Growing New Fuels

Take note: The next energy boom could belong to Alberta Farmers

Story by Tom Keyser

Four generations of Vandervalks have tilled the stubborn soil near Fort Macleod, shedding buckets of sweat and an occasional tear in the effort to coax nature’s bounty from a parched prairie landscape.

It’s harsh, demanding work, ruled by invisible profit margins and the law of diminishing returns. Many Southern Alberta farmers regard a break-even year as a major triumph. But it’s the only life he knows and Stephen Vandervalk wouldn’t change a thing. Besides, he thinks he’s spotted a silver lining in the clouds that drift lazily above the 3,600--hectare family spread.

Vandervalk and other Western grain producers feel they have an excellent chance to cash in on an expanding global market for so-called biofuels. Described as safe, clean, renewable alternatives and additives to gasoline and diesel, these include ethanol, a motor fuel processed from starch-based grains like barley, corn and wheat; and biodiesel, a clean-burning renewable fuel manufactured from a variety of fats, natural oilseeds and even recycled cooking oil.

In Malaysia, Brazil and throughout Europe, biofuel use is at full throttle. Meanwhile, recent news reports confirm that the amount of corn devoured by U.S. ethanol plants has tripled during the last five years.

And although the Canadian biofuels industry is still taking tentative steps, government is climbing aboard the bandwagon in a big way, offering incentives, tax credits and developmental grants in an effort to bring production up to speed.

A recent increase in world crop prices has convinced Stephen Vandervalk that there may be at least a short-term windfall in store for the hard-working farmers of the West. “There is nothing more challenging than farming,” sighs Vandervalk, who doubles as Alberta vice-president for the West-ern Canadian Wheat Growers Association.

“We’ve endured several years of poor prices and Canadian farm debt is at its highest point in hist-ory,” he adds. Vandervalk grows red wheat, white wheat, mustard, peas, feed barley, alfalfa and canola, a preferred feedstock for biodiesel. In recent years, lacklustre grain markets have been exacerbated by near-crippling rates of foreign exchange, relating to the renewed strength of the Canadian dollar.

In short, farmers like Vandervalk have been hammered hard. But the rebounding price of wheat and canola (it has risen by several dollars a bushel during the past 12 months) has him whistling a happy tune.

“If I grow 60,000 bushels of canola a year and I’m getting $2 more a bushel because of increasing demand, you can see how it helps out the bottom line,” he says.

Insiders can’t decide whether rejuvenated grain prices reflect normal market drivers, such as the disastrous drought in Australia, or whether they’re directly due to hot demand for biofuel feedstocks. But either way, the emergence of biofuels sounds like a no-brain solution for an exploding world population that’s increasingly anxious about the effects of climate change and fossil fuel emissions.

Environmentalists and politicians agree there’s a lot to like about safe, readily-available fuels that spring directly from Mother Nature’s green pastures. But nothing is ever that simple.

Feedlot operators worry about competing for feed grains against government-backed biofuels producers. Some commentators even suggest that a burgeoning biofuels industry is poised to snatch food from the mouths of the world’s poor. Toronto consumer watchdog Michael Lio is waving a few red flags of his own.

Lio, executive director of the Consumer Council of Canada, isn’t convinced that either federal or provincial governments have made a convincing case for spending taxpayers’ cash on what some skeptics have derided as camouflaged farm subsidy programs.

“First, we need to know whether governments have done their homework, that we’ve done the cost benefit studies and that the benefits of blended fuels outweigh the cost [to the public],” says Lio.

Definitive answers are hard to come by so early in the game. But the buzz is building, particularly since the federal government upped the ante as 2006 wound down. In effect, they told ethanol and biodiesel producers from coast to coast to start their engines. They issued a decree that every litre of retail gasoline sold in Canada must contain a minimum of five-per-cent ethanol by 2010, while diesel must contain no less than two-per-cent biodiesel by 2012 with the minimum to be jacked up to five per cent three years later.

Such moves should reinforce strengthened grain prices. They also mean domestic production capacity will continue to ramp up - fast.

