The Courier & Advertiser (Fife Edition)
Boost for arable sector as buyer is found for plant
THE TROUBLED Ensus ethanol plant in Teesside has been taken over — but at a huge cost to its original investors.
The Redcar plant has the capacity to be the largest ethanol plant in Europe, with an appetite for more than one million tonnes of wheat annually.
It cost £250 million to construct but has been sold to CropEnergies, a subsidiary of the German sugar giant Sudzecker, for only £11.6m.
The takeover may well have brought huge losses to its backers, but the prospect of the plant at last reaching full capacity comes as huge boost to the UK’s arable sector
The Ensus plant has been mothballed three times since it was commissioned in 2010.
The first stoppage came only weeks after the plant opened amid complaints from residents about a strong “brewery” smell.
The company spent £6m on mitigation measures but the site closed again in May 2011, this time for 15 months.
The high price of wheat and delays in the EU ethanol subsidy system were blamed for making the process uneconomic.
The last closure, billed at the time as temporary, took place in April this year because of “slow developments in the UK and EU ethanol markets”.
Yesterday’s sale was described by one source as being “an unmitigated disaster” for private equity firm the Carlyle Group and its funders.
It has come out of the deal with no cash, instead accepting 2.25m CropEnergies shares valued at about £5.15 each.
There are clearly still operational problems at Ensus with CropEnergies pledging further expenditure of £50m to bring the plant up to full capacity.
For UK cereal growers, the potential restart of the site comes at just the right time to support prices just ahead of harvest.
With the UK capable of producing about 16m tonnes of wheat in an average year, a new outlet for about 1m tonnes is very significant.
It will be even more so this year with the UK wheat crop still expected to come in at around only 12m tonnes thanks to poor crop establishment
NFU England and Wales combinable crops adviser James Mills said the potential of the reopening of Ensus “could be a great boost to UK wheat and animal feed production”, with the site producing a high-protein feed ingredient as a by-product of ethanol manufacture.
At full capacity, there should be 350,000 tonnes of by-product, either in the form of draff or dried feeds.
A UK trader said: “We are talking about potentially 10% of the crop being used in Ensus.
“That is a huge deal, particularly when the Vivergo site, of similar size to Ensus, is being ramped up.”
The Vivergo plant is near Hull and the effect of having two such large plants in the north of England will surely be felt in Scotland, a habitual net importer of wheat.
Scottish buyers have traditionally sourced their extra wheat requirements in Northumberland, Durham and Yorkshire but may now have to look further south with all the extra haulage costs this will entail. All of that depends on the Ensus plant sticking with wheat as a feedstock.
Using imported maize is an alternative that Ensus management experimented with before the shutdown in April.
CropEnergies has said its planned £50m of extra investment on Teesside will “improve the competitiveness of Ensus” raising the possibility that its ability to use maize might be enhanced
But margins for wheat ethanol production are currently positive, apparently.
London feed wheat futures for November 2013 delivery stood at £165.85 a tonne when the London markets closed last night well below the record high of £227.00 reached nine months ago for a spot contract. The futures markets actually fell by £1.65 yesterday.
According to one commentator, the Ensus news might yet lift the market but only after there is some clarity over the extent of maize substitution
Industry sources have claimed that one of the main hindrances to Ensus regaining profitability during its latest operational stint was its inability, because of the uncertainty over its future, to lock in prices for more than a month ahead and take advantage of lower forward prices.
This made it unable to take a long-term view and lock in to positive margins.
NFU Scotland vice-president Allan Bowie welcomed the news of the takeover.
He said: “The big plus here is that this is a company which seems to have the experience to make the plant work.
“It will be good to see the added value put onto wheat here in the UK rather than having it exported first. The estimated 350,000 tonnes of animal feed co-product will also be very welcome.”