Mascoma, Codexis Closing In On Commercialized Cellulosic Biofuels

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Includes: CDXS, VLO
by: Greentech Media

Mascoma, Codexis Closing in on Commercialized Cellulosic Biofuels

By Derek Mead

Are advanced biofuels nearing the big time? A couple of recent announcements from Codexis (NASDAQ:CDXS) and Mascoma, a pair of up-and-comers in the biofuel game, suggest that we may be nearing the first viable industrial-scale applications of cellulosic biofuels. With traditional sugar feedstocks -- and in the U.S., that means corn -- up around $275 a ton, it would seem high time to tap into virtually untouched cellulose feedstocks like switchgrass and municipal waste. Now it looks like the technology, which has long been hampering the cellulosic dream, is starting to catch up.

Mascoma, hot off announcing its upcoming IPO, has now finalized a partnership with Valero (NYSE:VLO) to build Mascoma's previously announced 20-million-gallon-per-year cellulosic ethanol plant in Kinross, Michigan. It's a huge boost for Mascoma, which has been trying to shift away from solely developing biomass-processing yeasts toward jumping into the production side.

The deal purportedly locks down all the funding needed for the $232 million plant, a figure that includes upfront infrastructure costs that will allow the plant to expand to 40 million gallons per year (MGY) if need be. Valero will provide the majority of the funding, with the remainder of the tab being picked up by the DOE and the State of Michigan. Construction is slated for some time in the second quarter of next year, and will be finished by the end of 2013.

It represents the full commercialization of Mascoma's consolidated bioprocessing tech, which is the firm's way of saying it converts hardwood pulpwood into ethanol. Pulpwood has the advantage of being abundant and underutilized; in other words, it's cheap. According to the firm's S-1 filing from September, the Kinross facility is expected to see yields of 83 gallons per short ton of pulpwood, producing ethanol at an unsubsidized cash cost of about $1.77 a gallon.

While the company thinks it can get than number below a buck in a few years, the main question in September was how Mascoma would actually get the plant funded. Now that Valero's signed on -- rather, Mascoma's been signed by Valero, as the oil giant will hold a majority interest in the venture -- Mascoma's proprietary biomass process will be put to the commercial test.

The last time we heard from Codexis, we took a look at the firm's financials, which all kept pace with estimates. Codexis offers an interesting business model in that the firm focuses solely on developing custom yeasts and other biocatalysts. Currently Codexis is paying the bills by producing high-dollar petrochemicals for the pharmaceutical industry, but has been actively trying to enter the biofuel market by developing yeasts that break biomass down into sugar as part of a research agreement with Royal Dutch Shell.

That research has paid off in Codexis' newly announced CodeXyme cellulase enzyme product line. The new enzymes are designed to produce sugar from cheap, local feedstock sources. A cheap sugar supply is key for Codexis, whose other biocatalyst work is focused on producing high-value, sugar-alcohol-based industrial petrochemicals.

It also means a potential new source of revenue for Codexis' customers. Codexis has a partnership with Raizen, Brazil's largest sugar producer and a massive ethanol producer. With Codexis' new enzymes, Raizen will be able to convert leftover biomass from sugar production into ethanol, freeing up more of its sucrose to sell in the sugar market. According to Biofuels Digest, Codexis CEO Alan Shaw has priced the leftover biomass from traditional sugar production at $50 a ton, or as low as $10 in Raizen's case, which, in his eyes, is like “making gold from dirt.”