POET's Vision on US Ethanol

Financing new projects
As capital markets became much tighter in the last couple of months, project financing has become a much bigger issue in the ethanol industry and it is expected to stay that way as the margins are under pressure. Dr. Stowers is much more confident about this. “I think that there is still enough financing available for good projects that make sense. From our own perspective, we currently have about 6 projects that are under construction and several others under development. Financing these projects is built around maybe three different aspects. One is having a performing technology that gives us a low cost position. Second is having the construction capabilities to build very efficient plants and then the third piece is having the management team able to manage up to 21 plants. I think it is our competitive position that makes financing easier”.

Mergers and acquisitions
And if the industry would move towards consolidation. Is it part of POET’s strategy to become active in M&A? “Whether the industry goes to consolidation mode has to be determined, although there have been some acquisitions recently. Verasun in particular comes to mind. If there is opportunity, I’m sure we’re looking at it. One of the interesting aspects of our model is we would be very interested in managing another plant, we don’t necessarily have to acquire the plant. We think that if we come in and provide management, access to our technology and access to our marketing strength, that it may be a real advantage for companies in tough times. Of course, you always run the numbers and if it makes sense to build, you build, and if it makes sense to acquire, you acquire. I think that our history has really proven that building has worked very well for us. But we offer an additional option.”

The limits of using corn as feedstock
Similar to almost all U.S. ethanol producers, POET is only using corn as feedstock for its 1.1 billion gallon ethanol production. Some analysts suggest that the maximum volume of ethanol produced from corn is approximately 15 billion gallons. “That is based on the national corn growers, who said that making 15 billion gallons of ethanol from corn would not be disruptive to any of the other markets. And that assumes a 10 year historical average of corn yield increase and it makes an assumption for how corn and distillers products would be used and what the conversion rate is. If you talk to the seed companies, then a lot of people believe that the yield of corn is likely to be greater than the historical trend from the past 10 years and people in the ethanol industry believe that there is a big opportunity to be more efficient in production, so the 15 billion gallons from corn could actually be a conservative estimate.” As POET is currently producing 1.1 billion gallons of ethanol from corn, what would be a realistic near term goal? If you add the plants under construction to our current capacity, that would move us up to around 1.5 billion gallons and I think the company has set a near term vision of producing 2 billion gallons. When I say near term, I mean that it took us 20 years to go from 0 billion to 1 billion gallons. The period between 1 billion gallons and 2 billion gallons will be much shorter.”