The factory will be the first in the world building EcoMotor’s “opoc,” opposed piston, opposed cylinder engine, at a commercial scale. When it starts production in 2014, the factory will aim to produce 150,000 engines per year. There’s also an adjacent site that could expand production to 400,000 engines per year down the road.

Strategic deals with huge Chinese companies are becoming a valuable way for Valley cleantech startups to move into commercial production and actually have a chance at succeeding. In particular Khosla Ventures has been adept as of late at helping its companies navigate deals in China.

Chinese parts company Wanxiang invested $420 million into GreatPoint Energy – a company based in Cambridge, Mass. that converts coal into cleaner-burning natural gas — in order to commercialize GreatPoint’s technology in China. LanzaTech, which turns gases emitted from industrial processes into biofuels and biochemicals, is working with China’s largest steel producer, Baosteel, as well as Chinese coal producer Yankuang Group. Khosla Ventures has invested in both of these firms.

By partnering with a giant like Zhongding, EcoMotors doesn’t have to raise and spend a lot of money on infrastructure. In return, Zhongding will sell the engines domestically in China — these particular engines will be powerful ones used for generators, off-road vehicles and commercial vehicles. Chung called the strategy “cleantech done right.”

EcoMotors’ engine can be 20 to 50 percent more efficient, 20 to 25 percent lower in cost to buy, and half the size and half the weight of a traditional engine. For car manufacturers the capital savings are even greater — at 30 to 40 percent — when using EcoMotors engine to build an efficient vehicle. When placed in a passenger light weight vehicle, the engine could deliver a 100 MPG, 5-passener, car.

The Chinese car market, as well as the engine market, are the largest and fastest growing in the world. And the Chinese government has set very aggressive goals to reduce the country’s air pollution and carbon emissions.

EcoMotors is a particularly unusual investment for a venture capital firm because the internal combustion hasn’t seen much innovation in decades. But the global trends of needing this innovation are clear: more and more countries are pushing for lowered car emissions, air pollution is a massive problem throughout developing countries, and the cars that will catch on in the price conscious developing markets will be cars that use fuel efficiently and thus save their customers money. Other startups working on efficient engines include Pinnacle Engines, Achates Power, Grail Engine Technologies, and Transonic Combustion.

Updated at 3:00PM PST, April 9, with mention of the deal with Baosteel, China’s largest steel producer.

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Ambri has raised money from Bill Gates, Khosla Ventures, oil company Total, and the Department of Energy’s ARPA-E program. The company is developing a battery for the power grid using molten salt sandwiched between two layers of liquid metal. The battery is still about two years from commercialization, and the team has built a 16-inch prototype, though they might scale that up to 36 inches.

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The report, requested by Congress, says the U.S. is unlikely to meet the national Renewable Fuel Standard, created by Congress in 2005, that calls for gradually increasing the nation’s supply of alternative fuels from 9 billion gallons in 2008 to 36 billion gallons by 2022. Alternative fuels, which must be made from renewable sources, include ethanol, cellulosic ethanol (using non-food crops), biodiesel and hydrogen.

Struggling cellulosic biofuels

The report notes that producing enough next-gen, or cellulosic biofuels, will be particularly difficult. Sure, the Renewable Fuel Standard is creating a market by mandating 16 billion gallons of cellulosic biofuel by 2022, but the producers could fall short of that goal because of some known and hard-to predict hurdles, including: the need to convert more farms or other types of land to grow feedstocks, the high cost of converting the tough cell materials of a plant into fuel, and the dependence of growers and biofuel producers on government subsidies.

The country has no large-scale cellulosic biofuel refineries today. Cellulosic biofuels, at current production cost estimates, also can’t compete with fossil fuel prices. The federal government has doled out hundreds of millions of dollars in grants, loans and loan guarantees to help increase feedstock production and help build refineries. Recipients of these government funds are planning, and just beginning to build, processing plants. Poet recently clinched a $105 million Department of Energy loan guarantee to build a cellulosic ethanol plant in Iowa that will use corn husks, leaves and cobs.

Most of the renewable biofuels produced today are ethanol made from corn, which also is used for food for humans and animals. There has been no shortage of debates about “food v. fuel,” and the controversy isn’t just about corn.

