Poet's cellulosic ethanol strategy: Dump fed loan, partner with DSMPOET, the largest ethanol maker in the U s.,has turned down a $105 million federal loan guarantee that would have financed one of the country's first commercial cellulosic ethanol plants. Poet's cellulosic ethanol dreams aren't dead. They've just found a new partner. Poet announced today it has established a joint venture with life sciences company  Royal DSM to commercially demonstrate and license its cellulosic ethanol made from corn cob and crop residue.  The joint venture, called POET-DSM Advanced Biofuels LLC, is scheduled to start production in the second half of 2013. Poet has been working towards commercial production of next-gen cellulosic ethanol for more than a decade. In 2006 it partnered with Dupont to find cost effective ways to bring corn stover-ethanol to market. Two years later, Poet built a pilot plant in Scotland, South dakota, where it began testing its cellulosic ethanol production process. Poet plans to eventually scale up its production to 25 million gallons a year at Project Liberty, the company's long-planned  cellulosic plant in Emmetsburg, Iowa. The new venture will convert corn cobs and crop residue into ethanol in a multistep process.  Once the stovers, husks and leaves are collected and milled, they are broken further down by  enzymatic hydrolysis, a process that  converts the cellulose and hemicellulose into sugars, which are fermented and made into ethanol. The first commercial demonstration will be at Project Liberty, which is being constructed adjacent to the company's existing corn ethanol plant. The initial capacity is expected to be 20 million gallons in the first year and will grow to 25 million gallons, according to release from Poet. The venture will initially spend $250 million, which will be invested in the Project Liberty facility. DSM, which makes vitamins and biochemicals, will contribute its enzyme and yeast technologies. If successful the joint venture plan to replicate and license the tech to additional plants to be built at Poet's 26 other corn ethanol facilities, and potentially to other ethanol makers as well. If the tech is replicated at every Poet plant, as much as 1 billion gallons of cellulosic ethanol could be produced each year, the company said. That would be far more than the amount of cellulosic ethanol currently being produced commercially in the United states. Cellulosic ethanol production was supposed to hit 500 million gallons in 2012. Instead, the EPA says it will be 8. 65 million gallons or 0. 0006 percent. And it's likely not even that target will be hit.  As of October, not a single gallon of qualifying cellulosic ethanol was produced, according to the EPA. Not a single commercially viable biorefinery exists for converting cellulosic biomass to fuel, according to the National Resource Council. Photo: Poet Related: Bioengineering e coli to turn seaweed into fuel Fed-backed Range Fuels sells plant for pennies on the dollar Chemical giant BASF invests in biomass-to-sugar startup Next-gen biofuels in 2012: Another mandate missed (and by a lot

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