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What Next-Gen Biofuels Need Most: Fossil Fuel Partners. This Deal Is A Start

The ever-struggling cellulosic ethanol sector has a federal mandate, government subsidies and in some cases venture capitalist backing. But what it really needs is a fossil fuels partner, which is why U.S. oil refiner Valero's (VLO) recently announced investment in cellulosic ethanol company Mascoma is actually worth talking about.

Startups within the cellulosic ethanol industry are known for their repeated false starts. Companies like Mascoma and Range Fuels have spent years trying to make their next-gen biofuels commercially viable with little success. In the second half of 2010, not a drop of cellulosic ethanol was commercially blended into gasoline, according to a recent ClimateWire analysis. The slow progress forced the EPA to slash its cellulosic ethanol mandate by 94 percent to 6.5 million gallons. The agency cut it again later in the year to 6 million gallons.

Mascoma has raised $100 million from private investors and also has benefited from government grants and loans. But it's still struggled to get its commercial production facility open. Valero's announcement is significant not because of the $50 million it may invest, but because the oil refiner has agreed to enter into an off-take agreement for the project's ethanol production. Meaning, whatever Mascoma produces, Valero will buy and use to blend into gasoline.

This doesn't mean Mascoma's problems are over. Or that Valero is totally committed to Mascoma. Just take a careful look at how the announcement was phrased (something Greentech Media also picked up on). Two items jump out as particularly cautious.

  • Valero has signed a non-binding letter of intent to support the construction of commercial scale wood-based cellulosic ethanol biorefineries;
  • Valero would potentially invest up to $50 million of the equity required to finance the project.
Valero's other biofuel/renewable investments:
Photo from Flickr user sergio, CC 2.0