Boy, was I wrong about KiOR as a biofuels success story

KiOR plant in ColumbusKiOR Inc., which operates a commercial-scale cellulosic biofuel plant, may be closing its shutters very soon. Backed by venture capitalist Vinod Khosla, there’s been a lot of hope in KiOR as a symbol for possibility in advanced biofuels as a clean transportation fuel. Its catalytic process converts woody biomass and non-food crops into gasoline and diesel and can be fueled through the existing US infrastructure. Khosla just made a commitment for near-term financing, but the company needs more additional capital by April 1 to stay in operation. The company needs to meet certain milestones to bring in at least $25 million by the end of this month; part of that milestone performance is bringing its Columbus, Miss., biofuel plant through an upgrade. If additional funding doesn’t come through, it’s likely to default on its debts and may file for bankruptcy. All of this was announced not long after the company reported a $347 million loss for 2013.

In October, this advanced biofuels producer received $100 million from Khosla Ventures LLC and Gates Ventures LLC to expand production at the Columbus plant. As I wrote about back at that time, it looked very promising for KiOR, being the first US company to build its own commercial scale cellulosic biofuel plant – creating jobs, economic growth, and clean transportation fuel. If KiOR goes belly up, it will provide more ammunition for biofuels critics (and there are quite a few out there). The biofuels industry has only produced a small fraction of the level envisioned in 2007 by the renewable fuel standard. Even with the US Environmental Protection Agency’s cutbacks on ethanol blend and advanced biofuels proposed in November, that’s not the real problem. It’s a startup industry that needs more success stories, so this one would hurt. For several months, I had KiOR on the green transportation stock market index that I show monthly in Green Auto Market Extended Edition. The company’s stock has not been performing well lately. The company may need to be removed from the chart.

How the troubles at KiOR will affect the advanced biofuels industry is still unknown. There are a few biofuels companies that are performing very well financially, and are giving hope to investors. One of them, Aemetis, another publicly traded company, also produces advanced biofuels for the US market – and deployed commercial-scale production in the past two years. Aemetis recently announced record quarterly and annual gross profit. It’s used a different business model than KiOR, and there are several other highly profitable domestic biofuels producers, according to Biofuels Digest’s Jim Lane.

Are advanced biofuels really just fading away?

advanced biofuel plantThe battle over the amount of ethanol that the US Environmental Protection Agency (EPA) is targeting for production this year and next is still being fought out in Washington; then there’s always the question of whether advanced biofuels have any shot at being produced at scale and selling enough volume to make the investments profitable. Initially, the Renewable Fuel Standard had ambitious goals for next-generation biofuels made from corn stalks, switch grass, wood chips, municipal waste, and other biomass to produce cellulosic, algae, and other advanced biofuels. The EPA has cut down the production volume numbers for advanced biofuels including cellulosic.

For now, the US is focused on corn ethanol and biodiesel, and Brazil on sugarcane ethanol. Biofuels have a much broader future than ethanol, according to Thomas Foust, director of biofuels development at the National Bioenergy Center, which is part of the National Renewable Energy Laboratory. He thinks that new methods of making fuels directly from biomass “look promising from an economic perspective.”

The appeal of advanced biofuels has been very strong to many people – it’s considered greener and more efficient than ethanol. It’s much cleaner and more domestic than gasoline and diesel, and could play a sizable role in reducing transportation’s carbon footprint. There are lots of companies out there gaining investors and building facilities in the US, Europe, and Brazil, with the benefits of job creation and producing fascinating, advanced, clean fuels. Still, the challenges are great with many of these companies failing financially, and others taking a long time to build commercial production plants and find the right client base to purchase the fuel.

Advanced biofuel companies have ramped up production to the development stage and have had large financial backers from brand-name equity partners; some have gone public in the past three years. They’re being taken a lot more seriously now for transportation, including jet fuel. The advanced fuels do have their share of skeptics and critics who have watched several companies fail financially in recent years. Biofuel advocates have their own skepticism and arguments over what methods make the most sense; for example, cellulosic ethanol  is thought by some analysts to be far too expensive, but other cellulosic fuels make a lot more sense.

Here’s the latest on companies worth following and on a trade association that you should know about……

KiOR: As mentioned recently, this company that produces and sells cellulosic gasoline and diesel from non-food biomass has been getting financial backing from one of the leading venture capitalists out there, Vinod Khosla. The company is doing much better now facing challenges including a class-action lawsuit by investors unhappy with the company. The company operators one of the nation’s first cellulosic facilities in Mississippi, and just had its best production quarter ever – 324,000 gallons of fuel from woody biomass that’s identical to gasoline and diesel and is called drop-in fuel. KiOR shipped 245,000 gallons to customers in the oil industry during that quarter. The company just received $100 million in committed equity commitment for its Columbus, Miss., production plant. About $85 million of it came from Khosla Ventures and other Khosla entities.

