Poet opens first cellulosic ethanol pilot plant

NEW YORK (Reuters) - The top U.S. ethanol producer Poet said on Monday it has opened an $8 million pilot plant to produce an alternative low-carbon motor fuel made from corn cobs and other crop residue.

The 20,000 gallon (77,800 liters) per year plant, which was built in Poet's home state South Dakota, is planned as a forerunner to the company's $200 million commercial-scale cellulosic plant, called Project Liberty. The company hopes to open that plant in Emmetsburg, Iowa in 2011.

Politicians and companies alike hope cellulosic will be a viable fuel that emits less greenhouse gas than gasoline or conventional ethanol made from corn starch. Since it's expected to be made from fast-growing grasses and trees -- or in Poet's case crop wastes -- it should not be blamed for helping to boost food prices, which has been one of the criticisms of ethanol made from corn starch.

U.S. mandates require blenders to mix 16 billion gallons of cellulosic into gasoline by 2022 along with 15 billion gallons of ethanol made from traditional sources like corn starch.

Jeff Broin, the chief executive of privately-held Poet told reporters in a teleconference on Monday that the fuel made at the pilot plant costs about $1 more than ethanol made from corn starch.

"That may sound like a lot but just a year and a half ago it was several dollars a gallon, so we have made strides in reducing the cost," he said. Cellulosic should cost about the same as grain-based ethanol in about five to seven years, he added.

Poet hopes to eventually make cellulosic at all 26 of its starch ethanol plants, which have a capacity to make 1.5 billion gallons per year.

Outgoing U.S. Agriculture Secretary Ed Schafer said last week that cellulosic ethanol output could "explode" by 2012 if a commercial plant to produce the fuel works out.

In addition, Steven Chu, President-elect Barack Obama's pick for secretary of the Department of Energy, has been a long-standing champion of next generation biofuels.

On the other hand, the government's top energy forecasting agency, the Energy Information Administration, said last month that the United States will fall short of the mandates because of the uncertain development of next generation fuels.

Broin said 5 billion gallons of cellulosic ethanol, or nearly half of today's U.S. capacity to make grain-based ethanol, could eventually be made from corn cobs and other crop waste. But he was less optimistic about near-term U.S. cellulosic goals.

He was not certain if the United States would meet the 2010 federal mandate to blend 100 million gallons of cellulosic into the gasoline pool. "We're going to have to have a wait-and-see attitude," he said. "You can put a number on a piece of paper but it's going to come at the speed at which the technology develops."

(Reporting by Timothy Gardner, editing by Marguerita Choy)