Leading investors create major biofuel company in Brazil, as bagasse-based cellulosic ethanol advances

A while ago we referred to a small note published in a Brazilian newspaper, saying that a conglomerate of American and Brazilian investors will be creating the country's largest bio-ethanol company with an expected investment of not less than US$2 billion and a goal to produce 3.8 billion liters (1 billion gallons) of sugarcane based ethanol per year. One of the financiers of the new company supposedly was Vinod Khosla, founder of Sun Microsystems and investor in cellulosic ethanol in the U.S (previous post).

We can now confirm that this enterprise is indeed in the making. What's more, not only Khosla is involved, but some of the world's most successful entrepreneurs are so as well: supermarket magnate Ron Burkle, ex-World Bank President James Wolfensohn, and the co-founder of AOL, Steve Case, are investors. The firm will be managed by Philippe Reichstul, the ex-president of Brazil's state-owned oil company Petrobras SA.

The new Brazil-focused ethanol company is called 'Brazilian Renewable Energy Company Ltd.', or 'Brenco', and raised US$200 million in a first private placement of its common shares this week. Goldman Sachs is the exclusive placement agent for the new company. "This US$200 million that was raised is just an initial placement; US$2 billion is the target," said a source, adding that the placement was very well received.

Brenco's goal over the next 10 years is to reach an annual output of 3.8 billion liters (1 billion gallons), or the equivalent of around 46,000 barrels of oil equivalent per day. This would make it the world's largest biofuel company. By comparison, the country's largest miller to date, Cosan SA, which accounts for under 10% of Brazil's total ethanol output, produced 1.27 billion liters in the 2006-07 season.

Samir Kaul, a general partner of Khosla Ventures, the venture fund founded by Vinod Khosla, indicates that corn ethanol is out of the loop because it is inefficient and can never compete with its sugarcane based rival:

"We are obviously very bullish on biofuels and using sugarcane to make ethanol. It's a cheaper process, it's more favorable for the environment, and they have their costs well below a dollar a gallon in Brazil. So it makes it much more competitive given that corn is high."

Progress on bagasse-based cellulosic ethanol
Sugarcane based ethanol of the 'first generation' currently has an average energy balance of around 1-to-8 up to 1-to-10 (earlier post), meaning that for each unit of energy invested in producing the fuel (growing, harvesting and processing the crops), 8 to 10 units of net energy are obtained. This makes it the most efficient biofuel currently available. By comparison, ethanol made from corn has a marginal energy balance, slightly higher than 1, while some scientists say it can even be negative (earlier post). Biodiesel made from rapeseed has a balance of around 1.5 to 2, whereas cellulosic ethanol based on crops grown in temperate climates is expected to have a balance of 2 to 4.

When sugarcane stems are crushed, a fibrous biomass residue known as bagasse is left over. In Brazil's bioenergy industry, this abundant resource is currently burned for the production of power and heat, which is used by mills and ethanol processing plants, whereas excess electricity is fed into the grid. But the residue can also be converted efficiently into next-generation green fuels, such as synthetic biofuels via a biomass-to-liquids process based on gasification and Fischer-Tropsch synthesis (earlier post), or into cellulosic ethanol via a biochemical conversion process (using enzymes to break down the biomass). If this effort is pursued on a large scale, the energy balance of sugarcane based biofuels would become extremely high and may reach a ratio of around 1-to-12. This comes close to the energy balance of petroleum-based fuels.

The news of the creation of Brenco comes precisely at a time when Brazilian biofuel companies are beginning to achieve their first positive results in the utilisation of this biomass for the production of next-generation fuels.

Dedini SA announced it has already begun producing cellulose ethanol in small amounts from the fibrous waste stream. Operations Vice-President Jose Luiz Oliverio said Dedini is making 100 liters per day of cellulose ethanol from bagasse in a pilot plant, for about 25 cents per liter, the same as ethanol made from cane juice. The company aims to start building commercial cellulose mills with a capacity of 50,000 liters per day in five years.

Likewise, Petrobras today announced it is investing in a pilot cellulosic ethanol plant at its headquarters in Rio de Janeiro, where the same resource, bagasse, will be converted into liquid fuel using the biochemical pathway:
biomass :: bioenergy :: biofuels :: energy :: sustainability :: sugarcane :: bagasse :: ethanol :: cellulose :: biomass-to-liquids :: Brazil ::

Similar energy yields and cost scenarios may be expected for biofuels made from other tropical crops, such as sweet sorghum, cassava or sweet potatoes. One thing is clear, though, biofuels produced in temperate climates can never compete with 'tropical biofuels', giving the developing world an inalienable competitive advantage over the North.

It is because of these facts that Brenco was founded. Other key investors in the new company include film producer Steven Bing, and local investors Tarpon All Equities LLC and Grupo Semco. Brenco is incorporated in Bermuda, but has headquarters in Sao Paulo, according to sources.


Brazil is the world's leading sugar producer and exporter. It is also the world's leading ethanol exporter and shipped out a record 3.4 billion liters of ethanol in 2006, or about a fifth of the country's total production of some 17 billion liters. Global interest in Brazil's cheap cane-based ethanol has boomed in recent months due to high world oil prices and growing climate change concerns among other factors.

An influx of private equity money into the Brazilian sugarcane sector has followed, including U.S. investment company Kidd & Co., which helped finance young, bioenergy company Infinity Bio-Energy.

Infinity Bio-Energy, which listed on the London stock exchange's junior market, or AIM, last May, now owns four operational Brazilian sugarcane mills that are set to crush 5.5 million tons of cane in the 2007-08 season.

In addition, there is the Cayman Island-incorporated Bioenergy Development Fund, which has financing from France's third-largest bank, Societe Generale, but has yet to announce any acquisitions in the sector.

Another recently formed company, Clean Energy Brazil, which raised GBP100 million on AIM in December, is planning to invest in three mills in Parana in coming months. Local press reports had originally put Brenco's capital holdings as $2 billion.