The Power of Partnering

A trend toward mergers and joint ventures has emerged as the competition to be the first to commercially produce cellulosic ethanol heats up. Partnerships help companies obtain the necessary resources and spread out the risks associated with the building of a new industry.
By Bryan Sims | March 27, 2007
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Developing the means to commercially produce ethanol from cellulose takes time, money and talent. Many firms that want to be a part of the developing cellulosic ethanol industry have quickly learned that forming partnerships can greatly enhance business success.

"What partnerships allow you to do is really to leverage your financial and managerial base to do as much as possible," says Carlos Riva, president and CEO of Celunol Corp. "This is a very large market opportunity and I think more than any one company alone can take optimal advantage."

Cambridge, Mass.-based Celunol specializes in licensing patented proprietary biotechnical process equipment for the pretreatment of cellulosic biomass aimed at commercializing cellulosic ethanol. In February 2006, Celunol, formerly BC International, agreed to merge with Diversa Corp., a developer of specialty industrial enzymes for manufacturers within the biofuels, industrial, health and nutrition markets. Both companies will continue to operate as single business entities until the official merging of the firms goes into effect in June 2007. Diversa's role will complement that of Celunol's due to the company's access to biomass substrates, and enzyme research and development. In essence, Diversa will provide enzymes and enzyme "cocktails" that will be able to convert specific feedstocks into sugars. From there, Celunol's role will be to simply take the residual breakdown of sugars from Diversa and convert it into cellulosic ethanol. Although Celunol primarily uses sugar-based feedstocks such as sugarcane bagasse, Diversa's broad research efforts into different types of biomass will bring more diversified feedstocks to Celunol's production capacity.

In an effort to jump-start cellulosic ethanol into mainstream commercialization, Celunol built a pilot plant in Jennings, La., and it currently has a 1.4 MMgy demonstration-scale plant under construction near its pilot plant with plans for a commercial-scale facility in the near future. Celunol purchased biomass-to-ethanol technology from SunOpta's BioProcess Group, which will complement its own proprietary equipment at the Jennings plant to produce ethanol from sugarcane bagasse and wood.

Merging Opportunities
Celunol's strategic business move with Diversa was an effort to establish a global enterprise as a leading producer of cellulosic ethanol and as a strategic partner in biorefineries around the world, Riva says. "I think both companies had been speaking about collaborating in research on the enzymes side for cellulose ethanol for a long period of time and I think what resulted was as we've evolved our strategy, Diversa was also evolving a strategy on how to compete in the cellulosic ethanol space," Riva tells EPM.

Creating partnerships enables companies the freedom to expand various branches of marketability within their specific function in the market. "An aspect that's very important is that we don't intend to be a sole player in biofuels," Diversa CEO Edward Shonsey says. "[Cellulosic ethanol production] will certainly be an emphasis, but at the same time Diversa's specialty enzyme business remains strong and we will continue to pursue the growth and profitability of that business too." Diversa is a publicly owned company that is also involved in a four-year partnership with DuPont concentrating on cellulosic ethanol from corn stover, sugarcane bagasse and other forestry products. Diversa's role with DuPont is to research the multiple enzyme "cocktails" that break down cellulosic biomass.

Although there are different approaches firms can take to partner with others, Celunol and Diversa chose to merge because it seemed like the best way to move forward quickly. "We really see it being very important to completely align our interests in order to make a very rapid move into cellulosic ethanol," Riva says. "I think many people described this as a bit of a race and it seemed if we merged that we'd be that much more effective in approaching this market opportunity."

Although there are different types of partnerships and advantages of each, most participants agree that the rewards of undertaking such cooperative agreements outweigh any disadvantages. While Celunol and Diversa chose a merger agreement, that type of partnership doesn't work for everyone. Other firms prefer to take different paths in an attempt to gain the highest feedstock access, growth and profitability potential along the way.

A Northern Push Forward
One of the most common and effective types of partnerships is through a joint venture agreement. Some of the benefits of a joint venture include: spreading costs and risks, improving access to financial resources, improving economies of scale, access to new technologies and customers and access to innovative managerial practices. As joint venture partnerships become more prevalent in the United States, the trend is becoming proactive north of the border as well.

GreenField Ethanol of Ottawa, Ontario, formerly Commercial Alcohols and one of Canada's leading corn-based ethanol producers, signed a joint-venture agreement in December 2006 with Toronto, Ontario-based SunOpta BioProcess Group to develop and implement commercial-scale processes for the production of cellulosic ethanol from wood chips. SunOpta BioProcess Group, a subdivision of SunOpta Inc., specializes in the design, construction and optimization of biomass conversion equipment and facilities. It plans to use its patented proprietary process solutions to produce cellulosic ethanol.

