Billionaire Vinod Khosla’s Big Dreams for Biofuels Fail to Catch Fire

by Steven Mufson (The Washington Post) Just over a year ago, billionaire venture capitalist Vinod Khosla was bubbling with optimism about one of his latest investments: KiOR, a biofuel outfit he said would turn wood chips into hydrocarbons that could be poured straight into a refinery, pipeline or vehicle.
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Now, however, the spell has been broken. On Nov. 10, KiOR filed for bankruptcy, leaving behind 2,067 creditors, including the state of Mississippi, which had given KiOR a $75 million, 20-year, no-interest loan after the company assured officials that it would invest $500 million in the plant and create 1,000 jobs by December 2015.
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According to court papers, KiOR’s revenue totaled just $2.25 million; losses amounted to $629.3 million. Even injections of money from Khosla ($85 million) and Bill Gates ($15 million) in October 2013 could not stave off bankruptcy.
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Separate class-action lawsuits brought by shareholders accuse KiOR executives of misleading investors. “Our case is that the company was not being truthful about the realities at the Columbus facility,” said Phillip Kim, an attorney at the Rosen law firm representing the plaintiffs. “It was characterizing problems as start-up issues, whereas the facility had design and systemic issues.”
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The company was formed in 2007 to convert waste biomass into fuels and chemicals by using catalytic pyrolysis, or cracking, a concept invented and explored by a Dutch company called BIOeCON.
KiOR built a pilot plant and then on New Year’s Day 2010 launched construction of a demonstration plant capable of producing 15 barrels of oil a day. The company said that its research produced 70 patents and more than 2,000 other intellectual property claims.
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According to the shareholders’ class-action suit, the conveyer system for feeding wood chips into the Columbus plant frequently jammed, and KiOR bought new blades for turning wood into chips, but they were the wrong size. In addition, tar would build up in a portion of the plant for treating the feedstock. The plaintiffs quote a confidential witness as saying “the whole damn thing was a design issue. It was hastily put together and they were trying to make it run.”
Rapier (Robert Rapier, a chemical engineer who has worked for ConocoPhillips and is now head of the alternative fuels division of Advanced Green Innovations) said that the process that KiOR was using wasn’t fundamentally new. Pyrolysis heats organic materials to high temperatures to produce oil. But in contrast to what Khosla said, Rapier said the pyrolysis oil would not be ready to be pumped into the existing oil infrastructure. Moreover, he said, the Columbus plant relied on natural gas, a fossil fuel.
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“In order to be used as transportation fuel, these compounds require further upgrading, and less than 40 percent of the mass of the pyrolysis oil is converted to gasoline or diesel,” Rapier said.
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But, he wrote online, “while I strongly support the development of advanced biofuels, Vinod Khosla has done a lot of harm to the sector by overpromising on various technologies and then failing to deliver. This leads to public perception that advanced biofuels are a boondoggle.”
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When asked during a 2013 interview about whether Khosla’s problems would plague the larger companies, Jan Koninckx, DuPont’s global business director for biorefineries, said “as DuPont, we’ve done this before. We’re not a start-up.” He said new plants “require dotting the I’s and crossing the T’s on the supply chain. This is not a dot-com or something like that.” READ MORE