Tuesday, April 1, 2008

Range Fuels, the World's First Commercial Cellulosic Ethanol producer gets $130 Million


A group of investors is placing one of the biggest bets yet on a type of ethanol production that doesn't involve food crops.

Range Fuels Inc., a start-up in Broomfield, Colo., on Tuesday is announcing $130 million in new equity funding. The money will go toward the first phase of construction on a plant in Soperton, Ga., which is expected to create ethanol using wood material that typically goes unused when timber is harvested. The company, which has received a $76 million grant commitment from the U.S. Department of Energy, expects the plant to be the first of its kind to operate on a commercial scale.



The effort comes as publicly traded ethanol companies have taken a pounding in the markets, reflecting rising corn prices and a widening debate over the environmental impact of the cultivation, processing and shipping necessary to bring the fuel additive to market. Other types of biofuels made from food crops -- or from crops grown on land that environmental activists argue would be better used for growing food -- also have come under attack.

Amid the concerns, investors are racing to back companies that are developing technology to convert cellulosic biomass, or fibrous plant material, into ethanol. And some investors argue that Range Fuels and others using what is called a thermochemical process to convert cellulosic material have the best chance of success. "It is dramatically cheaper," said Vinod Khosla, a Silicon Valley billionaire whose personal investment vehicle is backing the start-up and four others using cellulosic feedstocks.

Despite support from the federal government and some investors, cellulosic ethanol hasn't proved it can be produced economically in large quantities. It also faces competition from other fuels as companies and governments look for alternatives to increasingly expensive oil.

Range Fuels's production process converts wood waste into a synthetic gas, which is then liquefied to make ethanol. Some others, such as Cambridge, Mass.-based Mascoma Corp., which raised $50 million recently from venture investors, use a biological approach, in which genetically modified enzymes break down cellulosic material into sugars.

Michael Mandich, a former Apple Inc. executive and chief executive of Range Fuels, estimates that the marginal cost to produce ethanol from corn is almost $2 a gallon. He estimates that biological cellulosic technologies cost $3 to $4 a gallon.

Mr. Mandich predicts that Range Fuels's costs would come in well below those of corn ethanol, but wouldn't disclose its cost per gallon. Mr. Khosla, however, predicts that thermochemical approaches will reach $1.25 a gallon as they are perfected.

Colin South, Mascoma's president, suggests that thermochemical technologies face their own hurdles, such as cleaning gases created as part of the production process. The Energy Department -- which has given funding to six companies pursuing biological and thermochemical technologies, including Range Fuels -- believes that "diversification and variation" of approaches is the best funding strategy now, said Alexander Karsner, assistant secretary for energy efficiency and renewable energy.

Range Fuels's latest funding round includes an infusion from San Francisco hedge fund Passport Capital LLC, and includes new investors BlueMountain, Morgan Stanley and Pacific Corporate Group, the company said. Khosla Ventures, which had previously invested in the company, also contributed to the round.

Khosla Ventures's other cellulosic-ethanol investments include Coskata Inc., of Warrenville, Ill., which also has raised funding from some large corporate partners, including Detroit-based General Motors Corp.

Other large companies are seeing the potential in cellulosic ethanol. In February, for example, San Ramon, Calif.-based oil-and-gas company Chevron Corp. and forestry giant Weyerhaeuser Co. launched a joint venture called Catchlight Energy LLC to develop ethanol facilities from cellulose sources such as woody biomass. Royal Dutch Shell PLC has invested in the Canadian company Iogen Corp., which is building its own cellulosic production facilities, and the two are working with Volkswagen AG to explore the use of the technology in VW cars.

(Source: WalStreetJournal.com)

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