Novozymes: is in partnership with Italian biofuels company Beta Renewables and will be opening in northern Italy what could be the world’s largest biofuels facility. Made from agricultural residues and energy crops at a commercial scale, the facility is expected to product over 20 million gallons of cellulosic ethanol a year. Novozymes’ role is providing the industrial enzymes needed to break down materials that the Italian plant will be using.

Solazyme: The company’s proprietary technology produces renewable oil and bioproducts from a range of plant-based sugars. The company has provided algae diesel with Propel Fuels, other ground transportation clients, and for air travel. The company is set to reach commercial-scale production in the US and Brazil in the first quarter of 2014. California-based Solazyme has custom-made algae tanks to develop better biofuels, and it has sold thousands of gallons to the Navy for use in its ships. Solazyme has also branched into making oils for higher profit products like cosmetics, food, and petrochemicals. The company will provide about three million gallons of algal oil for Unilever’s consumer products.

Gevo: A lot of the company’s business comes from providing isobutanol for the specialty chemicals market and converting it into bio-based jet fuel for the US military including the US Air Force and US Army. In September, Gevo signed an agreement with the US Navy to supply them with 20,000 gallons of Gevo’s alcohol-to-jet-5 fuel. The company previously supplied AT J-8 jet fuel – 56,000 gallons to the US Air Force and 16,150 gallons to the US Army. Gevo will supply the US Coast Guard with up to 18,600 gallons of finished 16% renewable isobutanol-blended gasoline. Gevo has also signed a contract to supply fuel to The Coca-Cola Co.

Amyris: has produced products such as squalene for the cosmetic industry and renewable diesel for Brazilian transportation authorities. Brazilian airline GOL will be using Amyris’ renewable jet fuel in 2014. GOL and Amyris will work together to establish a framework for bringing Amyris renewable jet fuel produced from Brazilian sugarcane to GOL’s flights following regulatory approvals by standard-setting bodies.

Advanced Biofuels Association (ABFA): Nearly every one of these companies listed above are members of ABFA. The organization helps members meet the Renewable Fuel Standard (RFS) for advanced biofuel consumption in the US. Members have built or purchased commercial-scale plants as advanced and/or cellulosic under the RFS; many of the members will be bringing commercial plants in operation by 2015. It’s membership is impressive; along with leading companies listed above, the list includes Intertek, which provides testing, inspection, and certification for advanced biofuels – and also plays a leading role in testing electric vehicles and charging stations; Oberon Fuels, which has the big dimethyl ether (DME) contract with Volvo and Mack trucks; Sapphire Energy and its algae and replacement transportation fuels; and Cool Planet, which converts non-food biomass into gasoline.

Vinod Khosla isn’t backing away from biofuels as a smart investment

Vinod KhoslaAlternative energies are having an extremely tough time of it lately – from alternative fuel vehicle fueling and charging infrastructure to development of renewable energies – public and private funding has been drying up for many projects. Biofuels have been going through the wringer – much of it tied into the struggle over corn ethanol being used as E10 in gasoline and potentially as E15 if it survives the political battle. Much of the controversy is also tied into the federal Renewable Fuel Standard, which many analysts think is quite unrealistic for bringing advanced biofuels into transportation at a large scale level of production. A few of the public companies have lost their market value as disappointed investors have pulled out and put their money into something else like smartphones and mobile applications.

Then there’s Vinod Khosla, one of the leading venture capitalists out there these days. Khosla hasn’t backed away from biofuels and is dropping down more cash on cellulosic biofuel producer KiOR Inc., He committed personally to fund up to $25 million in cash to KiOR, in addition to the $25 million that would come from his firm Khosla Ventures.

KiOR just announced that it will be doubling production at its Columbus, Miss., cellulosic fuels facility through setting up a second plant incorporating its own commercially proven technology. The company estimates that the development project will cost it $225 million; it will take 18 months to complete after breaking ground and the company is raising equity and debt capital to fund the construction project.

Khosla and other investors have seen biofuel companies take a deep dive on the market. Amyris Inc., Gevo Inc., and KiOR experienced collapse since their initial public offerings. Operational and technical delays have caused investors to pull away. It’s possible the Khosla could be part of bringing KiOR back and his company has made sizable investments in Amyris and Gevo.

Khosla believes biofuels could play a vital role in America’s economic prosperity and security. “The biofuels industry, if properly funded, is also capable of creating more jobs, with unsubsidized economics, than traditional fossil oil technology and putting every mill town in America with a shut down paper mill back in business as a thriving community,” Khosla wrote in the KiOR statement.

The US Dept. of Agriculture has played a key role in supporting biofuels and has now placed a new offering on the table. Farmers and rural businesses in 22 states are being offered incentives to help reduce energy consumption and increase the use of renewable technologies; a number of biofuels- and biomass-related projects are part of the federal program. The Rural Energy for America Program (REAP) program provides a grant for up to 25% of eligible project cost plus additional funding in the form of a loan guarantee.

Some of the available grants include those supporting flexible fuel pumps in California; E85 and biodiesel blender dispensers in Iowa; equipment to efficiently manufacture biodiesel and a biomass burner in Indiana; and two separate biomass boilers in New York.