EconSouth (First Quarter 2009)

An Interview With Roger Reisert of C2 Biofuels

ROGER H. REISERT Title President and chief executive officer Organization C2 Biofuels Web Site www.c2biofuels.com Other Reisert has more than 20 years' experience in oil, gas, and chemical companies. He has been vice president of operations, engineering, and manufacturing for divisions of Fortune 500 companies including Baker Hughes Corp. and Phelps Dodge Corp. Before working at Baker Hughes, he spent 13 years with Atlantic Richfield Corp., now part of BP Amoco, in operations and engineering management positions.

Southern forest products could become a major fuel source. Roger Reisert is working to make that happen. Reisert is president, chief executive officer, and cofounder of Atlanta-based C2 Biofuels, a start-up company that aims to convert pine trees to cellulosic ethanol for motor fuel. Though it's a nascent industry, biofuel companies have attracted significant funding. In February, for example, the British oil giant BP announced a partnership with another firm to build a $250 million–$300 million biofuel plant about 80 miles south of Orlando, Fla. EconSouth spoke with Reisert about biofuel start-ups and the biofuel movement.

EconSouth: What is your company's plan?
Roger Reisert: We are trying to provide an alternative to gasoline—lower cost than gasoline, certainly environmentally friendly. This fuel is not going to replace gasoline; it's going to be a partial solution. The best solution is to use less. In conjunction with using less, this fuel will displace, in the state of Georgia, probably about 10 percent of the gasoline we use now. Our process not only makes cellulosic ethanol, but it also generates electricity. We take two-thirds of the tree and make cellulosic ethanol. One-third of the tree is lignin and other components that are very good fuel. We burn that in a boiler and generate power. It provides all the power for our process, and we can export some as well. No fossil fuels are used in the process.

ES: So your product will power a car?
Reisert: Yes.

ES: How many start-up companies are engaged in some form of trying to produce fuel from biomass?
Reisert: I'm going to guess 30 nationwide. We're the only one, I think, that is focused on pine as a primary feedstock.

ES: For a company like yours, what are the big obstacles?
Reisert: Number one, picking a scalable feedstock that has a plausible supply chain. For instance, switchgrass is a promising raw material, but there aren't thousands and thousands of acres of switchgrass. As far as the technology goes, there are many companies making great progress at the laboratory scale, which means testing the technology. In a capital-intensive process industry like this, you have to scale up. You can't just go from the laboratory to a huge plant. At the demonstration plant, you're integrating all the processes including heat recovery, water recycling, and so on. So you must have the know-how to scale up.

ES: Biofuel companies have attracted more than $1 billion in venture capital over the past few years, according to PricewaterhouseCoopers. How has the state of the economy affected attracting venture capital?
Reisert: It is much more difficult. We've had big excitement, then a lull. But I come from the oil and gas business. Oil prices are going higher unless the world has a horrible depression. But right now we're setting up a big spike [in oil prices] because investment in oil development is being delayed and canceled all over the world. So funding is tough, but it's tough for everybody. The one thing in our favor is that the Department of Energy has gotten aggressive in trying to help fund start-up companies. In fact, we're applying for a grant, and the proposal is due at the end of April. They're funding pilot plants up to $18 million with a 20 percent nonfederal match.

ES: It sounds like green energy is an important piece of the economic stimulus package the president signed into law in February. Do you see investment dollars coming out of that bill for companies like yours?
Reisert: Oh, yeah. I know that [Secretary of Energy] Steven Chu is a very big biofuels person. But he's got to figure out how to spend the money, and quickly. I'd love to see them double the grant programs we are applying for. There may be 100 proposals for those grants, and they can only award maybe five or so. If they came to me and said, "Can you hire people right now and use them?" I absolutely could. Tomorrow I could hire half a dozen people. It's shovel-ready.

ES: Do you have employees right now?
Reisert: Just myself and one other employee. We sponsor research at both Georgia Tech and the University of Georgia. There are about 15 people working on the project; most of them are university employees. We pay for the research. In turn, we are able to license the technology from the universities. We are able to access very expensive equipment and facilities and really smart people at a very reasonable cost.

ES: If you hired several people, what kind of people would you hire at this stage?
Reisert: Biologists for doing the work here, chemical engineers for breaking the wood down. I would hire a business development person to work on strategic relationships. Those relationships are vital. Probably a financial person. Pilot plant operators, when we got to the pilot plant.