Under the federal plan, government will also spend $345 million to subsidize new renewable fuel operations, encouraging farmers and industry to pool their resources. Builders of new feedstock refineries will also be eligible for incentives. The governmental green light was an agreeable Chris-tmas gift for entrepreneur environmentalists like Kelsey Prenevost, president of a five-year-old Lethbridge company which is laying the fiscal groundwork for future biofuel production.

“You don’t want to start an industry relying on government support but it does make a heck of a nice step up,” says Prenevost, who believes Canadian farmers will take over as the oil barons of the 21st century. Prenevost launched his company, Kyoto Fuels Corporation, in 2002 and has spent years studying the economics of biodiesel manufacture. To be blunt, it’s expensive, particularly if canola prices remain high.

Without provincial and federal assistance, Prenevost believes Kyoto would stand little chance to make money producing biodiesel, particularly with the price of standard diesel fuel hovering in affordable territory. But with the help of government aid - including a $239 million biofuels incentive program announced by Alberta’s energy and agriculture ministries in October, 2006 - all systems appear to be Ôgo.’

A college instructor with a background in virology and bacteriology, Prenevost lists personal reasons for his interest in renewable fuels. “I have a son who’s one year old and a grandfather who’s 95,” Prenevost explains. “My granddad tells me it doesn’t snow like it used to. Even in my lifetime, the world has changed. What kind of a legacy are we leaving our children? Concern for the environment is one of the biggest drivers that gets me up in the morning. We need to do something fast.”

Canadian ethanol producers have a leg up on their biodiesel counterparts, with eight plants in production as of January. Among the largest is the Husky ethanol plant in Lloydminster, Sask., which cranks out an annual total of 130 million litres.

Thus far, only one biofuels manufacturer has set down roots in Alberta. Although its annual capacity remains relatively modest, Permolex Ltd. of Red Deer has recently expanded ethanol production capacity from 28 to 40 million litres a year. Ten-year-old Permolex has established itself as a uniquely integrated biorefinery with a near-bulletproof business plan that relies heavily on diversified production of complementary co-products.

“We buy wheat, mill it and sell the flour commercially. We also take a portion of our flour and feed it into a starch and gluten plant,” says Permolex general manager Bill Churchward. “We separate gluten and protein, which we also sell, and the starch is used as feedstock for our fuel-grade ethanol plants.”

Churchward feels his team is well-positioned to take advantage of an anticipated bull market in biofuels. “We feel as though we’re in the forefront of a real growth industry,” he says.

When they discuss biofuels and their potential for profit, most industry-watchers are as upbeat as Churchward. But Matthew Machielse, director of Alberta Agriculture and Food’s bio-industrial technologies division, sounds a cautionary note: “There’s probably too much hype out there about an opportunity [for Canadian suppliers] to fill global demand for biofuels,” he says.

Machielse reminds would-be producers that even with government subsidies it takes time to develop new facilities. Meanwhile, capital costs can climb as high as $50 million. He also believes that as prices rise for traditional feedstocks such as canola, wheat and barley, researchers will redouble their efforts to develop cheaper grist for the biofuels mill.

“The market will work in the usual way,” he predicts. “Everyone’s looking for cost-cutting strategies and we’re witnessing tremendous advances every year through biotechnology and processing cost improvements.”

That said, Machielse concedes farmers may yet reap significant rewards from the biofuels boom, particularly those who enter into commercial partnerships with industrial producers - with a boost from government incentives.

“I’d like to see even more farmer support,” adds Kelsey Prenevost of Kyoto Fuels. “Unless farmers are involved from the ground floor, making profits along with everybody else, there will never be a significant biofuels industry in Canada.”

Marlo Reynolds, executive director of the Pembina Institute, concurs that biofuels represent at least a modest step in the right direction toward future sustainability. However, Reynolds, who keeps a close eye on environmental issues, stops short of slapping an unconditional seal of approval on the trend. “From a tailpipe emissions perspective, research shows there are real benefits to be gained from the use of biofuels,” Reynolds begins. “But we always have to be careful. How much do we want to have a competition between food and fuel for grain production?” he asks. “How dependent on food feedstocks do we want to be for fuels?”

