Verenium looks for cellulosic ethanol potential from pulp, paper

Cambridge, Mass.-based Verenium (Nasdaq:VRNM) said today it has entered into an agreement to test the effectiveness of its C5 technology for making biofuels from feedstocks sourced from pulp and paper processes with a forestry industry group.

The results could lead to partnerships with pulp and paper developers across the United States, Verenium’s Vice President of Corporate Communications Kelly Lindenboom told the Cleantech Group today.

The project is being funded by Value Prior to Pulping (VPP), an organization created by the Agenda 2020 Technology Alliance, a special project of the American Forest and Paper Association, and Wisconsin-based CleanTech Partners, which invests in emerging, energy-saving technologies. Verenium is contributing only time, not funding to the project, Lindenboom said.

VPP is backed by the U.S. Department of Energy, the state of Wisconsin and several large forest products companies. VPP is currently not working with any other cellulosic ethanol producers, Lindenboom said.

Verenium, which develops cellulosic ethanol and high-performance specialty enzymes, said it plans to test its C5 technology to create ethanol from hemicelluloses generated by pulp and paper processes, which could create higher value products without negatively impacting paper quality.

Lindenboom said with the company’s current demonstration plant it is making ethanol from energy crops, such as grasses and energy cane, which is a variation of sugar cane that doesn’t have sucrose content in it (see Verenium starts up demonstration cellulosic facility).

“It doesn’t have any other use from a commodity standpoint,” she said. “It’s really just for what we do. We’re the only growers of it in the United States.”

Sugar in cellulosic biomass is locked up in cellulose and hemicelluloses, according to Verenium. Cellulose holds glucose, which is the same kind of sugar, six-carbon (C6) sugar, found in cornstarch and that can be fermented to ethanol using conventional yeasts.

But hemicellulose contains mainly non-glucose sugars, five-carbon (C5) sugars, which are what’s being tested with the VPP agreement. Conventional yeasts can't ferment most non-glucose sugars to ethanol with commercially acceptable yields, Verenium said.

If the C5 testing works, Lindenboom said there are a number of potential benefits, including the possibility of “bolting” on Verenium’s technology to existing pulp and paper mills, which could contribute to the profitability of the mills, while establishing more environmentally friendly pulp and paper processes.

This could also reduce implementation risks associated with cellulosic ethanol because Verenium wouldn’t have to go through a full scale-up process of building an entire facility, she said.

Verenium has estimated a typical 1,500 ton-per-day kraft mill could produce about 15 million gallons of ethanol annually. Lindenboom said the total U.S. potential market opportunity is estimated to be between 1.5 and 2 billion gallons of ethanol per year.

However, the concept of testing wood as a biomass source isn’t entirely new, and it’s been known to work as a biomass source for cellulosic ethanol. Lindenboom said the challenge is whether Verenium can make it a cost effective source.

Verenium’s competitors such as Range Fuels are using wood chips, and Verenium has been working with Japan’s Marubeni using wood waste (see Range Fuels to produce 1B gallons of cellulosic ethanol and Range Fuels secures $80M for cellulosic ethanol plant). Marubeni has licensed Verenium’s technology, Lindenboom said.

Lindenboom also said Verenium is in the process of renegotiating a partnership to advance its technology with London's BP (NYSE:BP). The partnership was announced in August 2008 and concludes in January (see BP, Verenium to tackle next-gen biofuels).

Under the partnership, BP committed to investing $90 million to advance the development of cellulosic ethanol. Lindenboom said it's now in the due diligence phase.

In addition, through Vercipia, a 50-50 joint venture with BP, Verenium is looking to commercialize cellulosic technology for ethanol production from a variety of non-food feedstocks, including dedicated energy crops, agricultural waste, and wood products.

The joint venture intents to implement the technology at a commercial-scale cellulosic ethanol plant, announced earlier this year (see Verenium to start building first commercial cellulosic ethanol plant). The site in Highlands County, Fla., has been selected and is being developed.

Verenium has also been selected to move forward with a loan guarantee from the DOE for up to 80 percent of the plant’s cost, which is estimated at about $300 million. Verenium and BP would contribute the rest.

The joint venture also includes a second plant, although Lindenboom said the site on the Gulf Coast hasn’t yet been announced. Both facilities would likely produce about 36 million gallons of ethanol a year produced from biomass, such as grass, with the potential to scale to 72 million gallons, she said.

Verenium, which rebounded from a Nasdaq Stock Market delisting warning earlier this year, also priced a public offering of common stock and warrants this month to raise $12.5 million.

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