Biodiesel with altitude
Colorado’s Blue Sun Co-op grows
rapeseed for biodiesel production
By Stephen Thompson, assistant editor
stephenA.thompson@usda.gov
thanol is being embraced nationally by farmers looking
to add value to their crops, but biodiesel has gotten off
to a slower start. Most U.S. biodiesel producers are relatively
small operations that use soybeans or recycled
cooking grease as their feedstock. Now there’s something
new under the sun: the Blue Sun Producers Cooperative and its
LLC partner, based in Colorado’s high altitude San Luis Valley.
Blue Sun’s approach to biodiesel production differs from that taken
elsewhere in the United States to date. Its feedstock is a special variety
of rapeseed bred to do well in the arid climate of southern Colorado.
The biodiesel produced is blended at a 20-percent ratio with conventional
petroleum diesel to produce a high-quality fuel, known as B20.
Blue Sun Producers, which currently has more than 40 memberproducers
from Colorado, will be offering memberships this year to
farmers throughout the region as far north as Montana. Blue Sun has
an affiliated co-op exclusive to Nebraska which is actively seeking
more members from that state. This year, the co-op harvested its first
big rapeseed crop — more than 3 million pounds.
The cooperative’s affiliate, Blue Sun Biodiesel LLC, recently
opened a major state-of-the-art distribution terminal in Alamosa,
Colo., which lies 7,544 feet above sea level and is surrounded by the
Sangre De Cristo and San Juan mountain ranges. In May 2005, it
will open a processing plant and refinery co-located with the transportation
facility. Both openings will be welcome events in Alamosa
and the surrounding San Luis Valley, an area of southern Colorado
that has been hurting economically, in part due to low commodity
prices and drought conditions.
Rapeseed widely used in Europe
Rapeseed, some varieties of which are used to make mustard and
others to make canola oil, is the preferred biodiesel feedstock in
Europe. About 45 percent of the weight of rapeseed is oil, as compared
with only 20 percent for soybeans. It can be planted and harvested
with the same equipment used for small grains. In addition, its
oil offers certain advantages in the production of biodiesel.
The seed for Blue Sun was planted when former Duracell Batteries
executive Jeff Probst came to Colorado looking for an opportunity to
start a new business venture in the energy sector. Among other new
product and technology projects,
Probst had worked on Duracell’s
worldwide objective to replace the
environmentally hazardous mercury
battery. He was attracted to biodiesel
because, he says, he wanted his new
effort to help the environment as well.
B20 fuel has many environmental
advantages over straight petroleum
diesel. Its exhaust is cleaner, especially
when it comes to soot particulates that
form the black smoke often seen coming
from the stacks of diesel-powered
vehicles.
Breathing diesel soot has been
linked by some to illness among children,
including asthma, bronchitis,
pneumonia and, in adults, even cancer.
In addition to being healthier, the
exhaust generated by biodiesel or
biodiesel blends doesn’t have as much
of an objectionable smell as does the
exhaust from 100 percent petroleum
diesel.
Is rapeseed the answer?
Probst soon concluded that buying
feedstock, such as soybeans, on the
open market would be risky for the
operation because of wide price fluctuations.
“Feedstock is 85 percent of the cost
of 100 percent biodiesel,” he says. “So,
we felt that we had to have our own
source. We can always go to the commodity
markets if we lose a crop or
have a shortfall.”
In 2002, Probst spent months talking
to farmers in the San Luis Valley
area and elsewhere. “It was difficult,”
he says. “In the early days, we’d drive
lots of miles just to talk to four farmers.”
What he found was that farmers
were interested in finding a crop that
was outside the commodity markets.
Soybeans and other commodity crops
posed too many risks involving government
price supports and other factors.
On the other hand, they were wary
of the risk of sinking money into a new
cooperative. Local service and other
co-ops hadn’t paid dividends in 10
years. Further, recent weather conditions
had damaged crops and hurt
farmers financially, making them doubly
cautious.
Despite farmers’ caution, Probst felt
that if they were presented with a well thought-out business model, a valueadded
co-op could fly.
From idea to reality
After talking with agronomists at
several universities, Blue Sun decided
that rapeseed was the best choice for
feedstock. They began working with
researchers at Colorado State
University and other universities to
identify the most suitable varieties.
Meanwhile, Probst turned to
lawyer Mark Hanson of Lindquist and
Vennum, an advocate of the new-generation
co-op movement, for assistance.
“He gave us a lot of help and
encouragement,” says Probst. “He
came to the office, looked at our business
plan, and told us it could be made
to work.”
Hanson helped with the legal
paperwork needed to set up the producers’
cooperative, which would hold
equity in the manufacturing and distribution
company, and advised that
the corporate side of the operation
change status from a regular corporation
to a limited liability corporation
(LLC). The reason was simple and
vital: to allow the profits to get to the
producers without first being taxed.
They both agreed that producers had
to be paid first if the venture was to be
successful, Probst says.
With the legal groundwork done,
Blue Sun began actively recruiting
members for the co-op. One of the
first farmers to join was Brian
Starkebaum, who grows wheat, corn
and millet on his land in Phillips
County, in northeast Colorado. A
member of his local conservation
board, he sat through a Blue Sun presentation
at one of the board meetings.
Starkebaum was impressed, he
says, because of their willingness to
invest in rural Colorado. Afterward,
he volunteered to set up a meeting of
producers.
