Aventine, Verenium on the Ropes

Submitted by R-Squared Energy Blog

Reality is starting to catch up with prospective cellulosic ethanol producers. I felt like this was bound to happen, but the poor economy is making it happen faster than I expected. I expected some plants to be built, and then they would bleed red ink for a while before declaring bankruptcy. But many are running into trouble before breaking ground on a plant:

Time Running Out For Aventine

Late Monday, Aventine Renewable Energy Holdings (nyse: AVR – news – people ) announced it didn’t expect to have enough capital to cover an upcoming $15.0 million interest payment due April 1 on an outstanding senior unsecured 10.0% fixed-rate note or to pay $24.4 million due to its engineering and construction contractor, Kiewit Energy. It also said it may need to seek Chapter 11 bankruptcy protection if it cannot raise the cash.

Aventine was also delisted this week from the New York Stock Exchange:

NYSE delisting ethanol producer Aventine

The NYSE said the Pekin, Ill.-based company’s market cap fell below its required $15 million level for 30 consecutive days. The exchange recently relaxed the rule from $25 million because of market volatility and decline.

While “Aventine has had a cellulosic project underway since 1990“, I don’t believe they had announced a facility. Verenium, on the other hand, had been in the news for an announced $300-million cellulosic ethanol plant in Florida. The only problem is, they need $300 million:

Auditor questions Verenium’s ability to continue

An outside auditor for Verenium Corp. said in a filing Monday that the advanced biofuels company may have to “curtail or cease operations” if it cannot raise additional capital. Verenium, in an Ernst & Young audit opinion included in a year-end report filed with the Securities and Exchange Commission on Monday, said its operating plan and existing working capital deficit raises doubt about its ability to continue.

“We continue to experience losses from operations, and we may not be able to fund our operations and continue as a going concern,” Verenium said in the filing. The company said it will need additional capital to fund operations, including about $300 million to complete its commercial cellulosic ethanol plant with BP.

In a related story, I am announcing my plans to build the world’s largest algal biodiesel plant in Texas. But I will need someone to loan me $800 million so I can build the 20 barrel per day facility.

As I noted in an essay last month, capital costs for the proposed Verenium facility are quite high relative to comparable corn ethanol plants which are themselves struggling to survive. I speculated that Verenium would be not be able to make cost-competitive ethanol, and would only survive via mandate. Looks like even that may have been too optimistic.

In the long run, though, I stand by my assessment that conventional cellulosic ethanol will never be viable. I just wonder how many tax dollars we will throw at the problem before it is widely recognized.

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