JV including US ethanol producer Green Plains inks huge biojet offtake deal

US agribusiness company Green Plains on Tuesday said it has set up a joint venture – named Blue Blade – with energy infrastructure company Tallgrass and United Airlines to develop full-scale alcohol-to-jet production from ethanol by 2028 that aims to provide up to 135 million gallons a year of offtake.

The partnership is a major development in the respective ethanol and biojet fuels sectors in the US, and will harness Green Plains' potential production of low-carbon, corn-based ethanol with the technology knowledge of Tallgrass, a refining and pipeline company that is financed by Blackstone group, one of the world’s biggest private equity investors.

Meanwhile the 2.7-billion gallon total size of the offtake deal with United Airlines – which says it has agreed to buy more sustainable aviation than any other carrier – is one of the biggest ever in the sector.

“This new joint venture includes two expert collaborators that have the experience to construct and operate large-scale infrastructure, as well as the feedstock supply necessary for success. Once operational, Blue Blade Energy has the potential to create United's largest source of SAF providing up to 135 million gallons of fuel annually," said United Airlines Ventures President Michael Leskinen in a January 31 statement.

Green Plains chief executive Todd Becker said the joint venture, which will initially have $50 million of funding, is a “gamechanger” for US agriculture that would align “a strong farm economy and a robust aviation transport industry focused on decarbonizing our skies."

Through the joint venture, Tallgrass will manage research and development of the technology, including the development of the pilot plant by 2024, and will manage the construction of the production facility that is intended to reach full scale four years later.

Besides providing low-carbon feedstock, Green Plains will manage operations once the pilot facility is constructed.

Meanwhile, United Airlines is tasked with SAF development, fuel certification and “into-wing logistics,” and total offtake of 2.7 billion gallons of biojet produced from the JV.

The deal comes as current and potential producers of SAF factor in the tax credit of $1.25-1.75 that was included in the Inflation Reduction Act that became US law last summer, while airlines including United have jointly committed to producing 3 billion gallons by 2030.

The tax credit will apply in the years 2022-2024 with the payments calibrated to GHG savings of between 50%-100% compared with fossil kerosene.

That system is replaced in 2025 by the Clean Fuel Producer tax credit, which will also apply to road-based biodiesel and SAF, which changes the tax credit formula so it is pegged to the reduction beyond 50 kgCO2e/MMBtu (metric million British thermal units).

In effect, the CFP means feedstocks will need to deliver much higher GHG savings than in the 2022-2024 phase, and would effectively exclude some feedstocks that have only scraped into the 50% GHG reduction-cut requirement.

Lack of commercial scale

Green Plains has said in the past few years that the use of carbon capture technology, aided by a huge project in the US Midwest to sequester carbon dioxide and bury it underground, will mean its ethanol will be in the higher range of earnings from tax credits.

Other US agribusiness companies have signed tentative deals to supply ethanol to other ATJ producers, with ADM in 2021 signing a memorandum of understanding with Texas-based Gevo, while Illinois-headquartered LanzaJet will also use the technology, initially based on corn-based ethanol before broadening out into agricultural and industrial wastes.  

ATJ is seen as having the potential to be a major source of SAF production by the late 2020s, but so far it hasn't been produced on large, commercial scale, with LanzaJet hoping to start up its pilot plant in the US state of Georgia later this year.

Shares soar 

Shares in New York-listed Green Plains rose 15% to $35 each on Tuesday.

But rather than a reaction to the SAF announcement, the surge in the valuation is thought to be more down to a letter from one of Green Plains' major shareholders urging that the company should be sold amid increased risks and the perceived appetite from investors to purchase renewable energy companies.

Ancora Holdings Group, which owns a nearly 7% stake and is Green Plains’ second-largest shareholder, sent the letter to the agribusiness company's board on Tuesday, saying a buyer would likely pay at least $50 a share for the company.

Green Plains is scheduled to hold a Q4 2022 earnings call on February 8.