The California company, founded in 2009, announced Wednesday that it’s projecting a biofuel production cost of $1.50 per gallon at a plant that can produce 10 million gallons per year. Cool Planet is looking to raise around $100 million for that first 10 million-gallon facility and for production and other corporate expenses. That first plant would have a capital cost of $50 million, said Howard Janzen, CEO of Cool Planet. At those estimates the biofuel could be produced for less than the price of crude oil.

The company hopes to complete the project and start delivering fuel in the first half of 2014. Janzen said some of the company’s investors will be the ones in line to get the first shipments from that plant, though he declined to disclose their names. The plant is planned for the U.S., but the location hasn’t been settled, said Janzen.

A plant of 10 million gallons seems small, given many biofuel makers want to build commercial plants at twice the size. But Cool Planet figures the way to reduce costs, such as transporting energy crops, is to build many smaller plants that are close to the feedstock source. They should be within a 30-mile radius, says Janzen.

All this sounds like a good plan, and almost too good to be true. Janzen said the company’s investors were very skeptical before they put up the money, too. Janzen declined to say how much Cool Planet has raised.

Google is completing a field trial at its Mountain View headquarters using gasoline with a 5 percent blend of Cool Planet’s biofuel. Google has used the blended fuel to log 2,490 miles in one car, which is just slightly less than 2,514 miles in a car that uses 100 percent conventional gasoline. The car with the biofuel passed 5 smog tests and its emissions were “virtually identical” to the gasoline-only car, Cool Planet said.

Cool Planet has come up with a technology that is quite different than the fermentation and other chemical processes that are under development. The company uses high heat and pressure to compress woodchips, crop wastes or other feedstock in an oxygen-free environment. The desired temperature is around 350 degrees Celsius and the pressure at 150 psi. This process creates vapor that is then converted to fuel. The process also generates biochar, which then goes through a gasifying process to get more vapor that can be converted into fuel.

The remaining biochar residue can then be sold as fertilizer, a component of water filters or even a wood pellet substitute, Janzen said. So the amount of biochar that can be produced can be adjusted depending on whether the company wants to sell more biochar or fuel. In general, a 10 million-gallon plant can produce about 10,000 tons of biochar. The company is working on finding buyers for its biochar.

Biochar production serves a way for Cool Planet to sequester carbon emissions. If biochar is used as fertilizer, then its carbon will stay in the soil instead of being released into the atmosphere. As a result, Cool Planet claims that its entire fuel production process in effect reduces carbon emissions by a significant amount.

The startup already has a pilot production line at its headquarters that can make 50,000 gallons of biofuel per year, and it’s building a larger plant nearby that will be able to yield 400,000 gallons per year.

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When thinking about the rising price of oil, folks in cleantech tend to think in terms of transportation fuels and what can be done to replace them with renewable and clean sources of energy. And with good analysis from the likes of UCSD’s Tom Murphy showing that in 2004 oil production slowed and failed to increase much despite prices tripling, finding alternative fuels is key. But what most people don’t realize is that a chunk of the crude oil that goes into an oil refinery doesn’t end up anywhere near a car’s fuel tank. It ends up making chemicals.

A higher margin product

In 2011, the global market for petrochemicals was worth over $3 trillion, approximately the size of the entire U.S. government’s budget, and the feedstock for producing those chemicals is petroleum. About half of that market is commodity chemicals that are low margin, but the other half is higher margin specialty chemicals like polymers that comprise plastics or substrates for pharmaceutical manufacturing.

The biofuels industry is working on producing transportation fuels through a process whereby a carbon feedstock like woodchips or sawgrass is fed to microbes to produce oil. But most of the biofuels companies that IPO’ed last year have been crushed in the market, and Amyris recently decided to scale back its biofuels production in favor of, what else, but manufacturing the specialty (and higher margin) chemical squalene.

So as some biofuels companies try to pivot toward specialty chemicals, which are lower volume and smaller market but with better margins, it’s worth taking a look at the potential to use microbes to manufacture chemicals from a feedstock other than oil.

Finding the right bio-chemical

I recently caught up with Charles Eggert, the CEO of Boulder, CO based OPX Biotechnologies, a bio-chemical startup that has raised $65 million from a number of VCs including energy focused Altira Group and cleantech friendly Mohr Davidow. OPX Bio is targeting the $10 billion global market for petro-acrylic, an ingredient in everything from paint to diapers, by generating the first biologically produced acrylic, so called “bio-acrylic.”

