Biofuel producers say millions of dollars worth of investment is at risk because of uncertainty over whether the government will continue a subsidy programme beyond next year.
Greenstone Energy, which owns Shell's retail and distribution network in New Zealand, revealed last week that it came close to investing millions of dollars in Ecodiesel, an Auckland company with a part-completed plant designed to convert tallow, a byproduct of the meat industry, into biodiesel.
Chief executive Mike Bennetts said the plan, under which Greenstone was to pay for the plant to be completed and buy its entire production, foundered over a lack of assurance from the government that it would extend the subsidy for a further three years, which was needed to make it viable.
Gary Brockett, chief executive of Ecodiesel, said that even though the Greenstone talks had ended, it had other investors ready to come up with the $5 million needed to complete the plant, but only if the subsidy was extended.
"In terms of investment, it's all there. The money's there, the offtake agreements are there.
"We just need the legislation from the government to complete the deal."
He said Ecodiesel's plant would be able to produce up to 20 million litres of biodiesel a year, with a plan to double production in the future.
However, the project had been stalled for more than a year and it now had limited funds and could not continue for much longer, needing something "fairly definitive, fairly soon" from the government, or investors might pull out, Mr Brockett said.
"I imagine we have only a few months unless we get some clear lead."
The Government offers a subsidy of 42.5 cents a litre for domestically produced biodiesel until mid-2012. The three-year programme is limited to $36 million in subsidies.
Take up of the subsidy has been slower than expected, with around $420,000 paid out in the 12 months to November 30, 2010, although the figure is climbing as production increases.
Bioenergy Association of New Zealand executive officer Brian Cox said the industry had taken longer than expected to gather speed. He said scale was now building, but plans for expansion for a number of companies were on hold while the future of the subsidy was uncertain.
Biodiesel New Zealand, a subsidiary of state-owned Solid Energy, produces up to 4 million litres of biodiesel a year from a blend of rapeseed and used cooking oil. Its plant near Christchurch is nearing capacity, but though it has resource consent to build another, larger, plant an investment decision is uncertain.
Ad Feedback General manager Andrew Simcock said that while it was up to the board of Solid Energy to approve the expansion, he believed certainty over the future of the government subsidy made it "a whole heap more probable".
Mr Cox believes the economic case for the subsidy is strong.
He said that as well as cutting the amount of diesel that needed to be imported, it created jobs and investment.
While much of the raw ingredients, apart from used cooking oil, is not waste, producers would create a new value chain in New Zealand, he said.
The cabinet minister with responsibility for energy and resources, Hekia Parata, said last week that the Government "recognises the importance of providing timely policy certainty" and was expecting advice on future financial support for the industry shortly.
The fuel industry appears to be waiting for the product to be available.
Last week Mr Bennetts told investors in Infratil, which owns half of Greenstone: "We should be in that game [biofuel]. We should be manufacturing, distributing and selling that product."
So far only Gull, which has stations across the upper North Island, sells biofuels to retail customers, blended with mineral fuels and selling at a marginal discount.
Managing director Dave Bodger said customers were telling it they wanted to buy the fuel but there was limited capacity among manufacturers for the quantity and quality it needed.
Mr Bodger was blunt about biodiesel's prospects without the subsidy, saying as a retail proposition it would "bite the bullet straight away".
