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Renewable energy in the context of rural development and farm profitability

Editor's note: Dan McGuire, chief executive officer of the American Corn Growers Foundation, gave the following speech yesterday at the Legislative Agricultural Chairs Summit in New Orleans.

by Dan McGuire
American Corn Growers Foundation

(Monday, Jan. 19, 2004 -- CropChoice guest commentary) -- Thank you to Representative Jones and Representative Thomas and to Carolyn Orr and Doug Farquhar for the invitation to speak here today. We appreciate this opportunity. I also want to thank the W.K. Kellogg Foundation, The Energy Foundation and the Wind Powering America program of the U.S. Department of Energy and National Renewable Energy Laboratory with whom we work so closely and all of which support our renewable energy work.

Renewable Energy in the Context of Rural Development & Farm Profitability. I doubt that you could have a more timely and on-target topic than that. Just consider the many economic opportunities that the various forms of renewable energy offer to agriculture and rural development. Iím going to discuss a number of renewables in my remarks. Ethanol, wind energy, biodiesel, biomass and various hybrid combinations of these are all relevant today. From a corn grower angle and public awareness perspective, ethanol is the most well known and high profile renewable. So Iíll talk about that first. According to the USDA January 14, 2004 Feed Outlook, ethanol production plants are expected to grind 1.120 billion bushels of corn in this current marketing year. Thatís 11% of the total 2003 U.S. corn crop. Itís more than double the amount of corn used in the production of High Fructose Corn Syrup and nearly 50% of the total 2.460 billion bushels of corn used domestically in the U.S. for all categories of food and industrial use. Corn use for ethanol this year will be just under 60% of the total quantity of 1.975 billion bu. of corn exported from the U.S. But ethanol as a renewable energy source is so much more than a demand factor for our nationís largest agricultural crop.

Consider what ethanol brings to the U.S. economic table:

  • Ethanol from corn and other grains offers clean-burning fuel to lessen our dependence on foreign oil while helping to clean up our air and enhance our national security.
  • Dry mill ethanol plants currently produce nearly 4 million metric tons of distillers dried grain solubles (DDGS), a feed. Industry experts predict that by year 2005, 5.5 MMT of DDGS will be produced in the U.S. Researchers at several Land Grant Universities, including the University of Minnesota have been conducting experiments to evaluate the nutritional value of DDGS for feeding recommendations for dairy, beef, swine and poultry.
  • DDGS has the potential to be exported in much greater quantity. This is a sample of DDGS from a cargo that was loaded at the Port of Duluth and exported to Europe just over one month ago. Itís about 30% protein on a dry matter basis and European buyers are very interested in this product.

Let me suggest that, if the industry wants to have a future in exporting considerably more DDGS, they take a close look at offering it in pellet form. Just as with soybean meal many buyers want pellets rather than meal, but the U.S. is way behind South America in this regard. Brazil and Argentina have provided soymeal pellets for years. Importers asked the U.S. for soymeal pellets but to my knowledge, they still donít get it that way from the U.S. Pellets are easier to handle and easier to storeÖfor both the exporter and the importer. They can also bring a higher price. Perhaps this is an economic development opportunity for rural areas that either have ethanol plants or want to expand their valued-added co-product marketing future. They might want to consider adding a DDGS pellet production system with their ethanol plant.

On the subject of giving the worldís buyers and customers what they want, we also need to consider the role that ethanol plants can play to assist in a segregated corn market. We believe in the fundamental marketing 101 premise that "the customer is always right" and if Japan, Korea, China or European importers and consumers want conventional, non-genetically engineered corn or other commodities thatís what we should give them. Some in the U.S. donít agree that those customers are right for the right reasons but if we want to keep them as valuable markets and if we have competitor exporting countries willing to meet their demands, we have to take them seriously.

Again, ethanol plants can have a role to play in helping satisfy certain foreign markets that want conventional corn instead of genetically-engineered corn varieties. Last week an AP story out of Champaign, IL reported that the Illinois Department of Agriculture has a new Trait Lab that will help ensure that export markets remain open to Illinois farmers. The Trait Lab gives them the ability to verify the genetic make up of seeds within a matter of days rather than weeks said Jim Larkin, chief inspector. Jim Squibb, an Ag Dept. spokesman said the testing is needed to help prevent mingling of grain that is genetically modified with conventional crops intended for export to countries that ban genetically altered grain.

