State’s $75M loan promise positions Virdia for biofuel site search

With the promise of a $75 million loan from the Mississippi Development Authority in hand, Redwood City, Calif.-based Virdia is ready to begin scouting for a site to convert the state’s soft pine into sugars for biofuel makers.

The one certainty about the plant’s location is that it will be near an ample supply of pine and must produce at least 150,000 tons of sugar to be commercially viable.

Virdia plans to open the plant in 2014. A second larger plant that is to follow would have a production capacity of 500,000 tons of sugar, the company says.

An out-of-use pulp plant or brownfield site would suffice, as would co-locating with a power generating plant that is using bio-mass, the company says.

Virdia started life as HCL Clean Tech. The privately held startup company adopted the Virdia name in early March, a move that coincided with the naming of biofuels sector veteran Philipe Lavielle as CEO.

Lavielle, in a press statement accompanying his appointment, said Virdia is “much closer to realizing our mission on a large scale.”

To secure the $75 million loan from the State of Mississippi, Virdia will have to satisfy state officials that it has adequate private capital backing. So far, it has raised $20 million from insiders and a handful of venture capital firms and closed on a $10 million venture deal with Triple Point Capital.

Sally Williams, spokeswoman for the Mississippi Development Authority, said she is unsure whether the $30 million in private money is sufficient to satisfy the state’s loan terms.

Virdia contemplates a $1 billion investment in Mississippi facilities, according to Williams. “I don’t know the time frame. I know we’re several years out.”

In full operation, Virdia expects to employ about 700 workers, Williams said.

In addition to new jobs, the economic development agency’s attraction to Virdia lies in the biotech company’s potential to create a large and sustainable source of cash for Mississippi’s vast timber resources. It has developed a process that converts cellulosic biomass to fermentable sugars and lignin, which are used as feedstock for the renewable chemicals industry and the biofuels sector.

The company has started a test plant in Danville, Va., though the volume of cellulosic biofules the plant is producing is far from commercial levels, Virdia says.

No commercial volumes of cellulosic biofeuls are produced currently in t the United States, according to a Bloomberg story that cited the U.S. Environmental Protection Agency as its source.

As a further sweetener, the state intends to grant Virdia up to $155 million in various tax incentives over a 10-year period.

The Virdia deal represents a doubling down by the Mississippi Development Authority on the future of biofuels. In 2010, the state extended a $75 million low-interest loan to Pasadena, Texas-based biofuels company KiOR in exchange for a commitment to invest $500 million of its own money in the first three of five plants.

The KiOR plants in Mississippi are to convert wood chips to renewable crude through a process called pyrolysis, a feat only accomplished in test facilities

The publicly traded KiOR is expected to open its first plant in Columbus in the third quarter. A second plant is to go up in Newton and a third in southwest Mississippi. Specific sites of the final two facilities have not been determined.

The Columbus plant is to produce 500 bone dry tons of wood per day and is expected to produce 11 million gallons of renewable fuel blends annually.

The subsequent plants could produce as much as 1,500 bone dry tons a day, the standard for commercial production facilities.

At this scale,KiOR believes it will be able to compete not only with other biofuels producers, but with oil production offshore and from tar sands, the company says.

KiOR went into its arrangement with the Mississippi Development Authority with signed agreements from Hunt Refining Co., FedEx Corporate Service and Catchlight Energy to buy fuel blends from the Columbus plant. Catchlight is a 50-50 joint venture of subsidiaries of Chevron and Weyerhaeuser.

The official private commitments “triggered the state’s assistance in KiOR’s case,” said Williams, the MDA spokeswoman.

Dr. Randall Rousseau, hardwood management extension forester with the Mississippi Cooperative Extension Service, said the new arrivals to Mississippi’s fledgling biofuels sector likely will boost a timber industry suffering from prolonged price drops. “Biomass will definitely help out,” he said in a interview last week. “It gives the landowner some options.”

And with options come leverage for the grower, Rousseau noted. “They (the biomass companies) would like to not pay pulp wood prices. But my guess is that they’re going to have to compete with other paper mills.”

CNBC: KiOR ‘bleeding cash’

Update: Today (Jan. 27) KiOR announced that it has closed a $75 million four-year term loan with a lender group comprised of an affiliate of Vinod Khosla and two Canadian corporations owned by certain pension fund clients of Alberta Investment Management Corporation (AIMCo).

KiOR is listed along with Achillion Pharmaceuticals, Sears Holdings and Rite Aid as companies that “are expected to lose gobs of money in 2012.”

