Biodiesel industry heats up as number of plants rises

NEW YORK — Once the domain of the Corn Belt, the biofuel industry is heating up across 41 states, thanks to the emergence of biodiesel. The term “biofuel” refers to renewable liquid fuels made from plant matter instead of fossil fuels. They are used mostly in a blend with their fossil-fuel counterparts. Together, corn-based ethanol, used in gasoline-powered vehicles, and vegetable-oil-based biodiesel, used in fleet vehicles, heavy equipment and heating oil, are two sides of the alternative-energy equation. Biodiesel, unlike ethanol, can be made from a variety of inputs, adapted to local resources, climate and geography. Energy sources range from “biomass” crops — e.g., soybeans, certain types of trees — to used fats or cooking oil. “We’re in the middle of a biodiesel boom,” said Leland Tong, consultant for the National Biodiesel Board and chairman of the National Biodiesel Accreditation Commission, both of Jefferson City, Mo. “There are 105 biodiesel plants online, with another 77 under construction.” In 2004, there were just 22. According to the board, state legislatures are enthusiastic: There are 135 biodiesel-specific bills proposed in more than 35 states. Connecticut has several biodiesel plants in the works. It is a densely populated state with a tremendous demand for heating oil. “The [biodiesel] industry transcends political boundaries,” said Richard Parnas, associate professor and director of the chemical-engineering program at the University of Connecticut in Storrs. “It appeals to conservatives, who want to develop industry and jobs; environmentalists, who want to preserve open space; and farmers, who want to reinvigorate the agricultural community,” said Mr. Parnas, who is a member of the UConn Biofuel Consortium. He added: “If we create ‘energy plantations’ in 10% of Connecticut, on 310,000 acres, we could displace 15% (even 25% in the future) of our petroleum requirements” — a percentage roughly equal to what the state imports from the Middle East. However, “financial advisers will have a difficult time to find biodiesel investments to put people into,” said Tom Moser, a certified financial planner in Oro Valley, Ariz. with $30 million in assets under management. He specializes in creating custom portfolios focused on sustainable investments. “I put my clients into European biodiesel [companies], starting about a year ago,” Mr. Moser said. “There aren’t publicly traded biodiesel pure plays right now,” said Ron Pernick, a principal of Clean Edge Inc., a clean-technology research and consulting firm based in Oakland, Calif. “Last year, hundreds of millions went into biofuels — ethanol was the bulk.” However, Mr. Pernick noted the success of Seattle-based biodiesel company Imperium Renewables Inc., which received $113 million in equity financing and a $101 million line of credit just last month. Last month also saw the launch of the First Trust Nasdaq Clean Edge U.S. Liquid Series Index Fund (QCLN), which tracks alternative-energy companies, including those involving biodiesel. The fund is offered by The Nasdaq Stock Market Inc. of New York and First Trust Advisors LP of Lisle, Ill. “We’re planning over the next 30 to 45 days to launch an index to track biodiesel,” said Tom Bustamante, president of Ludlow Capital Inc. of New York. He focuses on biodiesel instead of ethanol, he said, because “with ethanol, there are going to be issues with companies competing for corn. But with biodiesel, even small mom-and-pop guys can get grease from local sources and make their own.” Ludlow Capital launched the Ludlow Alternative Energy Index last summer. There is an environmental peril to investing in biodiesel, said Dick Vodra, a certified financial planner and vice president at Legacy Advisors LLC of McLean, Va., who writes and lectures on energy issues. “Unfortunately, the market for biodiesel is being filled by vast palm oil plantations in Indonesia, Malaysia and elsewhere, [which are] destroying large amounts of tropical rainforests ... The tension between climate change and energy supplies is a difficult one, but we have to find energy solutions that do not destroy the habitability of the planet.” Financially, “[biofuels] is a bit of a minefield, because there’s so much money chasing it,” said Jack Robinson, president and chief investment officer of Boston-based Winslow Management Co. “It makes the most sense to invest in renewables that are economic, where the technology is far enough along to compete with energy off the grid or oil prices.” Mr. Robinson’s company owns the Winslow Green Growth Fund (WGGFX), which has one-third of its holdings in renewable-fuel or alternative-fuel companies. It is difficult to know biodiesel’s trajectory, according to Rob Wilder, manager of the two-year-old WilderHill Clean Energy Index (^ECO) created by WilderShares LLC of Encinitas, Calif. “It could be sooner than any of us expect,” he said. “Ethanol came along much quicker than expected.” WilderHill indexes are tracked by two exchange traded funds: PowerShares WilderHill Clean Energy (PBW) and PowerShares WilderHill Progressive Energy (PUW). PowerShares Capital Management LLC is based in Wheaton, Ill. Some ethanol shares have gone up as much as fourfold in the past six months, Mr. Wilder said. “But it’s easy to have these funds drop like a rock.”