Kentucky has potentially maxed out on new investments for grain-based ethanol production, but there could be a new energy source on the horizon - cellulose from wood and native grasses.

There has been more than $9 million in Kentucky Agriculture Development funds and even more in private investment made in Commonwealth Agri-energy in Hopksinville, and now Alltech Inc. of Nicholasville has plans for a $40 million biorefinery in Springfield that would produce 10 million gallons of grain-based ethanol a year. The company, however, also plans to move into cellulose-based ethanol production.

Commonwealth purchased more than 12 million bushels of corn and produced more than 33 million gallons of ethanol and other byproducts last year, according to a report from the company. Company board member Wayne Hunt said each bushel of corn produces 2.8 gallons of ethanol.

Meanwhile, Alltech received preliminary approval in October for about $8 million in state tax incentives, under new legislation pushed through this year for energy companies.

Mark Coffman, director of engineering and projects for Alltech, said they’re currently testing a mixture of 30 percent cellulose ethanol and 70 percent grain ethanol.

“So eventually we would like to see production phased over, if not partially to cellulose, then to all cellulose,” Coffman said.

Cellulose comes from such things as wood biomass and native grasses such as switch grass. To realize the potential of the cellulose fuel production, Alltech has applied for a $30 million research and development grant from the U.S. Department of Energy.

Typically, fewer than 12 companies apply for the available funding, but this year more than 75 have held out their hands for some of the $300 million pot.

“They hope to award 10 grants for the maximum $30 million,” Coffman said.

M. Scott Smith, dean of University of Kentucky’s College of Agriculture, said it is good that the company could eventually produce cellulose-based ethanol.

“There are (several) facilities across the country, including one in Tennessee, that are seriously working on that,” Smith said.

Grain-based ethanol currently provides 8 to 10 percent of energy needed in the country, and cellulose-based ethanol could probably make up another 10 percent or so, he said. Still, he emphasized, there is no simple way to reduce the United States’ dependency on foreign oil.

“There are lots of different energy sources that have to be invested in,” Smith said.

UK has several test plots across the state growing switch grass - experimential to see what it takes to grow and harvest the product, then get it to market.

“It’s not as easy as you might think,” Smith said, pointing to the likely need to transport large round bales of the switch grass.

The university also is studying ways that producers could deal with wood biomass, which could either be chipped or ground on site or taken as is as a byproduct of the lumber milling process.

Most research now shows that straight grain-ethanol produces less energy than a gallon of gasoline, decreasing fuel efficiency anywhere from 10 percent 20 percent. Yet while research into such uncertain technologies once seemed too costly, Coffman said the current oil market makes it more attractive.

“I think it’s wide open,” he said. “With oil now approaching $100 a barrel, investing the money in these alternative technologies makes more sense.”

That high cost of oil has translated into gas prices nearly 75 cents higher than they were a year ago; until Friday afternoon, prices in Bowling Green varied from $3.06 to $3.09 for regular unleaded. On Saturday, however, it could be found for as little as $2.95 a gallon.

Producing wind energy in Kentucky is not very feasible, Coffman said, and hydropower, while relatively cheap, prsents environmental issues. But Kentucky has an abundant source of wood and is well suited to plant fast-growing trees that can be easily harvested and replaced.

Bowling Green resident Sam Lawson, who is on the ag development board, said his board has likely distributed all the development funds it will to ethanol-related projects.

“We started with the easy way firs: taking corn and making ethanol,” Lawson said. “It is easy to haul and get to production.”

Because other forms of fuel may take more thought to get to production, Lawson said Kentucky needs to carefully monitor its progress and investments in that area, and that the board would like to see more research.

“We don’t want to have any unintended consequences,” he said. “So we will try to listen to what the market dictates.”

Both Lawson and Smith noted the unintended consequences that corn-based ethanol production has had on the market. Farmers selling their corn for ethanol, coupled with the drought, pushed corn prices high - good for growers, but tough for farmers who needed to purchase corn for livestock.

Smith said research will need to be done to see if farmers can get paid enough to grow and haul switch grass to make it worth their while.

“The problem is is that because it is so low-impact, they are only going to pay so much for it,” he said. “We can grow anything here, but can we get it to market?”