Adding value a necessity
for family farmers
Starkebaum was interested in valueadded
ventures because, he says,
“Value-added is the only way familysized
farmers are going to survive. It’s
often the money from an outside
source that makes the difference
between breaking even and making a
profit.”
However, ethanol production, currently
the most popular value-added
activity, didn’t attract him. “Ethanol
hasn’t been doing as well around here
as it was billed,” he says. “They oversold
the idea.”
The rapeseed producers’ co-op
offers farmers not riches, says
Starkebaum, but a way to mitigate risk,
and to earn some extra money above
the price of the crop.
“With the rapeseed, we’re promised
a known, consistent price, and we also
make money on the ‘back side’
through the value-added activities,”
Starkebaum says. Blue Sun is already
planning to make its first dividend payment
to co-op members.
Starkebaum agrees that generating
interest among farmers has been challenging.
“It’s been a battle,” he says.
“Asking people to give $5,000 (the
required minimum equity stake last
year) is hard, especially with current
farm conditions. Farmers want to see
other people try it first, to see if it’ll
work out.”
Blue Sun is planning to split the
stock for current farmers, providing
them with twice the amount of units
that they can sell, lease or increase
their acreage planted. In addition, the
minimum investment will be reduced
this year to one unit at $1,000 vs. five
units at $5,000.
Organizing efforts are not helped
by the fact that local traditional co-ops
haven’t been paying dividends, says
Starkebaum. “It’s hard to get guys to
understand [the concept of] not making
all your money back with the crop,
but instead getting a return on your
shares with dividends.”
“It’s going to be tough,” says
Starkebaum, “But the retail and business
side has been set up well.”
“We’re gaining momentum. First it
was hard to get their attention,” adds
Probst. “Now they’re asking us to
come out and talk to them.”
Commodity, or branded product?
If the rapeseed-biodiesel model
works, and a market is created for Blue
Sun’s fuel, they expect to see competitors
springing up to take advantage of
the market. How, then, can Blue Sun
avoid becoming just another commodity
supplier?
Probst thinks he has the answer. “I
wanted to do better than the standard.
I wanted us to have an advantage.”
That advantage would be selling Blue
Sun biodiesel as a differentiated product
-a product perceived to have
advantages over other diesel fuels.
That meant aggressive innovation,
marketing and quality control.
Having control over the processing
and distribution infrastructure is the
best way to assure quality, which is the
route Blue Sun is taking. Although the
firm still has to use a contractor to do
its seed crushing, all the production
and blending will soon be done in Blue
Sun’s Alamosa plant.
Depending on when the minimum
amount of acreage is achieved in the
Valley, plans will move forward for a
crushing facility at the same location.
And Blue Sun retail pumps are already
in operation in a growing number of
localities, most recently in Santa Fe,
N.M.
Overall, says Probst, the firm is
spending close to $4 million on the
plant, aided by a $500,000 Renewable
Energy Systems grant and a $450,00
Value-Added Producer Grant from
USDA Rural Development. “USDA
has given us major help in getting
going,” he says. “When the Value-
Added Producer Grant was announced
in the fall of 2003, it really helped our
credibility in the farm sector.”
Improving biodiesel
Blue Sun has decided that establishing
its brand will center around
improving on biodiesel’s advantages. It
continually researches new ways to
improve its fuel, working closely with
diesel manufacturers, especially
Cummins, to develop new additives
and blends.
Scott Bentz, vice president for
Operations and Marketing with
Cummins Rocky Mountain, was skeptical
when Blue Sun approached for
help. “Diesel manufacturers have traditionally
been hesitant about biodiesel,”
he says. “There’s so much variability
with the feedstocks, and quality control
hasn’t been that good.”
But Blue Sun’s commitment to quality
has made him a believer, says
Bentz. “I’m really impressed with their
quality control. They control the quality
from the source to the pump.
They’ve developed their own infrastructure
for blending and distribution,
so they can eliminate most of the
opportunities for problems. And they
make a superior product.”
Many school districts have switched,
or are contemplating a change, to
biodiesel for their school buses to
reduce what they perceive as a health
risk to their students. Municipal bus
systems are beginning to adopt the
new fuel as well.
Denver, with its serious air-pollution
problem (often caused by air
inversions), offers a big potential market.
Says Starkebaum, “Denver’s transit
system is already running 10 buses on
Blue Sun as a test. If they decide to
run their entire fleet on it, they could
use our entire production — 10 million
gallons per year!”
Biodiesel and B20 also offer significant
advantages to operators of diesel
equiengines:
better detergency and lubricity
— eliminating the need for polluting
sulfur as a lubricity additive — and
generally make engines run quieter
and cooler, with increased durability
due to reduced formation of harmful
engine deposits.
“Our fuel provides better horsepower,
5 to 10 percent better mileage, and
runs cleaner, with no drawbacks or
tradeoffs,” says Probst. “We have truck
operators telling us that they can cut the
run over the mountains from Denver to
Aspen by an hour using Blue Sun.”
Scott Bentz agrees; he’s using Blue
Sun’s product for something a bit more
fun — fueling a diesel-powered dragster
with 100 percent biodiesel. His
team first tried it out by draining the
tank of conventional diesel fuel and
refilling it with Blue Sun. “When we
fired it up, it was like the difference
between day and night. All our best
times have been on biodiesel,” he says.
“I don’t mind saying I’m sold on the
product.”
Probst thinks that kind of response
will fuel a growing market for Blue
Sun. “This is only the beginning,” he
says. “When this business model
proves out, we plan to set up operations
in other markets across the
country, too.”
