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Cellulosic ethanol startup ZeaChem is one of the firms that has been racing to build a next-generation biofuel plant in the United States. On Wednesday, the company announced that it has raised a sizable round of funding — $34 million — to help implement that goal, […]

Cellulosic ethanol startup ZeaChem is one of the firms that has been racing to build a next-generation biofuel plant in the United States. On Wednesday, the company announced that it has raised a sizable round of funding — $34 million — to help implement that goal, and the company expects to start construction on a 1.5 million gallon per year plant in Boardman, Ore., sometime in 2009.

Fundraising is no easy task in this economic climate. But it’s easier for a company like ZeaChem, which is already 7 years old and has moved past the R&D phase. CEO Jim Imbler told us on Tuesday that he thinks it will be the biofuel businesses that are closer to execution that will survive this difficult year — “If you’re still focused on the “magic” of the technology it’s going to be a tough year ahead,” said Imbler.

zeachem-labsmall

Another milestone for ZeaChem is that giant petroleum refiner Valero Energy Corporation joined the company’s latest round as a strategic investor, and the company could help when it comes to reaching the massive scale needed to supply fuels for mainstream transportation needs. Valero has also invested in other renewable fuel companies like algae fuel developer Solix Biofuels.

ZeaChem’s funding was co-led by Globespan Partners and PrairieGold Venture Partners (a South Dakota firm) and also included Mohr Davidow Ventures, and Firelake Capital. This latest funding brings the company’s total to $40 million, including a $6 million round raised in the summer of 2007.

ZeaChem says its process of converting plants and trees into ethanol produces 40 percent more ethanol per ton of biomass than any known competitor. That’s a bold claim, given the number of competitors (which includes startups Coskata, Mascoma and Range Fuels and larger companies like Iogen and Poet).

ZeaChem’s process uses a combination of biological processes to convert the sugars into acetate and then gasifies the remainder, tough lignin and all, into hydrogen before mixing the two streams in a reaction called hydrogenolysis to produce ethanol. The company is first concentrating on poplar trees — one of the reasons it chose the Boardman, Ore., location — as a low cost feedstock, and has a deal with GreenWood Resources for its (sustainably harvested!) poplar supply.

ZeaChem’s funding is one of the first larger cleantech investments of 2009. In 2008, biofuel was the second-most-funded area, and it received 11 percent (or $904 million) of the year’s total funding, according to the Cleantech Group. We’re predicting that biofuels receive less funding in 2009, but for now, the sector is off to a good start.

By Katie Fehrenbacher

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