Ethanol Deals: Cutting Costs Every Step of the Way

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Whether it is made using enzymes or thermochemicals, ethanol, the biofuel that has swiftly become a hot-button political issue, requires many steps to produce. And for each step of the process there are startups attempting to develop innovative technologies that bring down the cost of production.

Mascoma, an ethanol producer backed by $39 million from a long list of venture firms including Khosla Ventures, Kleiner Perkins Caufield & Byers, and Vantage Point Venture Partners, has decided to invest in improving its pretreatment phase. Pretreatment is basically where the biomass is cooked at a high temperature before it is broken down and fermented.

Cambridge, Mass-based Mascoma, founded in 2006, said this week that it is buying fellow startup Celsys Biofuels, which has developed a biomass pretreatment processing technology from research done in the labs of Purdue University. Mascoma’s director of business development, Justin van Rooyen, told us that Celsys’ simplified pretreatment technology significantly lowers the production costs of producing ethanol.

Other startups, like St. Romuald, Que.-based Vaperma, are focused on reducing the costs of removing water from ethanol, which must be done before it is blended with gasoline. Three-year-old Vaperma, which makes membrane-based ethanol dewatering technology, said this week that it has raised a Series B round of $23 million led by Low Carbon Accelerator Ltd. The company has now raised $40 million in total funding.

Vaperma CEO Claude Letourneau told us that the company’s technology can help ethanol producers cut the energy costs needed to dewater ethanol by 40 percent. Its membrane technology acts as a filter to separate water and ethanol when it is in a gaseous state.

While ethanol producers are working on simplifying the entire production process, the many steps means there’s a lot of opportunities for startups to add value to the chain. By lowering the cost of each step, cellulosic ethanol could one day prove economical and be competitive with the price of gasoline. Now they just have to start actually producing and selling this stuff.

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Steve Savage

Good article. Yes, incremental advances in every step is exactly what is needed. This is a “cost-learning-curve” exercise. It would be great if it got some early cover from preferential subsidies (vs corn) but our political system isn’t built that way unless it is around an existing crop. You certainly are not going to hear any candidates saying rational things about this until after the Iowa primary!

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