MADRID Oct 15 (Reuters) - Spanish energy company Abengoa (ABG.MC) could start selling cellulose ethanol in four years from a new plant it is building in the United States, the chairman of the firm's renewables subsidiary said on Monday.
Industrial production of cellulose ethanol -- using vegetation like wood, switch grass or straw -- is seen by many as preferable to producing biofuels from cereals, alcohol or sugar aS it will not put the same pressure on world food prices.
Abengoa Bioenergia said on Monday it will build and open the biomass ethanol plant in Hugoton, Kansas after signing a contract with the U.S. government for $38 million to fund the first stage of the plant.
The U.S. government's Department of Energy will later provide further subsidies for the plant to bring its total investment to $76 million.
"The construction (of the plant) will take no less than two years, so we are talking about three-and-a-half to four years", chairman Javier Salgado told Reuters/EP.
Abengoa will refine its methods of producing cellulose ethanol at a pilot plant which it opened last week in the state of Nebraska.
"In the pilot plant we are going to try to reduce costs and try new primary materials because we want the plant to be able to process various (materials), including the bagasse (waste) from sugar cane", said Salgado.
Over the next five years, Abengoa plans to invest more than $500 million on research and development into cellulose ethanol production.
Made from biomass, cellulose ethanol emits between six to eight times less CO2 than traditional ethanol produced from cereals, alcohol or sugar.
As the biofuels sector sees its margins squeezed through higher grain prices, Abengoa hopes these second generation biofuels will start to command higher prices in the market.
"I think we are going to be able to extract greater value because this is a product which has a better life cycle", said Salgado.
Salgado said even at current oil prices, which on Monday reached a record above 85 dollars per barrel CLc1, Abengoa Bioenergia's cellulose ethanol plants would be competitive.
Abengoa could open further cellulose ethanol plants in Europe, building them next to current plants, said Salgado. The company is already studying opening one in Galicia, in the north-west of Spain.
Despite its efforts to develop second generational biofuels, the Spanish group is maintaining its strategy to increase production capacity for traditional bioethanol, said Salgado.
"We are going to continue with our plans. In fact, we are going to go even further since others are doing less", he said.
Abengoa Bioenergia is currently arranging financing for a plant in Rotterdam, which will have capacity of 480 million litres a year and require investment of 500 million euros.
The company is also planning two plants of similar capacity in the UK and Germany and does not expect to have financing problems in spite of current nerves in Spain's credit market.
"We have closed all our financing successfully and we expect to continue doing so," said Salgado.
Abengoa Bioenergia will close 2007 with healthy results in spite of rising grain prices, he said.
At the end of September, Abengoa said it had suspended bioethanol production at the biggest of its three Spanish plants, in Salamanca in central Spain, because high barley prices were making it unprofitable.
Production remains suspended, said Salgado.
Abengoa's plants in Galicia and Murcia, in southern Spain, have started to import maize as a primary material, he said.