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Biofuels Merger

Diversa and Celunol plan new player in cellulosic ethanol

by Michael McCoy
February 19, 2007 | A version of this story appeared in Volume 85, Issue 8

Credit: Celunol
Celunol is already producing ethanol at this pilot plant in Jennings, La.
Credit: Celunol
Celunol is already producing ethanol at this pilot plant in Jennings, La.

Diversa and Celunol plan to combine into a new company that they say will be the first to offer an integrated technology package for producing the biofuel ethanol from cellulosic raw materials.

Diversa is a specialty enzymes company focused on enzyme cocktails capable of breaking down cellulose into sugars. Celunol boasts access to two key microorganisms that ferment such sugars into ethanol. One organism works on six-carbon sugars, while the other, covered under the U.S. Patent Office's 5 millionth patent (granted in 1991), ferments five-carbon sugars.

The deal calls for publicly traded Diversa to issue 15 million of its shares to Celunol's stockholders, which include venture capital firms Khosla Ventures, Rho Capital Partners, and Charles River Ventures. Diversa's stock traded at about $10 per share last week.

Carlos A. Riva, CEO of Celunol and CEO-to-be of the combined company, told stock analysts last week that the merger will create "the first company with end-to-end integrated capability to make cellulosic ethanol a commercial reality."

In Jennings, La., Celunol already operates what it calls the first U.S. cellulosic ethanol pilot plant. By year's end, it expects to complete a 1.4 million-gal-per-year demonstration facility at the site that runs on sugarcane bagasse. And by late 2009, the combined company hopes to open the first of several 25 million-gal commercial ethanol plants.

An explosion in U.S. production of corn-based ethanol has strained supplies of the grain for human and animal consumption. Making ethanol from inedible feedstocks such as bagasse, grasses, and agricultural waste could be a better way, but commercial success has been elusive despite years of efforts.

In fact, in the fall of 1998, Celunol, then called BC International, announced plans to build a cellulosic ethanol plant in Jennings with Department of Energy assistance. The plant was never built, a spokesman says, because the company wasn't able to secure the rest of the financing.

Today, Celunol has competition in the race to build the first cellulosic ethanol plant. The enzymes company Iogen operates a small wheat-straw-based facility in Canada and is scouting locations for a larger plant. The world's number one and number two enzymes makers, Novozymes and Genencor, are also involved in cellulosic ethanol projects.



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