Navy solves best—contract flexibility, stable funding, and gradual phasing out of subsidies so companies can develop commercial capabilities
Lane 13 (Jim, Editor & publisher of Biofuels Digest, December 16 2013, "Navy to Stay the Course With Biofuels", http://www.renewableenergyworld.com/rea/news/article/2013/12/usda-us-navy-unveil-farm-to-fleet-program-navy-open-for-business-as-shift-to-biofuels-blends-begins?page=3)
More importantly, it has established a dual track program to Assure supply (call that Plan A), and obtain Best prices (call that Plan B). In this latest “Plan B” component, it has found a conservative, realistic path to changing fuels gradually over time, while ensuring that it is on track to meeting its stated 2020 transition goals — and leaving itself open to achieving its goals far faster than 2020 should the markets provide sufficient biofuels at competitive prices with conventional fuel. In the end, this is a matrix opportunity for fuel developers. Each will be able to determine, based on their individual production capacities, which yearly contracts to bid for, and how much of a biofuels component to add. For example, a company with a production capacity to make 10 million gallons of biofuels, at a $0.50 premium over the cost of conventional fuels, could construct a bid for up to 100 million gallons of a 10-percent biofuels blend at a nickel premium to conventional fuels. If this is a winning bid based on the competitive solicitation by DLA Energy, the USDA funds would be available to “buy down” the $5 million differential for the first three years of the Navy’s program. In future years, the bid would have to match conventional fuel prices without reliance on USDA support. In this way, the industry can scale up gradually, as the Navy scales its fuel demand gradually, while providing a consistent market signal and assuring the Navy that it pays only the going rate for fuels during the transition period. Another interesting feature of the program? Since these are fuel blends, there could be a variety of scenarios in terms of the identity of the bidder. It could be that biofuels producers make bids directly, and source conventional fuels to make blends. It could be that conventional fuel producers, or middlemen, make buys from biofuels producers and create their ownbids. Some may critique the fact that DLA Energy is buying in one-year contracts — biofuels producers have long noted that long-term contracts are essential to financing biofuels at scale. Presumably, the Digest notes, those firms that needed to access Navy contracts because of capital concerns would have robustly competed for DPA Title II funding. Those, on the other hand, that are looking for financeable offtake contracts from, well, the most credit-worthy customer out there — here’s the opportunity. Without a question, the Navy has given itself an assurance of supply — and with this program, will be unleashing market forces to ensure that it can access fuels from the wide variety of companies now reaching commercial scale, or on the cusp of doing so.