The company that aims to place a massive jet fuel plant in Lake Preston told investors Thursday that updated guidance from the federal government on biofuel carbon credits could be a boon to its prospects of success.
Englewood, Colorado-based Gevo wants to build a plant to turn ethanol into sustainable aviation fuel in South Dakota, with a project cost of $1 billion or more. President Joe Bidens Inflation Reduction Act included billions of dollars to encourage the production of such fuel, which currently represents a miniscule slice of the overall aviation fuel market.
Gov. Kristi Noem, whose son-in-law is aregistered lobbyist for Gevo, has called the companys Net Zero-1 plant the largest economic development project in South Dakota history.
Critics in South Dakota have questioned if Net Zero-1 will ever come to fruition, citing Gevos sub-$1 stock price and its reliance on federal subsidies.
During Thursdays fourth-quarter earnings call, CEO Patrick Gruber and other company executives talked up multiple pathways to profitability, some of which are untethered to its Lake Preston aspirations.
Gevo currently operates a renewable natural gas plant in northwest Iowa, for example. It also has software called Verity to track the carbon footprint of farm fields, which Gruber says will be valuable to any industry that values carbon reductions.
The company ended the first quarter with cash, cash equivalents and restricted cash of $340.6 million. Updated guidance on how the federal government will calculate the carbon scores of biofuel feedstocks, which offers points for low-carbon corn or soybeans, are a positive development, Gruber said.
Weve got money. I dont like our stock price at all, but by God were making progress, Gruber said.
Moving parts, uncertainties
Several dominoes must fall in Gevos direction for the NZ-1 plant its largest project to become a permanent fixture in rural Kingsbury County.
The projects economics are linked to Gevos ability to offset high production costs with carbon credits from the federal government. The Biden bills incentives for sustainable aviation fuel are part of a series of policies that hope to reduce the release of carbon dioxide into the atmosphere, as the gas contributes to climate change.
Gevo is in the process of securing a $950 million federal loan guarantee from the U.S. Department of Energy to stake its claim in a lower-carbon future. To secure the loan, Gevo needs to prove that NZ-1s fuel will hit the carbon reduction mark specifically, by producing biofuels that reduce greenhouse gas emissions by 50% compared to traditional fuel.
To do that, Gruber and other company representatives have repeatedly said Net Zero-1 cant pencil out to profit in South Dakota without access to a carbon capture pipeline from Summit Carbon Solutions. Linking to the pipeline would reduce the Gevo fuels carbon score, thereby boosting its market value.
That $8 billion pipeline remains unbuilt and mired in controversy. Like Gevo, it would take advantage offederal tax credits, in its case cashing in by capturing carbon dioxide gas from 57 Midwestern ethanol plants and pumping it to a sequestration site in North Dakota.
The Summit project has sparked blowback and lawsuits from landowners one of which landed in front of the South Dakota Supreme Court and awaits a ruling and a host of legislative proposals. A landowner bill of rights passed in the waning hours of the 2024 legislative session was sold as a compromise between the company and its detractors, but some Summit opponents nonethelesshope to challenge itby way of a ballot initiative this fall.
On Thursday, Gevo Chief Operating Officer Chris Ryan reiterated the importance of the carbon pipeline. Hooking into the pipeline would help Gevo reduce its carbon intensity score and, by extension, the market value of its products to airlines that aim to reduce their own carbon footprints.
We want to see the CO2 pipeline in South Dakota move forward, to keep Lake Preston as our most attractive site for producing sustainable aviation fuel, Ryan said. But weve developed a slate of potential sites that weve prequalified for future Net Zero projects.
Eric Frey, Gevos vice president of finance, declined to disclose those locations in an email after the earnings call.
Lake Preston is attractive for reasons beyond a pipeline, though. Ryan mentioned its proximity to rail transport, and its relative proximity to airports in Chicago and Minneapolis.
Both of those airports are in states with a sustainable aviation fuel tax credit of $1.50 a gallon, Ryan said.
Many Lake Preston-area farmers already use climate smart agriculture practices like no-till planting or the use of certain kinds of fertilizer, he said.
The company had initially planned to spend up to $175 million on the fuel plant project this year. On the earnings call, Ryan said that figure has dropped to between $90 million and $125 million, largely as a result of holding off on certain construction costs until the federal loan guarantee is secured.
CEO: Carbon model bodes well
Summits future is uncertain, but another piece of Gevos economic puzzle is closer to solid, Gruber said Thursday.
The CEO heralded a final decision from the U.S. Treasury Department on a carbon score calculation model from Argonne National Laboratories called Greenhouse Gases, Regulated Emissions, and Energy Use in Technologies (GREET).
The Biden infrastructure package directed the Department of Energy to use a different model for calculating the emission reductions of sustainable aviation fuel at first. Agriculture groups in the U.S., however, pilloried that initial model as Eurocentric and unable to account for climate-friendly farming practices in the U.S.
The Energy Department announced its intention to use GREET last fall in response, but the agency also ruled that the model needed an update for use as a standard for sustainable aviation fuel. It offers credits for bundling ag practices like no-till and cover cropping.
That updated model earned its final approval Monday for use in what are called 40B tax credits, which expire in 2024. The following year, the credits will transition to what the infrastructure law called 45Z credits.
The acceptance of the GREET model for the first round of aviation fuel credits bodes well for its prospects next year, Gruber told investors Thursday.
It recognizes the many carbon reductions weve been talking about, Gruber said. Its moving properly towards the recognition of climate-smart ag.
Some farm groups have expressed concerns about the updated GREET model, with the president of the American Soybean Associationarguing that cover cropping isnt realisticin all parts of the country.
Gruber gave a nod to concerns about bundling practices on the earnings call, but still called the updated guidance a step in the right direction. Gevos hope is to see the model be updated again to recognize what he called field-level carbon tracking through the companys Verity platform that would negate the need for bundling by measuring carbon emissions directly for each climate smart practice employed on the farm.
Paul Bloom, Gevos chief carbon officer, told investors that Verity, through which some farmers in Lake Preston are already collecting payments, will help farmers prove the low-carbon worth of their crops.
We want farmers to be rewarded for reducing their carbon footprint and helping foster rural economic development with agriculture done right, Bloom said.
About South Dakota Searchlight: We use our journalistic searchlight to illuminate critical issues facing South Dakota, dissect the decisions made by state leaders, and explain the consequences of their policies and the role of politics on South Dakotans.South Dakota Searchlight launched in 2022. Were an affiliate ofStates Newsroom, a national 501(c)(3) nonprofit supported by grants and a coalition of donors and readers. The staff of the Searchlight retains full editorial independence.
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