Ciao, Western Biomass Energy, formerly Blue Sugars, formerly KL Energy.

May 17, 2013 |

pic-technology-demonstration2You can sum it up in 10 words: Studebaker, Maxwell, Hudson, Checker, DeSoto, Duesenberg, LaSalle, Oldsmobile, Plymouth, Tucker.

The names of beloved auto brands that went by the wayside — great in their day, but unable to adapt to modern times. The passing of a great brand is a sad thing, but it doesn’t mean quite the same thing as the passing of an industry.

With that, we note the passing of what was once known as KL Energy, the first US company to produce cellulosic ethanol at demonstration scale.

KL was always an upstart in so many ways — one well remembers the 2008 Advanced Biofuels Development Summit (which eventually transformed into ABLC) where USDA researcher Steve Hughes gave a presentation on KL’s progress, noting that “it’s not theoretical, or five years away, they’re really doing it.” The plant got up and running in January 2008 — no big DOE cellulosic grant, no rock0star Silicon Valley backers.

The company had tucked its pioneer effort up in the heart of Wyoming’s Thunder Basin National Grassland, in the small town of Upton — about 40 miles die south of Devil’s Tower, home to 1,100 souls and, in 2011, all the registered gallons of cellulosic ethanol that were bring produced in the US.

The Brazilian shift

After setting is sights on Brazil and bagasse in 2009 (after starting with Ponderosa pine), in 2010, KL Energy and Petrobras announced that they had entered into a Joint Development Agreement to jointly optimize KLE’s proprietary cellulosic ethanol process technology for sugarcane bagasse feedstock. As part of this agreement, The companies also said that they will develop a 4 Mgy bagasse-based cellulosic ethanol project that will be co-located with a Petrobras-owned sugarcane mill, which will come online in 2013.

At the time, Petrobras said it would provide $11 million to adapt KLE’s demonstration facility to the use of bagasse, validate the optimized process by producing cellulosic ethanol and lignin and license the validated technology.

But money was always a problem for KL — it had reverse-merged into a thinly-traded public shell to raise equity, and filed a S-1 to raise new equity in 2010. Private placements at the time, at $1.10 per share, gave an indicative value to the company of $51.86 million, but it never did complete an IPO. Peter Gross stepped in as the new CEO

By early 2011, KL Energy tested cellulosic ethanol production process using Brazilian sugarcane bagasse. Modifications had been made to allow for the physical and chemical differences between bagasse and woody biomass and, most importantly, a new fermentation process had been designed. Ultimately, the plant will switch to a clear mash fermentation process that is used in Brazilian sugarcane mills.

The front end

By early 2011, it was focusing especially on the front end — creating low-cost renewable sugars, and competing with the likes of Renmatix, Proterro, and Virdia. The company’s name changed to Blue Sugars because, as CEO Peter Gross told the Digest, “KL Energy didn’t mean anything to anyone, especially in Brazil. We wanted to change to a name with ‘sugars’ in it, and Blue Sugars was available.”

In April 2012, Blue Sugars licensed its technology to Petrobras SA, Brazil’s largest company and one of the world’s ten largest companies by market capitalization, for exclusive use in Petrobras sugarcane mills, and Petrobras announced the construction and start-up of its first commercial cellulosic ethanol plant for the year 2015. “At the end of the 2012 sugarcane bagasse program,” said Gross, “we will have an industrially validated technology specifically designed for Brazilian sugar mills.”

The Chapter 11 filing

Capital always remained tight, and Petrobras was the lifeline — by 2011, cellulosic ethanol was being shipped (20,000 gallons), but the Wyoming plant (Western Biomass Energy) filed for Chapter 11 restructuring in October 2012. The company listed a total of $31.5 million secured debt and unsecured debt at $3.84 million, but about $30 million of the debt was with Blue Sugars. The subsidiary was still focused on restructuring as of late February — but on May 2, the filing was changed to a Chapter 7 liquidation and on May 10, Blue Sugars also filed for Chapter 7.

Interesting then, that in Blue Sugar’s Chapter 7 bankruptcy filing two weeks ago in Nevada, it listed Petrobras as one of the leading debtors, according to reporting in Ethanol Producer.

The Petrobras shift

So, what happened? Clearly, Petrobras is going in another direction — not, we suspect, in dropping its cellulosic ethanol ambitions. After all, the Brazilian government has raised minimum ethanol blending levels to 25 percent as of May 1 (up from 20%) and Petrobras ethanol production is expected to rise 29% in 2013/14.

Petrobras Biocombustível CEO Miguel Rossetto has said that the Brazilian state oil giant has targeted $2.5 billion in ethanol investment through 2013, and aims to achieve a 15 percent share of the Brazilian ethanol market. But Petrobras is clearly delaying its rollout — obviously, the expected 4 Mgy bagasse-based cellulosic ethanol project will not come online in 2013.

We’ve seen it before – small companies that become, effectively, captives of big companies. Where a ripple in the big company’s strategy becomes a tsunami for the little company. Codexis went through that with Shell.

The key to Brazil is unlocking the cellulosic sugars in bagasse. There’s Virdia, Renmatix, Proterro and Sweetwater Energy in the mix, among others such as Iogen, Comet and BlueFire Renewables (SucraSource). We note that Proterro is early in its commercialization path, Iogen is in the Raizen orbit.

We also note, ahem, that Renmatix has been targeting Brazil and the real pioneer of US-Brazilian dealflow, Amyris CEO John Melo, is a member of the Renmatix board (just as Solazyme president Harrison Dillon is on the Proterro board).

The Western Biomass Energy plant is up for sale. More on that here.

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