Baby Steps in Hard Times for Cellulosic Ethanol Makers

With many of the next-generation ethanol makers being forced to drag their heels on plant construction during the downturn, it’s becoming rare to hear about progress on cellulosic ethanol plants. But here’s a small step for a small demo plant: Next-gen ethanol maker ZeaChem says it is still on track to start construction of its 1.5 million gallon per year demo plant in Boardman, Ore., this year, and the company says engineering work on the plant has already started with contractor CH2M Hill.

It’s a baby step, far from commercial scale production, but 7-year-old ZeaChem seems to be keeping on the steady track that it has set for itself. We took a tour of the lab last month, and witnessed the process by which the company takes a common microbe (found in termite guts and regular soil) and uses it to break down trees and plants into ethanol. The company claims its hybrid process, which combines the microbe steps with a gasification step, enables it to produce 40 percent more ethanol per ton of biomass than competitors.

In this economic climate, in which project financing for large plants has dried up, cellulosic ethanol makers are routinely pushing back plant construction plans. The financial whirlwind that hit at the end of 2008 was just sudden and intense enough to have left companies that were planning to spend hundreds of millions on building ethanol plants this year in the lurch.

As we noted last week, cellulosic ethanol maker Verenium, which has a joint venture and investment from oil giant BP (s BP), says its first commercial plant won’t likely break ground in 2009 as previously planned, but will now start construction closer to 2010. Cellulosic ethanol startup Coskata told us back in December that with economic conditions slowing project financing, its 50-100 million gallon per year commercial plant would probably be producing ethanol by 2011, instead of the projected late 2010.

ZeaChem has been moving slower on commercial production than those folks, but it was able to raise a round recently, demonstrating that investors think the company’s technology is valuable. Last month, ZeaChem said it has raised $34 million from giant petroleum refiner Valero Energy Corp., as well as Globespan Partners, Mohr Davidow Ventures, and Firelake Capital. While ZeaChem won’t likely be the first to produce cellulosic ethanol at commercial scale — that’s looking to be Range Fuels for now — it looks like it’s one of the more solid firms that can weather the current recession.