VentureBeat

Want to fill up your Volkswagen or Hummer on renewables, as Arnold Schwarzenegger does? Biodiesel, a vegetable-oil based variant on petroleum diesel, is your fuel. As we pointed out last week, the fuel doesn’t get as much attention as high-tech biofuels like cellulosic ethanol and “green” gasoline. However, substances called furanics may help bring biodiesel back into the spotlight.

Furanics, while not actually identical to biodiesel, might as well be — they burn in diesel engines quite well. Two researchers at the University of California, Davis say that a process they developed to reduce plant matter to furanics could be more efficient than existing methods for making cellulosic ethanol.

That should be a red flag for the ethanol industry, because furanics would use the same sort of feedstocks that current cellulosic ethanol processes do — woody materials like switchgrass and pulped timber. But cellulosic ethanol has proved difficult to make, requiring energy-intensive processes to break down the stiff cellulosic fibers. Professors Mascal and Nikitin say they’ve hit on a simple process to directly convert cellulose into furan.

A couple more details are at Chemical & Engineering News, while the full study was published in Angewandte Chemie, an international journal of chemistry.

Interestingly, it appears that Chevron Technology Ventures, the oil giant’s venture investment arm, helped fund the UC Davis researchers with a grant. Chevron isn’t the only oil company interested in furanics; as Gas 2.0 points out, Shell spun off Avantium to commercialize the same biofuel.

Separately, it’s beginning to look like jatropha will work well as a feedstock for regular biodiesel. Following our article on Innovation Fuels last Thursday, another company has announced funding to work with the oil-producing plant. Globes is reporting that Galten, an Israeli startup, has taken $10 million in funding led by Xpert Financial Group.

Where Innovation is looking to grow the plant in Asia, though, Galten has laid its chips on Africa, with a lease on 500,000 acres in Ghana. According to their own calculations, if all of the land were planted, it would be enough for a significant 600,000 tons of oil per planting, which transfers fairly directly to biodiesel.

Biodiesel, a vegetable oil-based substitute for the regular petroleum-based diesel that trucks use, has had a tough time getting respect lately. Prices have shot up for biodiesel made from food oils from soybean, canola and palm, the last of which is environmentally damaging to farm. And like ethanol, biodiesel has been accused of pushing up food prices for the world’s poor.

However, ethanol’s name has recently been rehabilitated by companies like Verenium, Mascoma and Coskata, all of whom promise to make the fuel from materials like wood chips and grass, grown on non-crop lands. Most of the hope for biodiesel, meanwhile, has turned to algae ponds. But some companies, like Newark, N.J.-based Innovation Fuels, say there’s still a viable business in producing biodiesel from agriculturally grown plants.

Today, Innovation makes just under a million barrels a year of biodiesel from tallow, poultry fat, used vegetable oil and other waste sources at a New York harbor, from which it ships the fuel out to buyers. There’s a limited amount of used veggie oil in the world, so the company is pinning many of its hopes on Central American shrub called jatropha.

Jatropha, sometimes called the “bioenergy tree,” has quickly risen to the top of the list of alternative biodiesel sources. The hardy plant, which can easily be grown on marginal lands and is resistant to drought, makes seeds with up to 40 percent oil content; when crushed, the seeds’ extract can be used in a standard diesel engine.

Jhill Johns, a research analyst at Frost & Sullivan, believes that Southern African countries like Mozambique and Namibia, which have millions of uncultivated arable land between them, could provide ideal sites for mass production. Though China is poised to become the world leader in jatropha production, with an estimated annual production of 2 billion gallons of oil expected by 2010, the plant is indigenous to many parts of South Africa and is very cheap to grow, after which its seeds can be shipped to production facilities.

The problem is that much of the press on jatropha so far has been hyped. The plant takes several years to become mature, and reports of flourishing plantations are often overblown, as energy blogger Robert Rapier discovered in India. However, Innovation says that it already has some jatropha production coming online, and that its financial projections for producing from jatropha are very attractive.

Jatropha alone is not the answer for companies like Innovation, which also uses a proprietary technology called transesterification system, an easily modifiable batch process, to make biodiesel. It also has another method to process high fatty acid feedstocks and crude vegetable stocks. Neither process requires a second refinery step. The company is aiming to hit 5 million barrels (over 20 200 million gallons) of production capacity within the next 2-3 years.

