By Craig W. Anderson
and
Tim Moran
Business Journal Writers

    Ethanol plants in Modesto and Stockton have ceased operations amid significant economic and marketplace upheaval; not the least of which include dropping ethanol prices and the soaring cost of corn, the biofuel’s main ingredient.
    Other factors behind the demise of the facilities, industry experts say, include too-rapid growth and refiners reducing ethanol use in fuel to the government’s mandated minimum.
    In April, Pacific Ethanol Inc. shut down its production plant at the Port of Stockton. That facility joined the company’s previously idled Madera operation.
    Combined, the two plants produced about 80 million gallons of ethanol a year. The plant had been open about five months.
    Pacific Ethanol terminated its chief financial officer and more than 50 other employees. A filing with the Security and Exchange Commission stated there is “substantial doubt” that the company can continue operations without an influx of funds or debt renegotiation.
    In Stanislaus County, meanwhile, the Cilion ethanol plant near Keyes ceased operations in March, according to Sonya Harrigfeld, director of the Stanislaus Department of Environmental Resources.
    Initially, said Harrigfeld, Cilion halted operations because a tank collapsed at the site, due to a leak that caused it to drain too quickly. The resulting vacuum inside the tank caused its walls to buckle.
    “Originally, said Harrigfeld, “they were to be down three to four weeks. Now, because of the market, they are not sure when, or if, they are going to reopen.
    Company officials told the county that it had removed all acutely hazardous materials from the site. Harrigfeld’s department will conduct an onsite inspection to confirm that has been done.
    If the plant is to be closed permanently, Harrigfeld said all hazardous materials must be removed and a plant-closure plan filed with the county.
    The Cilion plant, located south of Modesto at Jessup Road and Highway 99, opened in 2008 and was expected to produce 55 million gallons of ethanol a year from 571,000 tons of corn.
    The company reportedly laid off its California corporate staff because producing ethanol in California no longer is cost effective.
    Cilion Inc. was formed as a partnership between Western Milling, a Goshen-based grain milling company, and Khosla Ventures, a venture-capital firm. The now closed plant sits next to an A.L. Gilbert grain mill, which also was expected to produce 300,000 tons of wet distiller’s grain to be sold as a livestock feed supplement.
    Despite the setbacks at Cilion and Pacific Ethanol, Neil Koehler, president of Pacific Ethanol, said the ethanol industry has “a very bright future.” He conceded, however, that his company may not be around to share in that future.
    Dean Simeroth of the California Air Resources Board said demand for ethanol in California will grow 66 percent in 2010, due largely to new state and federal regulations.
    Today, California gasoline contains 5.7 percent ethanol but is slated to increase to 10 percent.
    Pacific Ethanol’s two recently closed plants produced 7 percent of California’s total ethanol supply.
    VeraSun Energy and Aventine Renewable Energy, two leading Midwest producers, have filed for Chapter 11 and soon may be joined by Pacific Ethanol and other troubled ethanol producers.
    Not all ethanol operations are suffering, however.
    Lisa Mortensen, CEO of Community Fuels, said business for her company is “going well” and that fine-tuning is making production more efficient.
    Mortensen said Community Fuels also is working on extracting biodiesel from algae. “The proof of concept is done. We use ag waste sources which are cost effective and environmentally friendly.”
    While information about the process is proprietary, she said a “California cocktail” of California-specific waste sources is used and that “other states are very interested in algae as a biodiesel source.”
    In fact, SarTec Corp. of Minnesota has developed a process yielding about 1,000 gallons of diesel weekly from a variety of feeds, including algae (sometimes referred to as pond scum), restaurant and ethanol-plant waste oils and non–edible crops.
    “The R & D investment slows in a down economy,” said Mortensen, “and the industry will need continued support from the government to continue alternative source research in the future.”
    And that future includes the company’s scale-able Port of Stockton plant to expand and thus increase production capacity.
     “We’re conservative but will eventually build out to produce 80 million gallons of biodiesel yearly,” Mortensen said. “We’re excited to have a commercially available product that will help improve the state’s air quality.”
    Bob Dinneen, president of the Renewable Fuels Association, also believes that demand for ethanol is rebounding with American producers providing enough volume to “meet the requirements of the Renewable Fuels Standard.”
    Ethanol remains important is global efforts to reduce greenhouse gas emissions from vehicles. Greenhouse gas emissions from vehicles could drop as much as 55 percent by 2015 with the continued use of ethanol-blended fuels, industry analysts say.
    And ethanol producers claim that boosting the use, and therefore viability, of corn-based ethanol will accelerate the advent of viable cellulosic ethanol produced from wood chips, switchgrass and other biomass, including every part of the corn plant.