Financing Growth of Cellulosic Ethanol

The corn grain ethanol industry experienced rapid growth from 2005- 07. U.S.financial markets obliged and supplied credit at reasonable cost and terms which facilitated thisexpansion. Now, the biofuel industry is being challenged to nearly triple production underrecently passed federal legislation, 2007 Energy Independence and Security Act, in the midst of acollapse of worldwide financial markets. However, the status of U.S. financial markets is inquestion. Both existing first generation and prospective next generation biofuel plants aredemanding a large influx of capital to support adoption of new technological innovations. Firstgeneration plants require the innovations to remain low cost producers in highly competitivecommodity markets. Second generation plants seek innovations to commercialize the productionof cellulosic and advanced biofuels. In either case, the ability of financial markets to supplyneeded credit is unclear due to impediments that have reduced the borrowing capacity of biofuelfirms; uncertainty surrounding future industry performance benchmarks, tax provisions, andimplementation of current biofuel legislation; and the need for new risk management strategieswhich protect firm margins in volatile economic times.