Cellulosic ethanol developer Range Fuels said today that it has been awarded a construction permit to build its first commercial scale plant.

Groundbreaking is to take place this summer in Treutlen County, Georgia for an intial 100-million-gallon-per-year plant that is to produce ethanol from wood waste from local forests, although the initial capacity is to be just 20 million gallons a year. Construction is to finish in 2008.

It's the first tangible step on a long road towards the company's previously announced target of a billion gallons of cellulosic ethanol annually, when it first announced its production facility in February of this year (see Range Fuels to produce 1B gallons of cellulosic ethanol.)

"Yes, it's a small step, but a very significant one," acknowledged Mitch Mandich, CEO of Range Fuels, to Cleantech.com.

"We're going to have a couple of phases going from 20 million gallons a year to 100 millions of gallons per year, which we have sited and permitted [in Treutlen County.] We want to see it as one of many plants throughout Georgia and throughout the southeast."

Mandich, a former Apple Computer executive who tried to retire in 2000 but reinvented himself as a venture capitalist, whereupon he met Vinod Khosla (who founded Range Fuels), said the biggest factor governing Range's expansion was money.

"These first-of-a-kind in the world projects require a lot of capital. Investors want to see something that's beyond pilot scale and that does get to commercial size. Beyond that, it's a funding game. It's all about the ability to raise hundreds of millions of dollars, if not billions of dollars to scale out these plants."

Range Fuels uses a type of thermo-chemical conversion process, which it brands its K2 system; it's a two step process that converts biomass to synthesis gas, and then the gas to ethanol. It's similar to processes used by companies like ThermoChem Recovery International (TRI), Syntec and others.

Range claims its technology can transform many kinds of biomass, including wood chips, agricultural wastes, olive pits, grasses, cornstalks, hog manure, municipal garbage, sawdust and paper pulp into ethanol. The company has already successfully tested close to 30 types of biomass for producing ethanol, it says.

Yet while Range's technique allows for flexibility in feedstocks, competitors grouse that it yields fuel of a lower energy balance than that of cellulosic approaches based on concentrated acid hydrolysis or pretreated enzymatic hydrolysis (for details of competing cellulosic vendors' science, watch the free archive of Cleantech.com's one hour webinar What's real and what's not in cellulosic biofuels.)

Range's Mandich maintained that Range's cellulosic ethanol would be ASTM-grade when it ships.

"When we look at our system, we believe we have a significant positive energy balance and we're going to be very proud of showing that and proving that when we get to commercial scale."

In addition to the ability to process a broad range of potential biomass feedstock, Range says K2's modular design can scale from entry level systems to large configurations depending upon the availability of feedstock. Placement of K2 systems near biomass sources would reduce transportation costs, the company says.

Range says it selected Georgia for its first plant based upon the abundance of forest refuse and the renewable and sustainable forest industry. It believes the forests of Georgia can support up to 2 billion gallons a year of cellulosic ethanol production.

The company wouldn't disclose costs, but believes it will have one of the lowest cost cellulosic ethanol processes when in production.

"When you look at fermentation processes or you look to enzymes, it's very expensive. Capital costs for enzymatic approaches are very high, and the production costs are very high," said CEO Mandich.

Government officials praised Range in a joint statement with the company today.

"We look forward to the construction of this plant and are hopeful this is the first of many more to come," said Sonny Perdue, Governor of Georgia.

"We are eager for the results of Range Fuels' work, and the work of the other biorefinery grant recipients, to help increase energy security and enhance economic growth," said U.S. Secretary of Energy Samuel W. Bodman.

Range, along with five other prominent cellulosic ethanol developers, was selected to negotiate for up to $385M in grants from the Department of Energy on February 28. These negotiations are still underway (see Cleantech.com's U.S. government granting $385M to six cellulosic ethanol plants.)

Range Fuels is privately held and funded by Khosla Ventures.