KiOR plans to convert wood chips into crude oil and is building its first plant, with a projected $110 million price tag, in Columbus. The Mississippi Legislature awarded KiOR a $75 million loan in August 2010 in exchange for the promise to invest $500 million in Mississippi with a total of five manufacturing plants and a benefit of 1,000 direct and indirect jobs. As of October 2011, KiOR had $39 million of its Mississippi funds.

The CNBC Stock Blog says although the companies “may not be in deep distress in the next quarter or two, the long-term outlook will weaken further as cash balances drop,” the blog predicts. It warns that clean energy investors need to watch out for potential bankruptcies.

Exerpt:

When it comes to corporate America, it’s “survival of the fittest.” Sure enough, a handful of companies get culled from the herd every year, finding their way into bankruptcy court after a brutal run of losses.

Author’s note: Everyone knows investors make money by buying stocks that they think will go up. But those not terribly familiar with the stock market may not know that investors can also make money by betting against stocks they think will go down. This risky process is called “shorting.” To do this, an investor must buy stock from someone else who owns it and then immediately sell that stock they don’t even own. Sound confusing? It is. The point is that shorting means betting on stock that one predicts will go down.

For investors looking for stocks to short, it always pays to focus on these companies. If their balance sheets keep getting weaker and weaker in the face of open-ended losses, investors tire of pouring fresh funds into them and eventually the well runs dry.

Here’s a closer look at four companies that are expected to lose gobs of money in 2012. Though they may not be in deep distress in the next quarter or two, the long-term outlook will weaken further as cash balances drop. …

4. KiOR

Clean energy is another area that investors need to watch out for potential bankruptcies. Several publicly traded and private solar firms have gone belly up recently, led by the high-profile blow-up of government-backed Solyndra.

One clean energy stock that short sellers are ogling is KiOR [KIOR 10.95 0.26 (+2.43%) ], which aims to convert biomass into fuel oil. To make that happen, KiOR is pouring huge sums of money into its facilities to generate meaningful production.

The company’s technology is said to be very promising, which is why shares rose from their mid-teens IPO last summer to above $20 by late September. Shares are now below $10 and could be headed even lower as investors start to realize that more money will be needed to see this company through to eventual profitability.

KiOR’s first plant will likely come on line this summer, and a second plant is expected to be running by the end of 2013. Meanwhile, cash flies out the door. KiOR likely lost around $50 million in 2011, and analysts think losses could reach $100 million in 2012 and 2013, thanks to heavy spending on new plants. The company currently has $150 million in cash and the well could run dry by the end of this year unless KiOR can raise a lot more money. It needs upwards of $100 million more just to get its two plants going and to reach profitability, and that assumes no glitches.

KiOR’s survival will hinge on oil prices. Its technology is uncompetitive when oil trades below $76 a barrel. So the company needs to see the current lofty prices for oil (which were recently just above $100 a barrel) to stay in place for the company to attract fresh investors. If KiOR waits too long, and oil prices pull back, it may find it impossible to raise cash.

These companies aren’t in deep distress now, but their balance sheets are weakening and more troubling times may lie right around the corner.

Vinod Khosla’s Range Fuels has declared bankruptcy

Range Fuels, a manufacturing startup that planned to convert wood chips to cellulosic ethanol has declared bankruptcy, Bloomberg reports.

The company was heavily backed by venture capitalist Vinod Khosla, whose Khosla Ventures is also backing four green energy startups to which the Mississippi legislature has authorized tens of millions in state aid: Soladigm, KiOR, Stion and HCL Cleantech.

Vinod Khosla

Range Fuels received a $76 million federal loan from the George W. Bush administration in 2007 and another $80 million from the Obama administration in 2009.

The Range Fuels Georgia plant closed its doors in January. A foreclosure sale is expected for January 2012.

See the Biofuels Digest analysis here: http://biofuelsdigest.com/bdigest/2011/12/05/the-range-fuels-failure/

Technology will determine Miss. solar companies’ future

Twin Creeks Technologies and Stion need high-tech success to compete with cheap overseas labor

See related MBJ story: “Calisolar lays off 80 Calif. workers”

With the continued controversy over the Obama administration’s support for the now-bankrupt Solyndra, which came weeks after the collapse of Spectrawatt and Evergreen Solar, the renewable energy industry is eagerly watching to see how other U.S. solar manufacturers will fare.

Gov. Barbour has branded Mississippi as a green energy leader, and two companies he helped recruit to the state — Twin Creeks Technologies and Stion — have finished the first phase of their plant buildings, hired some employees and are preparing for commercial production.

