Cobalt Biofuels, a startup based in Mountainview, CA, has developed a cheap way to make butanol from biomass. Last week, the company announced that it had raised $25 million to expand from a small laboratory-scale production to a pilot-scale plant that can produce about 35,000 gallons of fuel per year.

“Our models tell us it is a very low-cost process that can be competitive with anything on the market today,” says Pamela Contag, the company’s founder and CEO. The process is cheaper because it uses improved strains of bacteria to break down and ferment biomass, as well as improved equipment for managing fermentation and reducing water and energy consumption, she says.

Butanol could help increase the use of biofuels, since it doesn’t have the same limitations as ethanol, the primary biofuel made in the United States. It has more energy than ethanol: a gallon of butanol contains about 90 percent as much energy as a gallon of gasoline, while ethanol only has about 70 percent as much. What’s more, while ethanol requires special pipelines for shipping, butanol can be shipped in unmodified gasoline pipelines. And butanol can be blended with gasoline in higher percentages than ethanol without requiring modifications to engines.

Cobalt Biofuels joins a handful of other companies developing biobutanol. The biggest such effort comes in the form of a partnership between DuPont and BP: the companies plan to be selling commercial quantities of butanol made from sugar beets by 2010. Other companies developing biobutanol are Gevo, a startup based in Englewood, CO, that is commercializing advances from UCLA, and Tetravitae, based in Chicago, which is commercializing advances from the University of Illinois. In spite of their progress, Andy Aden, a research scientist at the National Renewable Energy Laboratory, in Golden, CO, says that no company has demonstrated yet that it can make butanol cheap enough to compete in the market.

Cobalt Biofuels uses the bacteria Clostridium to break down components of plant matter, including cellulose, hemicellulose, and starch, and produce a combination of butanol, acetone, and ethanol. That is nothing new: Clostridium naturally produces these chemicals and was employed in the early 1900s to make butanol for use in solvents and to make acetone for explosives and other products. What’s new, Contag says, is that a combination of fuel prices, government biofuel mandates, and the company’s new technology have made butanol competitive as a fuel.

One of Cobalt Biofuels’ key advances is a technique for genetically engineering strains of Clostridium so that they produce a luminescent protein whenever they produce butanol. “When the Clostridium are happy and producing butanol, they’re also producing light,” Contag says. When they’re paired with light detectors, the company can quickly sort through new strains of the bacteria, as well as tailor their environment, to increase production. The company has further increased butanol production by engineering a bioreactor in which biomass flows in, the bacteria processes it, and a mixture of primarily butanol and water flows out.

While increasing the amount of butanol produced can decrease costs, two other factors are also important: the consumption of energy, and the consumption of water. Cobalt Biofuels has reduced both of these by 75 percent. To reduce energy, the company has licensed a new technology, called vapor compression distillation, for separating the butanol and water. The addition of pressure to the distillation process, together with the use of an effective heat exchanger that reduces wasted heat, lowers energy consumption. To reduce water use, the company has turned to proprietary water purification and recycling systems.

Eventually, the company plans to produce butanol using waste from paper manufacturing and sugar refining, as well as other sources, and then sell it as a fuel additive for reducing carbon monoxide emissions. As Cobalt Biofuels scales up production, it plans to sell the butanol as a substitute for gasoline.