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Staffing shortage holds up world's first cellulose ethanol plant

WASHINGTON—All that's standing between the United States and the world's first cellulose ethanol plant is an obscure Washington office staffed by one federal contractor.

The office in the U.S. Department of Energy opened last summer to provide federal loan guarantees for producing clean energy and innovative technologies.

However, its sole employee hasn't been able to do more than literally open the mail. More than 100 so-called pre-applications for loan guarantees have arrived, only to be shelved because the Department of Energy hasn't had the money to hire more staff to assess them.

Among the applications is one from Iogen, a Canadian biotechnology company incorporated in Idaho that wants to open a $500 million plant near Idaho Falls. It would be the first in the world to produce cellulose ethanol, which can be used in today's cars, on a large commercial level.

The company expects to turn out annually 20 million to 50 million gallons of the renewal biofuel, which is made from switch grass and such crop waste as corn stalks and barley, oats and wheat straw. Iogen already has contracted with 320 farmers in southeastern Idaho, who could collectively reap $25 million to $35 million a year, according to some estimates.

Though it's more complicated and expensive to make ethanol from tough cellulose fibers than from corn, the Department of Energy has said that more ethanol, at a ratio of 2 to 1, will have to come from cellulose to achieve President Bush's goal of increasing the renewable fuels supply by 35 billion gallons in 10 years.

Yet Iogen can't start building its Idaho cellulose ethanol plant until it gets the federal loan guarantee it applied for last year.

Congress authorized the Department of Energy to back loans for new energy technologies "a year and a half ago," said Jeff Passmore, Iogen's executive vice president, "and we still don't have a loan guarantee initiative up and running. That's disappointing."

The company has everything in place to break ground in Shelley, about 10 miles from Idaho Falls, including equity from such investors as Shell Oil. But it can't close on an approximately $200 million loan without a government-backed loan guarantee.

"We want to get the shovel in the ground and build the plant," Passmore said. "The technology is ready to go. The equity is there. But on the debt side, you can't borrow money from ... lenders for new technology. They will not take a technology risk unless that debt is guaranteed by a strong credit rating, such as from a government."

Sen. Larry Craig, R-Idaho, said there's "significant" frustration in Congress with the Department of Energy's pace in implementing the loan guarantees.

"There just has been an awful lot of foot dragging over there," he said. "We talk about climate change, but we have not been able to muster up whatever it takes ... to take research that is nearly complete and move it to the market with financing through the process of loan guarantees."

Department of Energy spokesman Craig Stevens said the slow rollout wasn't on purpose. "We've done all we can with the authority and appropriation we were given," he said.

He said the Department of Energy last year asked Congress for authority to transfer $1 million within the department to staff the loan guarantee office and start making decisions on the pre-applications. But lawmakers denied the request.

The outlook is brightening this week as Congress is poised to finalize a government-funding bill for the current fiscal year that includes $7.3 million for the loan guarantee office and authorizes it to back up to $4 billion in loans this year.

For 2008, Bush requested $8.4 million for the office and authorization to guarantee up to $9 billion in loans for a variety of clean-energy projects. However, the White House funding request doesn't ask for money for a section of the program that makes loans specifically for cellulose ethanol plants, according to the Renewal Fuels Association, which represents the ethanol industry.

Stevens said there are other funding sources for cellulose ethanol, such as grants.

Even with the funding situation close to being resolved, many expect the Department of Energy to continue its deliberative pace rolling out the loan guarantees.

The funding "is certainly a very important step, but just because there's money there doesn't mean the Department of Energy is making loans," said Craig's spokesman, Dan Whiting. "There's some concern they aren't going to implement it in as timely a manner as we want to see. ... We want them to be cautious, but there's a point where you can be too cautious."

Stevens said the department might be able to approve the first loan guarantee by Sept. 30.

That isn't any too soon for Iogen.

"What we want is speed of decision-making. It's a race between Canada, Germany and the U.S." to host the plant, Passmore said.

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(c) 2007, McClatchy-Tribune Information Services.

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