WASHINGTON (Reuters) - U.S. lenders are leery of putting money into cellulosic ethanol and other new-generation biofuels due to the recession and an industry shakeout, Agriculture Department and biofuel leaders said on Thursday.
That is one reason near-term production of advanced biofuels is unlikely to meet targets set by a 2007 energy law, said William Roe of Coskata Inc, which has a demonstration-size biomass plant in Pennsylvania.
Several witnesses at a House Agriculture subcommittee hearing on the future of new-generation biofuels pointed to difficulties in securing credit.
"Given the current recession and the banking sector's financial difficulties, lending has become scarce in the biofuels space," said Susan Ellerbusch, president of BP Biofuels North America.
Agriculture Undersecretary Dallas Tonsager said lenders also were discouraged by an industry shake-out last year that included the bankruptcy of the largest producer due to rising grain costs and a drop in petroleum prices.
Plants with roughly 12 billion gallons of annual capacity are in operation now while 1.2 billion gallons in capacity is idle.
USDA has awarded two loan guarantees totaling $105 million for advanced biofuels projects. Two applications remain under consideration.
Some applicants were rejected because they did not have a lender behind the project, Tonsager said.
New-generation projects often have costs that equal $10 a gallon or more for small-scale plants, well above corn-based ethanol and petroleum. Proponents say costs will drop rapidly for a commercial-size plant and as technology is refined.
Rajiv Shah, Agriculture undersecretary for research, said he was optimistic of a significant improvement over the next five to seven years in the economics of new-generation biofuels. Feedstocks account for one-half to two-thirds of the cost of biofuels, he said, so it is important to develop biomass crops and improvements in converting crops into fuels.