U.S. offers help to finance first advanced ethanol plant

WASHINGTON Thu Jul 7, 2011 12:09pm EDT

WASHINGTON (Reuters) - The Energy Department on Thursday provided a $105 million conditional loan guarantee to help finance the first commercial-scale cellulosic ethanol plant in the country.

The Iowa-based plant, which would be operated by privately-held POET LLC, would use corncobs, leaves, husks and some stalks provided by local farmers to produce up to 25 million gallons of advanced ethanol a year.

"This project will help decrease our dependence on oil, create jobs and aid our transition to clean, renewable energy that is produced here at home," said U.S. Energy Secretary Steven Chu.

Most U.S. ethanol is made from corn, which some critics say turns food into fuel. The cellulosic ethanol that the POET plant would produce will avoid that problem and use non-food agricultural waste to make fuel.

While there is great hope for cellulosic ethanol, the industry has failed to meet the production goals set by Congress.

Congress passed legislation several years ago requiring cellulosic ethanol production to reach 500 million gallons next year.

However, the Environmental Protection Agency has proposed lowering that target to between 3.5 million and 12.9 million gallons because of the few cellulosic plants operating.

The industry blames the U.S. recession and tight credit for the lack of money to build more plants.

"Financing has been one of the biggest challenges to scaling up cellulosic ethanol, and the offer for a conditional commitment for a loan guarantee from DOE's Loan Programs Office brings us one step closer to commercial production," said POET chief executive officer Jeff Broin.

Under the loan guarantee, the government would step in and pay off private-sector loans for the plant if POET defaulted on them. The $261 million plant is expected to built by mid 2013.

(Reporting by Tom Doggett;editing by Sofina Mirza-Reid)