Eggert is unsurprisingly bullish on the bio-chemical market. He points out that while less of the oil going into a refinery comes out a petrochemical than comes out a fuel, petrochemicals have much greater value in the market. Specialty chemicals have disproportionate margins and value, which is what makes them attractive. He also takes some solace in the fact that the massive scaling issues that have hampered biofuels are somewhat less of an issue for lower volume specialty chemicals and that many common chemicals from pharmaceuticals to amino acids are already produced biologically.

On the cleantech end, biochemicals are renewable, presuming you can access a widely available feedstock whose growth doesn’t harm the environment and doesn’t compete with the food supply as corn based ethanol does. But more importantly the process of using microbes to produce biochemicals doesn’t require heat and pressure, which are both needed in petrochemical processing. The bacteria that OPX uses operates near room temperature.

Eggert says that producing bio-acrylic results in 75 percent less greenhouse gas emissions versus producing petro-acrylic. Additionally, large companies like Procter and Gamble have ambitious pledges, like targeting the replacement of 25 percent of all petroleum based materials with renewable materials by 2020. P&G is a significant buyer and seller of specialty chemicals for everything from detergents to cosmetics, and the option to buy greener bio based chemicals could be an attractive option.

For a feedstock, OPX is currently using sugar, either from corn or Brazilian sugar cane. But ultimately the industry will need a non-food based sugar, often referred to as cellulosic sugar, which is derived from biomass materials like switch grass or energy cane. Multiple companies, from BP to DuPont, are working on building large scale plants that can derive sugar from biomass sources.

Eggert told me that at commercial scale, making bio-acrylic is cost competitive with petro-acrylic. OPX will need to build a commercial scale plant and prove that it can get the same yield it’s produced at smaller scale, the critical scaling hurdle that every biochemical or biofuel company faces. It also has a joint development agreement with Dow Chemical, the largest U.S. producer of petroleum based acrylic, which Eggert reports is seeing demand from its customers for renewable biochemicals.

The building of a final production plant can often run a couple of hundred million dollars. “It’s not cheap,” says Eggert. “Which is why you need to make sure your process, your microbe, your engineering design are as efficient as they can possibly be.” And for the benefit of the biochemicals industry, let’s hope that the scaling goes faster and more smoothly than it’s gone for biofuels.

Images courtesy of OPX Biotechnologies and Amyris.

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Kodiak Electric Association built the sizable Pillar Mountain Wind Project in 2009, and at 4.5 MW it currently provides about 10 percent of the utility’s power generation needs. But the utility, which operates its own stand alone grid, plans to expand the wind project to 9 MW, and was worried about grid instability at that scale, with the fluctuating wind climate in its area. Eventually KEA is aiming for 95 percent clean power by 2020 and plans the have Xtreme Power’s battery system up and running by the end of the year.

Xtreme Power is a 8-year-old company with a plan to build large battery farms connected to clean power projects, and then supply its management system to control the storage use. The idea is that when variable solar and wind die down, or fluctuate too high, the battery system can rapidly and dynamically store or release the energy when needed to smooth out the grid. One of Xtreme’s biggest contracts is to build a 10 MW storage system meant to back up a 30 MW wind farm planned for the Hawaiian island of Oahu.

Xtreme describes its PowerCell battery chemistry as a “chemical capacitor” that it says can beat lithium ion batteries in terms of energy storage, efficiency, cycle life and cost. The technology was born out of a 1990′s joint venture between Ford Aerospace and defense contractor Tracor that was shelved after its target market — California’s zero-emissions vehicle fleet — collapsed in the wake of the state’s decision to back off its ZEV mandate.

Xtreme bought the technology in 2004 and put its first 500-kilowatt PowerCell in place at the South Pole Telescope in 2007. Since then, it has also tested a 1.5 MW PowerCell at another 30 MW wind project on the island of Maui, and has been working with the transmission hub project called Tres Amigas.

Xtreme has been quiet on how much its battery tech costs, but Sam Jaffe, analyst at IDC Energy Insights, told us a few years back that Xtreme has been targeting around $500 per kilowatt-hour as a profitable price point for grid storage systems. Xtreme says it has already installed 22 MW of batteries and its management system, and plans another 55 MW by the end of the year.

