In Washington, the Department of Defense has awarded $210 million under the Defense Production Act to Emerald Biofuels, Fulcrum BioEnergy and Red Rock Bio towards the construction of biorefineries that produce cost-competitive, drop-in military biofuels.

Under the grants, the companies will build biorefineries to produce military spec fuel that is expected to cost the US military, on a weighted average, less than $3.50 per gallon — or cost competitive with petroleum-based fuels, with availability expected as soon as 2016, and have a 50 percent of greater reduction of emissions compared to conventional fuels.

The biorefineries, once complete, will have a combined capacity for producing 100 million gallons of military-spec jet fuel and marine diesel.

The Defense Production Act was passed during the Truman Administration to permit the Department of Defense to invest in building production capacity for a wide range of military materials. The Act was passed in recognition that the military, given the nature of its missions, is often the first large customer for a technology.

Chicken-and-egg situations can arise where production capacity (for economies of scale) proves impossible to finance for first-of-kind technologies developed by young technology firms. Currently, the DoD supports the development of two dozen technologies through DPA.

[For newer readers, the military uses slightly different versions of jet fuel and marine diesel. It’s fuels are generally less volatile fuel than conventional fuels, with a higher “flash point” that were established because of the harsh conditions that the military must operate under at sea. For this reason, the military cannot simply buy conventional marine diesel or jet fuel, whether it contains biofuels or not]

In an innovative program, the USDA will make available up to $161 million in Commodity Credit Corporation (CCC) funds — in support for the Navy’s fuel program. The USDA’s support was originally announced by the Administration in 2012. The CCC is a wholly-owned government corporation created in 1933 to “stabilize, support, and protect farm income and prices”.

Nature’s BioReserve, which was also awarded a Phase 1 grant to complete more extensive engineering and plans in support of a commercial-scale project, was not the recipient of an award in this round.

The Digest’s 6-link Backstory

2014: Procurement begins: USDA, US Navy unveil Farm to Fleet program: Navy “open for business” as shift to biofuels blends begins

2013: Phase 1 grants towards building capacity: DoD awards $16M towards parity-cost, drop-in, non-food biofuels

2012: The Demonstration that the fuels work: The Navy’s Green Strike Group sails on biofuels blend

2012: Outlining the strategy: The Obama plan for cost-competitive, military biofuels

2010: First big steps towards use at scale: 17 Steps the US military is taking to advance, use, and advocate for biofuels

Comments from USDA Secretary Tom Vilsack, Secretary of the Navy Ray Mabus, and Deputy Energy Secretary Dan Poneman

US Secretary of the Navy Ray Mabus said, “You only have to read the headlines to understand how energy can be used as a weapon. Today, oil is the ultimate global commodity, and when something happens anywhere, energy traders out a security premium on the price, and the DOD has had billion of dollars in expense from its budget that had to be redirected to fuels.

“We’re in a maritime century. 90 percent of all trade goes over the ocean, 95 percent of data goes under the ocean. The navy and marines provide the ability keep sea lanes open, to deter conflict without escalating tension, to give the President options. And power and energy is critical to global growth and the ability of the navy and marine corps to do that.

US Deputy Secretary of Energy Dan Poneman added, “The national that leads the clean energy economy will lead the global economy of the future. Winning the race to cost-competitive drop-in biofuels is a huge win for our country and for the future. That’s why today is such a great day for me, It is an opportunity to take stock, where we have come, where this will take us. And to renew our commitment to the people, to our men and women in uniform, on [changing our energy mix].”

US Secretary of Agriculture Tom Vilsack said, “The bioeconomy take everything we grow and we raise and turn it into something more valuable. In addition to creating economic opportunity, we can make sure our energy supplies come from a wider and more diverse mix from an “all of the above” energy strategy.

