with a target completion date of April 2012.
Maloney said the power plant would allow Pacific West to generate income while it pursues its ethanol plans. A site has been chosen for the power plant, and Pacific West hopes to have a lease signed "within the next couple of months," Maloney said.
"The ethanol plans could trail by three months, six months or a year," he added.
However, KIUC said it is holding off on completing a power purchase agreement to buy electricity from the power plant until Pacific West can show that it has enough land to make the project feasible, said Steve Rymsha, KIUC's staff engineer in charge of renewable energy.
The only other active plans in Hawaii to build an ethanol-processing facility are being carried out by Oahu Ethanol Corp., which wants to build at 15-million-gallon-a-year facility at Campbell Industrial Park.
The company's president, Daniel KenKnight, did not return calls seeking comment.