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Coskata CEO explains how to get to $1 a gallon ethanol

Here is Coskata's business plan in a nutshell: take garbage, make gas out of it, and feed it to microbes. Then a big company pays you to teach them how to do it.

Nearly every cellulosic ethanol company claims it will be able to produce fuel at $1 or less a gallon in a few years. William Roe, CEO of Coskata, in a meeting on Monday explained how his Warrenville, Ill., company will do it.

It's one of the more interesting processes out there, because it combines both biological (i.e., microbes) and thermochemical (heat and chemicals) processing. Menlo Park, Calif.-based ZeaChem is also taking a mixed approach, but it combines thermochemical and biological processes in a different manner. Most other companies are using primarily chemical or biological processes. We don't know who will win, but the mixed approach on paper does seem to have advantages.

Here are the highlights from the meeting with Roe:

• First, the company can use a wide variety of feedstocks for making fuel: wood chips, weeds and non-food crops like miscanthus, human waste, and carbon-heavy garbage (such as tires). Biomass, ideally easy-to-grow crops that don't require much water, will likely be the primary feedstock. The ability to exploit various feedstocks reduces exposure to crop failures or shortages. Coskata, which has received an investment from General Motors, also makes fuel from the lignin in biomass. Some companies making ethanol from strictly biological processes can't use lignin to make fuel.

"You can imagine biorefineries in every single state. This is an enormously efficient process," Roe said. "We don't need 'eurekas' anymore. We think it comes down to execution."

Conceivably, Coskata could even produce fuel from the carbon monoxide from steel mills. If you could capture all of the carbon monoxide that comes out of mills worldwide, you could make 50 billion gallons of fuel a year, or close to a third of the U.S. annual consumption of fuel.

• Handling all of these different feedstocks is actually a little simpler than it looks from the outside. The first stage in Coskata's process revolves around converting the feedstocks into synthetic gases. The different feedstocks can be segregated and processed differently. Waste can be converted to gas with plasma technology, for instance, while plant matter can be gasified with less energy-intensive methods. This allows the company to optimize on different gasification processes. It also reduces variability in processing.

"There's actually a lot of innovation going on in gasification," Roe said.

• Coskata has happy microbes. Once the syngas is produced, it is fed to microbes that convert it to liquid fuels. The microbes live in large colonies that collect on membranes. Fuel is produced when the gas passes through the membrane. Part of the company's intellectual property revolves around coming up with a way to let the microbes live as colonies and form slimes. Yum. Some other companies swirl their microbes in water and keep them in perpetual motion. Letting them live in colonies allows more of the gas to be converted to fuel.

The company is experimenting with five microbes and is particularly fond of two.

• Less distillation. Microbes can create a fluid that contains a small percentage of alcohol or so by volume but can't get it to 99 percent purity on their own. That's why distilled spirits are stronger than beer.

Rather than fully distill the fluid, Coskata will distill to about 50 percent and then employ a membrane from Membrane Technology Research in Menlo Park to purify it the rest of the way. This cuts processing costs and energy. Coskata actually doesn't need the membrane to get to $1 a gallon. "This is gravy," Roe said.

• Coskata doesn't want to make fuel. Unlike several other companies (such as Range Fuels and Imperium Renewables) Coskata doesn't want to build and operate megaplants. It will set up demonstration plants and some moderate-sized production plants, but it primarily wants to earn revenue and profits as time goes on from licensing the technology to big companies. The company has talked to large forestry concerns, petroleum producers, and chemical manufacturers. The interesting part about this approach is that it leaves the onerous challenge of building billion-dollar plus facilities to those who have been doing it for decades. Start-ups just aren't geared for that.

Soon, Coskata may make an announcement with another partner. Roe wouldn't give us names, but Chevron has cut a number of development deals in this area recently, including one with Solazyme, which has come up with a way to ferment algae for biodiesel.

Coskata will have a formal coming-out party for its 40,000 gallons a year demonstration facility. Construction is already under way. Roe wouldn't tell us what state it is in, but will announce it April 24 with the governor of the mystery state.

Coskata's process and fuel is relatively clean, he added. Overall, it cuts greenhouse gas emissions by 90 percent, well-to-wheel (or stump-to-pump, if you prefer) compared with gas. It also uses less water than most ethanol processes, which rely on food crops.

To clarify, the $1 a gallon figure is how much the fuel will cost to produce. It includes the cost of the feedstock, the cost of the energy required to convert raw materials into fuel, and labor. It does not include paying off the capital of the facilities, taxes, retail mark-ups, or other expenses that can be added as the fuel wends its way through distribution. On the other hand, the $1 a gallon figure does not include subsidies, which lower the cost to consumers. (Ultimately, adding in all these factors can raise the price to around $1.50 a gallon, Zeachem CEO James Imbler estimated in a recent interview.)

Still, at $1 a gallon, that's half the equivalent costs for gasoline, which is around $1.95 to $2.00 a gallon.