Range Fuels, a startup based in Broomfield, CO, has broken ground on what could be the first plant to make commercial-scale quantities of ethanol from cellulosic biomass. But the news isn’t necessarily a signal that ethanol from wood chips and grass is ready to compete with ethanol from corn grain. Commercially viable cellulosic ethanol may still be many years away.

The Range Fuels plant, to be located in southeast Georgia, could be producing ethanol as soon as next year. It’s being funded by the U.S. Department of Energy (DOE) as part of the agency’s effort to increase the use of biofuels. The DOE is providing a total of $76 million to the company for the construction of its new plant. At first, it will produce 20 million gallons, eventually increasing that amount to 100 million.

Almost all of the more than five billion gallons of ethanol produced in the United States has been made from cornstarch. But ethanol from cellulosic sources is an attractive alternative because it could potentially require less fossil-fuel energy to produce, and its supplies of biomass are vast. Indeed, if biofuels are ever to displace more than about 10 percent of gasoline in the United States, cellulosic ethanol will be essential. But making ethanol from cellulosic biomass is much more difficult than making it from cornstarch. And the process for converting biomass into biofuels has not been economically viable.

However, Range Fuels CEO Mitch Mandich says that the company can produce ethanol at prices competitive with corn-based ethanol–even factoring in the high capital costs associated with building a cellulosic-biofuel plant. Range Fuels has developed a two-step thermochemical process for converting wood chips and other types of biomass into a combination of alcohols that include ethanol, methanol, propanol, and butanol. In the first step, called gasification, heat, pressure, and steam convert biomass into a mixture of primarily hydrogen and carbon monoxide. This gas mixture, called syngas, is then exposed to catalysts that convert it into alcohols. The process is similar to the Fischer-Tropsch process that has been used for decades to convert coal into liquid fuels.

Mandich says that a combination of a new, proprietary catalyst and improvements in the design and engineering of the plant can make the process economical. Also, the company is locating the plant close to supplies of wood chips, minimizing the transportation costs associated with bulky biomass. In addition, the company plans to blend the ethanol with gasoline and sell it locally to drivers, reducing the costs of shipping the biofuel.

But since the company is depending heavily on funding from the federal government to build the first plant, it is difficult to gauge whether its process is actually commercially viable. Earlier this year, the DOE announced funding for six cellulosic-ethanol plants. The first installment of Range Fuels’ award will be $50 million to build a 20-million-gallon-a-year plant. Mandich declines to give estimates on the total cost of the plant. But the typical cost of corn-ethanol plants is about $2 per gallon of capacity, or $40 million for a 20-million-gallon plant. Even if the cost of Range Fuels’ plant is twice as much as that of a conventional plant, or $80 million, the DOE is providing the lion’s share of the investment–money that Mandich says is “very important” to the success of Range Fuels. Such a heavy dependence on government financing, rather than on private investors, could suggest that commercially viable cellulosic ethanol remains a good way off.

What’s more, there are many unknowns about how well the thermochemical process will work when it comes to making commercial-scale quantities. Past attempts by scientists at the National Renewable Energy Laboratory (NREL) to scale up thermochemical techniques showed that smaller systems that work well face problems when processing chambers are bigger. Also, plants operating at high temperatures and pressures tend to deteriorate quickly, adding to costs. The latter concern might be less of a problem now, however, says Steve Deutch, a senior research scientist at NREL, because of the more-resilient materials.

Thermochemical approaches to making biofuels, such as Range Fuels’ approach, also face competition from new biological methods that use enzymes and organisms to break down cellulose and produce ethanol. Indeed, in September, Mascoma, based in Cambridge, MA, announced that it would build a cellulosic plant in Monroe County, TN, that will make ethanol from switchgrass. At this point, it’s still not clear which approach will work best, because no commercial-scale plant of either type is operating. During the DOE’s funding earlier this year, the agency backed both thermochemical and biological approaches.

Ultimately, it’s still too soon to predict how successful early attempts like Range Fuels’ will be. “It’s hard to make money on the first one of anything,” says Lanny Schmidt, a professor of chemical engineering and materials science at the University of Minnesota, who is also developing thermochemical methods for making biofuel. However, if the first plant works as well as Mandich hopes, the production of cellulosic fuel could quickly accelerate.

“Who knows how the economics will work out?” Schmidt says. “You have to build it and see what happens. It’s a wise move on DOE’s part to try different technologies, because no one knows at this point who’s going to be the winner.”