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Are you working with any of the established vendors like LiveFuels or GreenFuel?

No. Like everything we do, we’re doing it homegrown. We came up with our own processes. We’ve designed our own refineries.

Twenty percent of our company are engineers. I’m a software guy. I was at Microsoft a long time. I started my own software company. I really believe that if you invest in a lot in technology you can get a competitive advantage. I didn’t see anyone doing that in biofuels, certainly not in ethanol.

What most people do is hire a third party like Fagan, ICM or Delta-T to build a turnkey plant for them. They just act as operators, with commodity inputs, commodity processes and commodity outputs. I don’t understand how you make money in that business.

What sort of economic benefits are you getting from building your own processes and plant?

We’re building our refineries for 1/3 of the industry’s capital cost. We’re building our Grays Harbor refinery for $60M. It’s a 100 million gallon refinery, so that’s roughly 60 cents a gallon in capital costs. Ethanol companies like Avantine, VeraSun and Pacific Ethanol are spending roughly $2.30 per gallon just on capital costs.

There aren’t any other public biodiesel companies that have announced their costs, but we know it’s about $1.70 a gallon. That’s a direct benefit of controlling our own technology and design. And our variable operating costs will be lower.

Will you be producing a comparable product in terms of quality?

In the beginning of the oil business, it was a wildcatter’s game. It had different amounts of sand and whatever in it, at different grades. They were all selling it as the same thing. They didn’t know anything about heavy crude and light sweet crude. They formed the ASTM standards body to standardize fuels because there was so much variability and customers wanted a standard product.

That’s now happening in biodiesel. You could make it yourself - hippies make it at home! But you won’t make a standard, consistent product. We’ve seen this as a problem in Minnesota, the first state to have a renewable fuels standard. They had problems with quality.

We’ve invested a lot in inline QA. We stand by and warranty our product. We know our ASTM and have seen the results of our competitors. Our product exceeds many of the ASTM standards, for instance in areas like shelf life.

There’s a long way between making it work in the lab and replicating it on a large scale. Biodiesel is no different from solar, fuel cells or other renewable energy. Our 5 million gallon a year factory has been running for a year, now. It’s de-risked. We know it works, and we’ve got customers.

Some investors in the sector believe the smartest thing governments could do is to fund biofuels research. They’re worried that small companies are spending too much of their precious budgets on process research and plant development. Smart? Not so smart?

That’s stupid. Not just “not so smart,” but stupid.

There’s usually two approaches to federal support: 1) give lots of money to research labs, or 2) stimulate demand. I’m a fan of the latter. Generate demand in the market and the capitalism system will take care of itself. All the investments will happen.

The right thing for the federal government to do is to set long term policy in a way that allows people to make long term investment. I was a big supporter of the renewable fuels standard. When you have a 10 year stair-step of demand, an investor can look at that and say “this is a no-brainer. I know there’s going to be a market for this, so we’re going to make the investment.”

I don’t think we need to give NREL or any of the labs more money. We need to drive the market with more standards.

What about subsidies?

I’m not a fan of subsidies. I’m happy we’ve got them. But standards are better.

Subsidies are financing. Somebody’s got to pay for them. Standards are easier, because the government can just mandate it by fiat.

The dollar a gallon ethanol tax incentive is only in place until 2008. They’re going to get it extended, but they’re only put in place for three years at a time, because every politician wants to say “the budget is balanced in five years.” An investor looks and says, “this program is only in place for three years, my investment is not supposed to pay off over five years – I’m not going to make the investment.” It’s easier to make that investment if you see a stair-step of mandates into the future.

I’d like to see mandates on specifically how much ethanol vs. biodiesel should be produced. There hasn’t yet been a specific mandate for biodiesel itself.

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