Corn-based ethanol is yesterday’s news for venture capitalists who, these days, are betting on everything from wood chips and algae to turkey guts and trash as potential sources of next-generation biofuels.
Corn ethanol caught the imagination of U. S. policy-makers as a way to fix multiple problems: rising oil prices, dependence on foreign oil and fossil fuel pollution.
But the use of corn for ethanol is now embroiled in controversy, being held responsible by critics for recent spikes in food prices that spurred riots in some countries.
Venture capitalists are searching for other biofuels that could power cars, even as Americans continue to consume some 140 billion gallons of fuel annually and vehicle exhausts contribute to one-third of all carbon emissions.
Just two years ago, venture capitalists invested $495 million in corn ethanol production, according to Cleantech Group data.
This year, not a single venture capital dollar – of the $6.6 billion invested in clean technologies – has gone into corn ethanol so far. Instead, venture capitalists put millions of dollars into companies that use cellulose or algae to make biofuels, whether it’s ethanol or biodiesel, said Cleantech Group’s senior director of research Brian Fan.
“Corn has served a useful purpose,” said Vinod Khosla, one of Silicon Valley’s best-known venture capitalists, at a recent conference. “We wouldn’t have been investing in alternatives (to corn)… because corn created the market.”
Khosla Ventures is an investor in Range Fuels, a startup that uses a proprietary chemical process to make ethanol from wood chips.
Wood chips, along with most non-edible parts of plants and trees, contain cellulose, which can be converted into ethanol.
Cellulosic ethanol is considered better than corn ethanol because it has a smal ler carbon footprint, without using “feedstocks,” or inputs, that are also a food source.
Venture capitalists said grasses such as switchgrass and miscanthus (or elephant grass), maize leaves and stalks, municipal waste, offal and manure are other feedstocks they have looked at or invested in for cellulosic ethanol production.
They have also funded companies that make other biofuels, such as biodiesel, using algae and microbes.
Kleiner Perkins Caufield & Byers has invested in Amyris Biotechnologies, which retools the DNA of yeast – the same microbe that makes bread rise – so that it produces a hydrocarbon-based fuel rather than the alcohol it naturally tends to produce from sugars.
The yeasts are currently fed sugar cane juice but Amyris is looking at cellulose as a feedstock too, chief executive John Melo said in an interview.
Some venture capitalists believe the future of biofuels manufacturing lies in rejigging the genes of microbes and plants to increase yield, since growing cellulose-producing plants will eventually take up land that could be used for other purposes.
Maurice Gunderson, a venture capitalist at CMEA Ventures, said his firm is interested in “synthetic biology” to create super-enzymes and remodeled bugs that produce more biofuels.
“That’s where a lot of tech bets are being made,” said Cleantech Group’s Fan.
Bullish as they are on these new alternatives to oil and corn ethanol, venture capitalists agree that exciting research alone won’t bring biofuels to the mass market.
“No one is going to buy biofuel because it’s cool,” CMEA’s Gunderson said.
Rather, these next-generation fuels will become popular once they can be sold at prices that compete with existing fuels.
Speaking at the Reuters Global Environment Summit, Khosla – a bit of a “clean-tech” evangelist – said he expects at least six different ways of producing cellulosic ethanol cheaply within the next four years.
Range Fuels expects to produce 100 million gallons of cellulosic ethanol a year by 2010 from timber waste in Georgia, chief executive Mitch Mandich said in an interview.
“We think we’re going to be very competitive against corn ethanol and gasoline at $60 a barrel,” he said.