Local engineering firm backing effort to turn garbage into ethanol

Indianapolis-based engineering and consulting giant RW Armstrong has become lead investor in an upstart ethanol firm that
would apply novel technology to make the automotive fuel without using corn as the key ingredient.

It would be the first big commercial plant in Indiana to make the alcohol fuel with so-called cellulosic material–the holy
grail, of sorts, in the ethanol industry.

Not only that, but unlike plants using corn, it wouldn't have to buy its main ingredient. Instead, the plant would get
paid to accept it.

"We're talking trash. We're talking about a resource that's been significantly underutilized," said
Zbigniew "Zig" Resiak, business development and preconstruction manager at Armstrong.

Locally based Indiana Ethanol Power plans a $100 million, 20-million-gallon-a-year plant in Lake County. It's negotiating
details with the Lake County Solid Waste Management District and seeking a site. Meanwhile, it's looking for sites in
Kentucky and Tennessee and elsewhere in Indiana for additional plants.

Potentially, "we could put 14 to 16 of these facilities within Indiana," Resiak said.

Armstrong employs about 200 in Indianapolis and has a total of 300 scattered across 14 offices worldwide, including in Abu
Dabi, Cairo and, more recently, Libya. With annual revenue in excess of $50 million, it's the nation's 19th-largest
program management firm. It zoomed up 193 spots to 253rd-largest engineering firm in the United States in a recent ranking
by Engineering News-Record.

The engineering firm won't say how much it's putting into Indiana Ethanol in return for its majority stake. Though
the estimated cost for the first plant is $80 million, Armstrong is figuring in a $20 million cushion for unexpected costs
such as raw materials.

It's a potentially risky investment given that the "gravity pressure vessel," or GPV, technology that Indiana
Ethanol licensed from Ohio-based GeneSyst International has yet to be applied to a major ethanol production facility using
municipal solid waste.

But Indiana Ethanol Power has some prestigious partners. Loaning the $100 million for the first project is New York-based
Oppenheimer & Co. and RBC Capital Markets Corp., an arm of Royal Bank of Canada.

If the investment pays off, Indiana Ethanol Power could be a corn farmer's nightmare.

The state has seven corn-based ethanol plants in production, with five more under construction and four others proposed,
according to the Indiana State Department of Agriculture.

Corn is the preferred ingredient because it is widely grown in the United States and has a fairly high energy yield. However,
it is not ideal, as demand for ethanol as a fuel additive has driven up corn prices and, in turn, food prices.

The conventional wisdom in the world of alternative fuels is that using corn kernels is a stepping stone. Researchers at
Purdue and other leading universities are narrowing in on enzymes that will allow distillers to produce ethanol cost-effectively
from common grasses, wood chips and other cellulosic materials such as corn cobs.

What Indiana Ethanol Power is proposing is cheap ethanol made from a renewable source that only landfill operators will miss.

The GPV

One fault of corn-fed ethanol plants, besides the consequences of consuming a food crop, is their voracious appetite for
natural gas to cook corn.

Enter the GPV and acid.

Indiana Ethanol Power is using technology developed and patented by James Titmas, chairman of GeneSyst International. The
application proposed by Indiana Ethanol would consist of a 2,000-foot-deep hole driven into the ground–the length of the
Sears Tower plus 270 more feet–and lined with steel.

Suspended inside would be the gravity pressure vessel: a steel, test-tube-shaped pipe with a slightly smaller diameter. Think
Thermos bottle.

Into the space between the lining and the pipe would flow the oatmeal-like cellulose material processed from trash and suspended
in water. As the material drops down the shaft–accelerated by several hundred pounds per square inch of pressurization–it
heats.

A weak acid is injected and the material, now at more than 400 degrees, becomes a sugar-like substance. It's pumped back
up and processed into ethanol through conventional fermentation.

The big advantage, said Resiak, is that there's practically no external energy costs for heating.

But does it work?

The GPV isn't exactly untested technology. It's been around for a good 15 years. The Environmental Protection Agency
even had its own GPV, which it used in the 1980s to test converting solid waste into inert matter in Colorado.

