Until recently Indiana had little activity in renewable energy and biofuels. Up until 2006, Indiana only had one corn based ethanol plant, which produced about 100 million gallons/year. There was no investment in wind energy, and biogas also had minimal activity. Recently, all this has changed. It is expected that by 2009 Indiana will have about 13 ethanol plants with about 1 billion gallons of total capacity, and 7 biodiesel plants will have 135 million gallons of capacity. Wind energy installations have taken off, and there is now some biogas production from animal manure. For the future, there is potential for cellulose based ethanol and more wind energy.

Corn Based Ethanol

The 2007 energy bill increases the renewable fuel standard (RFS) to 36 billion gallons by 2022. The standard is partitioned among corn ethanol (15 billion), biodiesel (1 billion), and advanced biofuels including cellulose based ethanol (20 billion). By the end of 2008, the national level of corn ethanol capacity could reach 13 billion gallons, close to the 15 bil. gal. RFS. We do not expect to see much significant additional investment in corn ethanol in Indiana.

Associated with the growth of corn based ethanol production in Indiana are far-reaching changes for transportation needs and infrastructure demands. The transportation system built to facilitate the large-scale export of grain from Indiana by unit trains and barge is quickly shifting to a system with a much greater reliance upon trucks for inbound shipments of corn and beans, as well as outbound movements of ethanol biofuels and DDGS.

Cellulose Ethanol

As indicated above, the RFS calls for massive investments in cellulose based ethanol. Indiana is well positioned to produce ethanol from cellulosic materials including corn stover, high yielding grasses (switchgrass), and fast growing trees (poplar). Of these sources under current practices, by far the cheapest is corn stover. We estimate corn stover could be delivered for about $40 per dry ton compared to about $60 for switch- grass. So the state could foresee investments in cellulose ethanol production beginning in areas with high production levels of corn stover.

Biodiesel

Current national biodiesel capacity estimates from the National Biodiesel Board (NBB) indicate the industry can produce 864 million gallons of biodiesel, not far from the biodiesel RFS. In 2006, NBB estimated that the industry produced 250 million gallons. The disparity between production and capacity illustrates the current excess capacity in the industry due to poor economic conditions. The margins for biodiesel are expected to be under severe pressure for the next several years. Given this situation, growth in biodiesel production in the next 3 to 5 years is expected to be very slow, with only a few of the plants currently expected to be built coming to fruition.

Wind Energy and Electricity Issues Important for Indiana Agriculture

Utility scale wind farms have recently become a significant source of stable income for farmers in northern Indiana counties, with Indiana’s first wind farm currently beginning production in 2008. This 130 MW Benton County Wind Farm has signed long term power purchase agreements to sell all its output to two of Indiana’s electric utilities. Other wind farms are being developed. The upsurge in the construction of wind farms nationwide and in Indiana is a reflection of efforts by electric utilities to have in place non-carbon emitting technologies to meet growing electric demand in the face of expected national legislation to regulate carbon emissions or to meet renewable energy standards. Although Indiana is not as generously endowed with wind energy as some other states, it has the unique advantage of having adequate transmission capacity linking it to major national markets.

Another potential energy related revenue stream for farmers is the conversion of livestock waste into useful energy. At least three dairy farms in Jasper County are already using anaerobic digestion technology to capture the biogas and convert it into electricity. In general these anaerobic digesters are not viable economically if selling electricity to the grid is the main outlet. Substantial investment and scale economies generally are required for such operations.

Prospects for the Near Future

In the energy and biofuels area, the prospects with greatest potential for Indiana are cellulose ethanol and wind energy. Indiana has or could have sufficient cellulose resources to produce 400 million gallons of ethanol from cellulose sources at current conversion yields and 600 million gallons or more with anticipated future yield increases. Adding wood wastes and other resources could mean an industry as large as 1 billion gallons – the size of the corn ethanol industry in Indiana. If other raw materials such as municipal and industrial wastes were used, the increase could be even larger.

There are also prospects to increase the fraction of renewable electricity produced in Indiana using wind energy. Wind, like corn and cellulose ethanol, is not viable with market incentives alone. Either government subsidies or a renewable energy standard or some combination of the two are necessary to foster growth in the industry.

Policy Options and Programs to Foster Development of These Industries

For cellulosic ethanol, the policy options and programs that could be considered include the following:

• Cellulose plants require transportation of massive amounts of cellulosic material to a central plant. To enable this substantial increase in road loads, advance planning will be necessary to enable the plant supply of cellulosic materials.

• Growth of total ethanol consumption much beyond current levels will require investments in infrastructure. One investment that would facilitate expansion of the ethanol market in Indiana would be additional outlets for E85 fuel. Some other states provide tax credits or other incentives to gasoline stations that add E85 capacity. This approach could be considered in Indiana.

• The State of Indiana could consider tax incentives for early investors in commercial scale cellulose biofuels plants if it wants to attract the industry to Indiana.

• For both corn and cellulose ethanol, investments in ethanol transportation infrastructure could be considered.

For renewable electricity generation, the most popular incentive is a renewable energy standard. This incentive guarantees a market to investors in renewable electricity production. Because the states in the Northeast have limited opportunities for renewable electricity generation, yet many have renewable energy standards, Indiana is well positioned to serve this market.