By Jennifer Kho

The U.S. Department of Energy will invest up to $385 million in six cellulosic ethanol plants, DOE Secretary Samuel Bodman said on Wednesday.

It’s a jump from the $160 million announced a year ago. The plants will produce more than 130 million gallons of ethanol from the non-food part of crops, such as wood chips, corn stalks, and switchgrass, according to the DOE.

“These biorefineries will play a critical role in helping to bring cellulosic ethanol to market and teaching us how we can produce it in a more cost-effective manner,” Mr. Bodman said. “Ultimately, success in producing inexpensive cellulosic ethanol could be a key to eliminating our nation’s addiction to oil.”

The grants are going to six companies: up to $80 million to Iogen Biorefinery Partners, for a plant in Idaho; up to $80 million to Broin Companies, for a plant in Iowa; up to $76 million to Range Fuels, for a plant in Georgia; up to $76 million to Abengoa Bioenergy Biomass, for a plant in Kansas; up to $40 million to BlueFire Ethanol, for a plant in California; and up to $33 million to ALICO, for a plant in Florida.

The news follows President George W. Bush’s proposal to require 35 billion gallons of renewable fuels by 2017, announced in January (see Bush Backs Alternative Fuels, US Treasury Pitches Alt Fuel Plan). Companies said the grants show the DOE recognizes the cellulosic ethanol’s importance in reducing global warming and growing energy security.

“Secretary Bodman said this morning the increase in funding is a reflection of the priorities of this administration,” said Jeff Passmore, executive vice president at Iogen. “When you consider the $385 million directed toward cellulose ethanol is 40 percent of the total cost of those six projects, that’s a lot of money. It’s a big sum, and a great first step.”

The U.S. Department of Energy estimates that starch-based ethanol production will top out at 12 billion gallons a year unless the industry taps into food crops (see The Fuel of the Future?,Ethanol: Cellulose Break Down, Ethanol=Soaring Corn Prices?).

That falls short of the 35-billion-gallon goal, meaning the country will need to turn to other sources—namely cellulosic ethanol—to reach its goal, analysts say.

“There’s a very wide gap,” said Rick Kment, a biofuels analyst at research firm DTN. “There’s no one in the ethanol industry that foresees grain being a majority part of that in the first place.”

But so far, cellulosic ethanol has been limited to pilot- and demonstration-scale plants, and hasn’t proven economical to make in larger volumes, he said.

“To really get to the numbers that we need, we’re going to really need to focus on cellulosic ethanol as being a large part of ethanol production,” said Mr. Kment. “It’s commercially uneconomical right now, so we’re going to need more research and more funding.”

Of course, none of the companies actually have the money yet, Mr. Passmore said. Winning the grant is a first step; then companies must negotiate for the actual amounts they will get, pass those proposals through Congress, and seek additional financing for the rest of the money needed to build the plants.

Still, grants are especially important to the capital-intensive biofuels industry (also see Imperium Raises $214M), said Range Fuels CEO Mitch Mandich, adding his company expects to break ground in the next few months.

“I see this as a pretty aggressive step on the part of the DOE to really help launch new technologies,” he said.