Lets take this export market servicing aspect a step further and imagine that the 11% of the corn crop sold to ethanol plants comes from the 33% of the U.S. corn crop that is genetically engineered so as to keep those bushels from being commingled with the two-thirds majority of the crop that is still conventional. That way we have a much better opportunity to hold on to existing corn export markets down the road. We might even recapture the 100 million bushels of annual U.S. corn exports that used to go to Europe before GMO corn varieties were introduced. To illustrate the importance of this issue, GeneScan, a analytical laboratory located right here in New Orleans is holding a series of EU and Asian Food Market Seminars around the U.S. in March to assist the U.S. food and feed industry in coping with new food and feed regulations in those two major markets. Again, using the analytical testing services available today, ethanol plants as an identity-preserved marketing channel can play a very important strategic role in keeping customers satisfied and foreign markets open to U.S. corn.

Jobs: Ethanol plants play a major role in creating new jobs in rural America. A good example is a new $60 million ethanol plant being built now at Central City, Nebraska. Nearly 200 construction workers are involved in that project. The plant will produce 40 million gallons of ethanol per year and 128,000 tons of DDGS. It will create 33 full-time jobs with a payroll of $1.2 million annually. It will pay nearly $1.2 million in annual property and indirect business taxes and fees. And, itís expected to raise the price of corn in that area as much as 8 cents per bushel. In other words, itís a rural economic development engine. This project is happening because of the Nebraska legislatureís leadership. They put a production tax credit in place in 1992 which has led to the construction of 10 plants and made Nebraska the nationís third-leading ethanol producer.

On a national level, 73 ethanol facilities have the capacity to produce 2.9 billion gallons of ethanol per year. 14 new facilities are under construction and dozens more are in the planning stages. 70% of the ethanol plants under construction are farmer-owned.

At the national level one measure that can really help is passage of a Renewable Fuels Standard or RFS. The RFS will lower the cost of gasoline to consumers by reducing refiner costs compared to the current law and by ensuring additional domestic fuel supplies. The RFS is supported by nearly all national farm and commodity groups from corn and soybean organizations to the Farm Bureau and National Farmers Union. Trade groups such as the Clean Fuels Development Coalition, the Renewable Fuels Association, the American Road and Transportation Builders, the Associated General Contractors of America, the Portand Cement Association and the U.S. Chamber of Commerce have all signed on, so you can see just how wide and deep the support runs. Iím sure the NCSL has weighed in on this issue but given the status of the Energy Bill Congress needs to hear the message loud and clear, again and again until they get the job done. Itís that important to rural America.

Biodiesel: Hereís another homegrown, renewable fuel thatís good news for the environment, health, rural development and domestic soybean demand right here in America. Biodiesel helps reduce our dependence on imported fuels while creating jobs and economic growth. In year 2000 biodiesel became the only alternative fuel to meet certain EPA Tier 1 and Tier II emissions reductions in the Clean Air Act. DOE and USDA have calculated carbon dioxide reductions of 78% for biodiesel when compared to petroleum diesel in a full life cycle analysis. And biodiesel reduces compounds linked to cancer by 80-90% compared to petroleum diesel. Biodiesel has no sulfur so it already meets the 2006 ultra-low sulfur standard of 15 parts per million. We need to think of biodiesel production plants using soybeans and other oilseeds much like ethanol in that itís a cleaner burning fuel thatís friendlier to the user and the environment. The economic benefits from increased bio-diesel production and use are shown to accrue to farmers, local communities, end users and the nation as a whole. A 2001 study by USDAís Office of Energy Policy and New Uses in conjunction with USDA-ERS found that an average annual increase of the equivalent of 200 million gallons of soy-based biodiesel demand would boost total crop cash receipts by $5.2 billon cumulatively by 2010. The National Biodiesel Board provides a state-by-state map and list of wholesale biodiesel suppliers on their website at http://www.biodiesel.org . And thereís federal help to move biodiesel forward. Two Iowa companies, West Bend Elevator Company and Midwest Grain Processors recently received USDA Value-Added grants to assist in the planning and development of biodiesel production plants.

Another thought on these renewable fuels. We donít have to have low commodity prices to make the plants profitable. For instance, the price of corn is about 50 cents per bushel higher this past week than a year ago, but the price of DDGS, for instance, in Lawrenceburg, IN was $130 per ton last week compared to an average of $75 per ton in the 2002/03 marketing year. And, corn gluten meal in Central Illinois was up to $350 per ton last week vs. the average of $241.65 per ton in 2002/03 according to USDA reports. So, while the price of corn, the main raw material in ethanol production is higher so are the products that the ethanol plants sell going out the other end. Indeed, ethanol plants are profitable and of course the question is always how high does the profit level need to be in terms of a percentage return? Bottom lineÖit can be a win-win for all concerned, farmers, processors, consumers and the nation.

