Greentech Media

E3 Biofuels, a company that used cow manure to power its ethanol plant in Mead, Neb., has filed for bankruptcy and temporarily shut its doors.

According to the U.S. Bankruptcy Court in Kansas City, Kan., the company on Friday filed Chapter 11, which allows businesses to reorganize their finances. The first creditors' meeting is scheduled for Jan. 7.

The announcement is the latest in a number of recent ethanol setbacks. Companies have suffered from a growing ethanol supply that has kept prices low, while prices for the crops needed to make the fuel have grown.

As a result, share prices have dropped and some companies have postponed planned expansions (see Ethanol Stocks Keep Falling, Ethanol's Tough Times Continue, Ethanol Margins Suffer).

John Balbach, a managing partner at the Cleantech Venture Network, said he isn't surprised that some ethanol companies will require recalibration.

"This is a new market and there's going to be some casualties on the way, as new business models and new supply chains start to get into place," he said. "As this market gets up to speed, we won't have 100-percent winners."

E3 spokesman R.J. Wilson blamed the company's financial problems on "mechanical errors," according to the Omaha World-Herald.

Ethanol Producer Magazine reported the company claims it would have been able to continue making ethanol, despite the high cost of feedstocks, if those mechanical errors hadn't occurred. The magazine also reported the company plans to file a lawsuit related the problems.

People involved in the project told Greentech Media on Tuesday that the errors resulted in a boiler explosion last spring, which kept the company from ramping up to full capacity and making money.

They said the explosion was unrelated to the factory's theoretically riskier conversion of manure into natural gas to run the plant, but was in the part that actually made ethanol.

"The funny thing is that the novel part works fine -- ever since December, they've been making more than enough methane gas to power the ethanol plant -- but the routine part that makes the ethanol is where they had the setback," said one person involved in the project, who asked not to be named.

The company filed the Chapter 11 reorganization in the hope of gaining some extra time to fix the plant, the person said.

In the meantime, other companies still are pursuing the idea of so-called "closed loop" ethanol.

Panda Ethanol is planning to gasify manure to help cut costs at four of its ethanol plants. And Bion Environmental Technologies, based in New York City, also plans to use livestock waste for energy at an ethanol plant in upstate New York.