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Ethanol production has proved to be both cost and energy intensive, distilled with basically the same methods used in biblical times. The latest effort to crack that problem is by Northwind Ethanol, which claims that its low-cost method can efficiently make ethanol using feedstocks like sawdust and switchgrass.

Mantra Venture Group, a publicly-traded investment firm, is in negotiations with Northwind to finance a new cellulosic ethanol venture called NextGen, which Northwind projects producing ethanol for less than $1 per gallon. The financing for NextGen has not yet been disclosed, but Northwind CFO Brian Currie’s says that at market prices of $2.20 per gallon for ethanol, far below current prices, the joint venture would yield a return on investment of between 60 and 110 percent.

Currie and company president Fred Enga started Vancouver-based Northwind seven years ago to commercialize the Gaian Starch Process, a low-heat process that breaks down cellulosic feedstocks into fermented sugar. The company says costs for the process are driven below industry norms through efficient construction and production processes. The company retrofits decommissioned mills and distilleries, a plentiful commodity in British Columbia, and utilizing their existing fermentation equipment and infrastructure to significantly lower capital costs.

“Nobody else wants these things,” Currie says. “As long as there’s rail access, we can produce ethanol and ship it out at a low cost.” According to Currie, the venture’s inaugural plant, located in British Columbia with production capacity of 25 million gallons annually, will see $5 million in reduced capital costs from retrofitting. The project will be online in six to twelve months.

The installation will be self-sufficient, generating carbon neutral energy through a closed loop system that captures and uses waste products as energy sources. Mantra President Larry Kristoff claims the plant will generate a surplus of four megawatts annually for sale back to the grid. The company’s output primarily is slated for the Canadian market, with multiple distribution deals signed and one with Canada’s Husky Energy in the works.

There’s no shortage of competition for NextGen. The market for cellosic ethanol startups has seen a flurry of recent activity, with competitors like Mascoma, Range Fuels, and Coskata raising over $400 million in new financing over the past six months. Northwind is trailing the pack in developing partnerships with large multinationals and Washington.

Both Coskata and Mascoma have partnerships with General Motors, while Range Fuels received a $76 million grant from the US Department of Energy. All three are backed by Silicon Valley cleantech powerhouse Khosla Ventures. All of these startups have promised ethanol production at $1 per gallon, but none have yet done so at commercial scale.

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