Winnipeg, Canada (By Reuters) — The federal government said Friday it is performing due diligence on a proposal to help fund a commercial-scale cellulosic ethanol plant planned by Iogen Corp. for the province of Saskatchewan.

“It’s a huge step in the commercialization process,” said Jeff Passmore, an Iogen official, in an interview.

By 2011, the $500-million plant would produce about 90 million litres of ethanol a year, along with enzymes and other byproducts, using straw left over from the wheat harvest in Canada’s breadbasket,

Canada has said it will spend $500 million to help commercialize “next-generation biofuels” with repayable loans for up to 40 per cent of project costs.

“They need to know that this is a sound investment,” Mr. Passmore said, adding that government officials began meeting with Iogen engineers and other company officers last month to study the project, with the due diligence process set to wrap up next month.

Traditionally made from corn and other food crops, ethanol is a fuel additive hailed as a way to extend the longevity of limited global oil supplies and reduce the climate-changing greenhouse gas emissions of vehicles.

But rising concerns about food inflation have pushed governments to invest in cellulosic ethanol, which currently costs about twice as much to produce as corn-based fuel, and is not yet produced on a commercial scale.

The United States will consume about 9 billion gallons (34 billion litres) of ethanol this year, but the recent U.S. energy bill calls for 36 billion gallons of renewable fuel by 2022, including 16 billion gallons from nonfood stocks.

Privately held Iogen, backed by Royal Dutch Shell PLC and Goldman Sachs Group Inc., is working a similar-size project in Idaho selected for U.S.
federal funding last year.

“We’re proceeding with due diligence there as well,” Mr. Passmore said.

The timetable for the Idaho project is still to be determined, he said.
Iogen hopes to have financing in place to start building the Saskatchewan plant later in 2008 or early in 2009.

Iogen has run a demonstration plant in Ottawa for four years that can produce about 2.5 million litres of ethanol per year from straw.

“I’m not sure what stage our competitors are at, but we’re the only ones who have had four years of operating experience at a demo plant, and that’s taught us a lot about what works and what doesn’t,” Mr. Passmore said.

Iogen eventually hopes to build plants producing 200 million to 250 million litres of ethanol to attain better economies of scale, he said.

Just looking at this news piece from Canada’s national newspaper the Globe and Mail on Saturday March 15,2008. It is projected to cost $500 million dollars for a new cellulose ethanol plant that is to produce a 90 million litres a year. At an energy content of 0.21 GJ/l that’s 1.9 million GJ or $263/GJ Capital investment. Corn ethanol plants have investments of $20-25/GJ of energy output. Pellet plants typically cost $10 million to build a plant that produces 100,000 tonnes per year or about $5/GJ. With an energy content of 19 GJ/tonne for wood or switchgrass pellets, that’s the same amount of annual energy production as the cellulosic ethanol plant (1.9 million GJ) that cost 50 times more to build. The greenhouse gas abatement would be also about the same as they both technologies have similar fuel switching C02 offset values/GJ.

If you put interests costs at 6% on the cost of the ethanol plant that’s $16/GJ in interest costs alone. Grass pellets cost about $8/GJ for all costs, or ½ the cost of the $16/GJ annual cost for interest for building an ethanol plant. Cellulose ethanol isn’t going commercial soon with these disconcerting numbers in terms of record breaking capital costs.

You could build fifty 100,000 tonne per year wood or grass pellet plants with the same 500 million dollars and produce 95 million GJ of renewable energy to replace heating oil and natural gas instead of 1.9 million GJ’s of cellulosic ethanol. Is anybody in government doing due diligence on cellulosic ethanol?