Red Rock Biofuels Raises Cash, Gets Ready for First Refinery
If you’re a biofuels startup that has breakthrough technology and a business strategy that could succeed, you probably have faced a few skeptical questions. Promising startups have come and gone as their new processes have proven to be economically unviable or unable to scale from the lab to commercial production. Investors have lost money, work on refineries has been abandoned, and government grants and loans have gone up in smoke.
Red Rock Biofuels co-founder and chief financial officer Jeff Manternach understands the wariness. He also has an argument for why his Fort Collins, CO-based company might be the biofuel startup that finally breaks through.
“We’re just a different group. We have hardhats in our DNA, not lab coats, and so we’re taking a very different path,” Manternach said. He points out Red Rock’s founders have decades of experience in the refining industry, specifically designing, building, and operating ethanol refineries. Almost all of the team worked at Pacific Ethanol (NASDAQ: PEIX), according to the bios published on Red Rock’s websites.
Investors, government officials, and customers hope that industry experience makes the difference. Red Rock announced Tuesday it has raised a Series A round from Flagship Ventures, the venture capital firm based in Cambridge, MA. Red Rock is not disclosing the amount of the equity investment. Flagship’s Brian Baynes will join Red Rock’s board.
The deal gives Red Rock a bit more cash to build its first production refinery in Lakeview, OR. The facility will convert about 140,000 dry tons of woody biomass into 12 million gallons of diesel, jet fuel, or naptha, a mixture of flammable hydrocarbon liquids usually produced from petroleum distillates or natural gas condensates that’s used to make gasoline. Red Rock’s proposed refinery is expected to cost around $200 million. Construction is expected to begin this summer, with the first fuel being produced by 2016.
The round is just the latest milestone for the 3-year-old company. Last year, the Navy and the U.S. departments of energy and agriculture gave Red Rock a $70 million grant to begin construction of the refinery. The money is from a program intended to produce cleaner fuel for the military at prices competitive with fossil fuels.
The startup also landed its first high profile commercial customer. Southwest Airlines agreed to buy 3 million gallons of renewable jet fuel per year from Red Rock. The airline expects to start getting the fuel in 2016, and the order will make up a healthy percentage of Red Rock’s initial production capacity.
Red Rock intends to produce the fuel from woody biomass, which includes trees, woody plants, and waste cuttings including limbs, tops, needles, and leaves. The biomass could come from trees culled from forests to prevent wildfires or what’s leftover from the timber industry when sawmills make lumber, Manternach said.
The startup takes that waste wood and first gasifies it into a substance known as synthesis gas, or syngas. The syngas is cleaned and then turned into fuel using an industrial process known as Fischer-Tropsch conversion, which changes the fuel into liquid hydrocarbons. After some more refining it can be blended with jet fuel, diesel, or naptha.
Blending with fossil fuels is the final step because the liquid fuel Red Rock will produce actually will be too clean to use by itself, Manternach said. Some of the substances that make conventional fuel “dirty” also act as essential lubricants, and Red Rock’s fuel probably will be mixed into 50-50 blends, he said.
The Fischer-Tropsch process has been used to produce fuels since it was discovered in the 1920s, and Manternach said it’s reliable and well-understood. The company also will depend on technology it licenses. That caution is what ultimately might make Red Rock different than other biofuels companies that are more ambitious from a technology standpoint, he said.
“As project developers and operators, we really don’t have the appetite for technical risk that some of our peers do,” Manternach said. “They’re all doing fundamental R-and-D work and trying to advance science, and I applaud them for it. But it’s very difficult, and not all of them make it.”
If the first refinery meets expectations, Red Rock plans on constructing more plants what would have about twice the production capacity of the Oregon plant, Manternach said. The likely locations would be in areas where the timber industry has a substantial presence, giving Red Rock the steady supply of wood feedstock it needs.
Red Rock Biofuels could build refineries throughout the U.S. and is considering countries including Canada, Australia, and Brazil, he said.
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