In today’s global marketplace the success of solar companies in Mississippi and elsewhere depends on the development of new technology for panels that can compete with those produced with low-cost labor in China.

Senior alternative energy analyst Daniel Ries of boutique investment banking firm Collins Stewart LLC said new technology is the only way the United States will be able to stay viable. Solar manufacturing, like iPhone manufacturing, for instance, is low-tech. High-tech companies like Apple choose to have their products made overseas with cheap labor.

Mississippi’s Twin Creeks Technologies in Senatobia says it will create low-cost solar cells using monocrystalline silicon, while Stion in Hattiesburg is using thin-film technology (see Aug. 26 MBJ story “Stion: Bankruptcy not in the plans”).

Although he couldn’t comment specifically on the Mississippi companies, Ries said, “There have been many efforts to make a better mousetrap in the solar industry. The standard approach using silicon cells has been the approach of China for the most part. … Most of the competition against that effort has been based on a higher level of science, generally thin-film … For the most part the efforts to compete against the standard process have failed. The most notable exception is FirstSolar whose cadmium telluride thin film has proved to be a very low-cost method of making a lower-cost solar module.”

Another technology that has showed great promise theoretically but not practically, he said, is CIGS (copper indium gallium selenide), which is the technology Solyndra was using before it declared bankruptcy in early September. Solyndra had received more than $500 million in federal loan guarantees.

“(Some collapsed) companies set out to produce (solar cells at) $2 per watt hoping to sell for $3 per watt,” Ries said. “The production costs fell much faster than expected. Modules are currently selling for $1.10 to $1.20 on the open market. That’s below the production cost of most of the efforts that have been out there. … Solyndra was producing for about $6 per watt and selling them for $3. They were hoping with a larger plant they could produce them cheaper.”

Yi Li, president of solar panel company Renogy and a Louisiana State University doctoral student, understands Chinese manufacturing first-hand. She operates solar company Renogy at an LSU business incubator and sells panels manufactured by her family’s company in China.

Li

“I’m not confident U.S. manufacturing will be long-term. Inevitably, the Chinese labor cost is cheaper,” Li said, adding later than one-time U.S. government stimulus money is not a good long-term strategy for American businesses.

China has a minimum wage, but workers are not paid overtime. Competition for jobs is high, so employees work hard and efficiently and won’t complain about extra hours, she said.

Li’s family owns four plants that handle all the stages of the panel-making process, from the creation of ingots, wafers and solar cells to panel assembly. With cells and panels combined, they sell about 50 megawatts of solar products annually.

Although most Chinese citizens can’t afford solar panels and there is little market at home due to cheap traditional energy, Chinese solar manufacturers are incented to export panels, Li said. In some cases the government will even pay business travel expenses to the United States for research.

Li calls the current solar market that is flooded with a panel surplus “a complete mess.” But while solar prices were $2 a watt last year, Renogy can still turn a profit selling its polycrystalline panels for around $1.30 per watt and its monocrystalline panels for a few cents more.

State green energy strategies

Ed Bee, founder and president of Taimerica Management Company, a national economic development consulting agency, said solar projects are still hot items for economic developers nationwide and competition between states is “fierce.”

“There has been a real boost in (PV solar manufacturing) because of the stimulus bill passage, but economics aren’t really driven by the stimulus bill. What’s driving the generation of panels are the renewable portfolio standards in the states. About two-thirds of the energy generated in the U.S. is in states with renewable portfolio standards. Mississippi and Alabama don’t have those,” Bee said.

Renewable portfolio standards are state regulations requiring increased power production from sources like wind, solar and biomass.

Additionally, a lot of solar manufacturing is centered near its customer base to avoid shipping costs on the bulky panels.

Regarding Mississippi’s solar startups, Bee said, “I’m not sure what’s driving those locations and why they’re being attracted to Mississippi.”

The largest U.S. solar markets are in California, New Jersey and Massachusetts, states with aggressive renewable portfolio standards, or regulations requiring the increased power production from sources like wind, solar and biomass.

Bee noted that in 2006 Michigan, looking forward to the electric car market, began developing an aggressive economic development strategy to establish itself as a manufacturing hub for lithium ion batteries. The plan, logical in light of Michigan’s auto industry background, has proved successful.

When Michigan raised its tax breaks and incentives for high-tech battery companies to $555 million, four companies quickly announced their intent to build plants in Michigan. Each was granted $100 million in state tax credits. Three other companies later announced plans to locate there for a total of seven and a collective investment of more than $3 million.

