U.S. Sugar Looks Sweeter With Coskata Second-Gen Ethanol Plant

(MoneyWatch)  Although a major part of the economy and energy mix in Brazil, sugar has struggled in the United States recently. But prominent sugar farmer U.S. Sugar hopes to help reverse its fortunes by calling in Coskata, a cellulosic ethanol startup whose investors include General Motors, to build a fuel plant near its fields.

Sugar, of course, is best known as a fuel for humans, going into most modern processed foods and drinks (especially high-octane mixes like Red Bull). It is also becoming well known as one of the best feedstocks for ethanol production; raw sugar breaks down easily into biofuel. Cellulosic ethanol, however, has remained a Holy Grail for the industry -- a third profit line that could utilize the waste parts of the plant.

The relatively small U.S. sugar-ethanol industry has not been flourishing, which producers attribute to tighter environmental and employment regulations, as well as a lack of the logistical synergies needed to produce regular ethanol. So the idea of a saving grace in the form of higher margins from cellulosic ethanol must sound sweet. U.S. Sugar, by the way, is the same producer that has been in the headlines for a deal to sell its land to the state of Florida. But the company has been cleverly hammering out the details of the arrangement to leave itself room to continue operations. Selling its land may help U.S. Sugar turn a profit; it hopes its other deal, with Coskata, will turn a larger one.

If finalized, that agreement will result in a giant 100 million gallon-per-year factory near Clewiston, Florida. By keeping the plant close to the fields, Coskata will be able to keep its own costs for transporting in the plant detritus -- leaves, plant tops and crushed-up stems called bagasse -- quite low, and hopefully split the resulting riches with US Sugar.

Expect other companies with sugar concerns, including local giants like Archer Daniels Midlands and Bunge as well as huge foreign plantation owners, to watch closely. If the Coskata facility proves it can efficiently produce cellulosic ethanol, sugar, already the best option for ethanol production, could become an even more attractive energy source.