July 6, 2006

“Super Ethanol” attracting Investment Attention

The market curve for cellulosic ethanol is still at the "bleeding edge" stage for the simple reason that no commercial scale facilities have been deployed. It is remarkable then to see the enthusiasm for cellulosic ethanol that it attracts from some of the most highly esteemed numbers crunchers in the world.

CNNMoney.com just ran an article citing the opinions of former Federal Reserve Chairman Alan Greenspan and others in a position to understand the promising Energy ROI of cellulosic ethanol. More telling is the investment of Goldman Sachs in Iogen, which is certainly an early adopter investment opportunity, but is not the most promising technology in the field.


Super ethanol is on its way

NEW YORK (CNNMoney.com) -- Cellulosic ethanol, the biofuel that differs from corn-based ethanol in that it can be made from pretty much any organic matter, has made an impression among people who matter.

Alan Greenspan, the revered former chairman of the Federal Reserve with a big distaste for irrational exuberance, recently sang its praises before a Congressional hearing on energy security. Greenspan said cellulosic ethanol is the only alternative energy source that could be produced in enough volume to make a dent in gas usage.

"You'll get an awful lot of investments [into this technology] coming in, especially if the numbers make sense, which I think they do," he said.

And last month Goldman Sachs, the world's largest investment bank, poured $27 million into Iogen, a Canadian-based biotech specializing in ethanol made from cellulose.

"There are a lot of people who think the technology is there," and could be competitive even if oil prices return to $30 a barrel, said Greg Bohannon, a managing partner at Greenrock Capital, a California-based private equity fund that focuses on renewable energy. "Why would Goldman Sachs invest in a company that's not going to be commercially viable for 10 years?"

John Ashworth, a biomass expert at the Department of Energy's National Renewable Energy Laboratory, said corn could only supply about 12 to 18 billion gallons of ethanol a year, or about 10 percent of the nation's 140 billion gallon-a-year gasoline habit.

Cellulosic ethanol has all the advantages of corn-based ethanol - there is no difference in the ethanol, only in the way it's produced.

But unlike corn-based ethanol, cellulosic ethanol can be made from a variety of things that might otherwise be considered waste -- sewage sludge, switchgrass, plant stalks, trees, even coal -- virtually anything that contains carbon.

Ashworth said there are an estimated one billion tons of such material available in the U.S. every year, enough for 100 billion gallons of ethanol.

While it's not feasible to actually go out and collect every ounce of that one billion tons, he said it's not unreasonable to expect ethanol to replace 40 billion gallons of gasoline in the near future.

"There's a lot of venture capitol out there that's willing to invest in cellulosic ethanol," he said. "You're likely to see some plants built in the next 12 to 18 months."

Entrepreneurs are in fact pressing ahead with ambitious plans.

"We know the technology is proven," said Jim Stewart, a spokesman for Bioengineering Resources Inc., or BRI, an Arkansas-based biofuel outfit. "It's at the point of commercialization."

Stewart said BRI uses a patented bacterial culture to transform organic matter into ethanol, and can produce a gallon of it at a fourth the retail cost of a gallon of gas.

He said the company plans to have 4 plants operating commercially within the next 16 to 18 months, but some industry-watchers believe it will be at least several years before cellulosic ethanol production will become commercially viable.

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