Biofuels Digest Interview: Randy Kramer, CEO, KL Energy

KL Energy (formerly KL Process Designs) has been in the news all year. First, by opening the first commercial-scale ethanol production facility this year. Then, with the news rumbling out of South Dakota that they were considering the construction of a second plant. Third, rave reviews from industry insiders who have visited the facility. Fourth, for inexplicably missing out on the bucketfuls of grant money the Department of Energy has been handing out to cellulosic ethanol companies this year.

Now, KL is back in the news, with the announcement of an infusion of provate equity and the announcement that they are converting to a public company, via reverse-merger, and renaming the company KL Energy (KLEG.OB).

KL Energy CEO Randy Kramer joined Biofuels Digest for a quick interview this week as news of the reverse merger arrived. Kramer is a founder of the company, and leads a close-knit team that has been getting strong reviews as a “can do crew” in cellulosic ethanol.

BD: Do you see the EISA Act, prescribing 21 billion gallons of blended cellulosic ethanol by 2022 as such a big tent that there’s room for all, or do you see specific technologies and companies gaining an edge?

RK: I think it is a big tent, and there is a lot of room. But most of the talk about gasification and pyrolysis is just talk, or at the lab level, at least you don’t see the impact yet at the plant level. I’ve visited a number of plants. “We’ve broken ground” is the kind of thing you hear. But there’s nothing there.

BD: KL Energy is a producer, and also an engineering and biotechnology firm. Do you see the company pursuing expansion more as a vertically integrated producer, or in a technology licensing and engineering services model?

RK: As far as new markets, we’re not ready to lock in; both options are on the table.

BD: How has the rolling financial crisis this year and the controversy over ethanol affected you?

RK: The financial crisis hasn’t affected us much, I have to say. The only impact we have felt this year is some impact from a lack of recognition of our company at the Department of Energy. We have applied to the DOE on several occasions for grants, but we’ve not been successful. People who are knowledgeable at the ground level in the industry know how far we are along, and know that we are viable, that we’re doing it. But the lack of DOE support has slowed us to an extent.

BD: With respect to private equity, is the $6.,1 million you’ve just announced a beginning or the end for this round?

RK: We’re in the middle of another set of negotiations right now. So not the end.

BD: The new plant, where are you in that project?

RK: By spring, we’ll be breaking ground on the second plant, that’s what this financing is all about.

BD: Will it be essentially in the same region, using similar feedstocks as the first plant in Upton, Wyoming?

RK: The second will be the same in terms of the general region, and the feedstock strategy of using wood waste.

BD: What about international expansion? Will you go overseas, and if so, how will you structure it? Are you looking at Japan, Brazil, elsewhere in North America, for example.

RK: All of the above. All options are on the table, including both ownership and  licensing. every day I’m having a new conversation or a 2nd or 3rd conversation with a prospective partner.

BD: You have a small core team that has come a long ways together. As a smaller company, how do you approach the prospect of rapid expansion? As contemplated in the Energy Act, the sector grows from producing 100,000 gallons a year to 21 billion by 2022. As a small company without the deep bench of a Chevron or BP, how will you manage growth while maintaining excellence?

RK: Maintaining mid level competent management is our focus. We do have a deep bench, actually. We have received many, many resumes for top-level process engineers from the petrochemical business, for example, who say that they are tired of the old industries, and want to be working in this new business of making alternative energy.

Our partnership with the South Dakota School of Mines & Technology has opened a lot of doors to good people for us. In project management, we have heard from many military retirees who have spent years defending oil patch countries, who want to be a part of this new era in energy, and who really define leadership and management.

BD: With cellulosic ethanol, we are moving from an era of working with high-yield starches and sugars to lower-yielding biomass. Will we continue to see monster 100 million gallon a year ethanol plants, or will plants become much smaller so that they are closer to feedstock?

RK: It’s a question of the cost of the feedstock, and more importantly the transportation cost of that feedstock. We’re always looking for the right wood waste stream, such as a sawmill. That will shape the size and the location of plants. Instead of the technology driving the size of plants, the size of the feedstock source will.

BD: You’re an upstream company as an ethanol producer rather than a distributor or retailer. How much do you think about the downstream side, and how the process of bringing fuels to market will change as the cellulosic ethanol era unfolds? Will we see clusters of plants built around markets, or single plants built around feedstock?

RK: We think about it a lot, actually. For example, we think about surrounding New York City with 5 or 6 plants. We have two locations picked out already. We see a situation where we surround a city with an ethanol supply.

BD: Looking at the 36 billion gallons of ethanol required under EISA in 2022, that’s a lot more than can be supplied with E10. Do you E85 gaining more traction in the short term, or do you see E20, E30 blends proving more attractive.

RK: We don’t think E85 is the answer today – maybe in 20 years – optimally we’d see a change to E20 or E30 instead of going all the way with an in-your-face change like E85.

BD: With respect to E20 and E30, have you looked at the American Coalition for Ethanol’s studies on E30 showing no net fuel economy loss compared to all-gasoline?

RK: We’ve seen them, for sure. ACE, god bless them, they work hard, but we have our own studies and run our own tests. We wouldn’t go forward only on their data. We want to have our own, and what we have shows that E20 and E30 works.

BD: Are you seeing the same story, that with blends in the E20-E30 range we don;t see  a significant drop-off in mileage, or any at all?

RK: Yes we do.

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