A risk-averse lending market is stalling one of the few new projects to produce biofuel in Wisconsin.
Ed Waters, founder of Waters New Biotech Inc., for more than a year has tried to line up private financing for construction of an up to $30 million plant in the Port of Milwaukee. The plant would convert wood into compact pellets that would fuel power plants in the United Kingdom, he said.
Although Waters has deals with U.K. utilities to buy the pellets, he said, he cannot get the money to pay for the project.
“A lot of that has to do with the economy,” Waters said. “A lot of people are skittish about the biofuels industry and a lot of people are doing a lot of promising, but they don’t follow through.”
The city of Milwaukee in 2009 approved a 15-year lease with Waters New Biotech to build its first plant on port property. But the company, which could create 30 jobs once the plant is at full capacity, has not signed the lease.
“That is the potential and I still believe doable,” Waters said. “It’s just the money.”
Private lenders are wary of biofuels projects because there is a lot of uncertainty over future demand for biodeisel, ethanol and other fuels, said Bruce Thompson, chief credit officer for Badgerland Financial.
Badgerland, an agricultural lending cooperative, has loaned money to biofuels projects because it helps farmers who sell crops to the plants. But Badgerland has not loaned money to a biofuels project for more than a year and a half, he said.
“Right now, it’s very difficult to find financing for any biofuels projects,” Thompson said, “whether they are new projects or whether they are expansions.”
It will take public policy changes to get the lending market to warm up to biofuels projects, Thompson said.
A federal program that subsidized biodiesel production expired in January, resulting in plant closures around the country. Reinstating that program, which would take an act of Congress, would help the biodiesel market, he said.
Ethanol producers want the U.S. Environmental Protection Agency to increase demand by increasing the amount of ethanol that can be blended with standard gasoline, said Neal Kemmet, general manager of Ace Ethanol LLC, Stanley. For now, though, most ethanol producers are joining lenders in taking a conservative approach to new projects, he said.
Some ethanol companies are considering chasing federal grants for smaller projects to improve energy efficiency, Kemmet said, but shelving plans for large expansions or new construction.
“Most companies, even if they could borrow the money, with as tight as the market is, they don’t want to take a $20 million risk,” he said.
Waters, when speaking to port officials last week, said he may postpone plans to build a large plant in Milwaukee and first build a smaller, roughly $1.5 million plant in Michigan. He said Michigan is offering him grants to buy wood from Michigan logging companies hurting because paper mills in the state shut down.
Waters said he anticipates lenders will warm up to his larger project in Milwaukee if the startup operation in Michigan shows the business plan will work.
“We still want to do this here,” he told port officials last week.