But despite the allure of jatropha, there are some concerns about its toxicity and long-term impacts on biodiversity and soil quality. Moreover, because jatropha has never been properly domesticated, its productivity is widely variable, and the long-term outlook for the plant is not well known. Despite the concerns, Johns notes that jatropha has already attracted a wave of new investments, with companies like BP and D1 Oils pouring millions into these countries. Other up-and-coming challengers to jatropha’s title could include sweet sorghum, switchgrass and Miscanthus, Johns says.

Innovation’s CEO John Fox is bullish on the prospects, and thinks the time is right to expand. Having recently secured a funding and large credit line, Fox is moving to aggressively purchase competing biodiesel facilities at ports around the United States. He expects to produce fuel at $10-20 per barrel on an annualized basis. The task has been made easier by the fact that the property market has been depressed, allowing the company to “buy for cents on the dollar,” according to Fox.

Its international outlook and focus on alternative sources should help Innovation weather the inevitable consolidation storm, Fox says. “We want to be the consolidator of choice, but at strategic ports. The opportunity to scale up to that size is important.”

If Fox is right, there’s an opportunity for a new generation of biodiesel start-ups to take over from the mom-and-pop operations that were the main biodiesel producers a few years ago. They’ll have to contend with aggressive companies like Innovation, which is already seeking a new $25-30 million round in equity capital and more working capital for acquisitions. But with 40 billion gallons a year of diesel consumed in the US alone, there’s plenty of room for competition.

[Photo credit for jatropha plant: Jatropha.org]

Three significant developments today in alternative fuels:

–Range Fuels broke ground on one of the first cellulosic ethanol plants;
–Innovation Fuels took $15.5 million for a New Jersey biodiesel facility; and
–Codexis and Royal Dutch Shell decided to extend their research collaboration for another five years.

We reported in March on a $76 million Federal government grant that Range won preliminary approval for. That grant was part of a $385 million package set aside for six companies.

The Fed has now confirmed that Range qualifies for the grant. The company is using the funding for construction of a plant in Soperton, Georgia. Of the full amount, $50 million will go toward the first phase of construction, and the remainder to the second phase.

If Range sticks to its plans, it could have the first commercial-scale cellulosic ethanol facility in the United States. Heretofore, only demonstration plants have been set up, some by larger companies who have avoided investing a great deal of money in cellulosic ethanol.

The hesitation by these companies is because making cellulosic ethanol is a more complicated process than making ethanol from plants like corn or sugarcane. The process requires breaking down the chemical structure of plants like trees and grasses.

Although there are several proven techniques for doing so, the associated costs and challenges in scaling such an operation aren’t well known, and there is uncertainty over which materials are best to use. Range plans on using locally available wood, while other companies have plans to work with faster-growing plants like switchgrass.

Innovation Fuels has made a somewhat safer bet with its plans to build a biodiesel facility in Newark, New Jersey. The news of its $15.5 million funding, the company’s first, was broken Monday by VentureWire (subscription required).

An unnamed bank and hedge fund contributed the funding for the plant, which VentureWire’s source said will have the capacity for about 40 million gallons annually. A separate plant the company is building in its hometown of Hampton, New York will reportedly have a 50 million gallon capacity.

Innovation doesn’t have a publicly available timeline for completing the facilities. The executive team has concentrated experience in trading and investment, which makes us wonder if the entire company isn’t a momentum play on the popularity of biodiesel, with the intention of ultimately selling the plants to larger companies. The company started life a year ago as a division of CEO John Fox’s company Homeland Energy Resources Development, which is essentially a consultancy for the cleantech projects of other companies.

Codexis is one of several companies exploring the use of biological processes to produce fuel; we recently wrote about a competitor called LS9.

The technology behind the process, which in Codexis’ case involves directly manipulating the DNA of microorganisms to produce different enzymes, can also be used for pharmaceuticals and other applications. In April, for instance, the company signed a large deal with Merck, a drug manufacturer.

The extension of Codexis’ research partnership with Shell also involves an investment by that company into Codexis, for an undisclosed amount. However, considering that the company’s last official funding was for $40 million and Shell is taking a seat on the board, we’d guess it was likely a substantial round.

Meanwhile, oil futures hit $97 per barrel today, while demand is expected to continue rising into next year. As rises in oil prices are usually accompanied by heightened interest in biofuel, we can expect plenty more news like this in the next few months.