Armstrong engineers have worked on their share of industrial projects over the years, including any number of complex wastewater
plants. Their operation is essentially similar to what the ethanol plant would do to process solid waste into a cellulosic
soup before shooting it down the well.

"We understand the science behind it and the engineering. It's not a big leap of faith for us," said Joseph
Wade, vice president of RW Armstrong.

Wade said his firm got involved about two years ago after learning of the GPV technology from a contact in Evansville with
whom his team had worked.

If anything, the biggest problem, according to some at Armstrong, is that the GeneSyst technology never got a chance to show
its stuff in ethanol production.

Titmas and his company tried to build their own in the 1990s, in Ohio, to make ethanol. But they encountered problems, not
the least of which was the loss of a contract for mass quantities of trash (Indiana Ethanol will need about 1,500 tons a day).

But it got the attention of Oppenheimer, which hired a consultant that identified two weaknesses: the need for a large and
reliable trash supply and a lackluster market for ethanol.

But that was then, before ethanol became a desirable gasoline additive, before President Bush's 2007 mandate requiring
use of 36 billion gallons of alternative fuel by 2022, and before $4-a-gallon gas.

Favorable economics?

It may be in the realm of volatile ethanol economics where such a plant faces its biggest test.

"There's engineering efficiency and then there's economic efficiency," said Wallace Tyner, a professor
of agriculture economics at Purdue University.

Tyner hasn't heard of GPV technology in making ethanol, but then he's quit trying to keep up with all the promising
new technologies that seem never to pan out.

"I hear them every day. Every day, somebody's got a new whistle or bell or new way of doing things. Someday, one
of these is going to work. So far, none of them have been right."

The feedstock–trash–is by far the cheapest Tyner has heard. One potential downside, though, is that its yield may lag conventional
sources because there's so much stuff to process first.

Metals, plastic, gravel, glass and other materials must first be separated from cellulosic materials–organic stuff found
in household garbage from fruits to certain paper and wood products.

Even with that processing, Wade's team calculates energy costs will be dramatically lower than for corn-based production.

But what if ethanol falls out of favor–perhaps if there's a breakthrough in other alternative fuels or technologies?

Then, the plant still can be used to make a type of aviation fuel or even sugars sold to the food or pet food industries.

"They don't generate as high a yield as ethanol does," of course, Wade said.

Another economic advantage is that tipping fees charged to accept trash at the plant are expected to cover construction costs.
It was that sure-fire revenue source that ultimately won over lenders.

In Lake County, Indiana Ethanol proposes charging $17.50 a ton for the first 1,500 tons and $15.50 a ton thereafter. It's
a bargain for Lake County, which now pays one landfill about $40 a ton.

"We're not asking for any subsidies from the government," Resiak said.

Other revenue would come from the sale of recyclable items recovered from trash. And perhaps the most curious revenue source
would be income from carbon offset credits, which are traded on markets such as the Chicago Climate Exchange. Indiana Ethanol
expects to earn the credits because it will emit virtually no carbon dioxide: It's sent back down the gravity vessel as
part of the reaction.

Sites explored

With such a potentially promising business model, Indianapolis would seem logical as the next big lucrative location. But
the city is not in the picture. Wade noted that much of the available trash here flows to Covanta Energy's steam plant,
which converts 2,175 tons a day of solid waste into steam that Citizens Gas buys and pipes to downtown businesses for heating
and cooling.

"But there are a number of outlying communities here as well," Resiak said.

The trick remains getting enough volume of trash, however. Resiak noted that several communities in the wood manufacturing
industry in southern Indiana produce vast amounts of wood waste, for example. Sludge and animal waste also could be used.

But pioneers take the most arrows. Wade and Resiak know they're upsetting the natural economic order by seeking to become
a voracious user of trash.

The last time the two went to northern Indiana to talk to a landfill company, they joked that they might as well eat bacon
on the way up because high cholesterol would be the least of their problems. The landfill business has been a darling of organized
crime in the eastern United States, including the Lucchese and Genovese families in the New York City area.

"We're shifting a paradigm that doesn't want to be shifted," Resiak said.

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