Holy smokes: Cilion grabs $200M, largest ever alternative energy VC deal?

We are still pinning this story down, but we’re hearing that Cilion, the California ethanol comany formed by well-known Silicon Valley venture capitalist Vinod Khosla (pictured here), has just raised $200 million.

This may be the largest ever alternative energy deal by venture capitalists. It is also significant because the company is so young; it was formed barely three months ago.

But with everyone from Bill Gates to Virgin Airways chief Richard Branson and California’s two big public pension funds, CalPERS and CalSTRS, poking around for alternative energies to invest in, you are going to get these sorts of big deals, even if they are fabricated from scratch.

We wrote about Cilion here, when it first emerged that Khosla teamed up Western Milling to form the company. Western Milling is a grain-milling firm near Visalia, south of Fresno, in central California. Cilion aims to build eight plants by 2008 capable of producing a total of 440 million gallons of ethanol a year.

We’re going to write more about Khosla’s big bets shortly — and how he’s brushed up against big critics in the oil industry.