More than two years after the state began requiring gasoline to be blended with ethanol, Hawai'i has yet to see local production of the fuel.

Ethanol is an alternative, grain-based fuel that can be produced locally from sugar cane or one of its byproducts. Corn is the primary crop used to make ethanol in the United States.

Ethanol proponents in Hawai'i had projected local production would begin by 2006, but so far no facilities have even broken ground.

Some plans have been held up because of financing, engineering and other challenges. Others appear to have stalled or may have been abandoned. Companies are looking into the possibility of producing ethanol but have yet to announce any concrete plans.

Meanwhile, millions of gallons of ethanol continue to be imported into the state.

"We, of course, had been hoping that it would be quicker," said Maria Tome, energy engineer with the state Department of Business, Economic Development and Tourism. "Diversifying away from petroleum is a good objective, and diversifying toward things that we can produce here is the ultimate objective."

The state's ethanol mandate, which took effect in April 2006, requires most gasoline sold here to be blended with 10 percent ethanol. The mandate is intended to reduce Hawai'i's dependence on imported oil.

It was also touted as a way to expand sugar cane production and generate millions of dollars in investments and additional jobs.

But state tax credits to encourage the local production of ethanol have so far gone unused.

Meanwhile, Isle-based oil companies are importing ethanol from countries such as El Salvador. Hawai'i imported about 87.6 million gallons of foreign ethanol from February 2006 through April of this year, according to the U.S. Energy Information Administration.

Local production would keep money in Hawai'i, which can help to reduce the economic impact of the rise in oil prices, Tome said.

KAUA'I PARTNERSHIP

The company that appears to be the furthest along in its plans for an ethanol facility is Kauai Ethanol, a partnership between sugar producer Gay & Robinson Inc. and Pacific West Energy LLC. Kauai Ethanol's goal is to open a $40 million, 15 million gallon facility at Kaumakani in the fourth quarter of next year, said William Maloney, president of Pacific West. The project, which would supply more than 30 percent of the state demand, was supposed to break ground last year and begin operating later this year.

The project has been held up in part because of hurdles in financing. The sugar-cane-to-ethanol facility — expected to be the first in the nation — was also delayed because it had to be designed to meet U.S. environmental standards, unlike those already operating in other countries, such as Brazil, Maloney said.

"I believe that things are falling into place now," Maloney said. "We've gotten or are getting over most of the big hurdles, and now I'm optimistic that we're getting on track."

However, some key issues still need to be worked out, including agreements to secure additional land and debt financing. Maloney said Kauai Ethanol officials are in discussions with potential lenders who have indicated a "strong desire" to be involved in the project.

The Kauai Ethanol project involves increasing sugar cane cultivation from the current 7,200 acres to 15,000 acres, Maloney said.

The plant would use sugar cane juice supplemented as needed by molasses, he said.

Another firm, ClearFuels Technology Inc., plans to build a demonstration facility that will work in concert with the Gay & Robinson and Pacific West venture and would generate power as well as ethanol.

ClearFuels plans to use new cellulosic technology — which can use crop waste — to convert some of the cane waste and bagasse from Gay & Robinson's sugar mill into synthetic gas, which would then be converted to power and ethanol.

ClearFuels Chief Financial Officer Eric Darmstaedter said construction of the two-phase project should begin early next year and that ethanol production is estimated to begin in the third quarter of 2010. The plant is expected to initially generate about 2 to 4 million gallons of ethanol a year, he said.

'QUITE A BIT OF INTEREST'

Darmstaedter said ClearFuels is preparing to apply for an air emission permit from the state Department of Health and that company officials are "very optimistic that we'll be able to close our financing to meet the schedule."

He added: "It's a proprietary new technology, so we've got quite a bit of interest from investors in helping us move this forward."

Kauai Ethanol is one of just two ventures that have applied for an air emission permit with the state Department of Health, although state health officials have had discussions with other potential producers, said Nolan Hirai, supervisor of the department's clean air branch engineering section.

Kauai Ethanol received a state permit last year. The second application was for Maui Ethanol, a tentative venture also involving Pacific West that was intended to begin producing ethanol in 2006. That project, however, was originally meant to include Hawaiian Commercial & Sugar Co. and appears to have fallen through.

The status of Oahu Ethanol Corp., which planned to begin ethanol production in 2006, is unclear. The listed phone number for the company is not in service, and state business registration records show the business is "not in good standing" because it has not filed its 2008 annual report, which was due Monday.

Hawaiian Commercial & Sugar Co., meanwhile, is looking into the feasibility of its own ethanol plant, said Lee Jakeway, HC&S director of energy development and planning.

Based on normal sugar cane yields, HC&S could produce more than 30 million gallons of ethanol a year, Jakeway said.

But the problem, he said, is that most of the market is on O'ahu, "so we would have to ship from Maui to O'ahu and compete against ethanol that's already being imported."

Jakeway said company officials are also watching a debate about a federal requirement that increased the amount of ethanol and other biofuels blended with gasoline. Critics blame the requirement for higher food prices, saying so much corn is being used for ethanol that it's reducing the food supply.

"Things are changing constantly," Jakeway said. "There's a lot of moving pieces into this."

Hawai'i BioEnergy, a partnership that includes Kamehameha Schools, Grove Farm Co., Maui Land & Pineapple Co. and others, is also looking at ethanol production.

Hawai'i BioEnergy has identified several challenges to ethanol production here, including the need for a large-scale crop operation and high labor costs, especially compared to other ethanol-producing countries, said Brian Orlopp, senior vice president of finance for Hawai'i BioEnergy. But, he said, those challenges are not insurmountable.

"We have not abandoned hope in terms of any type of an ethanol plant," he said. "You have to have a mindset to be cost-conscious. You have to look at other technologies and ways of dealing with your waste streams."

Orlopp said Hawai'i does have some advantages, including a year-round growing season and a long history of growing agricultural products.