Five years ago, Rick Smith III was convinced that ethanol was "the perfect fit" to turn old grain elevators along the Buffalo River into a thriving center for up-and-coming alternative fuels.
The plan was to store corn in the old grain elevators -- towering reminders of Buffalo's long-gone glory days as a grain transport center -- and build a plant next door that could turn the corn into ethanol, a renewable fuel of the future.
The $80 million project would produce 110 million gallons of ethanol a year, creating 65 new jobs and breathing new life into the Old First Ward. And the ethanol that the plant produced would help reduce the nation's dependence on oil.
"We're in a unique position of having all these great grain elevators," Smith said back in 2006. "This is something that will put Buffalo on the map for all the right reasons."
It didn't turn out that way.
Smith and RiverWright Energy LLC officially pulled the plug on the ethanol plant last week.
"We're no longer pursuing the reusing of the industrial sites for these things," Smith said. "We're not doing any ethanol."
The announcement wasn't a surprise. The tide had turned against RiverWright and the entire ethanol industry years ago.
Back in 2006, when RiverWright unveiled its plans for the old ConAgra milling facility, building an ethanol plant seemed like a license to print money.
The corn that the plant would turn into ethanol was dirt cheap. Ethanol had strong support from the federal government, which to this day provides a 45 cents-per-gallon tax credit for blending ethanol with gasoline. It was positioned as the favored alternative to foreign oil.
And making ethanol was profitable. Very profitable. Economists at Iowa State University estimate that ethanol refiners were making upward of $1 a gallon in profit during 2006.
At the beginning of 2007, there were 110 ethanol plants across the United States, with a capacity to produce almost 5.5 billion gallons.
With the promise of quick profits, the market was exploding. Another 76 projects were in the works for new plants or expansions of existing facilities that promised to double the industry's capacity at the time, according to the Renewable Fuels Association.
But the rosy outlook quickly wilted. When the economy tanked during the second half of 2007, financing for just about any kind of business expansion, including ethanol plants, dried up.
At the same time, the economics of ethanol were falling apart. With all of the new capacity coming on board, the price of corn shot up because of the soaring demand from ethanol plants. By the end of 2007, less than a year and a half after RiverWright unveiled its plans, corn prices had doubled. Even worse, ethanol prices, which averaged $2.77 per gallon during July 2006, had dropped below $2 as 2007 drew to a close.
All of a sudden, making ethanol went from being a highly profitable business to one that, at best, was earning only a few nickels on the gallon or, at worst, was losing money. A wave of bankruptcies swept through the ethanol industry, but production kept growing as those troubled plants restructured and kept producing under new ownership.
By the time RiverWright lost out on its bid in July of last year for $8 million in tax-exempt financing through the federal economic stimulus program, the writing was on the wall for the local ethanol plant.
Not even a modest rebound by the ethanol industry this year was enough to take the RiverWright project off life support. Ethanol prices have jumped by about 37 percent over the last year and are now almost back to where they were when RiverWright unveiled its plans five years ago. Production is expected to swell to nearly 14 billion gallons this year.
Yet ethanol's profit margins still are woefully tight, mainly because corn prices have soared by more than 50 percent over the last year, partly because of the soaring demand from the fast-growing ethanol industry. The ethanol industry now gobbles up almost 40 percent of the American corn crop.
The Iowa State economists estimated that a typical ethanol plant made about 30 cents a gallon last month, better than the dark days of 2008 and 2009, but a far cry from the good old days five summers ago.
And the federal largess that has long propped up ethanol production also is wavering. Ethanol makers expect to lose their 45-cents-per-gallon tax credit, worth $6 billion per year, at the end of December, along with a 54-cents-per-gallon tariff on some Brazilian ethanol imports.
It's no wonder, then, that RiverWright's backers decided it was time to move on.