By Mara Lemos Stein
12/1/2008 – Stratos Renewables Corp. took another step towards its goal to be a significant producer of sugar cane ethanol in Peru by securing a stretch of land in the northern coastal region of the Andean country for planting enough raw material to produce up to 90 million gallons annually.
Because of an agrarian reform in the country during the 1970s, acquiring large swathes of land and securing the water rights is one of the most difficult hurdles for investors in the budding Peru ethanol sector, said Sanjay Pai, chief strategy officer for Stratos, in an interview with Clean Technology Insight.
“One of the main difficulties has been acquiring sufficient contiguous land,” said Pai, who joined the company in June and who is also an executive with Brazil’s Comanche Clean Energy Corp., which operates two sugar and ethanol mills in Sao Paulo state.
Stratos declined to disclose the size of the acquired property, but said that historically high sugar cane yields of 160 metric tons per hectare in Peru mean that producing 90 million gallons/year takes a lot less land than in Brazil, where yields are approximately 90 tons/ha.
Peru is attracting many investors for its biofuel industry thanks to its high cane yields, a government mandate to introduce ethanol as a gasoline additive at a 7.8% mix from 2010, and a free-trade agreement with the U.S., which allows it to export ethanol to the U.S. duty free. The U.S. currently imposes a tariff of 54 cents per gallon on sugarcane ethanol from Brazil, which makes it uneconomical to ship the alternative fuel from there.
“The [ethanol] mandates in the U.S. are being expanded, and there hasn’t been any new plant construction in the last year-and-a-half, so I think that by the middle of next year there’ll be a demand increase in the U.S.,” he said.
The U.S. has a mandate to mix 10% of ethanol into gasoline, and legislation that foresees the use of up to 36 billion gallons in 2022, from approximately 9 billion gallons this year.
The fact that producing corn-based ethanol isn’t as energy-efficient as making cane-based ethanol, as well as consumers’ concern over a food such as corn being diverted into fuel creates an opportunity for imports from Peru.
Stratos has one small plant under renovation that will start production by the third quarter of 2009, said Pai. The plant will use purchased cane and produce about 9 million gallons of ethanol per year, mostly for the domestic market.
Peru doesn’t currently produce any ethanol fuel, according to a recent study by the Asia-Pacific Economic Cooperation, but its cost of production is one of the lowest amongst the countries in the group, behind only Mexico.
The small plant will also serve as a training lab for the larger facility to be built in the land Stratos just acquired. Stratos will be running its own cane plantation, which will use drip irrigation for both keeping the crop moist and fed with nutrients. The land is sand-like and the company is currently working with engineers on the irrigation system.
The refinery will be built with equipment coming mostly from Brazil, with some parts from the U.S., said Pai. Production of about 45 million gallons is expected in early 2011, rising to 90 million over the next few years. Most of the output of this refinery is intended for export, primarily to the U.S. but also to Europe and the Far East.
Logistics of exporting ethanol from Peru are much more attractive than those for Brazil, said Pai. Stratos’ property will be about 50 kilometers from the coast, where there’s a fuel terminal, he said. That compares with about 500 kilometers at least for most of Brazil’s production in the center-south region, its main producing area.
Stratos, which lists its stock in the over-the-counter Bulletin Board market, is a development-stage company and raised $10 million in a private round of financing in November of 2007, when it changed its name from New Design Cabinets Inc. It also raised $11.6 million this year from investors, including hedge funds, private equity funds and environmental funds such as RNK Capital LLC.
