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Published July 30, 2009, 05:38 PM

New energy economics: How soon will cellulosic ethanol arrive?

FARGO - The arrival of ethanol produced from cellulosic feedstock sources has almost been a standing joke within the ethanol industry. Each year it has always been "four to five years down the road" before commercial production would become viable. That has changed because the "four to five years" is now.

By: By Cole Gustafson,

FARGO - The arrival of ethanol produced from cellulosic feedstock sources has almost been a standing joke within the ethanol industry. Each year it has always been "four to five years down the road" before commercial production would become viable. That has changed because the "four to five years" is now.

At the recent Fuel Ethanol Workshop, several companies, including Coskata, Dupont/Danisco, Iogen, Lignol, Poet and PureVision, announced that they already have production from their demonstration plants or will within the year. Most are processing about 1 ton of material into ethanol daily. From that ton of biomass, they are producing between 70 and 85 gallons of biofuels. Commercial production is expected to follow in a year or two.

Coskata was the most aggressive and said it is so confident of the production system that the company has decided to start licensing its proprietary technology later this year. Coskata's process is far more robust than it originally had estimated because the company can process cellulosic feed stock from agricultural sources, urban land waste, forests and even a wide variety of manufacturing wastes. The company also stated that once its process is perfected, ethanol from cellulosic sources would be price competitive with gasoline even without any federal tax credit.

During a panel discussion, representatives of these and several enzyme companies were asked to identify the most important constraint holding back development of cellulosic ethanol. Interestingly, none of them said that technology or the national recession was slowing them down. Instead, several responded that consistent federal policy was needed. In particular, they said the U.S. does not have a national policy with respect to renewable energy. Typically, federal programs that support biofuels production have to be reauthorized frequently because they have sunset clauses. Also, many policy provisions, such as management of renewable identification numbers, grants and blend levels, have not been defined or are highly variable.

Poet said that the most important constraint is the blend wall. Unless consumer use of renewable energy is mandated to increase, they feel the cellulosic industry and the traditional corn ethanol industry will face a serious oversupply situation. They advocate more rapid installation of blender pumps and more progressive federal regulation that permits higher ethanol blend rates in excess of the current 10 percent level.

Coskata views seemed to run counter to the earlier constraints being voiced and took a more free market approach. Other companies said the most important constraint facing commercialization of their processes was economics. For the industry to survive long term, they feel it cannot be dependent on variable federal subsidies, grants or other favorable policies that mandate increased use of renewable energy, etc. While providing important support to the industry during its development phase, these policies actually could be detrimental in the longer term. Instead, Coskata's goal is to develop a system that is independently resilient in the long run.

During the past year, as the crisis in U.S. financial markets unfolded, businesses across the country complained that debt capital had dried up and was virtually unattainable. Surprisingly, cellulosic ethanol firms have been able to secure reasonable levels of financial capital for expansion. Most of the panel members talked about new investments and growth of their firms during the past year. Dupont/Danisco actually was a new venture formed during the past year, with $140 million of new investment capital.

Gustafson is a biofuels economist with the NDSU Extension Service.

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