Which Iowa Power Fund projects are bearing fruit and which ones never bloomed?

Iowa gubernatorial administrations come and go, and with them their ideas for generating economic growth. One of the legacies of Gov. Chet Culver was the Iowa Power Fund, a four-year program to invest $100 million in green energy research, development, education and technology demonstration projects across the state. When Terry Branstad was elected in 2010 for a second stint as governor, the centralized Iowa Office of Energy Independence created during Culver’s term was eliminated and the sweeping initiative that funded more than 30 projects ended in 2011. However, the portfolio of wind energy, biofuels, biomass and other alternative energy projects seeded by the Iowa Power Fund are in many cases just beginning to produce results. Among the most significant projects: two quarter-billion-dollar cellulosic ethanol plants that, if successful, would spur a new wave of biofuels innovation and investment in the state. Other long-term research projects are working to make wind energy technology more cost-effective. Although it will take years to know which of the long-term research programs and development projects will bear fruit, here’s a first look at some of the growth from sowing the seeds of green energy in Iowa.

If you want to know where to invest the state’s money, look to where businesses are willing to make sizable investments themselves.

That was one of Fred Hubbell’s guiding principles while he chaired the Iowa Power Fund board.

“We felt as a board that any research project was more likely to be successful if business was investing along with the state,” said Hubbell, a retired insurance executive who was tapped by Gov. Chet Culver to lead the volunteer board in 2007. “Because if business invests in it, then they think the research is going to be helpful to their business, and if it is, they’re more likely to commercialize it.”

Overall, the state’s stake in projects was a small portion relative to the outside investments it leveraged, Hubbell said.

“The goal of the Power Fund was to take $25 million a year for four years and invest it in renewable energy, renewable fuels, energy efficiency, energy education, to try to keep Iowa in the forefront of things going on in the energy economy,” he said. “We already had wind energy and ethanol here; the governor and the Legislature wanted to make sure that from a technology perspective that Iowa stayed ahead of the game and didn’t get left behind.”

Of the $100 million authorized by the Legislature, $95 million was actually appropriated. The pot of money the board actually had to work with quickly shrank, however, as some funds were reserved for the community colleges and community grants, as well as to cover the program’s administrative costs. Additionally, the state designated $7.5 million from the Power Fund for flood relief following the 2008 floods, and a 10 percent across-the-board budget cut chopped $2.4 million from the fund.

Between early 2008 and late 2011, the board approved grants totaling more than $71 million for 34 projects selected from 280 applications. Those projects have generated more than $611 million in capital investment in the state, according to records maintained by the Iowa Economic Development Authority (IEDA), which assumed oversight for the projects when the Iowa Office of Energy Independence (OEI) was dissolved in 2011.

“We believe that is significant; we would concur,” said Debi Durham, the IEDA’s director. However, the Power Fund’s approach was very different from the approach that the Branstad administration is taking, she said.

“I think (the Power Fund) was flawed from the beginning because of the very broad mission and not really enough funds to accomplish any of (the goals) well,” she said. “Had the Iowa Economic Development Authority or the previous department been given this task from the beginning, we would have never set this up the way it was set up, to be honest. That’s not to say (it was) good or bad; it’s just not what we would have done.”

At the same time, Durham said she’s supportive of energy sustainability and wants to find ways to incorporate a “green platform” throughout IEDA. “I think it needs to be more integrated into everything we do here,” she said.

Projects with big potential

The two largest investments by the Power Fund were made to cellulosic ethanol projects. The board awarded $14.75 million to POET LLC for Project Liberty, in which POET is investing approximately $216 million to build a plant in Emmetsburg. The board also awarded $9 million to DuPont Co. for a similar project to build a $200 million plant in Nevada that’s expected to produce 30 million gallons of ethanol annually from cornstalks, or stover. Both plants are now under construction. Both companies expect to prove that corn stover, a crop residue that currently goes unused, can be used as feedstock for producing cellulosic ethanol on a commercial scale.

“There were a lot of people in the state who saw the potential, but the money helped to fund the commercialization in that, so that people began to realize this is a whole new industry,” Hubbell said. “It wasn’t happening. The Power Fund created the ideas, the energy and the enthusiasm to go make that happen, and in Iowa rather than somewhere else.”

Experts estimate that the greener cellulosic ethanol process will reduce greenhouse gas emissions by 85 percent compared with conventional processes.

“Part of our charge with the Power Fund was to invest in things that reduce greenhouse gases and do it in an environmentally sustainable way,” Hubbell said. “If either POET or DuPont, or hopefully both, are successful with these plants and get them built and running and actually produce cellulosic ethanol, that’s not being done on a commercial basis anywhere. If they can do that, this is the next generation of ethanol. Then you can go around to every ethanol plant in the state and retrofit them, and those are sizable investments. So basically you’ve created a new industry in Iowa that’s more environmentally friendly than ethanol.”

Additionally, there are provisions in both contracts for the state to receive payments from the companies for each plant that’s subsequently built. Under the terms of each agreement, the companies would have to pay Iowa more if they choose to build out of state.

“To the extent that these projects would be successful and be commercialized in repeatable fashion, we wanted to get some payback to the state,” Hubbell said.