Bioenergy Crops: Another real opportunity in the renewable energy area is crops such as switchgrass. Itís a native U.S. perennial grass with high cellulose content. Itís relatively clean burning and can be co-fired with coal to reduce the level of pollutants released into the atmosphere, or it can be processed into ethanol for the production of fuels with consequent environmental benefits. Practices associated with the production of switchgrass are no different than those used to produce alfalfa hay. Itís already grown on some highly erodible land in conservation programs and harvesting switchgrass for renewable fuel production is a farming activity as opposed to land idling.

Switchgrass is enjoying a great deal of attention. The U.S. Department of Energy is currently conducting numerous pilot projects testing its application for a variety of uses. Studies by the U.S. Departments of Agriculture and Energy, the University of Tennessee and the Oak Ridge National laboratory conclude that a framework could be developed to encourage the conversion of acreage to the production of switchgrass for use by utilities and fuel manufacturers. This information is included in Rethinking U.S. Agricultural Policy: Changing Course to Secure Farmer Livelihoods Worldwide, a September 2003 report released by Dr. Daryll Ray and the Agricultural Policy Center of the University of Tennessee. The report concludes that acres devoted to biomass crops like switchgrass can also help to raise the price of other commodities while protecting environmentally sensitive land. I urge to get a printed copy of that report or access it online at http://www.agpolicy.org .

Corn burning space heaters: On a cost per million BTU basis, corn today is as competitive as are pellet fuels made of sawdust, switch grass and other emerging biofuuels. One bushel of corn contains 476,000 BTU or approximately 112 kWH. If corn were considered as a closed loop energy crop under the production tax credit (PTC) under section 1914 of the Energy Policy Act of 1992, and could qualify for a tax credit per Kwh, the 112 Kwh x 1.5 cents/Kwh would equal $1.68 per bushel in the form of tax credit. The American Corn Growers Association is also looking at expansion of the renewable energy production incentive (REPI) under section 1212 of the Energy Policy Act of 1992 (currently allowed for local government agencies and non-profit electric cooperatives).

Wind Energy: Finally, and what I consider the most exciting new and certainly renewable crop to come to the rural American landscape in years is harvested at about 150 above the ground. It is wind energy. Talk about rural development opportunities, wind energy has it all. Consider this: The first farmer-owned wind farm in the country was the Kas Brothers Wind Farm at Pipestone, MN. It has two 750 NEG Micon 750-kW turbines with an installed capacity of 1.5 MW and estimated annual electricity production of 4.5 million kWh. That wind farm now yields $30,000-$40,000 a year for the first 10 years. Then itís expected to yield $130,000-$140,000 annually thereafter. There is a federal production tax credit (PTC) on wind projects and Minnesota has a production incentive of 1.5 cents/kWh for projects under 2 MW. Local contractors and banks were involved in that project and it happened because of what the public wanted and the state made happen. Thatís another example of a state legislature that took action to create rural development and itís really having an impact. Minnesota had the most new installed wind power capacity in 2003 of any state with 223 MW. Referring back to the nationís first farmer-owned wind farm, Kas Bros. at Pipestone, MN, the developer, Dan Juhl was responsible for installing 26.6 MW, 12% of the new 2003 total capacity in Minnesota. Mr. Juhl, with whom our ACGF Wealth From The Wind program works very closely, put in fourteen new farmer and locally-owned, community-based wind farms that account for that 26.6 MW of new wind power in 2003.

Another impressive Minnesota project that got underway in 2003 was the Trimont Area Wind Farm, LLC. Itís a larger-scale, 100 megawatt wind farm proposed for Martin and Jackson counties. It responded to Great River Energyís (GREs) request for proposals for renewable energy supply sources. GRE is adding wind energy to its generating portfolio to achieve the Renewable Energy Objective (10% by 2015) contained in Minnesota Statute 216B.1691. Again, positive action by a state legislature to create a policy environment through incentives that are leading to economic expansion. As the second largest power supplier in Minnesota and the fourth largest cooperative power supplier in the nation, GRE provides power and energy to 28 electric distribution coops in Minnesota and Wisconsin. The Trimont project consists of more than 40 local farmer and landowner members in SW Minnesota and the wind farm will be sited over an area spanning 11,250 acres of land but will only disturb about 40 acres for the access roads, wind turbines, transformers, and operation and maintenance building and project substation. The project will provide enough average energy for the needs of 29,000 households. Up to 100 8-month construction jobs will be created with 3 to 5 full time employees. According to a recent study commissioned by the Renewable Energy Policy Project, 3.7 jobs are created per megawatt of wind power developed in the U.S. Wind energy development is very important in diversifying and strengthening the economic base of southwestern Minnesota. The wind farm will also increase the local property tax base in the counties and municipalities in which the project is sited. In year 2000 two other wind farms, the Lake Benton projects, generated $1.2 million in tax revenue to Pipestone and Lincoln counties.