“We know that the biofuel industry is now cleaning the air and creating more diversified fuels, and giving the Navy a reason to feel a safer about its energy supply. But also let us remember that Rural America has 15 percent of our population and as high as 40 percent of our military. These jobs are likely to be created in small towns. How important it is to give something back to our men and women in unifor, that we are creating a new fuel source, and job creating source in the very area that supplies so much of our military. It makes our country better and stronger.

Ultimate goals

Originally, the DPA funding announcement was outlined in terms of a small-scale, [at least] 10 million gallon biorefinery – but the news from DC in indicating a 100 million gallon target. As originally outlined the goal of the program is:

“To establish one or more complete domestic value chains capable of producing drop-in replacement biofuels. This includes feedstock production and logistics, conversion facilities (Integrated Biorefineries), and fuel blending, transportation, and logistics. The Government intends to form an Integrated Biofuels Production Enterprise (IBPE) comprised of partnerships that establish the complete value chain.

“The contemplated effort will include the design, construction and/or retrofit, validation, qualification and operation of a domestic commercial-scale IBPE that meets a target of at least 10 million gallons per year neat biofuel production capacity. The IBPE will be capable of producing drop-in liquid transportation fuels targeted for military operational use, and as such, must be approved and certified MILSPEC JP-5, JP-8 and/or F-76 equivalents by the time the IBPE becomes operational.”

Do the new biorefineries have to make military-spec fuel ONLY, and does the Navy have to buy it?

No, the biorefineries can any combination of fuels and chemicals — and will be expected to do so in order to be able to each sufficient sustained capacity to produce military-spec fuels at cost-competitive prices, expected to be around $3.50 per gallon. The biorefineries are required to be able to produce mils-spec fuels.

For example, Fulcrum has signed a long-term offtake agreement with Cathay Pacific to supply commercial airline jet fuel as well.

The Navy is not obliged to buy from these biorefineries — instead, it will buy from the lowest-cost supplier, of anything from 10 to 50 percent blends of biofuels and conventional petroleum fuels — as part of its regular procurement program and in support of its Great Green Fleet goals. The existence of these biorefineries, however, will be the guarantee that the US military — in its accustomed role as the first major customer of many new technologies and products that serve defense interests (at scale) before they have found a commercial market — does not pay premium rates for advanced biofuels.

More about Emerald Biofuels, Red Rock Bio and Fulcrum Bioenergy

Emerald Biofuels – 82 million gallons

The company is working towards a project at an as-yet undisclosed location “somewhere on the Gulf Coast” — and is expected to use Honeywell’s UOP/Eni EcoFining process technology for the production of Honeywell Green Fuels – renewable diesel and jet fuel. Feedstock for that process is generally waste fats, oils and greases, widely known as FOG.

The company, which is generally deep in stealth mode at this time while it assembles the project elements, intends to announce a key feedstock supplier at a later date. Some biodiesel producers buy FOG occasionally or regularly on the spot market — as opposed to having tied-down relationships with single suppliers — but sources close to the Emerald project say that “that’s not going to be the right strategy for financing a project of this size”.

In 2012, we reported the announcement that Emerald Biofuels had discussed building a 85 million gallon renewable-diesel refinery at a Dow Chemical site in Plaquemine, Louisiana — but this will not be the location for this project.

Fulcrum Bioenergy

Fulcrum is, among the three awardees, the best-known, last appeared in the newsflow when it announced last December that it had successfully secured commitments and is proceeding toward closing $175 million in financing to fund construction of its first municipal solid waste to low-carbon fuels plant, the Sierra BioFuels Plant and to fund the development of future projects. The project is expected to be completed in 2015. $105 million of the $175 million is the USDA loan guarantee, which the company secured in a conditional commitment in August 2012 and was definitively awarded last week.

In spring 2013, Fulcrum successfully demonstrated the conversion of municipal solid waste (MSW) into jet and diesel fuels. The process added fuel diversity to Fulcrum’s products and complements a previously demonstrated MSW to ethanol process. Fulcrum’s ability to produce drop-in fuels from MSW opens up an 80 billion gallon-per-year fuel market and expands its customer base for its national development program.

