The nation's largest grain ethanol producer, Poet LLC, will use state and federal grants to start work on the company's first commercial cellulosic refinery in Iowa.

The Sioux Falls, S.D.-based company is preparing to convert a 50-million-gallon-a-year grain ethanol plant in Emmetsburg, Iowa, into an integrated refinery that would produce fuels from both corn kernels and cobs.

"Project Liberty" would begin production in 2011 with a 125-million-gallon-a-year nameplate capacity, followed by several more dual-fuel plants throughout the state, company officials claim.

The Emmetsburg makeover will cost more than $200 million, but Poet has secured grants of up to $80 million from the U.S. Department of Energy and $14.75 million from Iowa. The 18-member Iowa Power Fund Board, which includes state agency directors and gubernatorial appointees, approved the funds yesterday.

Poet would pay back a portion of the state grant, depending on if and where the company replicates the cellulosic technology, said Brian Crowe, senior program planner with the Iowa Office of Energy Independence. For example, if Poet built a second commercial plant in Iowa, the company would pay the state $100,000; if Poet replicated the technology in another state, the company would pay Iowa $500,000.

If Poet licensed its technology to another company, and it built a refinery outside of Iowa, Poet would pay the Hawkeye State as much as $800,000, according to the contract.

"Obviously, our preference is to have the plant replicated in Iowa," Crowe said.

Poet plans to raise $2 billion of debt, equity and public financing and invest the money in six more dual-fuel refineries in Iowa, said Nathan Schock, a company spokesman. The makeovers would be modeled after a 20,000-gallon-a-year integrated refinery Poet opened in Scotland, S.D., late last year.

"We believe the quickest route to commercial cellulosic ethanol production in this country is this integrated model," added Schock, who said construction of the Emmetsburg plant could begin as soon late 2009.

Cellulosic ethanol is not produced and sold commercially in the United States, but Poet officials say they have been able to validate lab tests at the South Dakota pilot refinery. The privately held company is also working with the Danish biotechnology company Novozymes to develop enzymes that cost-effectively break down tough, cellulosic plant fiber found in corncobs.

Poet, which operates 26 grain corn ethanol refineries throughout the Midwest, has the capacity to produce about 1.5 billion gallons of the biofuel annually. But company CEO Jeff Broin contends that the United States could produce as much as 85 billion gallons of cellulosic ethanol annually from corncobs, switchgrass, yard waste and other woody biomass.

Reprinted from Greenwire with permission from Environment & Energy Publishing, LLC., 202-628-6500