Other states such as Texas and Iowa are really strong in wind energy development. Projects in Iowa recently received USDA grants, one to help a farmer install wind energy on a small scale. Another USDA was announced last week where a $2.2 million loan was made to the Calhoun County Electric Cooperative to construct six miles of new distribution lines and make upgrades and improvements to serve 40 new customers. Another similar loan of $2.4 million to Farmers Electric Cooperative of Greenwood was made to build 14 miles of new distribution lines that will serve 187 new customers. Itís also important for states to have state matching funds for the USDA clean energy money as there seems to be a strong correlation between states with their own clean energy funds and the USDA grant recipientsÖMinnesota, Illinois and New York especially. State legislators might want to create an Ag Energy grants/loans program.

We need to make sure that these USDA value-added grant programs and Section 9006 for renewable energy grants get fully funded as a means for rural development and farm profitability. The agricultural leaders in the state legislature, the NCSL, CSG and RUPRI all can sure help get word to Congress as you have considerable influence. Consider these benefits that wind energy brings to the economic table for our nationís future:

  • Wind energy takes the pressure off of our precious and dwindling water resources by lessoning the demand for the water used to cool coal, nuclear or other power plants.
  • As water becomes more scarce for crop production wind energy provided an alternative new crop.
  • Wind energy provides a stable source of farm income to offset low commodity prices and enhances the tax base for rural school and other funding needs.
  • New electricity from wind power lessons the demand for natural gas to power generation plants which helps hold down the cost of nitrogen fertilizer and fuel for farming inputs as well as for residential heating and cooling.
  • Wind power installed at the "end of the line" in rural areas serves to upgrade and bolster the quality of electric power at the end of the grid where power is lost through transmission and takes the pressure off load centers. This can help alleviate the potential for grid problems and energy blackouts such as in 2003.
  • Wind energy offers a means of diverse and dispersed renewable energy, an important consideration from a national security perspective in todayís world.
  • Wind energy development and the related federal PTC and state incentives like the Minnesota model have 80 to 90% support among the nationís farmers based on a 2003 American Corn Growers Foundation scientific poll.

On the issue of support from farmers and farm organizations that are in tune with their grassroots base, within the past month some major farm groups passed resolutions in support of wind energy and state-level incentives. They include the Iowa Farm Bureau and the Nebraska Farmers Union. The Illinois Farm Bureau also supports wind and other renewable incentives in Illinois. The Oregon Agriculture Director and Oregon Farm Bureau recently put out an article in support of wind and other renewables and the list could go on and on. Wind energy is the new extraction industry. The difference is that it is extracted from above the earthís surface with positive environmental benefits. It is important that we mobilize the ag sector to promote both federal and state Renewable Portfolio Standards (RPS) as a means to help create markets for renewable energy. There needs to be production incentives for community-owned projects and barriers to net metering (especially from the RECs, which are not regulated by the PUCs) need to be eliminated.

Another area that state legislatures need to be looking into is the "Clean Energy Funds" or "State Funds" that refers to the growing number of funds in the U.S. whose objective is building markets for renewable energy and clean energy resources. At mid-2003, there were 17 such state-level funds in 12 states. State programs will make available nearly $3.5 billion to promote renewable and clean energy over the next decade. These funds are capitalized in a number of ways. Some funds receive payments through a non-bypassable charge assessed on each customerís electric bill, typically as a result of restructuring legislation. These are typically referred to as "system benefit charges: (SBCs) "public purpose charges." Other funds receive their money in lump sums either as a result of a settlement or a utility merger or sale of generation assets. I urge you to check the Clean Energy States Alliance at www.cleanenergystates.org for more information.

Iím sure Iíve used up my share of the time by now so Iíll close by mentioning that I have additional materials along that provide valuable information that you can take with you. An excellent power point presentation on wind energy from Larry Flowers of NREL is here in print form. I want to thank NREL for that as well as some brochures and recent articles that our NREL Ag Outreach Committee has issued. Please take a copy of our ACGF Wealth From The Wind brochure and our Small Wind Electric Systems Guide. It has the results of that 2003 national corn producer survey printed inside the back and front covers or go to www.acgf.org or www.acga.org where the survey is posted. And for those interested in a community wind conference in June, please go to the Windustry website at www.windustry.org and let Lisa Daniels know that youíre interested and want more information about that conference. You also need to look into your state wind working groups by checking with your state energy department so you can become active and support their fine work.

Thank you again. It is a real pleasure to be here and I look forward to working with you in the future in any way we can.