The report noted that cellulosic biofuel production requires crops as well, and a lot of research is taking place to maximize the yield of plants such as switchgrass and sweet sorghum. Some cellulosic biofuel makers want to use wood chips or non-edible part of a food plants, such as corn stalks and wheat straw, but even those will need to be grown. The need for more of these “energy crops” will likely require more conversions of existing farm and pasture land or uncultivated land, which will fuel more debates about food prices. But the report cautioned that the impact of biofuel production on food prices is a complex question that is hard to quantify.

Do biofuels reduce greenhouse gas emissions?

All these land conversions raise a good question about whether or not biofuels reduce greenhouse gas emissions. How cellulosic biofuels will stack up against fossil fuels in reducing emissions over time is hard to gauge and depends on land conversion and production processes. Research already indicates that corn ethanol isn’t a better replacement for fossil fuels; the use of ethanol could increase air pollution, and its water use — from crop growing to fuel production — is higher than conventional fuels.

The biofuel industry’s growth still relies heavily on government help, and that could greatly affect the pace at which they reach the renewable fuel goals. Will biofuel producers be able to build a long-lasting business? Will investors shy away at first signs of reduced government support? Those will be persisting questions especially when policy is attempting to drive adoption.

Like other capital-intensive cleantech businesses such as solar manufacturing, the biofuel industry found it tough to raise private dollars to build processing plants after the financial market collapsed in 2008. The outlook has brightened over the past year as many technology producers lined up public and private investments to build their first large-scale plants (using non-food crops). Some of them held initial public offerings, which creates the impression that the age of cellulosic biofuel has arrived. Venture capital firms such as Khosla Ventures can now point to some successful exists for their portfolio companies. Biofuel companies that went public over the past year include Gevo, Amyris and KiOR.

The report recommends more research and development work to increase both the density of energy crops grown on a given land and the amount of biofuels that can be converted. The report’s authors noted that Congress asked them to layout challenges and ways to reduce the negative impact of the renewable fuel mandate on prices and animal feed, food and forest products. But the task didn’t involve coming up with suggestions to change the mandate in order to achieve greater greenhouse gas emission reduction or to compare biofuels with electricity for powering cars.

Images courtesy of Kior, Amyris, Nancy Qian.

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The new estimated pricing could help KiOr raise more than double the $100 million that it was previously planning to raise in an IPO, filed back in April. At the mid-point of its new pricing range, KiOr has a market value of $2.3 billion.

The four-year-old company has high ambitions to turn wood chips cheaply into a substitute for crude oil, which can then be used by the world’s oil refining industry. KiOr plans to use the funds raised to build up to five plants, the first to be built in Columbus, Miss, which will cost $190 million (Update: KiOR says this first plant is fully funded). KiOR says it will cost $1 billion to build the five plants, which it needs to reach its a production scale of 1,500 BDT-per-day that will deliver a low cost of its biocrude.

However, KiOr is still in the growth and scale-up stage, and isn’t bringing in any revenues and is not profitable. For 2010 KiOr lost $45.93 million, in 2009, $14.06 million, and in 2008 $5.87 million. KiOr also is betting that it will receive a $1 billion loan guarantee from the Department of Energy, and it received a term sheet for that guarantee, but not all companies that receive term sheets for DOE loan guarantees will actually receive the guarantee.

KiOr is the third biofuel company to IPO in recent months backed by investors at Khosla Ventures, Vinod Khosla’s fund, and others included Gevo and Amyris. Amyris and Gevo were in early stages of production as well, and those IPOs were relatively successful. Though, both Gevo and Amyris have been selling traditional biofuels to make up for their lack of revenues in the early stage and KiOr seems like it has been moving too fast to follow that path.

KiOr is different from Amyris and Gevo in that KiOr is largely controlled by Khosla Ventures. Khosla Ventures owns 74.8 percent of KiOr’s Class B stock, and 32.5 percent of its Class A stock, which represents 73 percent of total voting power before the offering.

The most recent S-1 says: “Khosla Ventures will, for the foreseeable future, be able to control the outcome of the voting on virtually all matters requiring stockholder approval, including the election of directors and significant corporate transactions such as an acquisition of our company.” KiOr is officially considered a “controlled company, under The Nasdaq Global Market corporate governance standards,” says the S-1. Khosla Ventures and KiOr even signed a letter of intent in May 2011, that says Khosla Ventures can “build, own and operate commercial production facilities” that use KiOr’s technology in 2015.

