The United States recently moved one step closer to energy independence this past Friday as the Department of Energy Secretary Steven Chu, and Agriculture Secretary Tom Vilsack, announced the first wave of grant money towards biofuel. While the corn ethanol dream in America is pretty much over, as many of the main producers have filed for bankruptcy or had their assets folded into more traditional oil companies (such as VeraSun into refiner Valero (NYSE:VLO)), biofuel from non-feed stocks or from waste are another matter.

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Advanced biofuels are those that do not rely on the corn kernel starch, with cellulosic ethanol being created from plant material such as switch grass, forest waste, fast-growing trees like bamboo and wood chips. Nearly $564 million in stimulus money stemming from the American Recovery and Reinvestment Act was handed out to 19 different manufacturers of advanced biofuels, spanning 15 states, in order to create commercial production plants using these non-traditional methods.

The Bio-Revolution
Secretary Chu said "Advanced biofuels are critical to building a cleaner, more sustainable transportation system in the U.S. These projects will help establish a domestic industry that will create jobs here at home and open new markets across rural America."

The grants go a long way in helping the federal government meet its aggressive deadline of producing 36 billion gallons of biofuel a year by 2022. Many industry insiders and analysts believe that this goal will be hard to reach. In addition, the short-term goal of 100 million gallons of cellulosic ethanol production for 2010 will also be hard to hit if these projects don't live up to their potential.

The biofuel produced through these projects will displace petroleum and help to achieve lofty production targets mandated by the federal Renewable Fuel Standard (RFS).

The Winners of the Grants
Most of the grants went to small start ups and early stage developmental companies, such as Logos Technology's $20.4 million grant for a plant to convert switchgrass into ethanol. However, there are some publically-traded winners that might good additions to an alternative energy portfolio.

Investors tend to think of Honeywell (NYSE:HON) as just another cyclical industrial, but the company has begun some big moves into the green arena. Its building efficiency unit has proven to be profitable and with its UOP subsidiary, it has moved into the green fuels market. The Department of Energy bestowed $25 million in order to build and develop a plant in Kapolei, Hawaii to turn a variety of crops and into fuels. This comes on the heels of recent announcements that the company's "ecofining" technology in partnership with Italy's Eni (NYSE:E) was selected to power vehicles at the United Nations Framework Convention on Climate Conference (UNFCCC) in Copenhagen.

As corn ethanol is concerned, Archer Daniels Midland (NYSE:ADM) is one of the few real leaders. The Ag processor has recently taken steps to diversify itself away from straight corn-based fuels, by receiving a grant of $24.8 million to build a plant that uses acid to help break down wood mass into fuels.

Rentech (AMEX:RTK) and partner Clearfuels Technology will get $23 million in grants to add a gasifier to existing facilities. This will help in the process of turning woody biomass into diesel and jet fuel. Other partners in the Aiea, Hawaii plant include construction company URS Corporation (NYSE:URS) and utility Hawaiian Electric (NYSE:HE).

The Bottom Line
The next phase in biofuel is beginning to take form as the Department of Energy's recent stimulus grant winners dictate. By using alternative feed stocks away from food sources, there is promise in the alternative fuels market. These companies are a great way to play to the grants and the future with regards to biofuel. (To learn more about biofuels, see The Biofuels Debate Heats Up and Peak Oil: Problems and Possibilities)

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Tickers in this Article: HON, ADM, RTK, E, VLO, URS, HE

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