The first plant is planned to produce 40 MMly (10 MMgy) of cellulosic ethanol from wood chips, according to President and CEO of GreenField Ethanol Robert Gallant. The location of that plant, which would use the forest-rich landscape of Ontario and Quebec for feedstock, has not yet been determined. "There are wheat-based plants in Canada now and the logic for us in the Ontario and Quebec region was to take a look at something that would complement the corn-based business," Gallant says. "We believe that corn- or grain-based plants and cellulose plants will go forward in tandem, and because of that we thought it would be the smart thing to doto spread the feedstock diversity for our ethanol business. We strongly believe grain-based ethanol will be around forever. Cellulose ethanol obviously will occupy a meaningful space and the two are going to be synergistic." In addition to the pursuit of a new cellulosic ethanol facility, GreenField Ethanol will continue to produce beverage distillation and industrial alcohols.

GreenField Ethanol is the largest ethanol producer in Canada with five operating plants producing more than 300 MMly (87 MMgy) in Chatham and Tiverton, Ontario, and Varennes, Quebec. Construction of two more plants in Hensall and Johnstown, Ontario, are underway with projected production capacity of 200 MMly (53 MMgy) each.

With the expansion of its ethanol production, GreenField Ethanol is a formidable competitor to long-time Canadian ethanol producer Iogen Corp. For 30 years, Iogen has made a name for itself in the Canadian ethanol market, specializing in cellulosic ethanol made from wheat and barley straw. In addition to its ethanol production, the company develops, manufactures and markets its own enzymes used to modify and improve the processing of natural fibers in the textile, animal feed, and pulp and paper industries.

"There's room for everyone," Gallant says, in regard to Iogen and GreenField Ethanol's efforts to commercialize cellulosic ethanol production. "The cellulose space is huge, and I think it's going to reward those who identify specific niches they are particularly good at, and that's the way we see it unfolding."

The current trend of companies partnering with others doesn't come as a surprise to Iogen executives, especially with the amount of attention and rapid growth cellulosic ethanol is experiencing today. "We think there's going to be lots of partnerships forming between lots of important companies in the field and we're not surprised to see that happening," Iogen Executive Vice President Jeff Passmore says. Iogen holds the distinction of building the world's first 1 MMgy demonstration-scale cellulosic ethanol plant in Ottawa. The facility has been designed and engineered to process 40 tons of wheat straw per day. Although its competitors are forming alliances, Iogen doesn't necessarily require a partnership such as the joint venture GreenField Ethanol and SunOpta sealed. Iogen pretreats its own feedstocks, initiates its own process integration, and operates its own engineering processes and enzyme manufacturing facilities to produce cellulosic ethanol.

Partnering on a Global Scale
Partnerships aren't exclusive to North America as many firms look for expertise abroad. In September 2006, SunOpta provided its systems and technology to China Resources Alcohol Corporation (CRAC), a production company in the People's Republic of China. The plant began production of ethanol from corn stover in October 2006 incorporating the Canadian company's steam-explosion pretreatment and conversion process technologies. Key components from SunOpta BioProcess Group have recently been shipped to Salamanca, Spain, for the start up of Abengoa's newly constructed plant that will convert wheat straw into ethanol. The project is slated to start up in the summer 2007. Royal Nedalco, a 100-year-old ethanol producer based in Bergen op Zoom, Netherlands, formed a joint venture with SunOpta. The company will help integrate its process design technologies with Royal Nedalco's new starch-based project, already on the drawing board in Rotterdam, Netherlands. Royal Nedalco will then license its novel yeast to SunOpta.

Like SunOpta, Celunol has active global partnerships. The company has licensed its biomass pretreatment technology to Marubeni Corporation and Tsukishima Kikai Co. Ltd., both in Osaka, Japan, to help that country establish a demonstration-scale facility to produce cellulosic ethanol from wood construction waste.

Not to be outdone, Diversa has also entered into global partnerships, signing a deal with New Zealand to help that country convert forestry products to cellulosic ethanol to negate its reliance on imported oil.

Industry experts expect more mergers and/or joint ventures to occur on a global scale due to the impacts domestic partnerships have in the North American cellulosic ethanol sector. "I see it happening rapidly," Shonsey says. "If it's not mergers, it will certainly be collaborations or partnerships because I think it's going to be necessary to bring the different skill sets, the different expertise, the different human and capital requirements to the table. I think it's going to be a horse race to find the best partners in the world to [accelerate the cellulose industry] with."

Bryan Sims is an Ethanol Producer Magazine staff writer. Reach him at or (701) 746-8385.