Scaling Up Ethanol Production for Emerging Biofuel Feedstocks

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Posted by Matt Boynton in Alternative Fuels - May 13, 2010

With the investment in research and development of second and third-generation biofuel feedstocks, process engineering firms are seeing a rise in scale-up projects for ethanol production. However, some companies are now finding it difficult to move beyond R&D to pilot or commercial scale production for a variety of reasons. The most prohibiting factor many companies face when making the shift from pilot facility to commercial-scale production is the financing of these larger-scale ethanol processes.

Pursuing a pilot or commercial scale ethanol process requires a substantial capital investment in equipment and engineering, and many firms are unable to build these facilities due to a lack of financing. Even with government DOE grants and loan guarantees, companies find they hit a wall in building large-scale biofuels plants with the lack of available private or venture capital funding as compared to wind and solar projects. First-generation ethanol projects had the support of corn growers and companies with a vested interest in these first-generation feed stocks, while other biofuels companies are driven to seek debt financing or scrape together enough venture capital, both of which are currently hard to come by.

Many companies in this position are teaming up with organizations such as the NREL (National Renewable Energy Laboratory), which helps companies collectively solicit the DOE for ARRA (American Recovery and Reinvestment Act) grants. The NREL also helps companies test and prove the effectiveness and financial viability of their new technologies, as well as providing a conduit for companies to raise cash as they move from pilot facility to commercial production.

The conditions of these energy grants are often milestone-based. For example, Verenium Corporation (Nasdaq: VRNM) was recently awarded an additional $4.9 million from the DOE to support the development of their demonstration-scale cellulosic ethanol biorefinery facility. This grant is an extension of a 2008 grant following their successes in demonstration the viability of their technology. Mascoma Corporation, having already received well over $100 million in funding from both venture capital and the Michigan state development corporation, has recently raised $3.4 million of a $10 million convertible-debt financing round. While the conditions of this particular round were not disclosed, convertible debt financing is typically linked to an event or milestone which triggers the remainder of the investment to take effect.

As more of these companies are able to raise sufficient financing to pursue their large-scale processes, engineering firms which specialize in scaling up emerging technologies will see a rise in demand for both designing pilot facilities as well as large-scale commercial ethanol production.