Ethanol Startup Coskata Launches, Backed By General Motors and Khosla

Drive half an hour west from downtown Chicago and you’ll find the headquarters of Coskata, an 18-month-old company that says it has developed a major breakthrough for making low-cost ethanol. On Sunday, timed to coincide with the Detroit Auto Show, Coskata has decided to come out of so-called stealth and announce a partnership with General Motors, along with investments from GM, Khosla Ventures, Advanced Technology Ventures and Great Point Ventures.

What has Coskata done to attract the interest of one of the world’s largest car companies and the backing of some of the biggest names in cleantech? The Warrenville, Ill.-based startup says it can produce commercial-scale ethanol for under $1 per gallon, made from either biomass (like energy crops switch grass), municipal solid waste or other recycled materials (like old tires – one reason GM is interested). At the pump the company claims its product could be anywhere from 50 cents to $1 per gallon cheaper than gasoline.

Wow — one of the biggest barriers to producing the next-generation of biofuels that aren’t made from food crops, like corn and soy beans, has been bringing production costs down. Combined with the Energy Bill, which mandates the production and use of 36 billion gallons of ethanol annually by 2022, Coskata’s cheap, non-food-based production could actually be a tipping point that gets ethanol into more U.S. cars. (Right now less than 1 percent of gas stations offer the E85 blend of ethanol.)

Coskata was founded in July 2006 with a Series A investment of $10 million from Khosla Ventures, Advanced Technology Ventures and Great Point Ventures. GM’s recent equity stake in the company comes as part of the company’s Series B round. The companies won’t disclose the size of GM’s investment but they say it is not a controlling stake.

GMand Coskata say the partnership will enable them to work together on ethanol research and development, as well as to build the infrastructure needed to commercialize the biofuel. GM says it will utilize the fuel from the demonstration facility, and will also provide some of its carbon-based waste, like old tires, as a feedstock for Coskata.

GM has 2.5 million ethanol-enabled flex-fuel vehicles in the U.S, and plans to add flex-fuel offerings to 50 percent of its cars by 2012. Coskata CEO Bill Roe tells us the partnership is not exclusive, and GM will likely ink other deals; Coskata will be taking on additional partners as well.

We spent several hours at the snow-covered company headquarters in mid-January (15 below zero!), listening to presentations and taking a tour of the pilot lab that the company has almost finished building. Coskata’s methods, surprisingly enough, aren’t that revolutionary — they’re mostly a smart combination of techniques that have been used before. But its secret sauce is the micro-organisms it has developed that produce ethanol, as well as the bioreactor where the organisms live and get the work done.

The company uses a hybrid of thermochemical and biological steps, and basically takes feedstock and gasifies it; the resulting bacteria then converts the syngas to ethanol. Coskata is working with five strains of bacteria that “breathe” syngas and “exhale” almost pure ethanol, in contrast with other methods, which produce a variety of alcohols.

The bacteria live on the inside of hollow fiber membranes in a long tube filled with water. (See photo). The company recovers the ethanol when it reaches a certain level in the water. Different rooms in the demo facility were dedicated to sustaining the bacteria at different levels of its life, from “incubation” to “geriatric phase” as Dick Tobey, vice president of R&D/engineering, explained on the tour (in the photo).

Coskata’s method is different from other thermochemical processes, like Vinod Khosla-backed Range Fuels’ techniques, which uses a metal catalyst to convert syngas into ethanol. And other ethanol biological processes that use micro-organisms don’t often convert the feedstock into syngas first. Coskata says its hybrid process means that it can use the most diverse amount of feedstock — energy crops, recycled goods, municipal waste — along with minimal water use, to produce an end result of almost pure ethanol.

Like Range Fuels, the company is also getting close to producing at a commercial scale. They plan to finish their pilot project at the headquarters by the end of January, and scale up to a 40,000-gallon demonstration facility by the end of the year. They are also working on a 100 million-gallon-per-year facility somewhere in the U.S., which they hope will go online by early 2011.

As far as cleantech startup launches go, this was a big one — the company and GM put a lot of effort into getting journalists out to the headquarters (we paid for our own trip). The flashy launch could be due to the major news that GM is involved or the fact that it’s a Vinod Khosla biofuel investment. Or yet another sign that the cleantech industry is just going to get even more high-profile this year.