Waste-to-Fuel Startup Enerkem Raises $60M From Valero, Investors

Updated: Waste-to-fuel startup Enerkem already had trash king Waste Management (s wm) on its side. Now Enerkem has scored backing from oil refiner giant Valero (s vlo). On Wednesday, Enerkem announced it has raised another $60 million from Valero, along with existing investors Waste Management, Rho Ventures, Braemar Energy Ventures and Cycle Capital.

Enerkem gasifies various forms of waste — everything from old telephone poles to mixed municipal garbage — and then turns that syngas into various fuels including methanol and ethanol. Valero is on one side of Enerkem’s supply chain, and could work with Enerkem on commercial relationships to process and sell the fuels. Waste Management is on the other side of Enerkem’s supply chain, and we could envision Enerkem working with Waste Management’s trash supply.

Enerkem has a couple of facilities in the works. One in Westbury, Quebec, which at one point was expected to produce about 1.5 million gallons per year of methanol from old telephone poles, with ethanol next on the list of biofuels to produce. Another plant, which is expected to cost $70 million and could crank out about 10 million gallons of ethanol per year, is being planned with Greenfield Ethanol, Canada’s largest ethanol producer, right next to an Edmonton, Alberta municipal composting facility. And there’s also a 10 to 20 million gallon per year, $200 million plant, in the works in Pontotoc, Miss., adjacent to a municipal waste dump, which Enerkem expects to break ground on this year.

Enerkem has received significant U.S. government support for that last Mississippi plant. In January, the USDA awarded Enerkem a conditional commitment for an $80 million loan guarantee to build it, which also followed on a $50 million Department of Energy grant. With this latest funding, Enerkem has raised about $130 million in equity funding, and received $130 million (combo of grant and loan guarantee) from the U.S. government. Trash to fuel technology seems to have gotten more attention in 2011, compared to making cellulosic ethanol from energy crops and agriculture waste.

However, even with this bright funding spot, the next-generation of biofuel production has been creeping forward. There have been three biofuel IPOs in the last 12 months — Gevo (s GEVO), Amyris (s AMRS) and Solazyme (s SZYM) — but these three companies are not yet producing biofuels at scale, and are instead making sales either off of specialty bio products like cosmetics, or reselling standard corn-based ethanol.

It will ultimately be the giants like Valero and Waste Management that will be able to get these biofuel products to scale. Both Valero and Waste Management are investing in quite a few biofuel and waste product companies. Valero has backed Mascoma, and has also taken stakes in algae fuel maker Solix Biofuels, and cellulosic ethanol maker ZeaChem.

Waste Management strategically invested in German company Agnion Energy, which invented a waste gasification process based on something called the heatpipe-reformer design. Waste management has backed startup Agilyx, which has developed technology that can turn plastic otherwise headed for the landfill, into a synthetic crude oil. And earlier this year, Waste Management announced a partnership with Genomatica, a San Diego, Calif.-based startup with a platform to create genetically modified organisms to turn biogas into a variety of industrial chemicals.