Ethanol makers pursuing avenue 'Q'

NEW YORK (CNNMoney.com) -- Figuring out a way to turn wood pulp, sugar cane, wheat straw and other biomass products into ethanol is the easy part. Figuring out a way to do it economically and efficiently is where it gets tricky.

Biofuel labs across the country have been busy experimenting with various enzymes that can extract sugar from feedstocks which then can be converted into ethanol. But many of the processes are labor and power intensive because of the need to create special enzymes, leaving American producers to continue to rely on corn until cheaper cellulosic methods are perfected.

One of the more recent entrants into the ethanol enzyme race, though, could be one of the most interesting, particularly in terms of the attention it's attracted.

The enigmatically named Q Microbe, under development by SunEthanol Inc., has attracted the attention of major ethanol producer VeraSun Energy, putting it at the forefront of technology for co-called cellulosic ethanol, which is expected to replace corn as the main source of alternative fuel in the United States. The enzyme's allure lies in how it is found in nature and does not need to go through the costly process of being manufactured in a lab to be effective, as well as its efficiency with a variety of biomass products.

Enzymes are introduced to cellulosic products like woodchips and switchgrass to extract sugar, which is then fermented to produce ethanol. Enzymatic hydrolysis is considered to be the most cost-effective way to make the biofuel, and the Q Microbe is expected to be cheaper to use than other enzymes because it can do its work naturally in one step, whereas other enzymes need multiple steps in a laboratory to extract the sugar.

Moreover, the Q Microbe so far has been effective with almost all biomass, while other enzymes only work on particular substances.

University of Massachusetts biology professor Susan Leschine discovered the microbe in the soil of New England and she is working with technicians at SunEthanol to incorporate its use in the production process. Those involved expect a test plant to open by 2009 with commercial production coming once the facility has shown it is viable.

VeraSun (Charts) is one company on a very short list of ethanol producers that generate more than 100 million gallons a year in the $23 billion ethanol industry. Its decision to help finance the development of Q Microbe represents a lurch forward away from exclusively corn-based ethanol.

"VeraSun's strategy is to invest in promising technologies that can be added onto our existing facilities," said company CEO Don Endres. "We're excited about this. There's a lot of work that needs to be done. The technology needs to be proven, the process needs to be worked out, but we think it represents good potential."

Financing for patent-pending Q Microbe technology has been provided by VeraSun, along with private equity interests Battery Ventures, Long River Ventures and AST Capital. The companies will make the technology available on the open market once it is perfected.

SunEthanol CEO Jef Sharp said Q "has the potential to change the game."

"We're taking what is promising technology and turning it into commercially viable technology," he said.

Sharp did not disclose how much money it will take to develop the Q Microbe, and a company spokesman would only say that the commitment from VeraSun and the other companies is somewhere in the "multi-million dollar range."

Neither company is ready to say this early specifically how much of a cost savings might be reached when the process is perfected, but analysts say the Q enzyme process could result in a 20 percent discount to corn ethanol, which now runs about $2.20 a gallon.

"We're working hard to develop it to make sure that we can deliver on the promise of the microbe as we see it right now," Sharp said.

VeraSun is among the first of the larger ethanol companies to stake out a position in cellulosic ethanol. The nation's ethanol manufacturers now produce only the corn-based product, with cellulosic commercial sales expected to be at least 18 months away. Large corn-based ethanol manufacturers include Archer Daniels Midland (Charts, Fortune 500) and Poet Ethanol, with BioFuel Energy Corp. (Charts) expected to join that list once its production facility comes online next March.

Todd Neeley, who has researched the Q Microbe for agriculture analysts DTN in Omaha, Neb., said the move could be significant both for VeraSun and SunEthanol as well as the rest of the industry.

"The very fact that Vera Sun is going to put its name and money out there is very significant," he said. "Maybe it's the break that the cellulosic industry has been looking for."