Valero Energy Corp. (NYSE: VLO) recently announced its role in a $60 million financing for Montreal-based Enerkem, Inc. along with existing Enerkem investors Waste Management, Rho Ventures, Braemar Energy Ventures and Cycle Capital.
Valero spokesman Bill Day says that the Enerkem deal is just one of several investments Valero has made in renewable fuels and biofuels. "Valero itself does not do a lot of research or development into renewable fuels," he said. "We prefer to do investments in companies that are doing that research, or in some cases, just buy the research itself. With a company like Enerkem, which is doing a lot of innovative stuff with biofuels, it's a good partnership for a company like Valero." He said Valero thinks Enerkem's project is one of the more viable and practical of the emerging biofuel technologies.
The investment is more than just a financing for corn-based ethanol, however, signaling an interest by Valero in cellulosic ethanol. "Valero owns 10 corn ethanol plants in the Midwest, but we are also looking at cellulosic ethanol," Day said. "Once there is some sort of emerging technology for the production for cellulosic ethanol, what we would like to do is add that technology to our existing corn ethanol plants so they could do both corn and cellulosic." There is also potential for Valero to form an off-take agreement for cellulosic ethanol produced by Enerkerm, he said.
Earlier in 2010 Valero made a similar investment in cellulosic ethanol producer Mascoma, also entering into a ethanol offtake agreement.
Mascoma, Valero, and Mascoma's operating subsidiary, Frontier Renewable Resources, (jointly owned with J.M. Longyear) signed a non-binding letter of intent to support the construction of Mascoma's 40 million gallon cellulosic ethanol plant in Kinross, Michigan. Groundbreaking on the project is slated for later this year.
According to Biofuels Digest, under the terms of the letter of intent, Valero would potentially invest up to $50 million of the equity required to finance the project through Frontier Kinross LLC, a subsidiary of Frontier, and would enter into an off-take agreement for the project's ethanol production. As further support of the project, Valero will provide project development and construction oversight services.
"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, Chief Executive Officer 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."
Valero, which is publicly-traded on the New York Stock Exchange (NYSE: VLO) derives a little more than 10% of its revenue from sales of ethanol, according to its most recently-published financial statement.
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