VANCOUVER – The credit crunch is having a profound impact on Canada’s fledgling biodiesel industry.
“Three years ago if you say the words ‘renewable fuels’ somebody gave you $50,000. That’s not the case today,” said Barb Isman, executive vice-president with Canadian Bioenergy Corp., a Vancouver firm attempting to build a biodiesel plant near Edmonton.
Arranging financing used to be the easiest part of building a facility. There were plenty of venture capital dollars to be found.
“You didn’t really need much. There was a real romance to it,” she said.
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These days, financiers are demanding that supply agreements be in place, buyers lined up and best practices employed before they will even hold a conversation with developers.
“Essentially we have to de-risk the biodiesel business to attract investor capital,” said Isman.
That credit crunch combined with the price volatility in feedstock and finished product, and the negative press stemming from the food versus fuel debate, have created a hostile environment for Canada’s emerging biodiesel sector.
“We’re stalled,” Isman told delegates attending the Canada Grains Council semi-annual meeting.
Canada produces 100 million litres of the fuel annually, most of which is exported to the United States, where it collects a blenders tax credit. Fortunately, there is a Canadian federal mandate looming that calls for 650 million litres of production by 2012, a guaranteed market that should spur some construction announcements in the coming months.
“We’ve had several near-death experiences but there will be a Canadian biodiesel industry,” Isman assured the delegates.
Like many other developers, Canadian Bioenergy has been forced to change its business plan and will be announcing the revisions in the coming months.
The original plan called for a 225 million litre canola biodiesel plant to be operational in Fort Saskatchewan, Alta., by June 2009. Isman said the company isn’t ready to talk publicly yet about changes.
“In the end, although it has been a challenge, we’ll have a stronger business for figuring out how to survive,” she said.
Another threat to Canada’s fledgling biodiesel business is overcapacity south of the border. U.S. companies that operated at 20 percent capacity in 2007 will be eyeing Canada’s looming mandate as a potential new market.
But Isman said Canada’s production incentives, combined with the unfavourable exchange rate, should keep U.S. product out of the market.
On the flipside, Canadian product will continue to find a home in the U.S. as long as manufacturers keep collecting the U.S. blenders credit in addition to the Canadian production credit.
Isman’s best guess is the U.S. government will get rid of the credit before the Canadian industry unfolds.
She closed her presentation to council delegates with a message of optimism.
“All of the challenges that we’re facing are just birthing pains. We’re going to get through this.”
