Ambitious global targets that aim to slash greenhouse gas emissions by 2030 are generating an increasing number of opportunities for FDI in rural regions. The EU’s continued commitment to renewables is providing opportunities for investors in the sector throughout Europe. One growth area delivering promising results is the production of biofuel for the transport industry in facilities based in agricultural regions.
An hour’s drive south of Hungary’s capital city of Budapest is the town of Dunaföldvár, home to a corn-to-ethanol plant backed by the Turley family of Ireland. Pannonia Ethanol, a subsidiary of Ethanol Europe Renewables, was established in 2009 to pursue the permitting and construction of a 200-million-litre ethanol plant. It purchases corn from farmers in the Dunaföldvár area and turns it into ethanol, corn oil, dried distillers’ grains with solubles and carbon dioxide.
Chief executive Zoltan Reng says: “The company was formed in response to the EU’s Renewable Energy Directive in 2009, and the public statements around this directive about EU commitment to investors and renewable energy. The founders had no connection to Hungary and simply identified it as potentially the best location in Europe for an ethanol investment, thanks to good logistics and an abundance of corn.”
Mr Reng says the country offers a number of advantages. “We initially looked at several countries in the region. Hungary was the most straightforward in terms of regulations, political climate and the education of the workforce. These have been fundamental to the success of the investment. The people are skilled and industrious, the farmers progressive and engaged, the cost base is competitive and the government is supportive.”
Pannonia Ethanol’s strategy is to build on the core operation in and around Dunaföldvár, and develop a diverse portfolio of projects and businesses. “That doesn’t exclude projects in other regions and countries, but Hungary will remain the flagship,” adds Mr Reng.
The company is now completing a major expansion in capacity. “This has given a boost in the region as it is concrete evidence not only that the initial project has been a success, but also that the programme is on an upward trajectory,” says Mr Reng. “In September 2015, we hosted an agricultural innovation show in the region and it attracted close to 1000 farmers, a dozen technology providers and three of our partner banks eager to help farmers to make agricultural investments.”
Pannonia Ethanol says it now supports more than 2000 direct and indirect jobs in Hungary, 93% in the service and industrial sectors, and 7% in farming. “We buy produce from more than 500 farmers and offer them long-term market security. We have helped create a climate of innovation and investment in the region, and a sense of mission around the bioeconomy,” says Mr Reng. “While actual construction of bioeconomy assets in the rest of Europe has ground to an almost total halt, in Hungary today there are citric acid and isoglucose plants under construction.”
A major investment such as this inevitably faces challenges. Mr Reng says: “The investors have been dismayed by the failure of Brussels to respect valid investor expectations of regulatory stability.”
The company has also had to deal with a number of local issues associated with the project. “We used US technology, which had requirements and specifications in US standard measurements, so we needed to harmonise everything to European and Hungarian requirements,” says Mr Reng.
The renewables sector has also come in for some criticism and ethanol production is no exception. For example, those who oppose it claim that using land for ethanol production can drive up the cost of animal feed resulting in higher food prices for consumers, as well as arguing that producing it can use more energy than it generates.
However, Mr Reng argues that the biggest challenges arise from the gap between public perceptions of the industry and reality. “Biofuel production goes hand in hand with animal feed production. The more fuel we make, the more feed we make. And that feed is extremely high quality, GMO free, antibiotic free and home grown. By getting farmers to invest more in their own businesses, we stimulate the production of corn that otherwise would never have been grown.”
Mr Reng concedes that if biofuel production was increased globally too quickly, then it would affect feed and eventually food prices. He adds: “But what the empirical evidence of the past decade shows pretty definitively is that displacing 0.5% to 1% of transport sector energy a year with biofuels doesn’t seem to cause adverse impacts. If it is done as part of a stable, long-term policy that gets farmers to invest, then it can actually result in more feed and more fuel, so there’s a triple benefit for the climate, for food security and for sustainable rural livelihoods.”
Strength in adversity
Mr Reng emphasises that the industry brings other benefits. “Adversity has made the industry strong and through innovation, year on year, we are making our plants more cost efficient and sustainable," he says. "In stark contrast to the oil-refining sector, the average ethanol plant in Europe today produces no waste. In Pannonia’s case, we contribute almost €500m annually to Hungary’s GDP.”
Mr Reng is bullish about the future. “I deal with farmers on a daily and weekly basis," he says. "They all tell me that what they need are stable, local industries, so they are not dependent on export markets. If they see strong and committed industrial consumers, they will spend money on irrigation and other improvements. Some of them have already started investing in irrigation systems, which is important in Hungary as we’re getting longer and longer dry periods in the summer due to climate change.
“Our strategy is to keep ahead of the curve and be there first. Cutting carbon production is such a high priority at the moment. We need everything to move into low carbon. Everything we are involved in is about climate change, and being green and being renewable. We believe demand will at least treble in the next 15 years as European governments develop their climate and energy plans and as a consequence push for greater use of biofuels on their roads.”