Biofuel Startup KiOR Threatens to Veer Off the Road

Alternative energy company KiOR, which aimed to lead the nation into a future in which fuel manufactured from wood chips, grasses and other plant materials would replace petroleum, now faces dire financial difficulties that may threaten the company’s future. (See earlier story on KiOR: “Beyond Ethanol: “Drop-In Biofuels Squeeze Gasoline From Plants.”)

In a March 17 report filed with the U.S. Securities and Exchange Commission, the Pasadena, Texas-based company’s executives admitted that they have “substantial doubts about our ability to continue as a going concern.” In order to continue operations past April 1, the company said it must finalize a deal to obtain an additional infusion of as much as $25 million from Sun Microsystems co-founder Vinod Khosla. Just this past October, Khosla’s outfit Khosla Ventures joined with Microsoft mogul Bill Gates’ firm to invest $100 million in KiOR’s Columbus, Mississippi refinery, according to Bloomberg News.

The additional money is needed to fix “structural bottlenecks, reliability and mechanical issues” at the  two-year-old facility that are preventing it from producing a steady flow of cellulosic diesel fuel and gasoline, according to the SEC document. The plant has been shut down since January, while it awaits the overhaul. (Vote and comment: “Are Biofuels Worth the Investment?“)

KiOR’s woes are a blow to proponents of advanced biofuels as a viable energy alternative, and to hopes that transportation fuel can be wrung from non-food crops instead of corn, the feedstock on which the U.S. ethanol industry now relies.  It also offers more ammunition to opponents who are lobbying to scrap the U.S. government biofuels mandate, the Renewable Fuels Standard, which was initiated by Congress in 2005 on the assumption that cellulosic ethanol would be on the market by now. (See related, “U.S. Proposes First Reduction in Ethanol Mandate.”)

The deal to save KiOr,  to which Khosla tentatively committed on March 16, apparently is coming down to the wire. KiOR spokesperson Helen Murphy said that the final terms are still being negotiated, but that “we believe that we will be able to reach agreement on the funding commitment before that date.” Khosla was on vacation and unavailable for comment, according to his assistant, Nikki Bassi.

See June, 2013 interview with Khosla about biofuels:

If the deal doesn’t go through, KiOR—which has no revenues until its plant reopens—most likely would default upon its existing debt and be forced into bankruptcy, the company said in its filing.

If KiOR obtains the financial help, Khosla would provide monthly increments of up to $5 million. But that temporary reprieve would run out by the end of August, at which point KiOR would need to have made enough progress to obtain additional backing.

KiOR spokesperson Murphy wouldn’t provide a timeline for when KiOR’s plant will be up and running again. “We will start the plant up again when R&D and technical enhancements are complete and we receive additional financing,” she said.

Robert Rapier, chief technology officer for the Hawaii-based alternative energy holding company Merica International and a blogger for Energytrendsinsider.com, said that KiOR faces several serious obstacles to producing fuels that can compete with gasoline and diesel.  The company’s process for creating cellulosic fuel is powered by natural gas, which has risen in price due to a number of factors, including high demand during a harsh winter in much of the United States. That makes KiOR’s fuels more expensive to produce, Rapier said. At the same time, relatively low oil prices make it more difficult for KiOR’s fuels to compete. “It’s hard to see them being competitive unless oil prices reach $125 to $150 a barrel,” Rapier said. (See related quiz: What You Don’t Know About Biofuel.)

Meanwhile, KiOR also is dealing with another problem at its Columbus, Mississippi facility.  In January, utility Columbus Light and Water has told KiOR not to release any more wastewater  into the city’s water system, out of concerns that its infrastructure might be damaged by the industrial waste, according to documents obtained by the Columbus Dispatch, a local paper.  CL&W told the company that it would need to pre-treat its wastewater before it would be allowed to enter the system, according to the article. CL&W general manager Todd Gale, contacted by email, said that he was out of town and unavailable until Friday.

KiOR spokesperson Murphy said that the company is working with CL&W and the Mississippi Department of Environmental Quality to agree to “reasonable pretreatment limits” and that the company already has made some modifications to help solve the problem. “We expect to have this issue resolved before the facility restarts,” she said. KiOR currently possesses a state permit to discharge wastewater, but that permission is contingent upon meeting the local water system’s requirements as well. (Vote and comment: What Breakthroughs Do Biofuels Need?)