So needless to say, Khosla Ventures will make significant money on KiOr’s IPO.

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Seeo has been rather quiet about its battery innovation, but we do know that the company has been developing a nano-structured, lithium-polymer battery, and in particular, has been working on a solid electrolyte that was developed at Lawrence Berkeley National Lab. The material, which Seeo began licensing from the lab in 2007, allows for a more stable battery with higher energy density, in contrast to the more easily flammable liquid electrolyte that can present a safety risk in some conventional lithium-ion batteries.

Seeos batteries are supposed to be able to be operated at a much higher temperature than competing batteries, which means they could be used in environments with extreme temperatures — like outdoors attached to a solar system — and the team is looking at using the batteries for electric vehicle applications, too.

Seeo lists other investors on its website including Google’s philanthropic arm Google.org and Presidio Ventures, and Seeo also won a $6.2 million grant from the Department of Energy to develop and deploy a 25 kWh prototype battery for the power grid. Back when that was awarded, the DOE described Seeo’s grid project as demonstrating “the substantial improvements offered by solid state lithium-ion technologies for energy density, battery life, safety, and cost,” and the technology as targeting “utility-scale operations, particularly community energy storage projects.”

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In some cases, it seems like: yes for sure. Now that the cleantech investment cycle seems to be fading down a bit for new and early stage investments, it’s looking like the timelines and horizons outside of venture capital sometimes are just better suited to investing in winners that will take time (decades) to create the next generation of energy infrastructure. As Pike Research founder and analyst Clint Wheelock put it in another comment on my LinkedIn post, while “the Silicon Valley VC crowd may be backing away from cleantech for a while, which is a natural part of the hype cycle. . . . It’s a big world out there, and there are many ways in which cleantech is not fully compatible with the VC model anyway.”

The idea that building and getting returns from capital-intensive cleantech infrastructure companies takes longer than the venture capital 5-year or so investing model, is something that we’ve brought up at length (Greentech Investing: Not Working for Most). But given that cleantech investing is relatively new, it’s been hard to determine if that sentiment was true or not. It’s looking more clear now, but still is an over simplified statement.

Clearly it’s not true for all VCs, and a lot of the specialists and investors who have been investing in cleantech for over 5 or 6 years, continue to raise cleantech funds, and are finding ways to make it work. Vinod Khosla is raising another over $1 billion fund, though he hasn’t specified if Khosla Ventures will put the same amount of money into cleantech companies this time around. VantagePoint Venture Partners, Westly Group, and Braemar Energy Ventures are all raising new cleantech funds.

I guess my question is, will there be a new wave of more informed VC cleantech investors down the road that will have more success than the first wave, finding a combination of investments that work, from later growth stage investments, to IT-based cleantech (dubbed cleanweb or cleantech lite)? Or does cleantech just not work for most VCs? Does a second wave of cleantech investing, we described as cleantech investing 2.0, involve the general venture capitalist? Will there be another up in a couple years? A cleantech investor friend who I had coffee with earlier this month, told me to get used to the ups and downs, which he pointed out can change dramatically with government policies, energy prices and political sentiment. What do you think?

Image courtesy of PetroleumJelliffe.

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The key difference with KiOR is that it isn’t making a biofuel such as ethanol or biodiesel. Rather, it’s turning wood chips into a substitute for crude oil, which can then be used by the world’s oil refining industry. KiOR has an offtake agreement with Hunt Refining Co., and is looking for other customers, even as it looks to both private and public investors to get its admittedly large-scale plans off the ground.

Here are some of the numbers you’ll want to know.

