Qteros, a private Massachusetts biofuels company backed by Soros Fund Management and other investors, is announcing a partnership with Praj Industries of India, a publicly traded builder of ethanol plants. In conjunction with the new partnership, Qteros says it has raised an additional $22 million from new and existing investors.
Qteros Chief Executive John McCarthy described the partnership with Praj as one that mixes the “superior” software from Qteros –its “Q microbe” that turns inedible plant matter into fermentable sugars — with the hardware capabilities of Praj, which has built 450 ethanol plants, primarily in India and South East Asia. Praj Industries, which is traded on the Bombay Stock Exchange and the National Stock Exchange in India, has a market capitalization of roughly $350 million and revenues of about $200 million. The company has built about 70% of the 400 ethanol mills in India, said McCarthy.
The scenario that McCarthy outlines is for existing ethanol plants to add on a wing — built by Praj and fully equipped with Qteros’ technology — that will turn sugarcane bagasse or corn stover or other unused plant materials into cellulosic ethanol. Qteros and Praj will ask for an up-front licensing fee and then a percentage of the cash flow, a kind of royalty, from the ongoing operation. Jason Matlof, a partner at Battery Ventures who led his firm’s investment in Qteros, stressed the advantage that Qteros has in choosing not to build plants. “The better model is to go to the world’s leading engineering companies,” he said in an interview in December. For clean tech companies to succeed, Matlof said “there needs to be a laser-like focus on capital efficiency.”
The two companies expect to spend 18 to 24 months developing their commercial offering. McCarthy would not disclose what a cellulosic ethanol extension will cost.
McCarthy describes Qteros’ Q microbe–an anaerobic organism called Clostridium phytofermentans– as a biorefinery inside an organism. The microbe, discovered by microbiologists from the University of Massachusetts at the Quabbin Reservoir in western Massachusetts, digests and ferments a wide variety of feedstocks, including corn stover, corn cobs, switchgrass, and sugar cane bagasse. “We have the lowest cost conversion of any form of biomass to ethanol,” says McCarthy, who expects his souped-up organism to produce cellulosic ethanol for less than $1 a gallon in 2 to 3 years.
The new $22 million fundraising by Qteros is in addition to $25 million the company has previously raised from investors including BP Alternative Energy (a unit of oil giant BP), Soros Fund Management, Venrock Associates, Battery Ventures and Valero Energy. Valero owns 10 ethanol plants in the U.S. Midwest with capacity of 1.1 billion gallons. Billionaire George Soros’ Soros Fund Management said in November 2009 it would invest $1 billion in clean energy. Soros Fund has been very quiet about its investments in the sector.
McCarthy said the partnership with Praj is not exclusive but will give Qteros an entree into building cellulosic capacity at more than 400 ethanol mills. Most of the initial activity will likely be outside the U.S., in the rapidly growing ethanol markets of India, Brazil and Southeast Asia. Added McCarthy: “But when BP, Shell, Chevron and others want to build large scale cellulosic ethanol capacity, we think they should come to us.”
McCarthy is a veteran of the twisted paths that some cellulosic biofuels companies have taken. He joined Qteros in January 2009 after having previously served as executive vice president of longtime money-losing cellulosic ethanol company Verenium. BP bought Verenium’s biofuel business in July 2010 for $98 million “It’s been a very, very difficult business,” McCarthy told me in November 2010. But he is optimistic that the licensing model Qteros is using will be more successful than the capital-intensive model that Verenium pursued.
