Can Brazil turn its sugarcane dominance into biodiesel dominance?

Amyris Biotechnologies wants to take a crack at it. The Emeryville, Calif.-based startup said Thursday it will buy an $82 million stake in a Brazilian ethanol mill to try and commercialize its process of making sugar into diesel.

The deal is with Brazil's São Martinho Group, a big sugarcane and ethanol company in a country that leads the world in the production of both. Amyris, which has raised some $165 million, announced it would pledge 140 million Brazilian reals ($82 million) in stock, cash and a payable note to acquire 40 percent of São Martinho's Boa Vista ethanol mill in the Brazilian state of Goiás (see Amyris Tallies $41.75M for C Round So Far).

The two hope to be making biofuel at the plant by 2011 or 2012. If it works, São Martinho may apply the new technology at another ethanol mill it controls in Iracema, Brazil, the companies said. The Brazilian company controls three ethanol plants that make about 600 million liters (158 million gallons) of ethanol per year.

Amyris opened a demonstration plant in Brazil back in June, and has said it wants to see commercial production by 2011. It's aiming to make engine-ready diesel fuel at about $2 a gallon, CEO John Melo says (see Amyris: Were Better Than Biodiesel, Ethanol or Gas).

Amyris does it with genetically engineered yeast similar to those it has created to make a key ingredient for malaria medicine. Those microbes eat sugar and excrete something very similar to the diesel fuel that comes out of truck stop pumps – an improvement over sugar-derived ethanol, which is brewed like beer and doesn't work as smoothly in most internal combustion engines.

Amyris is among the host of companies saying they can take sugar and do one better on today's ethanol-making processes by making "drop-in" fuels ready for the tank. Competitors include South San Francisco, Calif.-based LS9 and (see Chevron Invests in LS9: Microbe Diesel by 2011? and Cellulosic Sugar Could Be Next Sweet Investment).

That's different than making biodiesel from plant fats, which is the goal of many algae biofuel startups (see Coming Soon: $2 a Gallon Diesel From Algae?).  

It's also distinct from making fuel from non-sugary plant material, or cellulose. That's the realm of startups including Mascoma, Coskata, Zeachem and others (see Green Light post and Coskata Opens Demo Plant as Biofuels Creep Forward).

None of these next-generation biofuel startups have started commercial production yet. It can take hundreds of millions of dollars to build a commercial-scale biofuel plant, and such large-scale investments are hard to come by amidst the global economic recession. Getting production costs low enough to compete with fossil fuels also remains a major challenge (see Green Light post).

Turning sugar from such feedstocks as sugarcane and corn into ethanol, on the other hand, is already a massive industry – and observers agree that using sugarcane is a lot more cost-effective than using corn.

Some U.S.-based corn-to-ethanol producers have declared bankruptcy or shuttered production, unable to sell their product for enough to cover the costs of their feedstocks (see Green Light post and Biofuels: Are We There Yet?).

Brazil, on the other hand, is already fueling a majority of its transportation fleet with homemade ethanol – and it wants the U.S. to relax its high tariffs on foreign ethanol to let more Brazilian biofuel in to compete with the U.S.'s corn-based ethanol industry (see Los Angeles Times).

Retrofitting sugar-to-ethanol plants to use new technologies will likely be a lot cheaper than building them from scratch – a fact that hasn't gone unnoticed by startups such as Gevo and Genomatica that want to piggyback on existing ethanol plants in the United States (see Green Light post and Genomatica: Microbe-Made-Chemicals Could Save Empty Ethanol Plants).