REGINA – High wheat prices have investors reconsidering construction of a $40 million ethanol plant in southeastern Saskatchewan.
“We’ve decided to put it on the shelf until August,” said Sinclair Harrison, spokesperson for Paradigm Energy Ltd., a group attempting to build near Moosomin, Sask.
In August, the board of directors is expected to determine whether to proceed with a share offering or return what remains of $100,000, which was raised to develop a business plan.
When the project was launched 15 months ago, the prospect of building a plant based on $4 per bushel wheat looked promising.
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Since then, wheat prices have escalated to where the board of directors has put off approaching local investors for the $25 million in equity required to build the 40 million litre facility.
When Paradigm plugged in a price of $6 per bu. for its feedstock costs, which is what Husky Energy’s plant in Minnedosa, Man., was paying for wheat a few weeks ago, it determined the plant would be bleeding red ink.
It made no sense to approach the Saskatchewan Financial Services Commission about launching a share offering.
“We didn’t want to go to that expense and go into the rural communities with a business plan that wouldn’t produce positive figures,” said Harrison, during a break at last week’s Canadian Renewable Energy Workshop.
Financial hardship in the cattle industry also factored into the decision.
Paradigm’s business plan calls for selling wet distillers grain to local feedlots. If those feedlots are operating at less than full capacity, the plant would have to install an expensive dryer so it could transport dried distillers grain outside the area.
Representatives of other Saskatchewan biofuel plants attending the workshop complained about investor chill and convoluted government support programs that are keeping banks from lending money to biofuel projects.
Gordon Quaiattini, president of the Canadian Renewable Fuels Association, said the federal government is set to launch its $1.5 billion EcoEnergy for Biofuels Initiative on April 1, which should assuage the banking community.
But he said that farmer investment in projects has been disappointing considering there are programs like the $200 million EcoAgriculture Biofuels Capital Initiative to encourage such activity.
“This isn’t being tapped to the degree that it should be,” said Quaiattini.
He said high grain and oilseed prices won’t last forever and the best hedge against falling prices are value-added ventures like ethanol and biodiesel.
“Be part of some of the projects that are trying to get off the ground today,” Quaiattini told farmers in the audience.
Investors need to think five or 10 years down the road, not two or three years into the future.
The Energy Watch Group says daily oil production is poised to decline by 40 percent in the next 15 years. The International Energy Agency says global energy demand is expected to rise by at least 50 percent by 2030.
“The emerging gap is plain for all to see. It spells higher costs and a greater environmental toll. It is within that gap that biofuels find their place,” he said.
Canada’s federal mandate will create a market for 2.5 billion litres of ethanol and 500 million litres of biodiesel by 2012. Plants will also have the opportunity to fill some of the 136 billion litre, 2022 biofuel mandate south of the border.
Harrison wasn’t swayed by Quaiattini’s message of peak oil and burgeoning biofuel demand.
“The reason we came to this conference was to see if we’re missing anything in our business plan that is producing negative numbers. Really, we didn’t see anything here that would change our minds,” he said.
A recent poll of Paradigm’s board showed the directors weren’t willing to commit a sizable amount of money to the project themselves, so it would be hypocritical for them to pass the hat around the community.
But Harrison hasn’t given up on the idea of building a plant. If wheat prices fall by August the project could be revised, although it might be tough to convince farmers to part with money when commodity prices are falling.
There is another option that could get the ball rolling before the end of summer.
“We’re actively looking for a partner with significant dollars. Certainly if we could bring in a partner like that we’d take it off the shelf and revisit it before August,” he said.
