Deals with airlines and cargo carriers, along with state low carbon fuel standards, will propel a new sustainable biofuels processing plant to a smooth takeoff, the founders hope.
Fort Collins, Colorado- based Red Rock Biofuels broke ground on a processing plant in Lakeview, OR, last summer. The $337 million facility, slated to open at the end of 2019, has locked in contracts to sell its total available volume of clean jet fuel to SouthWest and FedEx (NYSE:FDX).
Red Rock will also produce a diesel and a gas blend that it plans to market in Oregon and California.
Clean fuel standards in those states are critical to the business model, said Terry Kulesa, Red Rock’s co-founder and CEO.
“It gets us the regulatory certainty,” he said. “You know when you produce low carbon fuel there is a market for it.”
Red Rock’s technology, a combination of gasification, hydro-processing and the Fischer-Tropsch method of combined pressure, is not new, said Kulesa. “What’s new is getting it out to biomass scale and making it feasible.” The plant will convert forest residues — twigs, branches — into a biofuel that Kulsea said “looks like water it’s so clear.”
Industry-led clean jet fuel initiatives are another demand driver.
FedEx’s contract calls for Red Rock to deliver 48 million gallons over an eight year period, said Joel Murdock, FedEx director of strategic projects, in an email.
“We believe this is an important first step in achieving our environmental goal to obtain 30% of jet fuel from alternative fuels by 2030, Murdock said.
The fuel will be used at the carrier’s Oakland hub.
Starting in 2019, international air carriers will have to report their emissions and purchase emissions credits to offset CO2 production. The directive is part of a broader commitment by the International Air Transport Association to cut emissions in half by 2050 compared to 2005 levels and to achieve carbon-neutral growth by 2020.
A flight powered by sustainable fuel has the potential to reduce carbon emissions by up to 80%.
Because of taxes placed on emissions, particularly on flights to Europe, air carriers are actively seeking renewable fuels to lower that tax burden, said Paul Winter, director of public affairs and federal communications for the National Biodiesel Board.
“They are eager customers. They are going to buy,” Winter said.
Seven years in the planning, the Red Rock refinery had to overcome numerous regulatory and financing hurdles. A turning point came last April, when Oregon Gov. Kate Brown approved $245 million in bonds created in collaboration with Stern Brothers and Goldman-Sachs bond market. Additional funding came from a $70 million Title III DPA grant from the U.S. Departments of Agriculture, Energy and Navy.
The Renewable Identification Numbers (RIN) market is another piece of the financing puzzle, Kulesa said. RINs ensure that required levels of biodiesel are reached under federal renewable fuel mandates. Excess RINs can be sold or purchased by refiners and other blenders.
The EPA’s renewable fuels program requires a certain volume of clean fuels to replace oil-based transportation and heating fuel.
One potential obstacle for Red Rock is that Congress doesn’t allow biofuel projects on federal land to generate RINs. The ban stems from long -standing concerns that opening up the RIN market will lead to clearcutting of federal forests.
“Which is idiotic,” Kulesa said. “Look at those lands now; they are on fire.”
For now, the private timber market is providing the feedstock. Red Rock founders decided to locate in Lakeview, said Kulesa, because the former milltown provides ready access to timberlands. “We have three times the wood we need in that area,” he said.
Red Rock’s production process, he noted, will reduce the risk of catastrophic forest fires by decreasing the amount of highly flammable wood waste in surrounding forests.
In late November, the EPA finalized volume requirements under the RFS program for 2019. The biomass diesel numbers are staying essentially flat compared to 2018 — around 2.8 billion gallons.
States are upping the ante.
This past fall, the California Air Resources Board tightened its policy to require producers reduce the carbon intensity of their fuels 20% by 2030. The previous target had been 10% by 2020.
Oregon’s Clean Fuels law requires that transportation importers and distributors cut the emissions from the fuels they sell by 10% per unit of energy.
A similar mandate is advancing in Washington state.
“The whole carbon fuels standard is going to spread through the U.S.,” Kulesa said. “But the West Coast is driving everything.”