GM testing cellulosic ethanol from Coskata’s demo plant

Illinois-based Coskata’s secret formula for cellulosic ethanol is now in the hands of investor General Motors (NYSE:GM).

The biofuel startup has launched production at its Madison, Pa.-based demonstration facility, which is turning wood chips into ethanol using a continuous, three-step process that takes minutes from start to finish.

Read about Coskata's science »

The facility is co-located with a gasification plant from Calgary, Alberta-based partner Alter NRG (TSX:NRG) in a secure nuclear facility an hour outside Pittsburgh.

None of the final product is destined for the commercial market, CEO Bill Roe told the Cleantech Group during an exclusive behind-the-scenes tour of the plant. Coskata doesn’t plan to use the plant’s full production capacity of about 40,000 gallons.

Instead, Coskata is using the facility to prove the commercial viability of the process, and to send samples to GM and a potential strategic partner that Roe declined to name, saying only that it wasn’t an automotive firm.

See the plant »

GM is testing the ethanol for its flex fuel cars, which are expected to make up half the company’s automotive production by 2012, said Bob Babik, vehicle emissions director for GM.

“We’ll probably exceed that by quite a bit,” Babik said. “When we look at the near-term greenhouse gas reductions, biofuels offer one of the biggest near-term solutions. … It’s the everyday experience [drivers are] already familiar with.”

Babik said GM has invested in just two biofuel companies: Coskata and Mascoma. He declined to share initial results of the tests on Coskata’s fuel.

Currently, only 2,200 U.S. fueling stations, or about 1.5 percent, offer E-85, a mix of 85 percent ethanol and 15 percent petroleum gasoline, Babik said.

But even if electric cars eventually win, biofuels are essential in the interim, Roe said.

“I think we have another 30 to 40 years of internal combustion engines and liquid fuels to go with them,” he said. “Worst case scenario, we’re a stop-gap.”

Roe is confident about the growing market for Coskata’s technology because of the U.S. government’s Renewable Fuels Mandate, which calls for 36 billion gallons of annual biofuel production by 2022  (see Ethanol blend increases while oil reaches new low). Coskata plans to focus on developing biofuel for the U.S. market first, although it’s not ruling out licensing deals or partnerships in markets such as China (see Coskata enters China ethanol market).

Coskata plans to develop and operate plants, but expects that licensing the technology will be a bigger business in the short term. Potential licensees include energy developers, or oil and gas companies.

“We consider ourselves a technology company,” Roe said. “You can expect the first licensees in the next couple of months.”

The technology could also be used to help industries looking for new revenue sources, such as the timber industry.

“You can’t make a house out of switchgrass, but you can plant switchgrass between the trees,” Roe said.

The demonstration facility was completed for a little less than $25 million and produces 100 gallons of ethanol from about one ton of dry feedstock, which is helping reach its goal of production for less than $1 per gallon, Roe said (see Coskata leaks word that demo plant is up and running and Coskata to build demonstration plant in Penn.).

The relationship between Alter NRG and Coskata is non-exclusive, but Alter NRG’s Chief Marketing and Sales Officer Richard Fish said Coskata is the only biofuel developer his company is working with. Coskata and Alter NRG each have about 50 employees.

Coskata, which built its demonstration facility in Madison to co-locate it with Alter NRG’s pilot, plans to use the company’s gasification technology in its first commercial plant, and possibly others, Roe said.

Coskata’s timeline calls for a 50 million to 60 million gallon commercial-scale plant to begin production in late 2012 somewhere in the U.S. Southeast. Design work began in November 2008, with the study completed in June, Roe said (see Coskata, ICM to build ethanol plant). Still, Coskata plans to revisit the design based on performance of the Madison plant.

“We’re not announcing a location, although we have one,” Roe said, noting that the company is finalizing the financing. “We’ll do that shortly.”

Roe said such a plant would cost $300 million to $350 million, or about $5 to $6 per gallon of installed capacity.

Coskata also operates a pilot plant in Warrenville, Ill., that opened in 2008.

Roe confirmed that Coskata is still in talks with U.S. Sugars for a $400 million project in Clewiston, Fla., using leftover sugarcane material to produce ethanol.

“It’s still alive. It’s in the court of U.S. Sugar to move on,” he said. “We’ve begun early-stage licensing discussions.”

Coskata has raised almost $70 million in venture capital and private equity, Roe confirmed (see (see Coskata gets $40M as pilot ethanol plant nears completion and Solar power wheeling and dealing). In addition to GM, investors include Khosla Ventures, the Blackstone Group, Advanced Technology Ventures, GreatPoint Ventures, Globespan Capital Partners, Cargill and Sumitomo.

“There isn’t any one investor that has controlling interest in the company,” Roe said. “Not even close.”

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