ES: What's on the commercial market now? Anything on a large scale?
Reisert: It's still small scale, but a lot of progress has been made. The nature of the process industry is it takes time to scale up. We're in the middle of the scale-up. [C2 Biofuels'] first commercial plant will be operating in 2013. That timeline doesn't fit the traditional venture capitalist's model. And private equity investors are more interested in buying a cash flow than a start-up. So we're focusing on strategic investors that would benefit if we were successful—power generation companies, timber owners, and so forth.

Courtesy of C2 Biofuels Roger Reisert of C2 Biofuels (right) speaks with Jacques Beaudry-Losique, a manager in the U.S. Department of Energy's biomass program. Reisert's firm aims to convert pine trees—a plentiful raw material in the South—to motor fuel.

ES: How do you set up arrangements to ensure you have a consistent supply of pine?
Reisert: The banks want to have assurance that there will be a supply. We have a forest products industry, so there are contracts in place. The other alternative would be to involve the timber owners as owners in the facility, so they will benefit not only from the value of the tree but also from the conversion into fuel.

ES: So if I own 10,000 acres of timber you could give me an equity stake in the company in exchange for a steady supply of raw material?
Reisert: Yes. That way, if the price of timber goes up, you can gain with the value of the timber.

ES: Is the demand for alternative fuels more a matter of the cyclical ups and downs in the price of oil or a longer-term proposition in which oil will become scarcer and therefore the price has to go up and stay up?
Reisert: The latter is what I think is going to happen at some point. There are mandates too. The energy bill of 2007 mandated up to 36 billion gallons of renewable fuels by 2022. And the new administration has talked about even more aggressive goals. That certainly will drive production. I personally like not to count on mandates and just cost less than your alternative.

ES: What's involved in a demonstration plant? Does a company like yours have to build it, or would you rent it?
Reisert: We would have to build it. Again, the Department of Energy is stepping up to provide grants, in some cases, and loan guarantees in others. In our case, the demonstration plant would be in the $50 million range. And there will be probably 10 trucks of wood a day coming into the demonstration plant. I would prefer to be at a facility that's already doing something with wood, and we would tap into their infrastructure. In the demonstration plant, we're demonstrating the economics of the process. We'd better have the technology worked out before we get to a $50 million plant.

ES: In the realm of biofuels, as in any emerging industry, there will be winners and losers. What will set the winners apart?
Reisert: Low cost. And the whole carbon thing is going to come into play at some point. There will be something like cap-and-trade or a carbon tax, and the cost of carbon will be recognized. So I would say low cost, starting with your feedstock and your processing cost. Second, you better have a good, low-carbon process. It's not going to affect your economics today, but it will at some point.

ES: Is it an advantage to have a huge supply of raw material—pine trees—so close at hand?
Reisert: Absolutely. Transportation is totally uneconomical. A truckload of trees is roughly 25 tons, and the landowner is paid $8 a ton or so for those trees. So shipping long distances doesn't make sense.

ES: Would this fuel be mixed with traditional gasoline?
Reisert: In the United States, it's always blended with gas, whether it's E85 [85 percent ethanol] for a flex-fuel vehicle, or 10 percent ethanol. That's the standard we set up here.

ES: You intend to do a commercial plant by 2013. By then, would 85 percent ethanol be common?
Reisert: It could be. One of the issues they're working out right now is building the E85 infrastructure. There's a limited number of E85 pumps in the United States. If there's supply and demand, that infrastructure will go in real fast.

ES: So would you need a special flex-fuel vehicle to use these blended fuels?
Reisert: For E85 you would. For 10 percent you don't. Right now, 70 percent of our gasoline is 10 percent ethanol. President Obama said in the campaign he would like all cars manufactured in the United States to be flex-fuel by the end of his administration. Before that, the Big 3 had committed to half the cars being flex-fuel by 2012.

ES: Other than money, what do you have to piece together to make a biofuel company work?
Reisert: I think the relationships that you build are critical. The other thing that's very important is being credible. There's a lot of sizzle [in this industry]. We're not a sizzle company. We don't issue press releases every other week. We spend our money on the technology. It's more difficult to process pine than other biomass, so we have to overcome that with our technology, and we have.

This interview was conducted by Charles Davidson, a staff writer for EconSouth.