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|[[Image:Switchgrass.jpg|thumb|left|340px|Switchgrass: the future of fuel?]]||[[Image:Switchgrass.jpg|thumb|left|340px|Switchgrass: the future of fuel?]]|
|+||[[Valero Energy (VLO)]] will invest up to $50 million in a plant that will produce ethanol from wood. The investment in venture capital-backed Mascoma Corp includes a deal for Valero to purchase the facility's 40 million gallons of cellulosic ethanol. The $350 million plant will be located in Michigan. The state of Michigan has contributed $23.5 million to fund the project, and Mascoma is also waiting for final approval of a $210 million loan guarantee from the U.S. Department of Energy. The company will begin construction on the plant this year and expects it to produce ethanol in 2013. This represents a major mainstream backing for cellulosic ethanol by Valero, the top U.S. independent refiner.<ref>[http://www.wikinvest.com/wikinvest/api.php?action=viewNews&aid=2227742&page=Concept%3ACellulosic_ethanol&format=html&comments=0 Reuters: "Valero invests $50 mln in cellulosic ethanol plant" January 13, 2011]</ref>|
|== Companies that benefit ==||== Companies that benefit ==|
Cellulosic ethanol is a biofuel produced from wood, grasses, or the non-edible parts of plants. Ethanol is a form of renewable energy, which means that it is not derived from finite fossil fuels. The vast majority of ethanol produced today -- "grain ethanol" -- comes from sugar from corn, sugar cane, or sugar beets. Cellulosic ethanol is produced from more widely available plant-based materials, such as wood and grass, and can even be made from urban and animal waste.
While the end result -- ethanol -- is the same whether it is produced from grain or from cellulose, producing ethanol from cellulose has several advantages over producing ethanol from grain. Since it is produced from non-edible parts of plants, cellulosic ethanol does not compete with the production of food, competition that can cause significant price volatility. It can also be produced with the aid of chemical catalysts, making it potentially more efficient to produce than grain-based ethanol, if the right technologies are in place. The production of cellulosic ethanol is also more energy efficient than the production of grain-based ethanol (which requires natural gas), resulting in greater decreases in the greenhouse gas emissions which contribute to climate change.
A study by the U.S. Department of Agriculture raises doubts about the potential for biofuels made from plant cellulose. A USDA advisory committee report recommended that research funding be shifted to algae and oil crops, which are alternatives to cellulosic ethanol from corn stalks and grasses.
Valero Energy (VLO) will invest up to $50 million in a plant that will produce ethanol from wood. The investment in venture capital-backed Mascoma Corp includes a deal for Valero to purchase the facility's 40 million gallons of cellulosic ethanol. The $350 million plant will be located in Michigan. The state of Michigan has contributed $23.5 million to fund the project, and Mascoma is also waiting for final approval of a $210 million loan guarantee from the U.S. Department of Energy. The company will begin construction on the plant this year and expects it to produce ethanol in 2013. This represents a major mainstream backing for cellulosic ethanol by Valero, the top U.S. independent refiner.
The early entrants into cellulosic ethanol refining and marketing will benefit from the growth in the cellulosic ethanol industry. Companies who have begun production of cellulosic ethanol include IOGEN Corporation, the first to sell cellulosic ethanol and in whom Royal Dutch Shell has taken an equity stake, SunOpta, who built the first cellulosic ethanol plant, and Abengoa Bioenergy (AMB-MCE), which is currently building out a commercial-scale cellulosic ethanol plant in Spain. Dupont should benefit from a growth in cellulosic ethanol as well, as it is piloting several new technologies for cellulosic ethanol refining.
Chemical companies that might supply the catalysts required to produce cellulosic ethanol will benefit from the growth in the cellulosic ethanol industry. Such early-stage companies as Genencor and Novozymes (NZYM B-CPH), both of which have received U.S. Department of Energy funding for research into this area, would stand to benefit. Diversa (DVSA) is another major enzyme producer.
Timber companies, with access to significant resources of wasted wood, and waste management companies who control access to cellulosic waste will benefit from growth in the industry as well as rising timber prices. As suppliers to cellulosic ethanol plants, they may be able to monetize previously worthless assets (such as wood shavings, or unprocessed waste). Plum Creek Timber Company and Rayonier Inc. REIT (RYN) represent such companies.
Companies who purchase large amounts of corn will also benefit from the rise of cellulosic ethanol, as this will relieve the pressure on corn prices which has been increasing their raw materials costs. Companies that use significant amounts of corn syrup (e.g., Coca Cola, PepsiCo) and corn-based oils (e.g., makers of heavily processed foods, such as Kraft Foods) are the most likely beneficiaries. Additionally, companies that specialize in cattle, meats, animal feed, and packaged food will benefit from decreases in grain prices.