• $100 million: KiOR’s maximum IPO offering.
• $31.78 million: KiOR’s operating expenses (i.e., losses) for 2010, compared to $13.64 million in 2009. Of that amount, $22 million went to R&D (compared to $9.96 million in 2009) and $8.08 million to general and administrative expenses (up from $2.99 million in 2009). Over the same time, KiOR started up its demonstration plant in Texas, went from 30 to 75 employees and hired a patent attorney and related support staff.
• $66.3 million: KiOR’s accumulated deficit as of December 31, 2010. The company has never reported any revenues, which might hurt their investment pitch compared to fellow biofuel IPO hopeful Solazyme, which generated revenues of $37.97 million (albeit for a loss of $16.28 million) in the year ending Dec 31, 2010.
• $41.4 million: Estimate of how much equity investment KiOR has raised to date, not counting any undisclosed angel or friends-and-family backing. Khosla provided the company’s $1.4 million Series A round, and the company raised $40 million as part of a planned $95 million Series B round of funding last year. The company’s S-1 states, “We will need substantial additional capital resources” to start building the five plants it plans for Mississippi, Texas and Georgia in the second half of 2011.
• $1.80 per gallon: UPDATE: KiOR says its technology, scaled up to oil industry size, can turn wood chips into “biocrude,” then ship it to existing oil refineries to crack it into turn it into gasoline or diesel blendstocks, at a price of $1.80 per gallon — without government subsidies. UPDATE: Crude oil is measured in 42-gallon barrels, which would set the cost of a barrel of KiOR crude at about $76 — and oil was trading at $106.25 a barrel on the New York Mercantile Exchange this morning, the lowest it’s been since March 30. As a rule of thumb, crude oil makes up about one-half to two-thirds of the price of a gallon of gas at the pump, which would price KiOR’s pump-ready output at roughly $2.70 to $3.60 per gallon. By way of comparison, conventional gasoline and diesel were $2.86 and $3.08 per gallon on the Gulf Coast as of March, and market prices for corn ethanol, biodiesel and sugarcane ethanol were $2.49, $4.78 and $3.50 per gallon, according to KiOR.
• 1,500 bone dry tons (BDT): That’s how much wood chip material KiOR will need to process every day to reach that super-low price of $1.80 per gallon. Its current demonstration plant, on the other hand, is set up to process 10 BDT per day and has been running since March 2010, which gives a sense of the scale KiOR is seeking to achieve in the space of a few years.
• $72.30 per BDT: The price of “Southern Yellow Pine clean chip mill chips” that KiOR wants to buy for its first feedstock. Eventually, the startup wants to accept “lower grade chips, logging residues, branches and bark,” which could allow it to significantly cut the costs it’s covering for each ton of trash it would divert from the landfill — but for now it’s sticking to the more expensive stuff.
• Approximately $190 million: What KiOR expects to spend on its first plant in Columbus, Miss., which will process 500 BDT per day. KiOR had paid $14.6 million as of December 31, 2010.
• $75 million: The Mississippi state grant that will help KiOR built its first plant, as long as it sources its biomass within the state’s borders.
• $1 billion: That’s how much KiOR says it will cost to build the five plants it needs to reach its 1,500 BDT-per-day production goals. Not coincidentally, KiOR said in February that it was asking the Department of Energy for a $1 billion loan guarantee — an unprecedentedly high request for the biofuel industry.
• 67 gallons per BDT: The yield that KiOR has achieved using its biomass catalytic cracking technology. KiOR was spun out of a company called BIOeCON as a joint venture with Khosla Ventures in 2007, and its core technology is a catalyst designed to help the oil industry clean up super-heavy crude by superheating it in the absence of oxygen, which is known as pyrolysis. That’s a pretty well-known and understood technology, compared to the biological and chemical processes used by most biofuel startups.
• 1.7 gallons of ethanol equivalent: Comparing KiOR’s price points to other biofuels is tricky, since most biofuel companies are creating substitute fuels like ethanol or biodiesel, rather than feeding the existing petroleum industry. Ethanol, for example, is less energy-dense than gasoline, which means that every gallon of gas equals 1.7 gallons of ethanol, KiOR says. Using that measure, it puts its own per-gallon costs at “$1.10 per gallon of ethanol equivalent” — important when comparing its projected fuel price to ethanol’s subsidized $1.30 per gallon.
• 80 percent: That’s the reduction in direct lifecycle greenhouse gas emissions for every gallon of biocrude that replaces a gallon of fossil fuel, KiOR claims. Every ton of wood chips turned into biocrude is a ton that isn’t going to rot, releasing methane and carbon dioxide that add to the atmosphere’s load of greenhouse gases.
• 2011: The year KiOR has said it intends to go public. Credit Suisse Securities (USA), UBS Securities and Goldman Sachs will act as joint book-running managers for KiOR’s IPO, and Piper Jaffray, Citigroup Global Markets and Deutsche Bank Securities will act as co-managers.