Last week, in the wake of the $105 million loan guarantee for Fulcrum Sierra Biofuels announced last week, the USDA received flack from the Taxpayers Protection Alliance. President David Williams criticized the guarantee, alluding to the 2011 Solyndra collapse: “Washington is used to flushing taxpayer money down the toilet, but now they’re having taxpayers pay for what’s in the toilet they’re flushing the money down.” The Hill reports that Williams pointed out that animal feces and baby diapers are often found in the garbage that Fulcrum will be using to make renewable energy.

Fulcrum spokesman Rick Barraza defended the waste-to-biodiesel and jet fuel project, responding directly to Williams, stating that the company will do its best to take out the baby diapers before it begins the process of turning waste into fuel.

The company has already contracted with Cathay Pacific Airways to supply 375 million gallons of fuel over 10 years, accounting for about 2 percent of the airline’s fuel usage. The USDA expects the Nevada facility to produce 11 million gallons of renewable fuel each year. Plant construction is estimated to cost $266 million; the USDA’s loan will cover 40% of that.

Red Rock Biofuels

The FT microchannel reactor technology developed by the Oxford Catalysts Group and marketed under the brand name Velocys, has been selected for use in the design and possible construction of a commercial Biomass-to-Liquids (BTL) plant in the USA.

The proposed BTL facility, led by Red Rock Biofuels, a subsidiary of the Fort Collins, Colorado, US-based company IR1 Group LLC, will be located in Oregon. The plant will be designed to convert around 170,000 tons per year of forestry derived biomass into approximately 1,100 barrels per day (bpd) of liquid transportation fuels.

The Red Rock Biofuels BTL project was awarded a $4.1 million grant last year from the US Department of Defense (under the Defense Production Act Title III Advanced Drop-in Biofuel Production Project) to help to fund a detailed engineering and design study for the facility. With the aid of this grant, Red Rock Biofuels progressed through detailed engineering and design over the course of nine months.

More background on the Great Green Fleet and the Navy’s transition beyond petroleum

The Navy’s Great Green Fleet

In 2016, the Navy will deploy its Great Green Fleet — these ships will employ either a minimum of three Energy Conservation Measures (ECMNs) on board, or will utilize biofuels blends. The specific ship designations — and whether they will operate jointly on an ongoing basis or will be assigned on a mission-by-mission basis will be determined closer to 2016 deployment date by the Navy. Operations could include, for example, a group operating at the PACRIM exercises, or assigned to duty in the Mediterranean, or a group operating in the Caribbean on anti-drug patrols.

The Navy’s transition to biofuels: Testing and Certification

The Navy began testing aviation biofuels and marine biofuels on a ship-by-ship and jet-by-jet basis several years ago. Last summer, the Navy demonstrated a Green Strike Group operating on biofuels during the 2012 RIMPAC exercises.[RIMPAC is the world’s largest international maritime warfare exercise, held every two years out of Pearl Harbor, Hawaii, hosted by the US Pacific Fleet and featuring 22 nations and 42 ships in 2012, enhancing interoperability between Pacific Rim armed forces].

“It was at RIMPAC,” McGinn observed, “that we really got an end-to-end view on all the supply chain issues. Now, we are ready to deploy quickly. Now, it’s down to business. The intention now is to alert industry that we are open for business and that we are starting this program in a very realistic way.”

The Navy’s transition to biofuels: Capacity building and assurance of supply

Alongside the testing and certification efforts, the Navy, USDA and DOE had announced a program in 2012 to directly invest up to $510 million, through the DPA Title III office and Commodity Credit Corporation (CCC), in order to assure that capital would be available to build production capacity and offset feedstock costs for drop-in biofuels that would meet the Navy’s needs, timelines and cost goals.

