(Updates with comments on demand for 2nd generation ethanol)
By Marcelo Teixeira
PIRACICABA, Brazil, July 22 (Reuters) - Brazilian sugar and ethanol producer Raizen secured deals to export cellulosic ethanol to Europe at a 26 percent premium over conventional ethanol prices, the company's head of sugar, ethanol and energy, Joao Alberto Abreu, said Wednesday.
Raizen, a joint venture between local conglomerate Cosan SA and Royal-Dutch Shell Plc, has seen interest for all of the second generation ethanol it can produce this year at a premium of 0.30 reais/liter ($0.35/gallon) over conventional ethanol, Abreu said, attributing the strong demand to environmental concerns abroad.
For now, however, Raizen only plans to start building additional second generation ethanol capacity after production costs for cellulosic biofuel become competitive with conventional ethanol costs, Raizen Chief Executive Vasco Dias said earlier on Wednesday.
The company inaugurated its first second-generation biofuel plant in Piracicaba on Wednesday.
The plant currently produces cellulosic ethanol at about 1.40 reais a liter, compared with 1.15 reais/ltr for conventional ethanol. Cellulosic ethanol costs are expected to converge on conventional costs in 2017 and drop below them in 2018, Raizen executives said.
The Piracicaba plant has been operating since December but is still struggling to overcome some of the early obstacles such as excess sand in the machinery and high enzyme costs. The plant can produce 26 million liters a year and plans to expand capacity to 42 million liters/year in October.
It is only expected to produce 10 million liters in 2015, however, as it works through operational kinks.
Raizen hopes eventually to build eight second-generation ethanol plants along side some of its existing conventional sugar and ethanol mills over the coming years.
Writing by Reese Ewing; Editing by Bernard Orr