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Indeed, KiOR says in its S-1 that it’s shooting for an unsubsidized production cost below $1.80 per gallon of gasoline or diesel for its wood chips-to-biocrude technology. That’s cheaper than competing technologies seeking to turn non-food feedstocks like straw, grass and wood chips into ethanol or biodiesel.

The catch is, that price is expected to come from a facility that could take 1,500 tons of feedstock per day. But the Lyle, Texas-based startup is only running a 10 tons-per-day demonstration plant right now, so it will need to scale up to prove those figures.

To get there, the startup will use any raised funds to build up to five plants, the first to be built in Columbus, Miss., and has lined up Hunt Refining Co. as a buyer of the bio-crude it hopes to produce from that plant.

KiOR is also seeking a $1 billion Department of Energy loan guarantee, and received a term sheet for the guarantee in early February. That’s a huge amount for a single company to request, compared to the $571 million in loan guarantees the DOE gave to biofuel companies Coskata, Enerkem and Diamond Green Diesel in February, and the $75 million to INEOS Bio and its partner New Planet Energy in January. Companies need to match the funding with private equity, and KiOR is going to need a lot more financial backing to land that loan guarantee.

The state of Mississippi said in August it would loan KiOR $75 million to help it build five biofuel plants in the state, and KiOR was reported to expect to invest some $500 million into those projects at the time. KiOR’s S-1 puts the expected cost of its first plant in Columbus at $190 million.

KiOR was spun out of a company called BIOeCON as a joint venture with Khosla Ventures in 2007, and Khosla provided the company’s $1.4 million Series A round. KiOR later on raised $40 million as part of a planned $95 million Series B round of funding. KiOR’s S-1 listed Credit Suisse, UBS  and Goldman Sachs as underwriters.

The IPO market for biofuel companies should give KiOR’s investors some confidence. Next-generation biofuel and biotechnology company Amyris has seen its share price perform well since its August debut, even as it admits it won’t be making its own biofuel for at least a year. And fellow Khosla-backed biofuel company Gevo raised $95.7 million in its February IPO, and has seen its shares climb from $15 to close at $24.45 on Monday.

KiOR won’t be the only biofuel company investors will be keeping an eye on; algae biofuel startup Solazyme announced its IPO plans in March, seeking to raise $100 million.

Image courtesy of Rick Hurdle via Creative Commons license.

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The first quarter’s $2.5 billion global green VC figure, compiled by Cleantech Group and reported by CNET, is the second-highest on record, topped only by the $3 billion raised in the third quarter of 2008, right before the global financial crisis and economic downturn began. It also marks an impressive upturn from the $1.68 billion in green VC cash raised in the fourth quarter of 2010 and the $1.97 billion reported the first quarter of last year.

At the same time, much of the first quarter’s venture capital investment was concentrated in larger deals for later-stage companies, many of them in the capital-intensive worlds of renewable energy and electric vehicles. Toward the end of 2010, Reuters reported a sharp decline in investing in early-stage cleantech companies because of the lack of returns for investors.

Are later stage greentech companies raising more money because they’re unable to successfully take to the public markets? Solyndra, the thin-film solar module maker had planned to go public last year and raise as much as $300 million, but canceled its IPO to instead raise $175 million by selling convertible promissory notes to existing investors. And this February, Solyndra announced it had secured a $75 million credit facility from existing investors, as it seeks to drive down its manufacturing costs (that $75 million isn’t included in the first quarter’s VC investment total).

In February, Miasole raised $106 million of a planned $125 million Series F round to ramp-up of production of its high-efficiency CIGS solar panels, now on order for project partners including Wal-Mart and Juwi Solar. Likewise, BrightSource Energy, which has a $1.3 billion federal loan guarantee in hand to build the world’s largest  solar thermal plant in California, raised $201 million in the first quarter, bringing its total private equity raised to $530 million. Both of those solar companies have been rumored to be seeking IPOs in 2011, though they haven’t commented publicly on the matter.

The same trend can be seen in the green transportation sector, where companies trying to scale up mass production of electric vehicles are turning to follow-on investment rounds. Fisker Automotive, maker of the high-end Karma plug-in hybrid sports car, raised $150 million in the first quarter as it pushed forward with its plan to refurbish a Delaware factory to turn out its lower-cost “Project Nina” plug-in sedan. Kleiner Perkins partner Ray Lane has said that Fisker will seek an IPO, but it will want the Karma to be on the road and plans for revenues in place before that happens.

