SIOUX FALLS, S.D. -- Valero Energy will buy seven ethanol plants from VeraSun Energy for $477 million, the largest biofuel buyout in terms of production capacity.

VeraSun, the country's second-largest ethanol producer, filed for Chapter 11 bankruptcy protection in October and on Wednesday, a Delaware bankruptcy court approved the sale.

Valero won an auction for the assets in court on Tuesday. The sale is expected to close in April.

Also involved in the bidding was agribusiness giant Archer Daniels Midland Co.

Valero becomes the first traditional refiner to cross over into ethanol production.

The sale could give other major energy companies a benchmark price for the assets of ethanol producers now under tremendous financial strain.

Ethanol industry leader Poet LLC is also shopping around.

Valero Energy Corp., the nation's largest independent oil refiner, will acquire plants in Aurora, S.D.; Charles City, Fort Dodge, and Hartley, Iowa; Welcome, Minn.; Albion, Neb.; and a development site in Reynolds, Ind.

With tighter national renewable fuel standards on the way, industry analysts believed it was just a matter if time before traditional refiners like Valero stepped into ethanol production.

The nation's renewable fuel standard ensures demand for ethanol by calling for 11.1 billion gallons of renewable fuel to be blended into gasoline this year, with that number climbing to 36 billion gallons by 2022.

The current financial state of the ethanol industry allowed Valero to pick up Verasun's assets on the cheap.

"These are high-quality, relatively new assets in good locations for buying feedstocks," Bill Klesse, Valero's chairman and chief executive, said in a statement. "We expect increases in the Renewable Fuels Standard to continue."

Overproduction, tight credit markets and the recession have pummeled the biofuel industry and helped put Sioux Falls, S.D.- based VeraSun under bankruptcy protection.

Other ethanol companies are also feeling the pinch.

Cambridge, Mass.-based Verenium Corp., which is teaming up with oil giant BP PLC to build a $300 million cellulosic ethanol plant in Highlands County, Fla., said in a filing this week it may have to "curtail or cease operations" if it cannot raise additional capital.

The Florida biorefinery would produce 36 million gallons a year from sugarcane and other plant waste.

And ethanol producer Aventine Renewable Energy Holdings Inc. said late Monday it may need to seek Chapter 11 bankruptcy protection if it cannot raise sufficient cash in the very near-term. SUBHEAD: The refiner gets a discount deal in the VeraSun bankruptcy.

Originally published by DIRK LAMMERS Associated Press.

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