Cleveland businessmen Lynn Jones and Toby McKenzie haven't got much time if they want to make a buck selling a rusty old plant in Marion County. Spread across 225 acres, the assortment of industrial buildings and silos began as the Tennol Energy Co. in 1980, when the U.S. Congress passed the Energy Security Act. That edict fueled one of the U.S. Department of Energy's many efforts to reduce America's dependence on foreign oil a dependence that since has grown to about 60% of America's oil supplies. From the 57 business applications that ensued under the act, DoE approved only three. (The two other finalists were Agrifuels Refining Corp. near New Liberia in southern Louisiana and New Energy Co. of South Bend, Ind.) Unfortunately for Tennessee, and despite the DoE loan guarantees and good intentions the Tennol plant was to make 25 million gallons of ethanol fuel a year the project ran into equipment problems and stopped producing ethanol after one year of operation. Unable to reach full capacity, the owners defaulted on the federally guaranteed $64 million loan and went bankrupt in 1989. The site was eventually auctioned off to Ag Processing, a farmers' cooperative of Omaha, Neb., which took much of Tennol's equipment to one of its facilities up north.

Marion County farmer Howell Moss, who sold corn to the Tennol plant for several months in the 1980s, knows what went wrong. "It took $3 worth of corn to make $1 worth of fuel." Now Marion County's mayor, Moss has been busy showing the plant to two-dozen curious investors, helping Jones and McKenzie to get some economic development going. The pair bought the plant two years ago for a price they decline to disclose but which their broker terms "a bargain." Now, Moss is urging them to drop their asking price from $20 million, convinced that Jones and McKenzie have but "a one-year window to sell it."

One can't blame Moss for being skeptical concerning the stability of the current climate. Last year, crude oil peaked at $78.40 per barrel, but in January it hovered barely above $50. Politicians and scientists agree that OPEC-driven oil prices have always seemed to drop just in time during the past decades to keep production of alternative fuels, as well as research and its modest funding, in check. This time, however, economists predict that demand for oil in the fast-growing economies of India and China will forever change the balance of the world's energy supply. With these new consumers in mind, experts across the board predict that oil prices will never drop below the $30-to-$40-a-barrel range. There's evidence the oil companies agree. Speaking in Nashville while on a 50-city tour in January, John Hofmeister, president of the U.S. subsidiary of British oil giant Royal Dutch Shell, said that increasing investment in alternative energy is crucial to domestic energy security in the United States. "The easy days of gas and oil that we enjoyed the last 50 years are over," Hofmeister told a group of local business and community leaders.

Entrepreneurs around the world are listening. Sir Richard Branson, the celebrated British founder of Virgin Group, which includes air carrier Virgin Atlantic, has set aside a fund to invest specifically in ethanol production plants. Ethanol, the clean-burning fuel additive currently produced from corn and sugar cane, as well as biodiesel, which is made from cooking grease and soy, are looked upon as the most promising alternatives to petroleum in transportation fuel. A 85%/15% ethanol/gasoline mix dubbed E85 is widely used today in corporate and government fleets. Biodiesel mixtures are labeled much the same, with ranges between B5 and B99. Branson has made two investments thus far in the United States—in the California-based Cilion and in Ethanol Grain Products (EGP) of Obion, Tenn.—of $75 million and $40 million, respectively. With a total construction price tag of $140 million, the Obion plant is slated to produce 100 million gallons of ethanol annually. Elsewhere in America, such investments have fared well, selling every gallon of ethanol produced. But Branson, a well-known environmental activist, is setting his sights on loftier goals. His interest in ethanol appears to be as a stepping-stone towards a new biofuel for the aviation industry, which would replace kerosene as the basic jet fuel. Not surprisingly, EGP is being built near a major air transportation hub in Memphis and could become a beacon of new fuels research for the airline industry. It's not a coincidence that Branson is now attempting to establish a domestic U.S. airline, Virgin America.

But not all enlightened entrepreneurs come from Europe. Adding another feather to West Tennessee's economic development cap, Memphian Ken Arnold recently spent $5 million converting an old Procter & Gamble site in Orange Mount, reopening it as Memphis Biofuels last December. With a contract to produce 30 million gallons of biodiesel a year, Arnold is already building an impressive client roster. Pilot Oil chief Jimmy Haslam is rumored to be eying Arnold's company as a supplier, while his growing network of fueling stations adds biofuel as a new line of business.

If it happened in West Tennessee, why are Jones and McKenzie having such a hard time finding a buyer for the old Tennol site in Jasper? One drawback is the location, according to Ed Harlan of the Tennessee Department of Agriculture. There is not enough arable land to grow thousands upon thousands of acres of corn, as it is done in the Midwest. But, as it turns out, corn isn't the be-all and end-all of ethanol production. In fact, Tennessee's inability to grow corn in abundance may prove a strengths in the nation's efforts to research and produce new types of biofuel.

Beyond the Cornfields
At present, all ethanol produced and commercially available in the United States is made from the fruit of corn. But edible crops are not the ideal sources of biofuel—corn takes too many nutrients out of the soil, and both soy and corn are seasonal crops, which makes them susceptible to price fluctuations. The real prize in biofuel research is to develop enzymes to process perennial crops that could be harvested in all areas of the United States year-round. Scientists have been looking into switchgrass (see above sidebar), or cold-hardy sugar cane fit for the U.S. climate (unlike sugar cane grown in the subtropical climate of Brazil, which is the natural source of fuel for the majority of Brazil's flex-fuel vehicles).

The U.S. Department of Energy has been working on solving the cellulosic formula of switchgrass and cold-hardy sugar cane for decades. Oak Ridge National Laboratory has been a major, albeit little-known, player in these efforts. ORNL scientists, in partnership with other national laboratories across the country, say they are closer than ever to figuring out how to grow large crops, harvest them inexpensively and convert them into cellulosic sugars to make ethanol.

To boost these efforts, DoE is prepared to dole out $250 million in grants this spring to establish two bioenergy centers, which will set the tone for next-generation fuel and energy research for decades to come. ORNL, in partnership with the University of Tennessee and five other institutions, has applied to become one of these centers, but competition is fierce. (Purdue, the University of California-Berkeley and the Massachusetts Institute of Technology are also in the running for the grants.)

Given ORNL's accomplishments thus far, coupled with proper funding and support from state and federal government, Tennessee has a couple of things going for it in this race. The state already has an established network of research facilities that have been working on alternative energy and fuels issues for decades. Also of note are the state's much-touted central location and diverse geography, which allow for easy access and endless research opportunities for scientists from across the country. "Tennessee is poised to become a leader in renewable energy production, as well as in natural resources procured and grown to produce that renewable energy," says Mark Downing of ORNL's Environmental Services Division. Downing communicated similar sentiments in writing to Gov. Phil Bredesen a couple of months ago.

The governor listened, and in January proposed to set aside $61 million of the 2007-2008 budget to support alternative energy research in the state. Nearly $12 million of that funding has been previously approved to help ongoing biomass research in Oak Ridge.

Chiming in with Bredesen, Tennessee Sen. Rosalind Kurita filed legislation late last year to create the Energy Center at the University of Tennessee. For Kurita, energy research is as much a matter of national security as a business decision. "We're not going to let the Middle East control us," she told BusinessTN in January. "I can assure you that taxpayers would more likely pay for research than for another war."