Xtreme Power is backed by SAIL Ventures, Bessemer Venture Partners, the venture arm of Dow, Fluor, Dominion Power, Spring Ventures, BP, Posco, and Skylake Incuvest.

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CoolPlanet BioFuels makes what the company calls negative carbon fuels, using a technology it calls biomass fractionator. The technology essentially takes nonfood biomass (plant waste, energy crops, etc.) and turns it into a drop-in replacement for gas and diesel. That process sounds similar to what biofuel company KiOR is doing.

KiOR uses a catalyst to carbonize biomass (called its Biomass Catalytic Cracking Process), which was originally developed to help the oil industry break down heavy crude oil into more-easily refined products for the oil industry. Drop-in replacements for gas and diesel will be more attractive to the oil industry, because they can use the current infrastructure for transport and use.

BP has invested in a variety of biofuel companies including Verdezyne, which engineers yeast that eats plant sugars and excretes biofuel and biochemicals, and Synthetic Genomics, Craig Venter’s firm that is using genetics to tweak algae to produce fuel. BP also has a joint development agreement with Martek Biosciences to work on making microbial oils for biofuels, and earlier this year BP spent $98 million acquiring the biofuel arm of Verenium, a startup that makes enzymes that break down cellulosic biomass into sugars.

While there are dozens (likely hundreds) of next-gen biofuel companies, almost none of them have produced biofuels at any scale. The Environmental Protection Agency said this week that once again, only a tiny fraction of the biofuels required by the U.S. mandate will come from next-gen cellulosic biofuels: less than one-tenth of 1 percent, according to the Wall Street Journal. The mandate was for 3 percent.

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Chromatin’s plans

Chicago-based Chromatin said it has lined up $10 million – the first close of the D round – from investors including the venture arm of oil giant BP and the investing arm of product firm Unilever. Chromatin has developed a technology to genetically modify energy crops so that they grow fast and abundant, and its plant of choice if sorghum, a grass with some desirable, natural characteristics as a bioenergy feedstock, such as a high tolerance for drought and heat.

Chromatin wants to make money by selling its hybrid sorghum seeds to growers and license its technology to agricultural companies. The plants could be used to produce transportation fuel, electricity or chemicals for other products.

The company’s reach for commercial production may arrive sooner now that more cellulosic biofuel producers are finally getting on with building their first refineries. Generous government grants and loans have helped biofuel companies complete their technology development plans and build pilot and commercial plants. The U.S. Department of Energy last month finalized a $105 million loan guarantee to Poet to build a biofuel refinery in Iowa using corn cobs, husks and leaves, and a $132.4 million loan guarantee to Abengoa Bioenergy to build a plant in Kansas that will cover agricultural wastes such as corn stalks and leaves to fuel.

Mastering the processes of converting biomass to fuel is only one of the steps in boosting the country’s cellulosic biofuel production, however. Producing enough feedstocks is also important and could be a bottleneck for reaching the renewable fuel goals set by the U.S. government. Fuel giant Chevron certainly sees a shortage of feedstocks.

“There is a number of promising conversion technologies, but the limiting step is a lack of large-scale biomass feedstock,” said Des King, president of Chevron Technology Ventures, in an interview last month. King said 100,000 square miles of forests will be needed to produce 1 million barrels of cellulosic biofuel per day. Chevron formed a cellulosic biofuel joint venture called Catchlight Energy with Weyerhaeuser in 2008 to take advantage of Weyerhaeuser’s timberland holdings.

Genomics guru Craig Venter and his startup Synthetic Genomics also announced this week that they’re creating a joint venture around using genomics to create crops with a higher yield, lower cost, and better crop protection in an effort to use the crops potentially for biofuels.

However, transportation fuel may not be the first sources of profit for Chromatin’s technology. The company just signed a preliminary agreement with electricity producer Constellation Energy to test Chromatin’s sorghum to produce power at two plants in California. One plant current uses coal, while the other uses agricultural and wood wastes.

Zeachem’s goals

Meanwhile, ZeaChem said it has raised a $19 million Series C round as it marches toward commercializing its process of turning plants into fuel. Like many other biofuel companies, ZeaChem also is exploring the use of its technology for chemicals that can be used in products other than transportation fuel.

