Osage Bio Energy bringing barley ethanol to the U.S.

Glen Allen, Va.-based Osage Bio Energy believes barley-based ethanol is the answer to the need for locally produced biofuel in the Southeast U.S., and today the company announced $300 million in funding from private equity firm First Reserve to bring the biofuel to market.

Already produced in Spain and other countries, barley-based ethanol uses the cereal grain as a feedstock instead of the more widely used corn.

Osage Bio Energy is the sister company of Roanoke, Va.-based Osage, an independent distributor of ethanol in the Southeast, and it plans to use the new funding to build four ethanol and protein feed production facilities, primarily in the Southeast U.S.

The company plans to sell the protein feed as a supplement for local livestock.

This is the first ethanol investment for First Reserve, which owns 100 percent of Osage Bio Energy, and it's no accident that the firm decided to go with a biofuel based on something other than corn.

"If you use the same technology in the same location and the same feedstock, there's a risk that the demand is going to overwhelm supply," Glenn Payne, a director at First Reserve, told the Cleantech Group.

He said corn ethanol "is now effectively all manufactured in a couple of states, using the same technology and all demanding the same feedstock."

Besides the lower price for the feedstock over corn, barley is a winter crop that Osage Bio Energy said would be grown for the production of ethanol and would not compete with land for food production.

First Reserve, which mainly invests in oil, gas and coal companies, said it has over $1.2 billion invested and committed to renewable energy, and is targeting up to 15 percent of its funds under management to the clean energy sector.

Some of First Reserve's other cleantech investments include a recently closed €261 million acquisition of Spain's Gamesa Solar, as well as investments in Richmond, Va.-based Industrial Power Generating, or Ingenco, a landfill gas to energy company, and Ottawa's Plasco Energy Group, a waste to energy firm.

For Osage Bio Energy, using locally grown barley would cut down on costs versus getting corn shipped in from the Midwest.

"You're better off producing in the market — you're avoiding transportation costs. You're better off with a lower cost input," said Payne. "And we have a distribution network."

The ethanol producer plans to contract out to grow the barley and use its sister company for distribution.

Payne said construction on the first two plants is set to begin over the summer. All four plants, each pumping out 50 to 60 million gallons of ethanol per year, are expected to come online over the next 18 to 24 months.

Spain's Abengoa has been using barley as a feedstock since 2000. The company has three plants in operation in Spain using barley and wheat, with combined annual production capacities of 111.8 million gallons of ethanol per year.

Take a look at an Abengoa ethanol plant here >>

While barley-based ethanol has a proven history, there are some challenges associated with the feedstock.

"The conversion process is little bit different on the front end. Getting the starch out of the product," said John Warren, director of government relations and project development at Osage Bio Energy.

"And barley also has hulls on it that you have to take off."

But on the east coast, Warren said the capacity to grow barley is much higher than it is to grow corn, and those hulls will be put to good use.

"Our barley hulls represent a wonderful energy source, so we'll actually be using the barley hulls to create the energy to make the ethanol."

The company also plans to save energy by setting up in locations where it can get excess steam from other nearby facilities.

Osage Bio Energy will be using technology from Ohio's Katzen International for its ethanol plants.

Using barley could be a more environmentally friendly option over corn.

"You need to put a lot of nutrients on corn to get it to grow," said Warren.

As for barley, many farmers in the Southeast are already growing it as a winter cover crop to hold onto existing nutrients.

"They're not harvesting it, they're just growing it so when it rains the nutrients don't run off into the streams and watersheds and create algae blooms."

"The barley plants absorb the nutrients, and then you till that barley back into the soil, and those nutrients are there for the next crop."

The company plans to use a "thoroughbred" barley that's a little different than the barley the farmers are already using, but Warren said that if the farmers can grow the winter cover crop barley, they'll also be able to grow the thoroughbred.

Payne said the first production plant would go up in Hopewell, Va., but did not disclose the locations of the other three refineries.

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