Brazilian development bank BNDES has approved a US$150 million loan for the second generation ethanol project of locally based GranBio Investimentos Group, which would be the first commercial-scale cellulosic ethanol plant in the country. The bank's investment arm, BNDESPar, announced in December that it would take a 15% equity stake in the project.

The plant, which will be built in the municipality of São Miguel dos Campos in the northeastern state of Alagoas, will produce 82 million litres of ethanol a season using cane bagasse as a biomass feedstock.

GranBio plans to develop green plastics as well as biofuels and enhanced genetic material for sugar cane varieties with the project. The 100% Brazilian-owned company acquired a 25% stake in April in US American Process Inc, giving it access to the company's biomass processing technology.Research into cellulosic ethanol production has made major advances in the laboratory over the past decade but the new technologies have not been fully tested on a commercial or industrial scale, which raises the stakes for investments in plants at this stage. According to analysts, the first plant to produce large volumes of cellulosic ethanol will get a premium price but new second generation ethanol plants may be obsolete or unsustainable in a matter of a few years.

Brazil's sugar cane ethanol sector has seen investments into building cellulosic ethanol plants in the past several months, including eight plants by Raizen -- the joint venture between Brazilian sugar and ethanol giant Cosan and oil major Royal Dutch Shell.