Next-gen biofuels making slow, slow, slow progress in 2013

In the time it takes to scale up the production of advanced biofuels — which use plant waste, not corn, for fuel — numerous web startups could launch, scale and exit. But for those biofuel companies that are still out there, toiling away at the difficult goal of producing next-gen biofuels that are competitive with gasoline at commercial scale, 2013 is proving to be a year of pivotal steps.

On Monday, KiOR, which was largely funded by Khosla Ventures before it went public, announced in its fourth quarter and annual year 2012 earnings that it has now shipped its first cellulosic diesel product from its factory in Columbus, Mississippi. The factory, which could make some 3 to 5 million gallons this year, converts wood chips into a diesel fuel that the company says can be used in current fossil fuel infrastructure.

Last week startup ZeaChem said that it started production of cellulosic chemicals and ethanol at a demonstration factory in Boardman, Oregon, which can produce about 250,000 gallons per year. Late last year, ag giant DuPont started construction on a cellulosic ethanol factory in Nevada, Iowa, which when completed in 2014 could produce 30 million gallons of fuel from corn stalks and leaves. For comparison sake, these are very small volumes in the grand scheme of the fossil fuel industry — the U.S. consumes some hundreds of billions of gallons of gas per year.

Regardless, these are signs of progress for an industry that has perpetually missed milestones and overestimated the amount of time it would take to move into commercial production. But these milestones are still steps on the way to a company producing these advanced biofuels at a scale and cost that is competitive with gasoline.

According to Bloomberg’s energy research arm New Energy Finance, ethanol made from plant waste could cost the same to produce as corn-based ethanol by 2016. Currently cellulosic ethanol costs 94 cents a liter to produce, or about 40 percent more than ethanol made from corn, says Bloomberg.

Despite these milestones, there are many more steps ahead. KiOR was expecting to ship its first cellulosic diesel late last year, and in the company’s earnings call CEO Fred Cannon apologized to investors for missing that target due to “unexpected startup issues.” KiOR also now needs to operate that factory at a steady state for another 9 months, and also buildout another factory in Natchez, Mississippi, which is supposed to produce three times what its Columbus facility will produce.

KiOR needs to finance the Natchez facility, and on that note, said on Monday that Khosla Ventures is willing to offer it another $ 50 million commitment and amend its previous loan agreement. ZeaChem is also looking to buildout a 25 million gallon factory per year next to its demonstration factory. DuPont is one of the company’s with the deepest pockets that is moving ahead and has been working on next-gen biofuels for a decade. Still, the process has taken DuPont longer than it had expected, the CEO told me recently.

But not everyone thinks building large biofuel factories is a smart move. Late last year oil giant BP cancelled its plans to build a next-gen biofuel factory in the U.S.