Cellulosic was the biofuel of the future. What happened?
(c) 2013, The Washington Post.
WASHINGTON — In January 2008, Wired magazine published a story about a company called Coskata under the headline: "Startup Says It Can Make Ethanol for $1 a Gallon, and Without Corn."
The company, backed by the likes of General Motors and Silicon Valley's Khosla Ventures, claimed it could produce ethanol from corn husks, municipal trash or other biomass. Its vice president for business development said, "It's affordable, and it's now."
Now never came.
Coskata never did make commercial volumes of ethanol made from raw cellulosic material such as corn stalks, switch grass, wood chips, municipal waste and other biomass. Last year, Coskata changed strategy — to use natural gas instead. In July this year, it backed out of a planned $100 million initial public offering.
Coskata isn't alone. Five years ago, about a dozen companies were racing to start up distilleries that would produce enough cellulosic ethanol to meet the congressionally mandated target of 16 billion gallons a year by 2022. Venture capitalists such as Vinod Khosla, one of the co-founders of Sun Microsystems, vowed to bring their high-tech savvy to the energy business. And the federal government was often ready with grants, loans or loan guarantees. The Agriculture Department provided a $250 million loan guarantee for the Coskata plant.
Today, most of the dozen contenders have gone out of business or shelved their plans. They have had trouble cutting the costs of enzymes, collecting the bulky raw materials and raising capital, especially in the economic slowdown. To oil executives, these firms' woes show that the makers of cellulosic ethanol have no place in the massive motor-fuel business.
But some boosters of advanced biofuels remain undaunted. "One thing about technology is that there's always a win, place and show, and everyone else goes under," Khosla said. He said his firm has invested in half a dozen biofuel technologies. He has spread his bets, usually investing no more than $30 million at a time.
The concept isn't complicated. Using enzymes, companies can convert cellulose in plants into ethanol. But coming up with a cocktail of enzymes that work quickly and efficiently and at large scale isn't so easy. Some corporations — among them Poet and DSM, Dupont, Abengoa and Ineos — say they will start commercial production by early next year.
Other companies, however, have stumbled.
In 2008, the Web site GigaOM.com, which reports about emerging technologies, said 11 companies were racing to complete cellulosic plants.
Verenium was one. Later, strapped for cash, it was bought by BP, which by October 2012 scrapped plans for a cellulosic plant in Florida. A spokesman said BP would "redeploy the considerable capital required to build this facility into other more attractive projects."
Range Fuels, another firm backed by Khosla, closed its Georgia wood-chip plant in late 2011, after getting $46.3 million of a $76 million Energy Department grant and half of an $80 million loan from the Agriculture Department, according to a Bloomberg News report.
Mascoma was another contender in 2008. In August, Valero, the nation's biggest oil refiner, withdrew an offer to provide $50 million for a plant in Michigan, and in September, Mascoma dropped plans for a $100 million initial public offering.
ZeaChem laid off employees less than a month after starting up its plant in Boardman, Ore., and now produces insignificant quantities.
BlueFire Renewables received an $88 million Energy Department grant under the 2009 stimulus bill to produce 19 million gallons a year of ethanol from woody biomass and municipal waste in Fulton, Miss. Its latest SEC filing shows no revenue and virtually no cash. Its shares are worth less than a penny each. The roads and railroad ties in Fulton stand idle.
Khosla's unabated enthusiasm has turned toward a company called Kior. In October, Khosla agreed to triple his investment to about $125 million. He says Kior, which would turn cellulosic materials into liquids identical to conventional diesel or gasoline, would be able to ship its products in existing pipelines.
"It is exactly the same as what nature does, but nature takes a million years and we take a few minutes," Khosla said.
But Kior has had a rocky time. It got off to an enthusiastic start. Condoleezza Rice was a director. Investors swooned, driving its market value up to $1.7 billion by October 2011 — long before the company had any revenue. It's now worth $250 million.
In late 2012, Kior's chief executive predicted that its plant would churn out 14 million gallons this year. But on Aug. 8, Kior announced that it had shipped only 75,000 gallons in the second quarter. A group of investors filed suit ,claiming the firm had "made false and/or misleading statements and/or failed to disclose that . . . KiOR was not on track to produce commercially meaningful quantities of biofuel." On Thursday, Kior said it produced 323,841 gallons in the third quarter.
Thanks to Khosla and a small investment by a Bill Gates venture capital fund, the company isn't dead yet.
Khosla says that Kior can produce gasoline competitively now mostly because crude oil prices are $100 a barrel and the Renewable Fuel Standard mandates provide a cushion. But he says Kior's plants will get better and cheaper by the time the fifth or sixth is built.
Energy Secretary Ernest Moniz, in a recent speech at the Center for Strategic and International Studies, said the nation is "on a path" to $2.15 a-gallon cellulosic ethanol "toward the end of this decade." He said "we're getting into the ballpark . . . of being able to provide biofuels at a reasonably competitive cost."