[Note for newer readers: DOE and DOD’s portion goes to DPA Title III to build biorefineries, USDA’s portion is in CCC funds to address feedstock development.]

In May and June 2013, the DoD announced that it would award four contracts totaling $20.1 million to Emerald Biofuels, Natures BioReserve, Fulcrum Biofuels, and Red Rock Biofuels forPhase 1 of the DPA Title III Avanced Drop-in Biofuels Production Project, which includes front end engineering and designing, permitting, and development of detailed business cases. Today’s announcement is the Phase II continuation of this program.

[Note to newer readers: DOE invested the first $5 million that got the program office underway]

When could these biorefineries begin contributing towards fuel supplies?

Think 2018, possibly 2017. Meanwhile, the Navy is already procuring 10-50 percent mil-spec biofuels for 2015 and beyond.

The first deliveries under the “Farm to Fleet program are 330 million gallons (with a minimum biofuels component of 33 million gallons) scheduled for the Inland/East/Gulf Coast fuel procurement region — which includes the Eastern US as well as Guantanamo Bay. These contracts are expected to be issued as of April 2015.

The second deliveries under the program are 370 million gallons (with a minimum biofuels component of 37 million gallons) scheduled for the Rocky Mountain / West Coast region. These contracts are expected to be issued as of June 2015.

USDA’s price support

Under the USDA component of the program, for fuel solicitations in coming years the Navy will be able to access the CCC funds to buy down the cost of the biofuels component of any fuel purchase (using CCC-qualified, domestic US feedstocks), that is above the current price of fuel paid by the Navy.

For example, if the DLA receives a bid for 50 million gallons of military spec (JP-5) jet fuel with a 20 percent biofuels component, in a qualifying year and using CCC-qualified feedstocks, that is 10 cents per gallon above the price that the Navy pays for conventional fuels, then the CCC funds can be “tapped” by the Navy to make up the difference of $5 million in the cost difference between a conventional fuel buy and the green fuels buy.

[Note to newer readers: In addition, the USDA and the Navy established an extensive Farm to Fleet program, which you can read all about here.]

How new fuels can be cost-competitive from outset for the Navy, with USDA support?

For example, a company with a production capacity to make 10 million gallons of biofuels, at a $0.50 premium over the cost of conventional fuels, could construct a bid for up to 100 million gallons of a 10-percent biofuels blend at a nickel premium to conventional fuels. If this is a winning bid based on the competitive solicitation by DLA Energy, USDA funds would be available to “buy down” the $5 million differential for the first three years of the Navy’s program.

Of course, this mechanism works only if using a USDA-oriented feedstock — which is to say, agricultural in character and made in the USA. Feedstocks such as municipal solid waste, which will be used by Fulcrum, would not be eligible for USDA traditional support.

In future years, the bid would have to match conventional fuel prices without reliance on USDA support. In this way, the industry can scale up gradually, as the Navy scales its fuel demand gradually, while providing a consistent market signal and assuring the Navy that it pays only the going rate for fuels during the transition period.

Reaction from stakeholders

Truman Security Project’s Michael Breen



“Adopting advanced “drop-in” biofuels will help the Department of Defense and the nation achieve its broader national security goals,” Operation Free spokesman Michael Breen said. “As the largest institutional consumer of fuel in the world, our military is dangerously vulnerable to the volatile global oil market. Domestically-produced alternatives improve American energy security, help supply our military around the world, and grow the economy here at home. By pursuing new technologies for producing next-generation biofuels, we are working to accelerate innovation in a critical and growing sector that will help to improve U.S. energy security and sustain the U.S. military’s readiness.”

The Bottom Line

The key takeaways? 100 million gallons, and $3.50 or less for military-spec fuels. The Navy and its consortia including the DOE and USDA said all along they were interested in military-spec, drop-in, cost-competitive fuels.

Looks like they’ll get them.