Waiting for Next-Gen Ethanol in 2009? Forget It

In the summer of 2008, 2009 looked like it could be a breakout year for the next generation of ethanol. There were dozens of companies racing to be the first to churn out cellulosic ethanol made from non-food crops and plant waste from pilot and even commercial-scale plants. Well, that was before the credit crunch hit and investors starting to close their wallets. Now there are just a couple cellulosic ethanol makers that have started producing the next-gen fuel on a pilot scale, and plans for commercial-scale have been largely been pushed from 2009 into 2010. And who knows if those deadlines will be met if we’re still deep in the downturn?

Range Fuel’s CEO David Aldous confirmed with us last week that the startup, which uses a thermochemical process to turn biomass into synthetic gas and then fuel, doesn’t expect its commercial-scale plant in Soperton, Ga., to start producing fuel well into 2010. The plant is supposed to be able to scale up to 100 million gallons per year and was originally planned to produce fuel in 2009. Range Fuels was an early mover in the space, and is still a little better off than some, having snagged an $80 million loan guarantee from the Department of Agriculture under the 2008 Farm Bill to complete construction of the commercial plant. Aldous says Range Fuels is also looking to get in on the next round of loan guarantees that the DOE is starting to hand out now.

Verenium, a cellulosic ethanol maker in Cambridge, Mass., found an important partner in UK oil giant BP, but is still struggling financially. The company confirmed with us that it is delaying starting construction on its first commercial-scale plant — a 36 million gallon-per-year, $300 million facility in Highlands County, Fla. — until at least 2010. And earlier this month an outside auditor said that Verenium might have to cease operations if it doesn’t raise more capital. The company needs at least $300 million to complete its JV with BP, according to Forbes.

Coskata, a cellulosic ethanol maker that created a lot of buzz because it’s backed by GM and Vinod Khosla, isn’t faring much better. Coskata CEO Bill Roe said this month that the company is now waiting for a loan guarantee from the Department of Energy to build its first commercial-scale plant and that it’s on hold until then. Coskata was previously hoping to break ground on the plant — expected to produce 50 million-100 million gallons of ethanol annually — this year and to complete the factory in late 2010 or early 2011.

As former CEO of biodiesel maker Imperium Renewables, Martin Tobias, explained at Earth2Tech’s Green:Net conference this week, when investors are looking at hundreds of millions in commitments to just get to the first stage of production, oftentimes that’s the first commitment they shy away from in a downturn. He should know, as Imperium raised hundreds of millions and was all set to IPO before the markets started to look shaky and the company pulled back. It puts a company in a difficult position when you’re halfway through a $100 million-buildout, and you need another couple hundred million to complete it, and the wind just gets knocked out of the market, Tobias said.

The same thing is happening to cellulosic ethanol, which often involves even more capital costs than more traditional biofuels because it’s a newer technology and the feedstocks are more diverse. That means the dream of filling flex-fuel vehicles with more sustainable non-food crops (not corn!) will be deferred for another couple years. Those capital costs will likely shut startups out of the physical buildout, at least while credit remains tight. But that doesn’t mean they have to sit on the bench. For the oil and corn ethanol companies that survive the downturn — and manage to finance big projects — startups will be there to add value by licensing their technology.

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