Silicon Valley startups turn woodchips into biofuel

Silicon Valley and venture-backed companies want to turn wood waste into fuel, and if that happens, this multibillion-dollar market opportunity could bring more jobs and more businesses to Santa Clara County and surrounding cities.

The efforts would be started by public-private partnerships that would develop processing plants.

One of these partnerships would be between the city of San Jose and the venture-backed Harvest Power Inc. that could someday see biomethane fueling stations pop up around the city. A second venture involves Mountain View-based Cobalt Technologies Inc., which is in the early stages of designing a demonstration-scale plant to process wood waste and manufacture an estimated 1 million gallons annually of biobutanol.

Cobalt, which has received about $35 million in venture funding since it launched in 2006, said it became the first company to successfully produce biobutanol. The product can be used in paints and coatings, or it can be converted to jet fuel or used in place of diesel. It is produced from pine trees killed by beetles; such material has little use for anything else. The breakthrough prompted Colorado State University chemistry professor Ken Reardon to say that if Cobalt could convert beetle-killed wood, it could probably make biofuel from any plant-based material.

For the Mountain View company, it means opportunity. Cobalt plans to expand from its current head count of 10 to about 35 in the next year, said Chief Financial Officer Steve Shevick. The company also announced a partnership in August with publicly traded Fluor Corp., an engineering, construction and project management firm, to begin designing the first demonstration plant. The plant will be located somewhere in the Northeast, Shevick said. The company declined to release the terms of the deal.

Because of the demand for biobutanol, Shevick said the plant, scheduled to open in 2012, will immediately be profitable. In all, biobutanol represents about a $10 billion annual market opportunity.

"We’ve been in the lab-work phase since about 2007, but now it’s time to scale up and commercialize," Shevick said.

The company will try to work with the paper and pulp industry to co-locate plants where paper waste is located, and it currently buys beetle-killed trees from a dealer in Denver.

For the cleantech sector overall, biofuel is proving to be a hot place for investment. According to the Cleantech Group, venture capitalists invested $302 million in biofuels across 13 deals in the second quarter of this year, making it the second largest sector behind solar, at $811 million.

Read the full story in the Silicon Valley/San Jose Business Journal.