EPA Lowers Cellulosic Ethanol Targets: A Sign of the Times

It seems like only yesterday when cellulosic biofuels were being championed as the fuel of the not-so-distant future. Corn ethanol was just a stepping stone, we were told. It won’t be long before new, more sustainable feedstocks are used. Well, yesterday, that future was greatly extended into….the future.

In response to the technical and financial problems that cellulosic ethanol producers have been facing, the Environmental Protection Agency revised its 2010 mandate for next generation fuels from 100 million gallons to 6.5 million gallons.

Yep. That’s correct – a 93.5% decrease in production requirements. That reduction wasn’t much of a surprise, but it certainly highlights how badly this sector of the industry has faired in the last year.

 Given how tough it has been to round up capital, there weren’t too many analysts who believed the industry could scale up dramatically in 2009 and 2010. Most of the problems companies have faced stem from the limited sources of financing. At the same time, these companies complain that the federal government has been slow to issue over a billion dollars in loan guarantees, making it difficult to attract financing. ::continue::

Of course, the government doesn’t like to issue loan guarantees unless a company can prove that it has sources of capital. This is the perfect example of the “valley of death” that a business must cross before it can prove it has a commercially-viable product.

To make matters worse, one of the “leading” cellulosic ethanol producers, Cello Energy, was shut down last summer after its founder cheated investors out of millions of dollars by building a fake plant and producing fuels made from petroleum sources, not grasses. The EPA was banking on Cello to provide 60 million gallons in 2010. Oops.

In the meantime, other legitimate companies using enzymes or acids to break down cellulose are either waiting for funding or are in the early stages of construction of commercial facilities. It could be a couple of years before the 100 million-gallon-per-year target is reached.

And with oil prices much lower than in previous years – at around $75 dollars a barrel – cellulosic ethanol companies that do scale up many find it difficult to compete with gasoline.

The news isn’t all bad though. Seeing the potential in cellulosic ethanol – and perhaps taking advantage of the financially fragile industry – oil companies like BP and Shell are investing directly in this space. And some companies, like Verenium, Range Fuels and BlueFire, have been granted loan guarantees, allowing them to move forward on projects this year.

With the right partners, loosening capital markets, a faster loan-guarantee process and more technical experience, certain companies may see progress in 2010. But that’s a lot to ask for.

Given the circumstances, don’t expect much cellulosic ethanol to hit your gas tank anytime in the near future.

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I am a reporter with ClimateProgress.org, a blog published by the Center for American Progress. I am former editor and producer for RenewableEnergyWorld.com, where I contributed stories and hosted the Inside Renewable Energy Podcast. Keep in touch through twitter! My profile name is: Stphn_Lacey

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