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LS9, one of the biggest names in the burgeoning biofuels market, just took a giant step closer to making cost-effective renewable petroleum on a commercial scale. Armed with $25 million in capital raised in September, it has bought a demonstration-scale production plant in Florida for the bargain price of $2 million.

To give you a sense of how important LS9’s success is to the green fuel and chemicals movement, two of its biggest investors are Chevron and Procter & Gamble, major corporations hoping to integrate the technology into their own practices while simultaneously greening their public images. It’s promising to hear that LS9 is moving into the demonstration phase, considering how much money its proprietary one-step fermentation process stands to save.

LS9 distinguishes itself from competitors like Synthetic Genomics and Coskata by using specially-engineered microbes capable of converting plant-based materials into fuels and chemicals in just one step. Most of its competitors are still dependent on multi-phased systems. Even Shell-backed Codexis, which just filed for a $100 million IPO, isn’t really a threat, focusing only on engineering the microbes and catalysts necessary for green fuel production without making the fuel and chemicals itself.

It also says something that LS9 has made good on recent promises — a rarity in the risky, capital-intensive cleantech sector. The South San Francisco company had said that it would start developing a demo-scale facility in the first quarter of 2010, and now it is well on its way to meet that goal, and at a low cost too. It picked up the building in Florida for 10 percent of its estimated value because the previous occupant, Biomass Processing Technology, went bankrupt. The location is also ideal for LS9, which could make good use of nearby feedstocks like corn and sugar.

The company’s time frame for bringing the plant online is ambitiously short. By the end of this year, it hopes to be churning out 50,000 to 100,000 gallons of its UltraClean Diesel. Right now, it is only producing the fuel on a very small scale at its headquarters. Its new home could eventually produce up to 10 million gallons of the biodiesel fuel a year, not to mention many more gallons of green chemicals for various applications.

Opening the Florida facility is part of an even loftier roadmap for LS9, which wants to have 20 plants up and running in the next decade, both in the U.S. and South America where suitable feedstocks are even more plentiful.

LS9 is backed by Khosla Ventures (a big believer in biofuels that also funds Coskata), Flagship Ventures, Lightspeed Venture Partners, and Chevron Technology Ventures Investments. It was passed over for a grant from the U.S. Department of Energy, which handed out $24 million to biomass projects in November — but this doesn’t seem to have had any impact on its plans.

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