Lignol’s Cellulosic Ethanol Plant Bites the Dust; Valero Seeks to Gobble Up VeraSun

You can cross Lignol Energy Corp. off the list of companies racing to open the first U.S. commercial-scale cellulosic ethanol plant.

The Canadian company said Monday it is pulling out of a joint venture with Suncor Energy (TSX, NYSE: SU) to build an $80 million wood-to-ethanol plant in Grand Junction, Colo.

Lignol and Suncor — which steams oil out of tar sands in Alberta and sells fuel at its Sunoco-branded stations — blamed “the instability of energy prices, the uncertainty in the capital markets and the general market malaise” for canceling the deal announced in October.

In the meantime, the companies are looking at “various alternatives” for the $30 million U.S. Department of Energy grant they got for the project in February 2008, Ross MacLachlan, president and CEO of Lignol, said in a prepared statement (see More Cellulosic Ethanol Will Soon Be For Sale. But Who’s Buying?)

It’s been tough times recently for companies seeking to make commercial quantities of “next-generation” ethanol made from non-food sources like wood chips, switch grass or municipal waste.

Irvine, Calif.-based BlueFire Ethanol recently postponed by six months its plans to start building a $130 million ethanol plant in Mecca, Calif. this year (see BlueFire Ethanol to Build $130M Plant in Mecca), saying it only had about $20 million of the plant’s projected $100 million cost in hand.

Cambridge, Mass.-based Verenium (NSDQ: VRNM), which announced last month that it was ready to build a 36 million gallon-per-year cellulosic ethanol plant in Florida for between $250 million and $300 million, faced delisting from the Nasdaq exchange in December, and reported a loss of $133.24 million in the third quarter of 2008, a big drop from a loss of $19.88 million in the same quarter of 2007 (see Verenium Plans Cellulosic Ethanol Plant in Florida).

And Warrenville, Ill.-based Coskata Inc. has said it might have to postpone from 2010 to 2011 its plans for a $100 million cellulosic ethanol plant. Still in the works is its exploration of building a $400 million, 100 million gallon-per-year plant in partnership with U.S. Sugar Corp. (see Coskata Lining Up Sugary Deal).

The slow going for cellulosic ethanol companies could stymie the federal government’s goal of getting 100 million gallons of the stuff by 2010, according to research firm ThinkEquity, which estimates that only 28.5 million gallons will be available by then (see Consumers to Pick Up Tab for Off-Target Cellulosic Ethanol Industry).

At least these companies are still going concerns, though. Big corn-based ethanol maker VeraSun Energy, which declared bankruptcy in October, on Friday said that oil refiner Valero Energy Corp. had put in a $280 bid to buy its five facilities in South Dakota, Iowa and Minnesota, plus a site under development in Indiana.

Makers of ethanol from corn have suffered from high corn prices and flat prices for the ethanol they produce, leading to plant closures and scaled-back expansion plans. Pacific Ethanol had to temporarily shut down a 40 million gallon-per-year plant in Madera, Calif. last month.

The U.S. Energy Information Administration said in December that the overall ethanol industry will likely fall short by 6 million gallons of the federal goal of 36 million gallons of production by 2022 (see U.S. Won’t Meet Its Own Biofuel Mandate).

That’s despite the fact that corn-based ethanol makers got three-fourths of all federal renewable energy tax credits in 2007, according to the Environmental Working Group , which wants to see support for corn-based ethanol done away with (see Corn Ethanol’s Subsidy Glut).

But as long as that mandate remains in place, it’s likely that assets like VeraSun’s plants may remain attractive targets for buyers like Valero — as long as the price is right.