As an alternative, Reynolds endorses experimental techniques to generate ethanol from waste feedstocks, such as straw, waste wood and agricultural by-products known as biomass. Such feedstocks are much preferable to food, he insists. “These new processes are a critical next step,” Reynolds continues. “They’ll allow us to utilize waste streams of biomass.”

While acknowledging that opening up new markets for grain is a good thing for Western Canadian farmers, he worries about the price volatility of edible feedstocks such as corn and wheat. “But if you’re drawing on waste products, they would be less volatile in pricing. In the long term, I think they would be more economically viable as a fuel.”

Nor does the fuel vs. food controversy stop there. Last fall, the Edmonton Journal printed remarks attributed to Lester Brown, executive director of the Earth Policy Institute in Washington, D.C.

Brown warned of potential conflicts “between 800 million people with cars and 2 billion of the poorest people, who spend more than half their income on food É the risk is that rising grain prices in low-income countries, which import a lot of their grain, could lead to food riots and political instability on a scale we’ve not seen before.” It’s a potential development that all parties are watching closely.

But so far most news seems positive, especially from the farmers’ perspective. Even Alberta Agri-culture’s Matthew Machielse, while advising them to proceed with the utmost care, believes good things can happen when farmers team up with the industrial community. “There will be good opportunities for farmers to become member/investors in new, domestically-based processing facilities [estimated to double in capacity by 2008]. It’s their chance to share in this value-added activity and diversify their income,” he says.

Stephen Vandervalk chips in a hearty “amen” while advising colleagues who may have stars in their eyes to keep their feet firmly planted on the good earth. Even rising global demand for biofuels may not equate to a sustainable boom in the price of grain. He agrees with Machielse that a preference for cheaper agricultural waste feedstocks may bite into crop sales, citing recent U.S. research into the feasibility of tossing waste corn stalks into the ethanol processors as an alternative to pricier corncobs.

“As new and cheaper varieties of feedstock are developed, I’m pretty sure grain prices will stabilize,” Vandervalk predicts.

Be that as it may, Vandervalk and his peers intend to make the most of the biofuelled joyride for as long it lasts.

Ethanol  Processing and distillation of crops such as corn produces fuel grade ethanol, an alcohol with excellent fuel additive properties. Renew-able ethanol is clean burning and contains 35% oxygen, allowing more complete fuel combustion, reducing pollution.

Biodiesel  A clean burning, renewable fuel produced from oil such as canola. Chemically combining any oil with an alcohol, such as methanol, is called transesterification. It mixes methanol with sodium hydroxide, then oil, allowing glycerine separate, creating methyl soyate.

The Smell of Money

Highland Feeders, a beef cattle feed-lot in Vegreville, has found a solution to a stinker of a problem.

The average beef cow produces three tonnes of manure a year. With about five million cows in Alberta, that’s a whole pile. So Highmark Renewables, a subsidiary of High-land Feeders, is using technology that harnesses the methane gas released from manure to generate electricity.

And by the end of 2008, Highmark hopes to have an ethanol plant fuelled with grain waste working in conjunction with their biogas plant, creating a more efficient system. The waste energy from the biogas plant will provide the energy for the ethanol plant.

The biogas plant uses technology that involves large tanks, called digesters, and bacteria. “We’re harnessing the power of a natural biological process,” says Mike Kotelko, co-owner of Highland Feeders and Project Manager for Highmark Renewables. “Manure happens to be a very large resource.”

Currently, the operation can generate one megawatt of electricity, enough to power about 200 households. Kotelko says they plan to increase their output to three megawatts, which is enough electricity to power a town the size of Vegreville.

“[The environment] is a very important focus for us,” Kotelko says. “We are a large scale agricultural operation, and along with trying to be an efficient and profitable industry, we also have a passion for the environment.”  - Lindsey Norris