Two groups of Rose-Hulman Institute of Technology engineering students who studied the proposed Powerdyne biodiesel project have come to the same conclusion: If the city moves forward with its sludge-to-diesel plan, it stands to lose – at minimum – hundreds of millions of dollars over the next 20 years. That loss could reach, one team’s report states, nearly $2 billion.
Intrigued by the Powerdyne proposal, Rose-Hulman chemical engineering professor Ronald S. Artigue asked his students to make a preliminary design for a processing plant to convert dried municipal waste into biodiesel fuel, using Powerdyne’s model. The students also were to determine the costs for equipment and capital investment needed to construct and operate the plant and to forecast profits.
California-based Powerdyne has said it wants to build a $300 million biodiesel plant in Terre Haute, employing up to 1,000 construction workers and up to 150 permanent employees, according to company projections. In April, Powerdyne President Geoff Hirson indicated that the company would provide $3 million to the city at the time of a groundbreaking, then scheduled for September.
That seems unlikely now, following the filing of a related lawsuit against the city. Mayor Duke Bennett acknowledged earlier this month that the entire sludge-to-diesel plan is on hold because of the litigation.
Highland TH LLC and Overseas Lease Group Inc. in May filed a federal lawsuit against Terre Haute and other named litigants, including Bennett, alleging breach of contract and fraud. Highland contends it is under contract with the city to dry sludge to be used in the Powerdyne project. The city, however, deems the signed contract invalid. Highland/OLG seeks recovery of projected profits — over the 20-year period of the contract, that’s just over $172.6 million — as well as out-of-pocket expenses incurred, previously estimated at $1 million.
The Rose-Hulman students completed their study of the Powerdyne project about the same time the lawsuit was filed. Mayor Bennett was apprised of the study conclusions through a report he received in late June. Professor Artigue outlined the scope of the students’ work in the June 29 email to Bennett. He told the mayor that “the two teams’ findings suggest that even with the best technology, the sale price of diesel just to break even is over $8 per gallon.”
That’s about three times the current cost. Last week’s national average for diesel was $2.81 per gallon; the Midwest saw $2.70 per gallon, according to U.S. Energy Information Administration.
The Powerdyne contract – a 20-year agreement the city now says is unenforceable and under revision – requires Terre Haute to buy fuel from Powerdyne for $2.46 a gallon and re-sell it for $2.50 per gallon.
Both Rose-Hulman teams advised against moving forward with the project, one noting that existing refineries that convert fossil fuels to liquid “are a much better investment.” The other team found that the project “will never generate enough income within the 20 year contract” to reach a positive net profit value.
In his response to Artigue, Mayor Bennett reiterated that the success or failure of the sludge-to-diesel plan rests with Powerdyne.
“Powerdyne has obviously done a detailed process design along with their overall business plan to construct a plant and sell their product,” Bennett wrote in an email reply July 2. “This is a private company using its own funds to build the facility and any failures are on them and not the city or the taxpayers. They must continue to convince their investors (and not the city) in order to move this project forward and make a profit in the end.
“The contracts we had in place were for them to control the end waste sludge from the plant on the front end and then the city would act as a pass through for the sale of the fuel on the back end. A contract is already in place for a third party private fuel distribution company to purchase the 12 million gallons of fuel at a set price. If Powerdyne does not deliver the product in the contracted volumes or the set price, there is no deal and the city is not on the hook for anything related to the sale of fuel. Note: We will have a cost to properly dispose of our sludge whether Powerdyne is involved or not,” the mayor wrote.
Bennett told the Tribune-Star on Friday that the contract for fuel distribution noted in the email referred to the agreement with Sodrel Fuels. That contract is among those the city now deems unenforceable, he said, but the students used information from those unenforceable contracts for their study. “I was trying to explain that we were a pass through, that if (Powerdyne) produced the fuel, they had someone to buy it. I was trying to give the operational flow,” the mayor said. “In essence, all of the contracts, all of what the students reviewed is in the past tense.”
The newspaper tried to contact Powerdyne President Hirson, by phone and email, on Friday, but efforts to reach him were unsuccessful, and he did not respond to messages seeking comment.
Council members, however, who received a copy of the study findings Thursday afternoon, did provide their thoughts when reached by the Tribune-Star.
Todd Nation, who read the report Friday, said he has been seeking more information on the sludge-to-diesel project since Powerdyne addressed the City Council in February. “I asked for a business plan and more data. That has never been shared with us. I still have not seen that despite repeated requests,” Nation said. “The more I dug into it, the less feasible the technology side of it looked. I am not surprised that it would cost many more times to make for what we could get for a gallon of diesel fuel. The bottom line is it is not economically feasible.
“I understand this is a student project and is far from the last word on the technology involved and costs, but it sure looks bad ... and gives me pause,” Nation said.
Also expressing concern was councilman Don Morris, who said he reviewed the report summaries, which bring the feasibility of the Powerdyne project into question.
”I think the irony is that this project started as a bright, exciting thing that a company was coming in with the potential for union jobs, especially with construction, but it seems it has continually gone down hill and is starting to lose hope. We needed the $3 million for the budget, but that did not come in November,” he said.
”The deeper [it gets], the less this seems feasible. ... There are a lot of questions that we don’t know the answers. It just seems kinda fishy the deeper we go,” Morris said.
Four other council members, George Azar, John Mullican, Jim Chalos and Neil Garrison, said Friday they had not yet read the report. Attempts to reach Bob All and Amy Auler were unsuccessful. Councilman Norm Loudermilk, who also had not read the report, did express frustration with the city.
“My problem with this is the city administration counted its chickens before they hatched,” he said. “They put money into the budget as revenue before we had the check in hand. I would have, especially with a private-public enterprise, been more conservative on estimated revenue.”
The head of that city administration, himself, has questioned whether or not the Powerdyne plan will come to fruition. In his response to Artique, Mayor Bennett thanked the professor for sharing the study findings, but noted the sludge-to-diesel project “is very unique and complex.”
“The legal issues are currently taking center stage,” Bennett wrote, “and it remains to be seen whether they will get this project done here or not.”