The aerospace industry will be asked shortly for ideas on how $510 million in government money should be spent over the next three years to build an aviation and marine biofuels supply chain in the U.S.

It also will be asked how much money it is willing to put into what the government intends to be a public/private partnership.

The pending release of a request for proposals (RFP) follows last week’s signing of a memorandum of understanding between the U.S. Navy and the Energy and Agriculture departments to begin a cooperative effort to support development of a commercial biofuels industry. Each of three agencies is putting $170 million in existing funding into the initiative to help pay for the construction or conversion of refineries for the production of biofuels that are drop-in replacements for petroleum-based aviation and marine fuels.

“The joint plan . . . will require substantial cost-share from private industry of at least a one-to-one match,” the White House said in a statement announcing the agreement last week.

The government will not specify what fuels or feedstocks should be funded. “We are neutral on what the fuel is,” says Navy Secretary Ray Mabus. “We will see what industry comes back with.”

The key requirements are that the biofuels be drop-in replacements, domestically produced and geographically distributed, priced competitively with petroleum, with a lower carbon footprint, and do not take land out of food production, he says.

Funds will be allocated under Title III of the Defense Production Act, which allows the government to partner with private business to invest in industrial capabilities “vital to national security.” Mabus says reducing dependence on foreign oil “is one of the highest priorities in the Navy.”

In addition to investing in “pioneer plants” to produce biofuels on a commercial scale, the Navy and Marine Corps will act as the initial customers for the new industry. “We will sign fuel offtake agreements to provide the market,” says Mabus, who expects the airline industry to benefit from the Navy taking the lead.

To encourage private investment in biofuel production, the Navy has asked Congress for authorization to sign fuel-supply contracts for longer than the current five-year limit, “but even with a five-year offtake we expect to be successful” in reducing the risk for feedstock providers and fuel producers,” he says.

Accelerating the scale-up of biofuels to achieve costs competitive with petroleum is a key goal of the initiative. Prices were cut in half for biofuels purchased last year by the Navy, “and we are on track to cut them in half again this year,” Mabus says, “but they are not competitive yet because the industry is not big enough.”

The Navy has an RFP on the street for 450,000 gal. of biofuel for testing. “That’s the largest biofuel purchase yet in the U.S.,” he says. But to meet its goal of cutting fossil fuel use in half by 2020, the Navy needs 8 million barrels of biofuel a year. “That’s what we need this initiative for,” Mabus says.