(Updates with comments on demand for 2nd generation ethanol)
By Marcelo Teixeira
PIRACICABA, Brazil, July 22 (Reuters) - Brazilian sugar andethanol producer Raizen secured deals to export cellulosicethanol to Europe at a 26 percent premium over conventionalethanol 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 interestfor all of the second generation ethanol it can produce thisyear at a premium of 0.30 reais/liter ($0.35/gallon) overconventional ethanol, Abreu said, attributing the strong demandto environmental concerns abroad.
For now, however, Raizen only plans to start buildingadditional second generation ethanol capacity after productioncosts for cellulosic biofuel become competitive withconventional ethanol costs, Raizen Chief Executive Vasco Diassaid earlier on Wednesday.
The company inaugurated its first second-generation biofuelplant in Piracicaba on Wednesday.
The plant currently produces cellulosic ethanol at about1.40 reais a liter, compared with 1.15 reais/ltr forconventional ethanol. Cellulosic ethanol costs are expected toconverge on conventional costs in 2017 and drop below them in2018, Raizen executives said.
The Piracicaba plant has been operating since December butis still struggling to overcome some of the early obstacles suchas excess sand in the machinery and high enzyme costs. The plantcan produce 26 million liters a year and plans to expandcapacity 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-generationethanol plants along side some of its existing conventionalsugar and ethanol mills over the coming years.
(Writing by Reese Ewing; Editing by Bernard Orr)