Valero to Invest $50M in Cellulosic Ethanol with Mascoma

Oil refiner Valero Energy Corporation (NYSE: VLO) has invested in cellulosic ethanol company Mascoma Corporation.

Mascoma, Valero, and Mascoma’s operating subsidiary, Frontier Renewable Resources LLC, jointly owned with natural resource management company, J.M. Longyear LLC, have signed a non-binding letter of intent to support the construction of one of the world’s first commercial scale cellulosic ethanol biorefineries, slated to break ground in 2011 in Kinross Charter Township, Michigan.

The size of the investment in Mascoma was not disclosed. However, under the terms of the letter of intent, Valero would invest up to $50 million of the equity required to finance the commercial biorefinery through Frontier Kinross LLC, a subsidiary of Frontier, and would enter into an off-take agreement for the project’s ethanol production.

Valero’s participation in the project strengthens the financing package for the Kinross biorefinery, complemented with funds from the State of Michigan, through the Michigan Economic Development Corporation (MEDC) and the U.S. Department of Energy (DOE).

Valero also would provide project development and construction oversight services.

The biorefinery is planned to have an annual production of 40 million gallons of cellulosic ethanol. Frontier will use hardwood pulpwood from the region as a feedstock.

Mascoma’s 200,000 gallons of cellulosic ethanol per year demonstration facility in Rome, New York, has been operating for the last two years.

“Valero’s proposed investment in our first commercial-scale production facility proves the economic practicality of Mascoma’s technology for the conversion of woody biomass into ethanol,” said Bill Brady, CEO of Mascoma. “We are also thrilled to have Valero as a shareholder in Mascoma Corporation as there are many synergies even beyond the Kinross facility, where the technologies we have developed could be helpful to Valero’s business.”

Mascoma recently announced the acquisition of SunOpta BioProcess Inc. (SBI), a fiber preparation and pretreatment company, creating a company with comprehensive capabilities for converting non-food cellulose (wood chips, energy crops and organic solid waste) into ethanol and high value co-products. With the addition of SBI and Valero, Mascoma has now covered the entire process of commercializing cellulosic ethanol, from raw materials supply, to pre-processing, through Mascoma’s CBP process and into distribution.

Due to a list of high profile backers, Mascoma has been on many green investment watchlists for a number of years. Those backers include General Motors (NYSE: GM), Khosla Ventures, Marathon Oil (NYSE: MRO), Kleiner Perkins Caufield & Byers and Flagship Ventures.

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