ZeaChem, based in Lakewood, CO, has begun construction of a 250,000-gallon-per-year demonstration plant in Boardman, OR, that will produce chemicals from sugar and eventually ethanol from wood and other cellulosic materials.

Initially, the ZeaChem plant will convert sugar into ethyl acetate, a solvent used in making paints and in decaffeinating coffee. Its technology uses organisms that convert sugars into acetic acid, which can then be made into ethyl acetate. Within a year, ZeaChem plans to add equipment to this process that will allow the production of cellulosic ethanol. This includes a thermochemical process that breaks down wood, converting cellulose into sugars which can then be fed to the ethyl acetate-producing organisms. The process of breaking down the wood leaves behind a residue of lignin, which ZeaChem gasifies to make hydrogen. The hydrogen is then used to convert ethyl acetate into ethanol.

The plant is scheduled to begin producing both ethyl acetate and ethanol by next year. ZeaChem hopes to start construction on a 25 to 50 million gallon per year commercial cellulosic ethanol plant by 2012, says CEO Jim Imbler, but only after starting up a commercial ethyl-acetate plant.

ZeaChem’s plans to put off making biofuels reflect the economic challenges that have kept large-scale commercial cellulosic ethanol production from proceeding as fast as many expected. A renewable fuel standard signed into law in late 2007 requires the use of 100 million gallons of cellulosic ethanol in the United States this year and will ramp up to 16 billion gallons by 2022. But so far no commercial plants are operating, according to the Biotechnology Industry Organization (BIO), a leading trade group representing biofuel companies. The U.S. Environmental Protection Agency announced in February that it was scaling back the mandates to just 6.5 million gallons, which could be supplied by existing small-scale demonstration plants and new plants expected to open this year. That’s up from approximately 3.5 million gallons produced in 2009. The renewable fuel standard requires 250 million gallons of cellulosic ethanol to be used next year, but BIO estimates that about 30 million gallons will be produced at planned plants. The EPA plans to announce any revisions to next year’s requirement by November.

Several companies have had to delay or scale back plans for cellulosic ethanol plants. For example, Range Fuels, based in Broomfield, CO, announced in 2007 that it expected to open a 20-million-gallon-per-year commercial facility in 2008, but it’s pushed that back to this year and reduced the capacity to 10 million gallons. “The economic downturn severely constrained progress on commercializing cellulosic biofuels,” says Range Fuels CEO David Aldous. “The downturn restricted access to capital, which put a number of commercial cellulosic biofuels plants that had been announced in 2008 on hold.”

Mascoma, based in Lebanon, NH, has built a 200,000-gallon-per-year demonstration plant in New York, but it was initially intended to have a capacity of about half a million gallons per year. Plans for a plant that would produce 20 to 40 million gallons a year in Michigan are being delayed from 2012 to 2013 because of trouble securing financing, in spite of government help.

ZeaChem’s Imbler says the recession is actually helping in some ways, by decreasing the costs of materials and making it easier to hire good workers. The company’s strategy for making the business a financial success and attracting investment for commercial scale plants is to start by producing ethyl acetate, which “takes about half the equipment and sells for twice the price of ethanol, so it’s an ideal starter product,” he says. Other biofuels companies are taking a similar approach–looking for high value products to offset high costs, at least initially. ZeaChem plans to incorporate the technology into an existing corn ethanol plant for commercial production of ethyl acetate. “If all goes well, that plant could be in operation by the end of next year,” he says. A stand-alone commercial cellulosic ethanol plant would follow. It could switch between selling acetic acid, ethyl acetate, or ethanol, depending on the market.