However IPOs are back in a big way for Internet companies and other sectors of VC investing. In addition a few greentech companies like algae maker Solazyme and car sharing company Zipcar are still planning on testing the public markets soon.

Let’s not forget the big IPOs that did come off in the first quarter. China’s Sinovel Wind held a 9.46 billion yuan ($1.4 billion) public offering on the Shanghai Stock Exchange, clocking in as the quarter’s biggest greentech IPO. And in the U.S., Khosla-backed biomass-to-isobutanol startup Gevo raised $95.7 million in its Feb. 9 debut, and has seen its share price climb steadily since then.

Also, not every cleantech investment in the first quarter fit the late-stage format. There were a fair share of early-stage investments as well. Here are a few: Stanford spinout C3Nano raised a $3.2 million Series A round to develop nanomaterials for cheaper, more durable solar panel and viewscreen coatings; RelayRides, raised a little over $5 million to boost its peer-to-peer car sharing plans; grid management software startup Grid2Home raised $2.6 million of a planned $3.1 million round.

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Sunnovations, founded in 2008, got the funding from Two Seven Ventures in Colorado but declined to disclose the amount. The startup’s CEO, Matt Carlson, told us that the amount is in the single-digit millions, and the company raised $250,000 in angel funding prior to that. The seed funding enabled the company to engineer a system that uses pressure and gravity to pump and circulate hot fluids to heat water, a patented design that comes with fewer parts and makes it cheaper to install and operate than other systems on the market, Carlson said.

Based in McLean, Virginia, Sunnovations engineers and contracts with American manufacturers to build its systems. It generates revenue by selling the systems to installers, and the latest funding round is key to expand its installer network. It has signed up installers in the mid-Atlantic states such as Maryland, North Carolina and its home state of Virginia. The company recent entered Massachusetts and is targeting New York and Connecticut next, Carlson said. It also has signed up a distributor in Colorado.

Installers who are selling Sunnovations’ systems include Southern Energy Management in North Carolina, SECCO in Pennsylvania and SunBug Solar in Massachusetts, Carlson said.

Although the solar water heater market has been around for decades, it hasn’t grown as quickly as it should, Carlson said. Companies that develop and install the more expensive solar electric systems, on the other hand, have done a better done of educating consumers, he added.

“This is a wildly under-discussed market. A lot of companies haven’t done a good job of telling the story of how (solar water heaters) can benefit you as a homeowner,” Carlson said. “A lot of websites are very technically oriented and haven’t made it easy for people to understand.”

Home and business owners are eligible to receive a 30 percent federal investment tax credit for installing solar water heaters. A growing number of states also are offering rebates to encourage their use. California, for example, launched its incentive program called CSI Thermal last year. The state budgeted $350.8 million for the program and plans to run it until the end of 2017, or when the money runs out. New York also launched one late last year that came with a $25 million budget.

The emergence of government subsidies has lured investors and entrepreneurs to the solar water heating space. Cogenra Solar, founded in 2009 and targets businesses and the government sectors, installed its first demonstration system at a California winery last year and attracted more than $10 million in funding from investors including Khosla Ventures. EcoFirst, previously known as PVT Solar, raised a B round of $13.7 million last year and has won contracts with several home builders. Both Cogenra and EcoFirst are developing systems that can generate electricity and heat.

Sunnovations’ system is strictly for heating water. The system comes with panels that direct sunlight to heat up the tubes inside that contain a glycol (antifreeze) mixture. When heated, the mixture expands and by convection moves to an 18-inch tall pump next to the panels. The company designed the pump to function without electromechanical parts to cut costs, Carlson said. The pump moves the heat transfer fluid to a water storage tank, in which a heat exchanger then heats up the water.

The system also comes with a reservoir next to the solar panels to store the glycol mixture when the water heater isn’t in used for an extended period of time, such as when homeowners go on vacation. Glycol mixture can overheat, break down and corrode the tubes inside the panel if left in the panels for too long, Carlson said. So when the water in the tank already is heated, the heated and expanded glycol mixture moves into the reservoir.

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