BOSTON--Oil giant BP and George Soros' investment firm are putting millions of dollars into a company that has isolated a microbe that can create ethanol.
Qteros, formerly called SunEthanol, on Tuesday announced the $25 million series B round of funding, which was led by venture capital firm Venrock and Battery Ventures. Other investors were BP, Soros Fund Management, and first-round investors Long River Ventures and Camros Capital.
(Credit:
Qteros )
Massachusetts Gov. Deval Patrick--a clean-energy industry backer--announced the funding and new company name at the Fourth Conference on Clean Energy here Tuesday.
The basis of Qteros is the Q Microbe, a micro-organism discovered in the woods near the Quabbin Reservoir in western Massachusetts by University of Massachusetts professor and now Qteros chief scientist Susan Leschine.
The naturally occurring bug is able to efficiently produce ethanol from the cellulose in plants, according to Qteros. The company has spent the past year breeding different strains of the bug to enhance certain characteristics and make it more productive.
The money it raised will be used for further product development and to build a pilot ethanol facility next year, using agriculture residues, sugar cane bagasse, and corn stover as feedstocks. After that, it intends to do a larger demonstration facility in 2010 and then operate a commercial-scale plant in 2011.
The microbial approach to making ethanol, called consolidated bioprocessing, is a potential breakthrough in cellulosic ethanol production.
Many start-up biofuels firms are developing different methods for converting wood chips, grasses, and agriculture or forest residue into the liquid fuel ethanol, which is a gasoline additive.
By using microbes to make cellulosic ethanol, Qteros intends to streamline a multi-step process and entirely eliminate the use of expensive enzymes, which can account for roughly 30 percent of production costs.
"Using the Q Microbe as a keystone piece eliminates large amounts of capital, large amounts of cost, and makes the process economic," said Qteros CEO William Frey who led BP's biofuels business before joining the company.
Another company pursuing a similar path is Mascoma, a well-funded ethanol company spun out of the Dartmouth College. It, too, is developing micro-organisms to make ethanol without enyzmes, but its scientists are genetically engineering the microbes.
Qteros Executive Vice President Jef Sharp said that optimizing a naturally occurring microbe alllows Qteros to make ethanol "without the lengthy, expensive, and genetic engineering requirements of taking another bug to do it."
Rather than build ethanol plants itself, Qteros plans to license its technology to ethanol producers which plan to diversify from corn ethanol into other feedstocks, said Frey.
VeraSun Energy, an ethanol producer that failed to foresee a drop in corn prices earlier this year, filed for bankruptcy protection Friday.
The Sioux Falls, S.D.-based company said it will continue to operate during bankruptcy, including making feedstock purchases and paying employees.
A VeraSun ethanol plant in Nebraska
(Credit: VeraSun Energy)VeraSun, which claims to be the biggest ethanol producer in the United States, has run out of cash because of a change in its hedging strategy for purchasing corn. The global credit crisis has also hampered its ability to raise operating funds.
"Today's filing allows VeraSun to address its short-term liquidity constraints as we navigate historically challenging market conditions while we focus on restructuring to address the company's long-term future," CEO said Don Endres said in a statement.
Earlier this year, the company locked into corn prices at a time when heavy rains in the Midwest dimmed the prospect for this year's corn harvest. Ethanol, used as an additive to gasoline, is made primarily from corn today.
However, the harvest turned out to be better than feared. Then a drop in economic activity further depressed prices, cutting the price per bushel roughly in half from its peak.
The bankruptcy filing had been rumored for weeks, sending the company's stock price below $1 per share last week.
A number of ethanol producers that have had to declare bankruptcy in the past year because of volatile feedstock prices, one of the main costs in making ethanol.
SunEthanol, a development-stage cellulosic ethanol company, is looking to raise $20 million in venture funding and is bringing in a new CEO.
The University of Massachusetts spin-off is planning on announcing a CEO who will join the company from DuPont on Tuesday, said Jef Sharp, the current president and CEO who will stay on with the company. Sharp said he will likely be chief marketing officer and has brought on a new CEO to speed up product development.
In addition, SunEthanol is in the process of raising a second round of funding to ramp up its operations. It currently has under 20 employees.
SunEthanol, which was launched last year, is developing a process for converting cellulose in woodchips or grasses into ethanol.
It's one of dozens of large and small companies working on technologies to make liquid fuels from nonfood feedstocks. There are different approaches that include thermochemical processes or enzymes to convert plant matter into sugars which are then fermented to make ethanol.
SunEthanol has a one-step process that uses a naturally occurring microbe that essentially eats the cellulose in plants and then ferments it into alcohol, explained Sharp.
In its labs, it has improved the output of its process from 4 grams per liter less than a year ago to 25 grams per liter, which is faster than anticipated, he said.
But the company is still a long way from manufacturing ethanol and delivering it to filling station pumps.
It intends to make a pilot plant later this year and it received a Department of Energy grant to build a larger, 2.5 million gallon per year demonstration facility.
Sharp, who I met up with at the CSI Clean Technology conference in Boston, said that he is wary of over-hyping SunEthanol's technology, but he thinks the one-step microbial process will prove to be cost-effective than existing alternatives.
"This is a better solution over enzymes because it's one step and because it's cheap," he said.
SunEthanol's hiring of a CEO from DuPont is another sign of people from larger companies going to technology-oriented energy start-ups, or established energy companies investing in start-ups.
General Motors, for example, has invested in two cellulosic ethanol start-ups, Mascoma and Coskata.
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