What Does the Extension of the Biodiesel Tax Credit Mean for Idled Plants?

Dec. 20, 2010 - PRLog -- With the extension of the biodiesel tax credit, many idled biodiesel plants are now contemplating restarting.  The CEO of the nation’s largest biodiesel consulting firm says that while restarting a plant may prove more financially attractive now, such restarts carry significant risks if done with improper planning.

“The playing field has changed significantly” says Wayne Lee, principal owner of Lee Enterprises biodiesel consulting group in Little Rock, Arkansas.  “In addition to the pure financial considerations, there are several areas that plants need to address.”   He cites Renewable Identification Numbers (RINS) as one such area.  “While the EPA allows a biodiesel producer to detach and trade RINS” says Lee, “this can only be done in two very specific ways”.  He notes that if compliance is not followed “to the letter” plants will subject themselves and their RINS customer to rejected trades.  “I think some producers are operating under the assumption that they can simply detach the RINS from B99 at will” says Lee.   “Without the proper paperwork, those people are likely to be very unpleasantly surprised.” Lee says that this why we brought Jess Hewitt, a RIN expert, into our consulting team earlier this year,” Lee says.  “Jess makes sure clients’ systems are set up properly and that they are using RINS to their maximum benefit.”          

According to John Hardy, in-house legal counsel for the consulting group, another area that plants need to address is safety - including both in Process Safety Management (PSM) and safety training.  “OSHA has some pretty strict guidelines with respect to its PSM standards, and some very large fines for non-compliance,” says Hardy.  “I think many biodiesel plants may be operating under the assumption that they are not covered by OSHA’s process safety management standards.   Hardy notes that most commercial biodiesel plants are probably covered  by PSM standards, and need to make sure they are compliant.  He also notes that safety training is an ongoing process, not a one-time event, and that all plants should address PSM and safety training upon startup, and at least yearly thereafter.  “With the magnitude of potential fines, one problem could literally devastate a noncompliant plant”, says Hardy.    

A third area of concern, according to Lee, is quality assurance.  “The biodiesel buying world has gotten much more demanding,” observes Lee, “and those buyers demand a comfort level that the product is going to be of superior quality on a consistent basis”.  He says that the group’s quality assurance consultants help plants develop a good quality assurance program, probably with BQ9000 certification as a goal.  

So, what advice would Lee give to a new or restarting plant?  First, he would advise the company to make sure that the financials make sense by using a professional and making certain that the numbers represent the plant’s real costs at today’s prices.  Second, he advises troubleshooting the plant from operational standpoint to see what it is going to cost to get it up and running, and the necessary operating capital that will be needed for initial operations.  “A plant that has been idled for a period of time is may need a bit more work than you think,” says Lee.   Finally, Lee says that once you have made the decision that startup makes sense, make sure that you clearly understand RINS and RIN trading, quality assurance and the process safety management standards that govern your plant.  There is no substitute for a properly trained staff – both in safety and in operations.

Lee believes that hiring a professional group is the safest method.  “The money that a client spends making good decisions is well spent, especially when compared to the money spent correcting bad decisions” observes Lee.    “We have specialists covering virtually every area of the biodiesel universe and we know the pitfalls in the industry,” he notes.   He says that in the final analysis good consultants will always save clients more than they cost.   Lee summarizes the process by saying “whether it is buying, selling or evaluating a plant, or making sure a plant is ready to restart, the consultant’s duty is to make sure the clients do it right.”

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Lee Enterprises is a biodiesel consulting firm specializing in project oversight & management, feasibility studies, grants, business plans, and assistance with planning, market analysis, site evaluation, feedstock selection and procurement, process technology, evaluation, offtake distribution, RINs, financing, capital budgeting, cold soak, filtration, personnel, and contract negotiations (for feedstock, off-take, transportation, construction, site purchase/lease, and plant management). The group also owns National Business Brokerage, Inc., a full service business brokerage firm specializing in the buying and selling of biodiesel plants. Lee Enterprises, 1503 East Kiehl Ave., Sherwood, AR 72120. (501) 833-8511. www.lee-enterprises.com.