Another clean energy venture faces cloudy future

HOUSTON — A Houston-area biofuels company once on the vanguard of clean energy hopes could be headed toward bankruptcy, prompting concerns about the technology it has helped develop.

Pasadena-based KiOR is one of the pioneers in the field of cellulosic fuel — converting inedible plant materials like grass and woodchips into gasoline and diesel.

But the company needs $25 million by April 1 to stay afloat, it said in filings with the Securities and Exchange Commission this week.

Venture capitalist Vinod Khosla, the former CEO of Sun Microsystems, has pledged to provide that money. But the company says his investment is tied to performance milestones, and that the arrangement hasn’t been formalized.

KiOR says it has no other sources of near-term financing, and would need more money by Aug. 21 even with Khosla’s infusion.

“We have substantial doubts about our ability to continue as a going concern,” the company said in an SEC filing that also warns it could be forced into bankruptcy if it doesn’t sort out its finances soon.

That outcome could be a serious blow for a technology that green energy advocates have viewed with much optimism. The company had developed a process to transform plants into fuel suitable for use in vehicles.

While other biofuels are made from plants — ethanol from corn and sugarcane, biodiesel from vegetable oil – KiOR’s focus is on vegetation that doesn’t compete as a food sources.

Advocates for the technology say the materials KiOR uses don’t require as much fertilizer as edible plants, which reduces greenhouse gas emissions associated with producing the fertilizer or tending the crops.

That gives it an environmental advantage over ethanol made from corn, said Bruce Dale, a professor at Michigan State University who is a biofuels expert.

Some plants used in cellulosic fuels also can grow on land not suitable for other crops.

KiOR’s efforts to date have comprised research and development, along with a plant in Columbus, Miss., that began shipping fuel last year.

Plant idle

But in January KiOR suspended operations at the plant as it faced mechanical issues and other obstacles.

And it has announced it probably will default on the $69.4 million balance outstanding on a loan from the state of Mississippi.

Justin Jenkins, a research associate at Raymond James & Associates, said few if any other players in the U.S. have produced cellulosic fuel in the volume that KiOR did, and the Columbus facility was one of the first big tests for such fuel production in the U.S.

He said KiOR’s trouble doesn’t signal the end of investment in cellulosic fuel, but acknowledged “it’s certainly not a helpful headline.”

“Things already weren’t great from the cellulosic perspective,” Jenkins said, calling the shutdown of the Columbus facility “disappointing, at best, in terms of the original expectations.”

Analysts note that cellulosic biofuels have taken off more slowly than expected, because of both technical and financial challenges. Corn ethanol plants typically are more economical to build and operate.

Pilot facility

KiOR opened a pilot facility in Pasadena in 2008 and a larger demonstration unit in 2010.

But the company concedes it hasn’t been able to produce cellulosic fuel consistently on a commercial scale at the Columbus plant.

KiOR produced 894,000 gallons last year, but the company has said the plant has an annual capacity of more than 13 million gallons.

Jenkins summarized the company’s dilemma: It needs production data from the plant to secure financing, but it can’t run the plant without more money. “That’s almost a chicken-and-egg,” Jenkins said.

KiOR officials, through a spokesperson, declined an interview request. But in a statement, the company rejected the notion that its financial hurdles could be evidence that cellulosic fuel isn’t viable.

“Creating a first-of-its- kind technology and a cellulosic hydrocarbon fuel is a difficult thing to do, and we have made good progress to date on that front,” KiOR said. “When produced at scale with continued development of our technology, we believe that KiOR’s cellulosic biofuel can be cost competitive with other fuels.”

Dale, the Michigan State professor, said KiOR struggles relate more to the circumstances of a single business than to an underlying flaw in the cellulosic technology.

Last year, KiOR had a net loss of $347.5 million on revenue of $1.8 million, and ended the year with more than $224 million in long-term debt.

Its stock has fallen from $20.74 per share in September 2011 to 64 cents Wednesday.


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