Cheaper Cellulosic Ethanol

Startup Qteros, based in Hadley, MA, and formerly known as SunEthanol, thinks that it holds the key to finally making cellulosic ethanol cost-effective. It’s a bacterium called the Q microbe, or, more properly, Clostridium phytofermentans, and the company claims that it can eliminate the costly enzymes normally used to turn cellulose into ethanol.

Cellulosic ethanol is usually made with enzymes to break down the fibrous cell walls of cellulose into simple sugars, then with yeast to ferment the sugars into ethanol. Qteros expects to simplify the two steps into one and dramatically reduce the cost of making cellulosic ethanol using its bacteria, which naturally eats cellulose and produces ethanol as waste.

The enzymatic degradation of cellulose in conventional processes accounts for at least 20 percent of the overall cost of making cellulosic ethanol, says Qteros CEO William Frey, who was the business director for DuPont’s biofuels program before joining the startup in June. “Certainly enzymes have been the Achilles’ heel of [cellulosic ethanol],” he says.

Qteros says that its bacteria can convert many different types of feedstock, including starch, corn cobs, sugarcane bagasse, and woody biomass, directly into ethanol. And while most organisms that can break down cellulose–including common yeast–can only digest six-carbon sugars, the Q can digest five-carbon sugars too, meaning that it can produce more ethanol from the same material, Frey says.

In November, Qteros announced that it had raised $25 million in its second round of funding from Venrock, Battery Ventures, oil giant BP, billionaire financier George Soros’s Soros Fund Management, Camros Capital, and Long River Ventures. Combined with a $3.6 million from Series A funding and several grants, the company has raised more than $30 million.

The company plans to use its new cash to build a pilot plant, which it expects to begin operating next year. Qteros also plans to build demonstration plants in 2010 and hopes to have commercial plants using its technology up and running by 2011. Qteros doesn’t intend to build factories itself but will license its technology–including the microbe and the processing–to customers that want to produce ethanol.

The Q was first discovered in the lab of Susan Leschine, a professor of microbiology at the University of Massachusetts Amherst and Qteros’s chief scientist. Leschine and her coworkers were studying microbes that were able to break down biomass in dark places without oxygen, such as at the bottom of lakes and in wet soil. “What was striking was that they were all pretty similar, except for one Q microbe, which was found in wet forest soil collected near the Quabbin Reservoir in Western Massachusetts,” Leschine says.

The researchers discovered that the microbe could grow on many different plant components, which was very unusual, Leschine says. In 2005, the lab made the discovery that when it is given high concentrations of plant material, the microbe makes pure ethanol. “That was the ‘aha’ moment,” she says.

Jattra Ventures, based in Amherst, MA, put together a business plan, negotiated an exclusive license for the technology, and lined up investors for the first round, launching the company as SunEthanol in 2006.

The company is now working to get the microbe to make more ethanol faster and to make higher concentrations of ethanol, Leschine says. This year, the team has already improved the microbe’s productivity fifteenfold and is 60 to 70 percent of the way to reaching its technology targets for commercialization.

Qteros, like many other biofuels companies, faces plenty of challenges. Rick Kment, a biofuels analyst with DTN Research, says that capital is tough to coax out of today’s risk-averse investors, especially for newer technologies. It doesn’t help that gasoline prices have plunged, making it much harder for biofuels to compete.

Regulatory uncertainly is another challenge, Kment says. The national renewable fuels standard mandates that fuel producers use one billion gallons of cellulosic ethanol by 2013 and at least sixteen billion gallons by 2022. But with the current economy, changes could be coming, Kment says. “It could be a significantly different playing field a year from now,” he says.