AURI ENERGIZED
Institute awarded $1 million USDA grant to launch Center for Producer-Owned Energy

BY CINDY GREEN

AURI, poised to be a national leader in renewable energy, is launching the Center for Producer-Owned Energy. With a $1 million federal grant and matching funds, the Energy Center will assist renewable-energy projects initiated by producers. Advancing biodiesel, ethanol and biomass-generated electricity, along with finding new uses for energy coproducts such as distiller's dry grains, are some of the Energy Center's core priorities.

AURI is one of 10 recipients nationwide to receive a $1 million grant from the U.S. Department of Agriculture for an ag innovation center. The awards, announced September 26, went to universities in Montana, Michigan, New York, Indiana and New Jersey, to state agencies in Kansas, Iowa and Pennsylvania, to a rural electric co-op association in North Dakota, and to AURI.

While all of the national centers address value-added agriculture, Minnesota is uniquely focusing on producer-owned energy. "We already lead the nation in producer-owned ethanol production," says Edgar Olson, AURI executive director. "And we're the first state to mandate biodiesel." Legislation passed in 2002 requires all diesel fuel sold in Minnesota contain 2 percent biodiesel by the year 2005 if state production reaches at least 8 million gallons.

If ethanol can capture 10 percent of the fuel market, a state policy goal set in 1992, and biodiesel takes over 2 to 5 percent of the diesel market, that will substantially increase demand for soybeans, corn and other commodities, Olson says.

"Some tests are also being done with biodiesel to replace other resources that are very limited," such as natural gas, Olson says. "The price of natural gas is skyrocketing and hopefully we can find the point where biodiesel would be as economical."
 

Home-grown support

More than 50 agricultural and rural development organizations wrote letters of support and many offered cash match and in-kind resources for Minnesota's Center for Producer-Owned Energy. (See accompanying articles, "Business alliances" and "Partners in renewable energy").

The Energy Center will be headquartered in Marshall, Minn., co-located with AURI on the Southwest Minnesota State University campus, which also houses a Small Business Development Center. The Energy Center is independent, with its own board of directors, but will receive AURI administrative support.

The 2002 federal Farm Bill established ag innovation centers, which will provide technical and business assistance to "help farmers, ranchers and rural businesses develop and expand value-added ventures," says U.S. Agriculture Secretary Ann Veneman. "These investments will create jobs and improve economic opportunities for rural families."

AURI's proposal laid out a vigorous workplan for the Energy Center's first year, which commenced in December. In its first three months, the center is organizing a board of directors, entering a collaborative agreement with AURI to provide technical support services, and launching a communications campaign for producer groups.
 

Emerging energy

The Energy Center will initiate several projects within its first two to three months. Some have already been proposed, such as coupling biodiesel and wind electrical-generation systems and producing electricity with turbo generators fueled with vegetable oils.

Several ethanol research projects are being considered, including designing high-starch corn to boost ethanol production and improving the quality of distiller's dry grains or DDGs - an ethanol byproduct used primarily in livestock feed. Another would help two producer-owned facilities: a sugar beet plant could use its excess heat and steam to dry byproducts at a nearby ethanol plant. Besides biodiesel and ethanol, the Energy Center will also study biomass power, such as anaerobic digesters and power plants that burn animal or vegetable processing waste to generate electricity.

"All these emerging energy forms address critical national energy needs, rely on rapidly evolving technologies and could boost rural economies," stated AURI's proposal.

"There currently is no such organization or "center of innovation" in the nation that draws together applied research capacity and related business development expertise for this sector." The Energy Center's long-term vision, as laid out in AURI's proposal, is to be a national service center for producers.
 

Producers to business owners

Along with energy development, the center's mission is to develop producer-owned businesses - to diversify producer income, improve profit margins and stimulate rural economic activity.

Both grain and oilseed producers and livestock producers will benefit. All of Minnesota's major commodities - corn, soybeans, wheat, sugar beets, barley, canola and sunflowers - have renewable energy potential. Corn farmers have already developed over 240 million gallons of ethanol processing capacity and researchers are considering other crops, such as sugar beets, wheat and barley, or mixtures of these commodities, for ethanol production. Oilseed producers of soybeans, canola and sunflower directly benefit from improvements in biodiesel markets and processing capacity.

Livestock producers are interested primarily in manure digestion and the combustion of animal bedding, litter, crop residue and other biomass for electricity. Animal-derived tallow, waste fats and greases can also be used for biodiesel production.

Energy byproducts also have value; they can increase a plant's revenues so a co-op can lower energy prices to compete with traditional energy. For example, after oil is extracted from soybeans or canola to make biodiesel, the remaining meal may have valuable uses beyond livestock feed. High-value components such as vitamins, amino acids and glycerin can be extracted - an area where AURI has experience and laboratory capacity.
 

Ground rules

The Energy Center's board is comprised of seven members mandated by the USDA to include representatives of the state's four highest grossing commodities - soybeans, corn, pork and milk; the two largest farm organizations - Minnesota Farm Bureau and Minnesota Farmers Union; and the Minnesota Department of Agriculture.

The Board is responsible for hiring or contracting employees, approving budgets, holding the Energy Center accountable for its outcomes, and designing a long-range strategic plan by the end of the first year.

The Energy Center will help with market research, feasibility studies, business development and other services. Besides AURI staff and facilities, the Energy Center can draw on expertise from more than a dozen research and business assistance centers. (see accompanying story "Partners in Renewable Energy.")
 

Pre-development grants

In its first year, the Energy Center will award pre-development matching grants of up to $5000 each that must be matched 1-to-1 with cash or in-kind resources. Producer groups can apply for assistance at any project development stage - from idea to commercialization - including initial market research, prefeasibility work or procuring other assistance.

Project selections will be based on the experience, skills and commitment of the producer groups. If a concept is unproven, the group will be expected to invest risk capital in developing the idea.

After a feasibility study, the project will need a market assessment to determine market size, whether it's a growing or shrinking market, competition and potential distribution channels. Energy Center partners such as Southwest Minnesota State University's marketing center, Small Business Development Centers, Cooperative Development Services or AURI will conduct the market research.

The next step is analyzing technical feasibility, which may include bench-scale testing, analytical and efficacy testing, and third-party validation.

Projects that have demonstrated technical and market viability will move into business planning and map a commercialization strategy, which could take three to five years. Once the business plan is developed, the producer group will need to decide on the business's legal structure and how to capitalize the venture.
 

Measuring success

Organizers anticipate that by the end of the first year, 10 groups will have initiated and completed pre-development projects. The annual goal is to assist at least seven existing producer-owned businesses and launch at least two new producer-owned businesses.

To measure success, the Energy Center will track the number of contacts or inquiries, Web site hits, the number and size of groups assisted, projects initiated, client satisfaction, number of business created and capitalized, number of producers owning firms assisted by the Energy Center, producer investment/capitalization of assisted firms, and the number of gallons of liquid transportation fuel or megawatts of energy produced by assisted groups.

Within five years, organizers want Minnesota's biodiesel production, which is now almost nonexistent, to be 35 million gallons and the state's ethanol industry to increase production by 68 million gallons or 20 percent. The combined revenue increase for producers would be $150 million.