The Colorado company plans to bring a demonstration refinery plant online in Oregon by the end of the year, with an annual capacity of 250,000 gallons. ZeaChem recently received a $40 million grant from the U.S. Department of Agriculture to use the demonstration plant to produce blending fuels for cars and jets that run on diesel and other types of petroleum-based fuels. The company expects to produce the first batches of jet and diesel fuels in 2013 and gasoline replacement in 2015.

Birchmere Ventures led the $19 million round, which also came from investors such as Firelake Capital, Globespan Capital Partners and Mohr Davidow Ventures.

Image courtesy of Chromatin, and GigaOM

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The undisclosed round will fund the Carlsbad, Calif.-based startup’s operations through the next two years, as well as help it build two pilot plants to churn out both ethanol and adipic acid, a precursor to nylon and other polymers, CEO William Radany said last week. Previous investors Monitor Ventures and OVP Venture Partners also took part in the new round.

As for projects and partnerships with BP and DSM, Radany wouldn’t get into too many specifics, but said Verdezyne was looking at “additional relationships” that could fit into both companies’ broader green fuels and chemicals efforts. “The companies’ technologies seem to be very complimentary,” he said.

A lot of biofuel and biochemical startups are inking partnerships with oil, chemical and consumer products giants, which have deep pockets and a broad distribution channel that can help bring these still expensive and hard-to-make products to market. Amyris has a deal with Procter & Gamble  to produce chemicals for consumer products and is working with Brazil-based sugarcane ethanol and electricity company Paraiso Bioenergia. Codexis is working with Shell  and Brazilian ethanol giant Cosan  on a $12 billion sugarcane-to-biofuel project.

Other such partnerships include Exxon’s $600 million partnership with Craig Venter’s Synthetic Genomics to genetically engineer algae for biofuel, as well as agricultural products giant Cargill’s partnership with Gevo, the Khosla Ventures-backed cellulosic ethanol company that went public in February.

Verdezyne was founded in 2005 as CODA Genomics, a University of California at Irvine spinout that used computational technology to design genes for the research world. Three years ago, the company hired Radany and shifted to the idea of making their own biofuel and biochemicals. The company has raised at least $15 million in a round it began in 2009, and raised a second undisclosed round in November.

Verdezyne has been able to design yeasts that eat both sugars such as glucose and ribose Radany said. Verdezyne has a deal with big yeast maker Lallemand to put Verdezyne’s ethanol-making yeasts into use in a pilot project expected to start later this year. This year will also see the start of another pilot project using yeasts that make adipic acid, which he said the company can do at costs lower than traditional methods using petroleum as a feedstock.

Verdezyne will still need help with breaking down cellulosic (and hemi-cellulosic) materials into the sugars it needs to eat to tackle converting grass, straw, sugar cane stalks and other such tough plant material into chemicals. Interestingly, one of BP’s other big moves into biofuels came in January with its $98 million purchase of Verenium, a startup that makes enzymes that break down cellulosic biomass into sugars — a technology that could be quite complimentary to what Verdezyne can do with sugar feedstocks.

Verdezyne isn’t the only startup with deep expertise in genetic engineering research to seek biofuel and biochemical markets. Genomatica, another startup that started out as a genetic engineering software and technology provider, just landed $45 million to develop microorganisms to convert sugar into chemicals like BDO, and is also working on bugs to turn syngas into chemicals.

Image courtesy of jurvetson via Creative Commons license.

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The aquisition includes Verenium’s demonstration facility in Jennings, Louisiana, its R&D facilities in San Diego, Calif., and all of the intellectual property around cellulosic ethanol. Verenium says it will retain the intellectual property for its enzyme business.

Given Verenium has been losing money for years, and at one point received delisting warnings from NASDAQ because its market capitalization fell below the minimum threshold, Wall Street is understandably supportive of the acquisition. Verenium’s stock rose over 50 percent to $3.83 in afternoon trading.

At the end of the day Verenium just couldn’t bring in enough revenue or raise enough money to move into wide scale commercial production of its next-gen biofuel cellulosic ethanol on its own. Verenium had a net loss of $56.24 million in 2009, down from a staggering net loss of $189 million in 2008. However, the company’s 2009 revenues dropped slightly to $65.91 million for the year, down from revenues of $69.66 million in 2008.

