When Coskata came out of stealth mode in January with a General Motors Corp. partnership and a claim that it could make ethanol from nonfood crops for less than $1 per gallon, it certainly raised eyebrows.

After all, other estimates place the ethanol cost at closer to twice as much. In 2006, U.S. Energy Secretary Samuel Bodman put the cost of producing cellulosic ethanol at about $2.20 per gallon, twice the cost -- at the time -- of corn-based ethanol.

But now another company has joined Coskata in making promises that -- if it can meet them -- will dramatically revise those economics.

The Alternative Energy Technology Center, traded over the counter as "AETE," announced last week that it plans to produce cellulosic ethanol in the U.S. market for less than $1 per gallon, compared to costs of $2 per gallon to make ethanol from corn. It also announced Monday that it is in the "completion phase" of designing and building a biorefining system to make 20 to 100 tons of ethanol, gasoline, diesel and other products per day.

And the AETE press releases are likely to be only part of a series of announcements from companies claiming they can meet Coskata’s cost target, said Rick Kment, a biofuels analyst for DTN Research.

Wes Bolsen, vice president of business development at Coskata, thinks so too.

"There are going to be a lot of players coming out and saying stuff like that," he said. "Coskata came on the scene with a pretty big splash, and you figure other people in this space are saying ’Holy crap, we’ve got to get out there with some news.’ Some of the best minds and entrepreneurial companies in the country are trying to come up with an alternative-energy fuel solution and that’s exciting."

The idea that cellulosic ethanol could soon be cheaper than corn-based ethanol is gaining traction, in spite of the higher costs so far. Take Gulf Ethanol, which earlier this month said it planned to convert corn-based ethanol plants into cellulosic-ethanol plants, forecasting cellulosic materials would be a quarter of the cost of corn (see Corn Prices Drive Gulf Ethanol to Cellulose).

Kment recommended caution. After all, cellulosic ethanol hasn’t actually become commercially viable yet, he said. And the prices that companies expect to pay for cellulosic materials are likely too low, he added.

"Companies are really focusing on a price target of $1 per gallon, but until there’s an actual product [in production], it would be hard to put a lot of stock into that level," he said. "For new companies, there are usually a significant amount of additional cost. And $1 per gallon, including the overall cost of the plant, sounds awfully low."

In AETE’s case, Kment said it’s hard to evaluate the company’s technology based on the information released so far.

For example, AETE didn’t explain how much of the plant’s cost it is attributing to products aside from ethanol, he said. "You can make ethanol for $1 a gallon if you’re charging all the plant costs to another product," he said. "It’s very vague."

AETE officials could not be reached Tuesday.

But even if the $1-per-gallon target includes the plant costs, the economics could soon change, Kment said. Competition could end up raising the prices of cellulosic feedstocks, mirroring the corn prices that have more than doubled in the last couple of years, he said.

Are cellulosic-ethanol manufacturers trapping themselves in the same situation faced by corn-based ethanol manufacturers today?

Coskata’s Bolsen says no.

He says that’s because cellulosic ethanol could drop prices to below the "tipping point." That is, 20 to 30 percent below the price of gasoline, to account for the fact that ethanol delivers 20 to 30 percent fewer miles per gallon than gasoline. Once ethanol prices reach that level, he said, consumers will demand ethanol in quantities great enough to make room for players.

"We are going to be able to sell at lower than the tipping point," Bolsen said. "It’s such an opportunity in front of us. I will be so excited what a lot of people are producing ethanol at less than $1 a gallon. That’s where it has the potential to really replace gasoline and to be a primary fuel."

Still, Kment said it will be difficult for cellulosic-ethanol companies to differentiate themselves because they are making a commodity, not a proprietary product.

"In cellulosic-ethanol technology right now, there are so many different types of processes and products that seem to be flooding the market," Kment said. "And I think in the future, that’s going to be boiled down to probably three or four major types of processes that really catch on. Some of these processes will be winners and others will fall by the wayside."

As some standardization happens, he said, the processes with the lowest costs will win out and then the manufacturers that grow most quickly will have the advantage.

Bolsen disagreed with the idea that technology won’t be a determining factor.

"Coskata’s talked about a licensing and build, own and operate model," he said. "This is not about us saying Coskata is going to control 10 billion or 15 billion gallons of ethanol because we’re building all that ourselves. We think we have some of the best technology and want to get it out to other people’s hands."

Still, he agreed the market calls for a "speed-to-market" play.

"It’s definitely about getting out there and establishing yourself, and I think that’s what a lot of people are trying to do," Bolsen said. "You can’t just have a technology; you have to have someone to build it too; you’ve got to have partners. There are going to be some great ideas that don’t go anywhere because they don’t have the backing they need."