Koch Industries’ First Biofuel Investment: SG Biofuels

jatropha1

The “Kochtopus” — the nickname given to the shadowy investment strategy of oil refiner and agricultural conglomerate Koch Industries — has sprouted a new tentacle, and this time it’s unusually green for a company that’s been called “a kingpin of climate change denial” and “a top U.S. 10 air polluter.” On Tuesday morning SG Biofuels, a firm that genetically optimizes jatropha seeds for the production of biofuels, says it’s become Koch Industries first biofuel invesment, through Koch’s subsidiary Flint Hill Resources. Other investors in SG Biofuel’s $9.4 million Series A round included Life Technologies Corporation.

Leave it to the promise of jatropha to entice Koch. Jatropha is a non-edible plant that produces seeds that have a high oil content, can grow on marginal land in warm climates and can produce significant profits for farmers because it is planted once and bears seeds for several decades. SG Biofuels is targeting developing countries like India, Mexico, Brazil, and Central America for its jatropha product.

SG Biofuels CEO Kirk Haney told me in an interview that the rare Koch investment is proof that there are solid economics behind the four-year-old startup’s green-leaning business model. The company’s seeds and technology can produce jatropha oil for a cost of $1.40 a gallon (that’s before refining) and will eventually lead to jatropha oil production costs that are under $1 a gallon, says Haney, adding: “The one thing that will make sure biofuels are here to stay is if they are economically priced with the dirty version.”

Koch of course isn’t the first company with oil assets to dabble in biofuels. Shell and the world’s largest sugar cane and ethanol producer Cosan have a $12 billion joint venture to make biofuels, Exxon is planning to spend $600 million on Synthetic Genomics’ algae fuel efforts, and Chevron has backed biofuel startups like Solazyme. But Koch is unusual in that it is one of the largest private companies in the U.S. (so legally doesn’t have to disclose all that much) and its chiefs owners Charles and David Koch have poured more than a hundred million dollars into dozens of seemingly independent political organizations, many of which support anti climate change messaging. The New Yorker published a detailed report on the brothers last month.

However, the first generation of jatropha biofuels businesses fell by the wayside over the past couple of years, mostly because they required too much water and produced too little yield. Some early investors, like oil giant BP, gave up on the crop.

But SG Biofuel’s Haney says that the unsuccessful jatropha bets were in the era of “Jatropha 1.0,” and now SG Biofuel’s genetic research has delivered “Jatropha 2.0,” or jatropha seeds that have more optimized traits and can economically yield jatropha oil for biofuel production. The company’s JMax platform, and JMax 100 jatropha strain, can deliver double the yield of previous jatropha crops, and also has a yield of 8 times that of soy beans (one of the most common feedstocks for biodiesel) and 4 times the yield of rapeseed, says Haney.

The company has a small list of announced customers including the Hawaiian agricultural resource center, and Haney says the company is already delivering product and bringing in revenues. Part of the company’s business model rests on SG drawing an annual trait royalty fee that is based on 10 percent of the value of the crop, after the initial purchase of the seeds and genetic strains.

At the end of the day SG Biofuel’s success will rest on how well it can optimize jatropha for biofuel use. The company spent the last four years amassing what it says is the largest and most diverse library of jatropha genetic material in the world, and in conjunction with Life Technologies, has sequenced the jatropha genome. SG Biofuel scientists then have applied breeding techniques and genetic engineering to the pool of jatropha material to produce superior strains that could be harvested for oil. While JMax 100 is a non genetically modified strain, the company also plans to launched a GMO version of the crop. A handful of countries have banned GMO-based food.

Most of us have heard the dark stories of companies planting feedstock for biodiesel production that have led to deforestation in developing tropical countries. When I brought that up, Haney said the company is very sensitive to that issue and plans to be sustainably certified, and in line with all World Bank requirements, for its markets. Unfortunately, that kind of issue is something that investor Koch — with its profits over planet mantra — hasn’t been very reliable on.

To learn more about clean tech financing deals see GigaOM Pro (subscription required):

Report: Cleantech Financing Trends: 2010 and Beyond

Image courtesy of SG Biofuels.

loading

Comments have been disabled for this post