Poet adds Dutch partner to cellulosic ethanol venture

Source: DAVID SHAFFER • Minneapolis Star Tribune  • Posted: Tuesday, January 24, 2012

The Poet Biomass stack yard in Emmetsburg, Iowa, contains thousands of corn-husk bales that are used to produce cellulosic ethanol. Each bale yields about 50 gallons of ethanol.

The companies plan to apply their technologies at plants in Minnesota and elsewhere.

Poet, the largest U.S. ethanol producer, has formed a joint venture with a Dutch enzyme producer to build an ethanol plant fed by cornstalks and cobs rather than kernels.

The 50-50 venture with Royal DSM that the companies announced Monday will privately finance a $250 million cellulosic ethanol plant in Emmetsburg, Iowa. Poet said it will turn down a U.S. Energy Department $105 million loan guarantee approved for the plant last year but not finalized.

The new venture, Poet-DSM Advanced Biofuels, will be based, like Poet, in Sioux Falls, S.D., the companies said. The 25-million-gallon-a-year plant planned in Emmetsburg, known as Project Liberty, will be next to Poet’s corn-ethanol plant there.

Poet CEO Jeff Broin said the plant will be completed in the second half of 2013. Construction is underway — a corn-residue storage area has been in operation for two years — though the official groundbreaking is in March.

Both companies bring proprietary technology to the making of ethanol from cornstalks, cobs and shucks. Poet pioneered the production methods at a pilot plant in South Dakota, and DSM has enzyme and yeast technology to break down and ferment plant cellulose.

“The plan going forward is for the joint venture to license the combined technologies … not only to additional Poet facilities but to the entire marketplace worldwide,” Broin said in a conference call with reporters.

Poet, a privately held company, operates 26 other ethanol plants, including those at Bingham Lake, Glenville, Lake Crystal and Preston, Minn. DSM, based in Heerlen, Netherlands, is publicly traded in Europe with sales of $12 billion in 2010. Its wide range of products includes drugs, nutritional supplements, paint and resins.

“Clearly Poet didn’t have the in-house enzyme technology or the biocatalyst technology … so they did need a technology partner on that side, and DSM seems to fit the bill nicely,” said Mike Ritzenthaler, an analyst for Piper Jaffray Cos. in Minneapolis.

Ritzenthaler said enzymes to help convert cellulose into ethanol are a major cost — an estimated 50 cents per gallon of ethanol — and must be shipped long distances. The joint venture should reduce the cost because it plans to make enzymes at the ethanol plant, he said.

Ritzenthaler said the venture allows the two companies to license the technologies as a package.

Spurning a loan guarantee

Though Poet decided to pass up a loan guarantee, Broin said the company is counting on a federal $1 per gallon producer tax credit to help spur the cellulosic ethanol industry. He said the subsidy “is going to be important to this technology for some time into the future,” just as it was for corn ethanol. A subsidy for corn ethanol expired Dec. 31 after more than three decades.

Broin said hundreds of U.S. cellulosic ethanol plants could be built over eight to 10 years. He said the joint venture’s technology is designed to process corn residue, but potentially could be adapted to other material such as grasses.

Poet doesn’t plan to drop corn-ethanol production. Instead, it would build new cellulosic plants next to existing ones, and heat both using a byproduct of the cellulosic process. Broin said the result is a net carbon reduction.

A boost in ethanol production will require a shift to blends exceeding 15 percent at the pump, Broin said. Most blended gasoline sold at the pump now is 10 percent ethanol, but the ethanol industry already makes enough to meet that mandate.