Valero Energy Takes Key Role in Mascoma’s Michigan Ethanol Project

Xconomy Boston — 

Lebanon, NH-based Mascoma has found a key piece of funding for a commercial-scale ethanol plant in northern Michigan. The oil firm Valero Energy has inked a non-binding agreement to invest up to $50 million to fund construction of a refinery that would use wood-based materials to make ethanol.

Frontier Renewable Resources, a joint venture of Mascoma and its Michigan-based partner J.M. Longyear, expects to break ground on the plant this year and to begin production of ethanol there in 2013, according to Mascoma. The plant is expected to be able to initially churn out 40 million gallons of ethanol per year, and it will be somewhat unique because it will rely on pulpwood as its main feedstock rather than food crops such as corn or soybeans.

This is a big deal for Mascoma, which has been working for years to bring its process for making cellulosic ethanol up to commercial scale. The company has showed its potential for commercial-scale production at its pilot facility in Rome, NY. Yet a lack of financing had delayed the project in Kinross Charter Township, MI, and last year Mascoma CEO Bill Brady told Xconomy that production would likely begin there in 2013 rather than the previous expected date in 2012.

Valero has agreed to provide a crucial equity piece to fund for the project, in addition to making a separate and unspecified investment in Mascoma, according to Mascoma. The firm says that the project has additional funding from the Michigan Economic Development Corporation and the U.S. Department of Energy. Valero, which says it owns 10 ethanol plants, has also agreed to take ethanol from the Kinross facility and sell it to its customers. Ethanol is a gasoline additive.

“Valero’s proposed investment in our first commercial-scale production facility proves the economic practicality of Mascoma’s technology for the conversion of woody biomass into ethanol,” said Mascoma’s Brady, in a statement. “We are also thrilled to have Valero as a shareholder in Mascoma Corporation as there are many synergies even beyond the Kinross facility, where the technologies we have developed could be helpful to Valero’s business.”