That situation is standard for cellulosic ethanol companies to date, and one reason why the former CEO of biodiesel maker Imperium Renewables, Martin Tobias, once told me that next-gen ethanol was a business that should be left to the giant oil companies.

BP previously had two different development deals with Verenium — a joint technology development deal called Galaxy Biofuels, and a joint venture called Vercipia Biofuels that intended to build a plant in Highlands County, Florida. According to the latest financials, the Galaxy deal expired in April, so that revenue stream had recently dried up for Verenium.

Foreshadowing the BP acquisition back in March, Verenium’s EVP and CFO Jamie Levin commented on the then-soon-to-expire Galaxy deal:

I think the expectation is that we’re going to find a more permanent solution or a more permanent approach to the way that we fund the technology going forward, but at this stage, I think it’s too early to discuss. But I don’t think the intention is to continue just a month-by-month extension process for very much longer.

Verenium was also banking on a DOE loan guarantee that never came through to help it build its first commercial cellulosic ethanol plant in Highlands County, Florida. Back in early 2009 the company said it hoped to break ground on its first commercial plant in the second half of 2009 (that didn’t happen). Then in June 2009 Verenium announced that the plant in Highlands had “been selected by the U.S. Department of Energy (DOE) to enter the due diligence phase of its Title XVII Loan Guarantee Program,” and would “break ground in 2010.” To date, there’s been no word of a DOE loan guarantee for Verenium or if the Highlands Plant will still break ground this year.

Back in the day Verenium was a Khosla Ventures investment. Founded in 1994 as Celunol, the company reportedly raised more than $60 million from Khosla Ventures, Braemar Energy Ventures, Charles River and Rho Ventures. In 2007 Diversa bought Celunol for over $100 million and it was renamed Verenium. Now it has changed hands again for about the same price.

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The largest device, the V20 centrifuge, can clean up about 200 gallons of liquid per minute, or about 288,000 gallons per day, and BP is reported to have ordered 32 of them so far. Once they’re built and in the water, that could have a capacity to clean 9.2 million gallons per day.

But can a few dozen centrifuge filters, no matter how big, make a dent in the worst oil spill in American history? It’s hard to say, but the sheer scale of the disaster would suggest that BP, the Coast Guard and everyone else involved could use all the help they can get. According to latest estimates, the ruptured deep sea well is spewing between 20,000 and 40,000 barrels of oil per day, or up to 2 million gallons per day. That oil, in turn, is both rising to the surface in massive slicks that now threaten the Gulf Coast and spreading out in hard-to-track underwater plumes.

And that’s just the oil coming out of the ruptured well. How much oil-laden seawater does that add up to? It’s difficult to say, but according to a Monday post at the White House blog covering the spill, the recovery operation has captured about 19.9 million gallons of an oil-water mix so far. That’s no doubt a fraction of the total amount, and it’s taken the efforts of more than 5,400 seagoing vessels and some 5.4 million feet of containment and absorbent booms — as well as the use of about 1.26 million gallons of dispersant chemicals — to break up the oil before it reaches shore. The dispersant also has a potential environmental cost that could match the impact of the oil itself, experts warn.

The Washington Post reported Monday that BP’s latest plan calls for capturing 1.2 million gallons of oil a day by the end of the week, up from a current capacity of 756,000 gallons a day, and has plans to capture 2.1 million gallons per day by the end of the month. BP has also said it will continue using dispersants, despite concerns as to their potential harm to the gulf’s wildlife and ecosystem. Costner, who made a point in his testimony before the House committee that one of his main goals was to reduce the use of dispersants, said that if the V20 had been around for the 1989 Exxon Valdez oil spill, about 20 of the devices could have cleaned up about 90 percent of the spill within a week.

But so far, Costner hasn’t had gotten regulators to approve the device, despite some 45 attempts to do so, he told the House committee. “In order to receive approval, technologies must be tested on actual spills, but the agencies charged with approval will not deploy untested equipment in a spill scenario,” he said in his prepared testimony. “We were dealing with a classic and very unfortunate example of a Catch 22.” Perhaps the unfolding disaster in the Gulf of Mexico could give the technology a chance to prove its claims.

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Images courtesy of marinephotobank’s photo stream, Mike Licht, NotionsCapital.com ‘s photostream, and Ocean Therapy Technologies.