Moines Des Register, IA 04-29-07 Biofuels Money 101: Mixing public, private Q. Who invests in ethanol plants and how is it done? A. There are several ways to invest. Two of the most common are buying stock in a publicly-traded ethanol company or as a private investor. The reason private capital is necessary is that many banks are cautious and private investment lowers lending risks, says Iowa State University researcher David Swenson. Many existing companies seek capital through a bundle of investors, or they might take their chances on the stock market and let the potential earnings value of their company determine stock price, Swenson says. Some invest via hedge funds -- partnerships among a select number of investors who use high-risk techniques in order to make potentially extraordinary returns. Q. What's the right balance between local and outside ownership? A. Experts disagree. Some say the industry shows better promise of expanding with a mix of investors. But research at Iowa State University also shows rural economies benefit more when an ethanol plant is owned by local investors, because those investors reinvest their earnings locally. One thing is for sure: Iowans could invest more if they wanted. Rural America owns $1.7 trillion in debtfree assets that could be used for renewable energy projects, says Thomas Dorr, an Iowa native and a top U.S. Department of Agriculture official. Dorr, undersecretary for rural development , believes more Iowans should take advantage of the opportunity. For every $1 in farm assets, there are 11 cents borrowed against it. Q. Have all the prime locations for biofuels plants been taken? A. Some argue that improved crop and ethanol yields, combined with other innovations, will expand Iowa's production far into the future. Right now, however, others believe Iowa's industry is close to reaching capacity. "There's probably room for a few more (plants)," says Raymond Defenbaugh, CEO of Big River Resources, which a operates plant in West Burlington and is building two others. Stephanie Moline, executive vice president of corporate banking for First National Bank in Omaha, says much of the Midwest has been staked out. The best spots are measured by a high density of corn production, available water and nearby rail, Moline said. Q. Will Iowa have enough corn to greatly expand its ethanol production? A. Iowa will reach a capacity of 3 billion gallons of ethanol in the next 18 months. Currently, about one bushel of corn yields 2.8 gallons of ethanol. So, 3 billion
gallons of ethanol requires 1.1 billion bushels of corn. That would equal about half of Iowa's current corn production, which is also needed for export and to supply livestock feed and food. But what's reality today might be obsolete tomorrow, especially in a fast-moving industry investing billions of dollars into research. "When in the history of America has there been a demand for a product and Americans haven't found a way to profitably supply that product?" asks Monte Shaw, executive director of the Iowa Renewable Fuels Association. In the next 10 to 20 years, Iowa's ethanol production from corn and other ma...