Corn-based ethanol lost its government subsidy as the blender’s credit expired, but Congress extended the $1.01 gallon subsidy for “advanced biofuels” in the fiscal cliff package.

It should be no surprise then that ethanol producers are looking over the definition of what constitutes an advanced biofuel pretty hard to see if they could qualify. Most won’t, but the effort may turn Kansas and California into ethanol-producing states.

Western Plains Energy in Oakly, Kan., thinks it qualifies as an advanced biofuel producer, eligible then for the $1.01 subsidy. It gets the designation because it uses sorghum rather than corn as a feed stock and has built a methane power generator to fuel the plant.

Biofuel Digest wrote, “In Kansas, Western Plains Energy plans to build a $40 million anaerobic digester to produce enough biogas to replace 90 percent of the fossil fuel used in the manufacturing process at the company’s 50 million-gallon Oakley ethanol plant.

When completed, the digester is expected to provide 15 jobs converting manure, grain dust and food waste to power. The project received a $5 million grant in April from the U.S. Deptartment of Agriculture and $15.9 million one year ago when Kansas Gov. Sam Brownback redirected unspent American Recovery and Reinvestment Act funding to the project.”

The main feedstock for the digester is manure from Pioneer Feeders, a 40,000- head feedlot located 6 miles from the plant. The end product, organic fertilizer, will be returned to the feedlot or sold on the market. The plant hopes to generate enough electricity to sell some back to the grid.

Biomass magazine wrote, “The U.S. EPA published a final rule for a grain sorghum fuel pathway in the Federal Register on Dec. 17.

As expected, dry mill ethanol plants using natural gas and sorghum meet the lifecycle greenhouse gas emission reduction threshold of 20 percent, compared to petroleum fuel, qualifying it as a renewable fuel.

However, ethanol plants using specified forms of biogas energy for process energy and all but 1.5 kilowatt hour electrical power per gallon of ethanol qualify as an advanced fuel with more than 50 percent reduction, compared to petroleum.”

“In the past, Western Plains Energy has used a mixture of corn and sorghum, however, the plan is to switch over to 100 percent milo when the digesters reach full gas capacity. Steve McNinch, writing for Western Plains Energy said, ‘We’ve been 100 percent milo more often than we’ve ever been 100 percent corn.

“Milo has kind of been our niche all around. When you live in a desert you have to use what grows well and grain sorghum certainly grows well here. It’s much more drought tolerant.'”

Initial ethanol production from the plant occurred in 2004. The USDA loves the concept and has been very supportive of it in every way. United Ethanol in Milton, Wis.; Calgren Renewable in California; and another plant in Texas will have digesters adjacent to ethanol plants. Others are getting the idea.

The Ethanol Monitor said that, “It was announced that California ethanol producer Aemetix idled its plant in Keyes, Calif., citing unfavorable market conditions for corn ethanol and will upgrade the facility to also produce fuel from grain sorghum.

“The company shut down production Jan. 15 and will shift a significant portion of the plant’s 60 million gallon (227 million-liter) annual production capacity to handle sorghum.”

The new model appears to be to power biofuel plants from biogas and to use sorghum as the feedstock to get $1.01/gallon bonus from the advanced biofuel subsidy.

Now that there is such government aid going to methane digesters, we would expect a proliferation of new construction. “POET LLC, the largest U.S. ethanol producer, has a small scale anaerobic digester in operation at its cellulosic ethanol pilot plants in Scotland, S.D. that converts corn cobs and light corn stover to ethanol.

The company intends to locate a digester with its first commercial scale cellulosic plants, Project LIBERTY, planned for Emmetsburg. The feedstock for both digesters is lignin,” Ethanol Monitor said.

As those plants use corn as feedstock, they would not qualify as advanced fuel, so would remain ineligible for the $1.01 subsidy. What we are seeing here is a set of rules come together that business and investment will follow. As one investor put it, “We’re just patiently, step-by-step, getting all the pieces in place.”

Western Plains Energy was talking about a 14-month payback on the total $55 million investment so they don’t have to wait that long to be rewarded.

David Kruse is president of CommStock Investments Inc., author and producer of The CommStock Report, an ag commentary and market analysis available daily by radio and by subscription on DTN/FarmDayta and the Internet.