Department of Energy joins VCs in alternative fuel funding, with Venture-Backed Georgia plant landing huge grant

RESEARCH TRIANGLE PARK, N.C. – As more and more venture capitalists attempt to cash in on the demand for alternative fuels technology, a company created by a venture firm is fast gathering momentum in Georgia.

The U.S. Department of Energy picked Range Fuels for a $76 million grant to build a cellulosic ethanol plant in Treutlen County. Range Fuels is based in Colorado but it announced in early February plans to build the plant in the county, which is located inn south central Georgia and has a population of under 7,000 people. The plant is expected to create some 70 jobs and be capable of producing more than a billion gallons of ethanol a year.

Range Fuels was launched by venture capital Khosla Ventures in Menlo Park, Calif.

The plant will utilize cellulosic technology that will turn wood scraps and such into fuel, drawing on Georgia’s vast lumber industry.

“Georgia will be a national leader in cellulosic ethanol, and Range Fuel’s investments here will be a major step forward helping us address our state’s long-term energy issues,” proclaimed Georgia Governor Sonny Perdue when the plant was announced.

Range Fuels is pushing so-called K2 technology, a two-step process that turns biomass from such things as trees into a synthetic gas and then into ethanol.

A lot of venture capitalists are excited about cellulosic technology since its gasification technique doesn’t require corn or other food grains. While ethanol is seen as providing the U.S. as a needed supplement to augment fuel supplies, increasing production is already driving up prices for corn and soy beans.

In 2006, venture deals for alternative fuels jumped to 140 from 103 the previous year, and the amount of funding nearly doubled to $1.28 billion. Of those deals, 87 worth $883 million were done in the U.S., according to statistics compiled by VentureOne.

Vinod Khosla, managing partner of Khosla Ventures, recently told Reuters that it is his belief cellulosic fuel prices can be driven as low as $1 per gallon over the next decade. Khosla, a venture capitalist, founded his firm inn 2004 and has emphasized alternative fuels.

North Carolina has its own cellulosic fuel efforts, including a plant that is to be built near Rocky Mount. And President Bush visited North Carolina to tout the efforts of Novozymes in Franklinton. Novozymes produces enzymes for use in alternative fuel production.

However, the state was passed over when the Department of Energy handed out the $385 million in grants for six plants. That’s more than double the $160 million the DOE awarded for such efforts in 2006.

“These biorefineries will play a critical role in helping to bring cellulosic ethanol to market and teaching us how we can produce it in a more cost-effective manner,” the DOE said in announcing the grants. “Ultimately, success in producing inexpensive cellulosic ethanol could be a key to eliminating our nation’s addiction to oil.”

In addition to the Georgia plant, the DOE will help fund facilities in Idaho, Iowa, Kansas, California and Florida.