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Ethanol fever fires up farmers in heartland
Minneapolis-St. Paul Star Tribune


November 07, 2006

HERON LAKE, Minn. -- The gleaming $110 million ethanol plant is still rising over their cornfields, but locals in Heron Lake, Minn. say it's already the best thing to happen here in decades.

Farmers and other area residents plunked down a minimum of $20,000 each to buy stock in the plant, and the electric co-op kicked in a $740,000 loan. The Hotel Whiskey Bar & Grill fills up on some nights with the plant's construction workers. And Mayor John Hay figures the plant will triple his city's tax base, making it possible to upgrade area roads and fix the leaky roof on the city-owned nursing home.




"If they didn't have that ethanol plant, there wouldn't be much of anything going on here," said Barb Pohlman, who sells vegetables in town from the back of her pickup truck.

Ethanol mania is sweeping through Heron Lake and many towns like it across the Corn Belt. Investors are spending billions in rural communities, sparking a wild rush to secure land, an industry movement to alter environmental standards and a rash of fierce bidding by communities desperate for their own plant.

Two decades after farmers began mashing their corn into ethanol, the clear, odorless liquid is seen by many as the best chance for America to lessen its dependence on foreign oil.

Nationally, ethanol production has more than doubled in four years and could do so again by 2010. An industry association shows 103 plants operating today and 43 more under construction.

Builder Ron Fagen, whose Granite Falls, Minn., firm is booked with work through 2010, said he has turned down bounties as high as $1 million or more from customers looking to jump ahead on his waiting list.

"The world has changed, and it's changed within the past year," said Malcolm Tilberg, an economic development specialist who is hoping that $1.3 million to $1.8 million in tax abatements will lure an ethanol plant to Springfield, 48 miles north of Heron Lake.

Corn growers call this a golden age for ethanol, but there's nothing radically new about the basic production process. Ethanol is essentially 199-proof vodka mixed with a splash of gasoline to keep people from drinking it. Henry Ford used the fuel in early versions of his Model T. Abraham Lincoln taxed it to raise money during the Civil War.

Ethanol's backers tout the fuel as both renewable - simply grow more corn - and a clean-burning alternative to gasoline, but the current frenzy has as much to do with greenbacks as it does a green planet. A federal energy bill signed a year ago mandated a doubling of the nation's renewable fuel supply by 2012, to 7.5 billion gallons. The law also prompted oil refineries to use ethanol as a replacement for a cheaper clean-burning gasoline additive found to contaminate groundwater.

Then oil prices shot to more than $70 a barrel, and General Motors and Ford began spending tens of millions of dollars to promote vehicles that run on fuel containing up to 85 percent ethanol. Even though gasoline prices have since come down, ethanol profits remain high enough in many cases to pay for a new $80 million plant in 18 to 36 months.

"It's been a perfect storm on the upside for ethanol," said David Morris, vice president of the Institute for Local Self-Reliance in Minneapolis, who has been an energy adviser to four presidents.

In the meantime, old money and new money alike are rushing to build facilities to boost ethanol production.

In Lyle, Minn., farmers, small-town business owners and others camped overnight earlier this year to be first in line to buy shares in an Iowa plant. Absolute Energy sold all $64 million worth of stock in a matter of hours, turning away another $3 million in surplus orders.

"People were arriving so fast, it was hard to set up," said Stan Walk, a county supervisor who worked at the event. "Things just went wild."

In Morris, Minn., millionaires sprouted overnight after an Australian company paid $50 million for an ethanol plant originally built at a cost of $20 million. Now two other ethanol plants are in planning stages: one about 7 miles away in Alberta by the same Australian firm and another in Chokio, 13 miles away, by wealthy South Dakotan Bill Welk.

U.S. BioEnergy of Inver Grove Heights, Minn., another ethanol producer, is considering a $300 million public offering. Pacific Ethanol, which is building plants in central California and Oregon, raised $230 million from private investors this year, including $84 million from Bill Gates.

Nevada officials, meanwhile, asked industry consultant Dave Kolsrud of Luverne, Minn., to explore whether their state should import corn for a plant that would be built in that state's northern mining region. "They are looking very seriously at it," Kolsrud said.

Today's combination of high oil prices, federal mandates, eager investors and a raft of state, local and federal subsidies makes ethanol seem like a can't-miss bet. That hasn't always been the case. When long gasoline lines formed during Jimmy Carter's presidency, dozens of ethanol plants were built in the Midwest, only to go bankrupt. When a drought drove up corn prices in 1996, some Minnesota plants were forced to reduce or suspend production.

Jeff Broin worries that industry newcomers are ignoring those potential risks and building too many plants too close to one another.

"Everywhere we go, there seems to be other plants cropping up," said Broin, whose Sioux Falls, S.D., company manages 18 ethanol plants with nearly 900 million gallons of yearly production. "Without question, good sites are becoming difficult to find."

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