Mississippi green energy companies receiving state loans

Company       Loan amount     Money spent     Announcement

Twin Creeks $50 M                           $22 M                      April 2010

Soladigm $40 M                          $35 M                      July 2010

KiOR $75 M                           $39 M                      August 2010

Stion $75 M                           $41 M                       January 2011

Calisolar $59.5 M                       —                                September 2011

HCL Cleantech $100 million              —                                September 2011

Public land in Delta impacted by river flood

Every year, hunters flock to the Delta to take advantage of some of the best public hunting land in the state offered by the Mississippi Department of Wildlife, Fisheries & Parks’ wildlife management areas (WMAs) and the U.S. Fish & Wildlife Service’s Theodore Roosevelt National Wildlife Refuge Complex.

This year, however, hunters are wondering if they should find somewhere else to hunt.

As the deer and turkey hunting seasons approach, many hunters worry that they will not have access to these public lands, will not be able to navigate them and/or will find nothing to shoot once they get there due to this year’s massive Mississippi River flood.

The historic flood has, indeed, impacted public hunting land in the Delta, destroying infrastructure and habitat and taking a yet-to-be-determined toll on the region’s turkey population.

However, considering the magnitude and duration of the flood, the state’s WMAs as well as the federal Theodore Roosevelt National Wildlife Refuge Complex in the Delta suffered relatively little damage, and most all of the damage is expected be repaired by the opening of the deer and turkey seasons.

While there are questions about the impact on the turkey population, some researchers believe the flood actually boosted the area’s deer herds.

“Hunters should not have any access problems,” said Sabrina Chandler, deputy project leader at the Theodore Roosevelt National Wildlife Refuge Complex. “Visitors to the Complex shouldn’t notice much difference at all.”

Chad Dacus, assistant director of the Wildlife Bureau at the Mississippi Department of Wildlife, Fisheries and Parks, said all the WMAs in the Department’s Delta region “should be wide open” Oct. 1.

Wildlife management areas

Of the Mississippi Department of Wildlife, Fisheries & Parks’ 12 WMAs in the Delta, only one suffered significant damage.

The only WMA located between the Mississippi River and the mainline levee system, the damage at the 3,500-acre Shipland WMA near Mayersville reflects the magnitude of the 2011 flood. The Department is still tallying the losses.

Shipland’s facility took six to eight feet of water, and is a total loss. The road system was heavily impacted after being underwater for more than a month.

The flood deposited six-foot sand dunes in the middle of the woods, and Dacus estimated Shipland lost perhaps as much as 30 acres of land.

“It washed away — it’s somewhere south of Vicksburg now,” Dacus said.

Other Delta WMAs that were impacted are Twin Oaks near Rolling Fork and Mahannah near Redwood. Floodwaters at these locations were comparable to the last significant flood in 2008.

But Dacus added, “While the flood was not abnormal, the length of time the land stayed underwater was significant.”

The flood produced some positives. Dacus said once the floodwaters receded, the re-silted land exploded with spring-like growth.

He said the flood could have benefited the deer population. Since there was no levee breach, floodwaters crept in, giving deer time to move to new land. Often this new land was farmers’ fields, and deer fattened on soybeans and other row crops.

Concerns for turkey are high, however. Ground-nesting birds, the flood hit during the brooding season. Dacus said the Department was currently conducting a brood survey to assess the losses. The findings could be in as early as next month, but it could stretch into November.

Dacus said if the losses are found to be significant, the Department might have to add turkey hunting restrictions, probably reducing the turkey season by a few weeks. He added that there were carry-over birds from last year, meaning that there will be turkey hunting on the WMAs this year.

Theodore Roosevelt

National Wildlife Refuge Complex

The U.S. Fish & Wildlife’s 100,000-plus-acre Theodore Roosevelt National Wildlife Refuge Complex is made up of seven refuges, six of which permit hunting.

The largest of Roosevelt’s refuges is Panther Swamp National Wildlife Refuge encompassing 38,697 acres.

At its deepest, the floodwaters covering Panther Swamp reached 25 feet, and heavily damaged the refuge’s road system. Chandler said when the floodwaters receded, it left wash-outs “large enough to lose a truck in.”

At press time, only one access road was in disrepair. Chandler said the refuge was looking for funding for the repairs, but she said the refuge hopes to have all roads restored by Oct. 1.

Because the flood’s impact was not as great at Panther Swamp, Chandler said there are no plans to alter the hunting season regulations for deer or turkey.