AltraBiofuels, which operates the largest ethanol plant in California, is upping its bet on biofuels in a big way.
Backed by five major venture funds, the L.A.-based company recently secured $166 million in debt financing to build ethanol plants in Ohio and Indiana that together will create 160 million gallons of corn-based ethanol annually by the year 2008. This is in addition to a plant under construction in Nebraska.
Within two years, the 3-year-old company will have built and upgraded ethanol plants worth more than $500 million, part of its strategic plan to eventually reach 500 million gallons a year of biofuel production.
AltraBiofuels’ rapid growth plan is in response to an energy bill the Senate passed last month that mandates ethanol production of 36 billion gallons a year by 2022, a sevenfold increase from the amount of ethanol made last year.
“This is a mammoth opportunity,” said Larry Gross, chief executive of AltraBiofuels. “This industry is going to be a $100 billion sector in 15 years five times the current Internet advertising business. That’s part of the reason for the aggressive expansion.”
But not everyone is optimistic about corn-based ethanol, once hailed as a panacea for the nation’s dependence on foreign oil.
“It was hot two years ago, but the market is drying up,” said Jacob Golbitz, author of “Biofuels 2006: Production, Supply and Reality,” a report by HighQuest Partners, a consulting company.
Already there are 235 ethanol plants under construction or in planning stages across the country, in addition to 111 operating ethanol plants, according to HighQuest.
The problem: There just isn’t enough corn to go around.
Shift from corn
About 20 percent of America’s corn is used to produce ethanol, but that amounts to less than 5 percent of gasoline sold. Even if ethanol production increased by sevenfold, it would be far from replacing oil-based fuels while exhausting the nation’s corn crop.
“I’d be interested to see how this company convinced lenders and investors that they would get the corn they need. That’s the question we’re all trying to answer,” Golbitz said.
The answer lies in focusing on the next generation of ethanol production, which will get less ethanol from corn and more from agricultural waste, said Fred Krupica, AltraBiofuel’s chief financial officer.
“That’s what our investors are really keen on. They know you can only go so far with corn,” he said.
The private company, which has about 70 employees and is located near Brentwood, is investing heavily in biotechnology that will take cellulose in wood chips, elephant grass or any type of fibrous organic plant and break them down to sugar that can be fermented into alcohol and ethanol. The United States produces 1 billion metric tons of this waste material every year, according to the Department of Energy.
“We produce more of these materials than any other country in the world. You take what’s plentiful in this country, something that doesn’t compete with food production, and make ethanol out of it. You could almost power the entire country off of this,” Gross said.
AltraBiofuel’s corn-based ethanol plants would eventually be retrofitted for celluosic ethanol.
Golbitz said he is dubious about ethanol producers switching gears from corn to non-food biomass. AltraBiofuel’s corn ethanol plants, for example, are built among cornfields. Hundreds of tons of agricultural waste would need to be transported to the plant for celluosic ethanol production.
The cost of powering ethanol plants with natural gas barely outweighs energy benefits of corn ethanol today, Golbitz said. “And corn has all this carbohydrate packed into a relatively small stock. But cellulose is essentially waste, stuff that doesn’t pack the punch corn does.”
Kevin Forbes, director of the Center for the Study of Energy and Environmental Stewardship at Catholic University of America, was also skeptical.
“If this is so great, why isn’t everyone doing it?” he said.
Brazilian model
Gross of AltraBiofuels points to Brazil, which has displaced 40 percent of the country’s fuel needs with ethanol. Most Brazilian automobiles are “flex-fuel vehicles” that run on 85 percent ethanol.
The Senate’s energy bill calls for manufacturers to make half of the vehicles they produce capable of running on 85 percent ethanol, biodiesel or some other alternative energy by 2015.
The ethanol-gas blend would be about 15 percent cheaper at gas stations, less of a savings than might be thought because it yields lower mileage than fossil fuel. Gross said he expects car manufacturers to change compression ratios over time as they produce more ethanol-friendly vehicles so that ethanol would yield a higher gas mileage.
The bill calls for corn ethanol production to be capped at 15 billion gallons a year by 2015. At that time, celluosic ethanol would take over to reach ethanol production of 36 billion gallons by 2022.
“By year 2022, both corn and cellulosic ethanol will replace 20 percent or more of our total fuel needs. It’s not the final solution, but that’s better than doing nothing. So let’s do that,” Gross said.
