U.S. to Invest Up to $510 Million in Biofuels for Planes, Ships

The U.S. departments of Energy and Agriculture and the U.S. Navy will invest as much as $510 million over three years to spur the development of biofuels for commercial and military transportation.

The three agencies will fund the construction or retrofit of U.S. plants to produce fuels that will be compatible with existing infrastructure, they said today in a statement.

The program is expected to accelerate the efforts of companies trying to create a commercially viable replacement for fossil fuels. The collaboration means the Agriculture Department can provide help in evaluating source crops while the Navy offers a large potential market.

“What we’re doing is providing resources for the construction of these commercial-sized operations, assistance with feedstock, and then also a ready, willing and able customer ready to purchase the product,” Agriculture Secretary Tom Vilsack said during a conference call.

Companies are expected to match the government investment. Funding will be doled out through competitive bids and will be split equally between the three agencies.

Publicly traded biofuel companies with well-defined commercialization plans may qualify for some of the government investment, Stacey Hudson, an analyst at Raymond James & Associates, said today in an e-mail.

‘Attractive Partners’

“The visibility provided by these companies, as well as their relatively strong cash positions following recent IPOs, may make them attractive partners,” Hudson said. “The ability to contribute private money seems like it will be a key factor in the competitive allocation.”

Amyris Inc. (AMRS), Gevo Inc., Solazyme Inc. and Kior Inc. are all developing biofuels and have completed initial public offerings in the last year.

Solazyme also supplied algae-based jet fuel and marine diesel to the Navy for testing. “Companies that have already been in talks with the military may have an advantage,” Hudson said.

Energy Secretary Steven Chu singled out Gevo as a potential candidate. The program “will help companies like Gevo to really begin to scale up and build a pilot plant that could lead to commercialization of large-scale plants,” he said during the conference call.

The Navy set in January 2010 a goal of using alternative fuels for half of its total needs by 2020. That equals about 8 million barrels of biofuel a year, Navy Secretary Raymond Mabus said on the conference call.

The Navy already has authority to invest in renewable fuels, Mabus said. The Defense Production Act, a 1950 law, allows the government to help nascent industries that are vital to national security “get established and get off the ground,” She said. “The Navy can also be the market. We have a big need for biofuels,” he said.

To contact the reporter on this story: Andrew Herndon in San Francisco at aherndon2@bloomberg.net

To contact the editor responsible for this story: Reed Landberg at landberg@bloomberg.net

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