What hasn’t worked

One of the projects the Power Fund board thought had significant potential for the wind energy industry – the Iowa Stored Energy Project – proved not to be feasible.

The Power Fund provided $3.2 million to help test a concept developed by municipal utilities for compressing and holding air in rock formations as a means of storing wind energy for later use.

“It was a fabulous idea,” Hubbell said. “There was only one or two of these in the country where this had been done, so if it worked, it was going to be a great thing for providing more energy capacity for the municipal utilities in the state. But also from a scientific standpoint, it would be a heck of a move forward.”

Seismic testing determined that the formations would not be sufficient to contain the air, however, and the project was scrapped.

Another Power Fund project, this one at Iowa State University, proved scientifically sound but didn’t move forward due to economic reasons, said Robert Brown, the former director of the Iowa Experimental Program to Stimulate Competitive Research (EPSCoR), which leveraged Power Fund money to get 10 times as much money from the federal government.

Two companies, Hawkeye Renewables LLC and Frontline Energy, collaborated on a project to develop a technology for reducing nitrogen levels in biofuels as a possible substitute for natural gas. However, after the grant was made Hawkeye sold a number of its ethanol plants and no longer was able to support the level of cost-share the project required, Brown said. Additionally, market prices of natural gas fell to levels that made it more difficult to compete as an alternative product.

Though the original project was not a commercialization success, “we learned a lot about gasification technology and the best feed stocks to use with gasification,” Brown said. Additionally, Frontline Energy switched its business model – rather than trying to displace natural gas, the company is now focusing on using waste streams to produce gas and diesel products.

Too soon to tell

Each of the Power Fund projects is governed by individually negotiated contracts, most of which require quarterly reports to IEDA. Because the projects are so varied, each one can only be measured against its own performance requirements, as opposed to economic development incentive projects, whose success can be measured by jobs created, Durham said.

“I would say the (Power Fund contracts) are fairly sophisticated documents,” she said. “There was a lot of thought that the group went into when they put these proposals together, and there was a lot of negotiation back and forth, just understanding the nature of these projects that this was something that had never been done before.”

As far as the Power Fund, “I think it’s too soon to tell how successful it is, to be honest,” Durham said. “The ramp-up time for these projects that they did on the commercialization side are very long. ... When you look at what DuPont and POET are doing, we’re quite excited about those projects.”

A key investment by the Power Fund was a $2 million grant that helped Iowa’s public universities land a $20 million research grant from the National Science Foundation in September 2011. The Iowa EPSCoR program’s four platforms include bioenergy, wind energy engineering, energy policy and energy utilization. It will fund research at each of the three universities.

The Power Fund grant “provided tremendous leverage on state funding,” said Brown, who recently stepped down as director of Iowa EPSCoR to lead the bioscience research component of the project. The grant required a 20 percent match from the state; the universities provided $2 million; and the Power Fund provided the remainder. “This would not have happened without the support of the Power Fund,” he said.

Generally, renewable energy technologies have not advanced at the rate that many people had hoped they would, Brown said. “But what’s important with something like the Power Fund is that we’re developing ideas that may take five years,” he said. “Without the Power Fund, they may have taken longer than that.”

Brown said at least two companies from outside the state are currently negotiating contracts with Iowa State to take advantage of the gasification technologies that are being investigated through Power Fund money.

“If we had not been able to build that capability, these companies would not be coming from out of state to do that here,” he said.

“...we’re developing ideas that may take five years. Without the Power Fund they may have taken longer than that.”- Robert Brown, former director of the Iowa Experimental Program to Stimulate Competitive Research.

Education and economic development

The Power Fund board also made a number of smaller awards to support its education and energy-efficiency goals. For instance, it provided a $50,000 grant to fund a statewide energy poll and also funded a booth at the Iowa State Fair to showcase energy-efficient resources such as compact fluorescent light bulbs and enhanced insulation. The Power Fund also provided money for education events, such as $12,500 for a Biobased Industry Outlook Conference in Ames and $43,000 to the Des Moines Independent Community School District’s Iowa Energy & Sustainability Academy for a project-based energy and environmental science class to teach students about wind turbine and solar cell technology.

One of the larger energy-efficiency projects led to a greater commitment by IBM Corp. to the city of Dubuque, Hubbell recalled.

Using $1.4 million in Power Fund money, the city of Dubuque invested about $10 million to equip 1,400 homes with “smart meters” to help residents track their water and electricity usage. An online component of the system developed in collaboration with IBM enabled participants to compare their usage and to compete against one another in reducing their consumption.

“One of the reasons IBM put a lot of people in Dubuque was because Dubuque was interested in doing this,” Hubbell said.

Tom Wind, a wind energy consultant from Jefferson and former vice chair of the Power Fund board, said the individual research and education grants may have been relatively small, but they cumulatively advance the universities’ research programs “and perhaps inspire more students to be taking these courses,” he said.

Overall, wind energy has become competitive with fossil fuels over the past 30 years because of the type of incremental improvements made by researchers, Wind said.

Wind noted that the due diligence process that each of the 280 projects underwent was rigorous. “When you look at the 34 projects, that’s a pretty select group,” he said.

“It takes some faith that some of these projects are going to work. But everybody has some skin in the game.”