Cellulosic ethanol output could "explode"

WASHINGTON (Reuters) - Ethanol production from wood chips, grass and other plant material could "explode" by 2012 if a commercialized facility to produce the second generation of biofuels is successful, U.S. Agriculture Secretary Ed Schafer said on Thursday.

Schafer told reporters that he expected that by January 20 USDA will award a loan guarantee to Range Fuels, based in Colorado, to build a commercial-size plant capable of producing 100 million gallons of ethanol annually from woodchips.

It would be the first guarantee issued through a program created in the 2008 farm law to speed development of new biofuels. Schafer would not say how much the loan would be.

"If that investment is made and that facility gets up and running, it will jump, I believe, by two years the goal of producing on a commercialized basis ethanol from non-corn sources or non-food based sources," he said.

"If this first-commercialized production capacity works then I think it will explode the opportunities in second-generation biofuels," he added.

Currently, estimates say large-scale production of second-generation biofuels are five or six years away. Corn is the feedstock for almost all U.S. ethanol now.

The 2008 farm law allows USDA to issue loan guarantees of up to $250 million per project to develop, build or retro-fit a commercial-size plant for production of biomass fuels.

Advanced biofuels are those that do not rely on the corn kernel starch. Cellulosic ethanol, a key next-generation biofuel, can be made from switch grass, corn stover, forest waste, fast-growing trees, wood chips and other plant material.

The so-called renewable fuels standard requires the use of 11.1 billion gallons of renewable fuels in 2009 with much of the output coming from corn.

In 2022, the energy law requires the U.S. gasoline supply to include 36 billion gallons of renewable fuels, 15 billion gallons from corn-based ethanol and 21 billion gallons from advanced biofuels, such as ethanol from cellulose.

(Reporting by Christopher Doering)