OIG audit finds DOE has not achieved biorefinery goals despite 7 years and $603 million spent
13 September 2013
An audit report released by the Department of Energy’s (DOE) Office of the Inspector General (OIG) found that despite more than 7 years of effort and the expenditure of about $603 million, DOE had not yet achieved its biorefinery development and production goals.
Specifically, the audit found, the mandate to demonstrate the commercial application of integrated biorefineries had not been met and DOE was not on target to meet its biofuels production capacity goal. Although DOE’s Bioenergy Technologies Office (BTO) reported meeting its goal to demonstrate the successful operation of three integrated biorefineries by 2012, OIG noted that these biorefineries were primarily much smaller pilot projects rather than commercial scale.
OIG also found that BTO had not fully addressed independent review panel recommendations to improve management of the program.
The Department had not successfully achieved commercial-scale operations even though the FOAs issued in 2006 and 2007 indicated that the proposed projects should be operational at the commercial scale within 3 to 4 years. Further, the 2009 FOA indicated proposed demonstration projects would be operational as soon as possible after award and proceed rapidly to commercial- scale operations.
In fact, 6 of the 15 (40 percent) demonstration-scale and commercial-scale projects selected from the FOAs were mutually terminated by the Department and the recipients after expending more than $75 million in Government funds, including one recipient that had spent $44 million before losing its primary investor. The nine remaining projects have experienced technical and/or financial problems such as difficulties with ethanol meeting technical specification requirements, problems with acquiring private industry partners, and extended environmental reviews. As a result, the projects have experienced delays, including three projects that have been delayed 2 or more years.
Additionally, we found that the Department was not on target for achieving its 2014 production capacity goal of 100 million gallons of advanced biofuels. More than half of the projects specifically identified to contribute to the goal were terminated. As a result, in November 2012, the Program reduced its 2014 goal to 80 million gallons. Officials stated that one demonstration project achieved ethanol production in July 2013 and that two other projects expected to contribute to the goal were nearing completion and are slated to be operational by the end of 2014.—“Follow-up Audit of the Department of Energy’s Financial Assistance for Integrated Biorefinery Projects”
|The Energy Policy Act of 2005 (EPAct) directed DOE to carry out a program to demonstrate the commercial application of integrated biorefineries. The Energy Independence and Security Act of 2007 (EISA) subsequently established goals involving the volume of advanced biofuel production.|
|DOE’s BTO issued three Funding Opportunity Announcements (FOAs) for biorefinery projects in 2006, 2007 and 2009, resulting in the selection of 29 projects.|
|The goal was to demonstrate operation of three integrated biorefineries by 2012 and to validate annual production capacity of 100 million gallons of advanced biofuels by 2014. The annual production capacity was to be derived from 10 demonstration-scale and commercial-scale projects funded by the Program.|
|As of March 2013, DOE had obligated more than $929 million, including $561 million from the American Recovery and Reinvestment Act of 2009 (ARRA), for the 29 projects, and had expended approximately $603 million (65%) of those funds. Each recipient was required to contribute an agreed upon cost-share that ranged from 50 to 60% of the total project cost.|
Failure to achieve the original 2014 production capacity goal occurred because selected projects were not at the level of technical readiness needed for commercial development, and because of poor market and financial conditions, the OIG concluded.
OIG also found that BTO had not fully addressed recommendations to improve operations that had been made by a 2011 integrated biorefinery peer review conducted by a panel of external experts. The program had not formalized lessons learned and best practices from ongoing and terminated projects or conducted a “Blue Ribbon” review of the pertinent aspects of a terminated project.
On the positive side, OIG found, the program managers had taken steps to reduce risk. For example, the program implemented budget phases and released funding to recipients only after specific project milestones and performance metrics had been validated. Some projects were put on hold because recipients failed to meet their cost-share requirements. As a result of those management steps, the Department had released only 56% of the obligated funds for commercial-scale and demonstration-scale projects as of March 2013.
Also, the BTO pulled in independent engineers and implemented annual Comprehensive Project Reviews to strengthen its project monitoring, review and oversight. The department also reduced its risk by issuing FOAs (funding opportunity announcements) at demonstration and pilot scales instead of commercial scale, and also required more specific information to include credible, validated data and clearly defined success factors.
As a result of the challenges we noted, the Department is likely to be further delayed in the successful implementation of a commercial-scale integrated biorefinery, negatively affecting achievement of the Department's Strategic Plan goal to promote energy security and the Energy Independence and Security Act of 2007 national goal of increasing the supply of advanced biofuels to 21 billion gallons by 2022. Additionally, project delays and terminations increase the risk of wasteful spending as the Department may continue to fund projects that ultimately are terminated without achievement of the project objectives. Finally, in some cases, project completion delays have negatively affected the Department's implementation of the Recovery Act. Specifically, job creation estimates and the intended economic stimulation have not always been realized.—“Follow-up Audit of the Department of Energy’s Financial Assistance for Integrated Biorefinery Projects”
Further actions are needed to fully validate the technology, analyze factors leading to the termination of an integrated biorefinery project, and to formalize lessons learned, the OIG concluded. The audit made further recommendations to DOE to improve the management of the program:
Validate biomass technology at each scale of development, including pilot and demonstration, before awarding funds for the next scale;
Implement the recommendation of the 2011 integrated biorefinery peer review to formally document common issues that delay projects or cause cost overruns, as well as project successes and best practices, establish action plans consistent with Department procedures, and communicate lessons learned within the Department; and
Resolve the recommendation of the 2011 integrated biorefinery peer review to conduct a “Blue Ribbon” review of a project failure.
Follow-up Audit of the Department of Energy’s Financial Assistance for Integrated Biorefinery Projects (DOE/IG-0893)
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