Companies committed to corn-based ethanol will find themselves hurt by the rise of cellulosic ethanol. These will include design and construction firms committed to existing ethanol refining technologies, but will also include such food conglomerates as Archer Daniels Midland, who have benefited significantly from the run-up in corn prices (though ADM is currently conducting research into using corn waste as a feedstock for cellulosic ethanol, which could mitigate the negative impact). Companies tied to corn farmers, such as Deere & Company (DE), a major suppler of equipment to the farming industry, may suffer, if they are unable to tailor their product offerings to the producers of cellulose ethanol feedstocks.
Oil companies with extensive retail distribution networks, such as Royal Dutch Shell or Exxon Mobil, may suffer as a result of the required investment in developing new pumps and especially storage facilities for cellulosic ethanol, which has different chemical properties than traditional gasoline.
Vehicle manufacturers either unable or unwilling to design and build out Flexfuel cars will also suffer, as customer demand for Flexfuel cars increases along with the rapid growth in cellulosic ethanol. Companies with capital constraints (e.g., General Motors, which is near bankruptcy) and those with hefty investments in existing technologies (e.g., Ford Motor) will find this conversion a particular challenge.
The price of ethanol is closely tied to the price of oil. Ethanol comprises a tiny fraction of total fuel consumption, and as an alternative to oil, it must therefore be sold at a price that competes with oil. As the price of oil rises, the price at which ethanol producers can sell their ethanol also rises.
Cellulosic ethanol depends heavily on government support, including broad support for ethanol as embodied by President Bush’s mandate to increase ethanol production to 35 billion gallons per year by the end of the decade, as well as funding for cellulosic ethanol plants and research. When the government announces new initiatives to support renewable energy, ethanol, or cellulosic ethanol, stocks in the sector tend to benefit.
U.S. government mandates on cellulosic biofuel production will require 220 cellulosic biofuel plants to be built in the United States by 2020. This represents an investment of about $100 billion over the next decade. Federal mandates in Europe, Brazil, and other highly developed countries will also continue to drive demand for cellulosic biofuels.
BP believes that biofuels could account for up to 20 percent of the world's transport fuel market by 2030, and expects sugar-based fuels to become the world’s third largest source of liquid hydrocarbons by 2030. These estimates highlight the enormous opportunity for cellulosic biofuels to become one of the most important sources of fuel, and cellolosic ethanol producers are poised to benefit from this trend.
The cellulosic ethanol industry suffers from a “chicken-and-egg” problem. Oil companies and car manufacturers don’t want to invest in new technologies to distribute and utilize ethanol until there is widespread supply, but ethanol producers don’t want to invest in more production until they are sure it is feasible for use by vehicles on the road and the gas stations that fuel them. Cellulosic ethanol in particular, which requires investment in R&D before it can achieve cost-parity with grain-based ethanol, will be supported by the widespread adoption of new distribution systems and automotive technologies.
Most cars in Brazil can run on 100% ethanol. About eight million cars and trucks in the U.S. are flexfuel vehicles (FFVs), which can run on either ethanol or gasoline. The most common commercially available FFV in the market is the ethanol flexible-fuel vehicle, with more than 16.4 million automobiles and light duty trucks on the roads around the world by early 2009, and concentrated in four markets, the United States, Brazil (7.5 million), Canada (600,000), and Europe, led by Sweden (296,398).
Cellulosic ethanol is not yet commercially mass-produced. The production process, which involves extracting cellulose from plant biomass, breaking the cellulose down with enzymes, and fermenting the sugar into alcohol, remains in the development stages. The U.S. Department of Agriculture conducted a study showing that the U.S. agricultural sector could produce 150 billion gallons of cellulosic ethanol from 1.3 billion dry tons of plant biomass while keeping forestry lands sustainable. Production of 150 billion gallons of cellulosic ethanol, the energy equivalent of 100 billion gallons of gasoline, could decrease oil imports by 80%. In 2008, cellulosic ethanol could be produced on a small scale for $1.50-$2.50 per gallon.
The U.S. Environmental Protection Agency, under the Energy Independence and Security Act of 2007, is responsible for ensuring that gasoline sold in the United States contains a minimum volume of renewable fuel. The Renewable Fuel Standard Program will increase the volume of renewable fuel required to be blended into gasoline from 9 billion gallons in 2008 to 36 billion gallons in 2022.
Some species of algae are being tested as cellulosic feedstock for ethanol production. For example, ethanol production from cellulose of seaweed called Euchema denticulatur has been established in Korea. In Vietnam, ethanol production from cellulose of Caulerpar racemosa and Ulva sp. is being extensively studied.
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