Rising Cost to Build Ethanol Plants Have Developers Rethinking Construction Strategy

---

Researched by Industrial Info Resources (Sugar Land, Texas) -- So you want to build an ethanol plant? Get ready to dig deep into your pockets and find a bank that’s willing to lend money to an industry with rising feedstock prices and skyrocketing labor and construction costs. Just five years ago you could build an ethanol plant for around $1.30 to $1.40 per gallon of capacity. That would translate to a 100 million gallon per year ethanol plant’s construction costs topping out at around $130 to $140 million in capital costs.

Today, some design-build firms are coming back to plant developers with price estimates for construction costs in the $2.00 to $2.30 range, meaning the same 100 million gallon per year plant built five years ago for $140 million will now cost upwards of $230 million to build.

A wide range of issues are affecting the ethanol construction market. Worker availability, the rising costs of construction material and production equipment and of course, high corn prices. Most analysts believe the cost of corn will stabilize to around $3.50 per bushel next year making building an ethanol plant a more attractive decision.

The ethanol industry boom is also affecting the rise in construction costs. Over the last year and a half, the industry has experienced unprecedented growth and currently more than 80 plants are under construction in the U.S. Labor costs are swinging upwards as well, as builders pay a premium for laborers just to get bodies onsite to move construction forward.

Jay Brunson, Industrial Info’s Vice President of Alternative Fuels adds, “I expect to see a slowdown in new plant development and construction over the next twelve to sixteen months and at no time in the foreseeable future do I expect to see as many plants under construction as we are seeing right now. Everyday it seems new projects are being postponed or cancelled. Lower gasoline prices, sharp rises in corn prices and higher construction costs will be the main contributors to the reduced construction pace.”

Investor interest in ethanol production has also declined in recent months leading to slowing new plant development. Start-up companies must raise around 40 to 60 percent equity in their projects before finding a lender for the remaining balance. Money lenders are approaching ethanol investment very cautiously with escalating corn process and drops in ethanol prices.

Industrial Info's Ethanol Production Database provides a comprehensive outline of all current development activities in the emerging synthetic fuels market. This database covers 124 ethanol plants currently in operation and 504 plants under development. It also covers sixty-eight operational biodiesel plants and 205 biodiesel plants under development.

Industrial Info Resources (IIR) provides marketing communication services ranging from industrial database solutions to market forecasting, custom analytics, and specialty promotions that support high-level image campaigns.