Coskata on Life Support?

Remember my story Coskata: Dead Man Walking? As I wrote in that essay six months ago:

I predict that Coskata’s suggestions that they will produce ethanol for less than $1/gal will look ridiculous in hindsight. The next few years will see a record amount of back-pedaling from most of the companies trying to establish a foothold in this space – and overpromising on their technology to do so.

Well, at the Wall Street Journal ECO:nomics Conference last week, Coskata CEO Bill Roe indicated that the company is having (recession-induced) troubles. Marc Gunther has the story:

GM’s woes: Bad news for clean energy

Talk to a banker and “all you get is a smile and a pat on the head,” Roe says. “There is no project finance today.”

Interestingly, Coskata, which is based outside Chicago, raised money as recently as December, reportedly getting a $40 million infusion from the Blackstone Group, the big private equity firm.

But GM, teetering on the verge of bankruptcy, didn’t pony up any dough. GM had announced its original investment in Coskata back in January, 2008, with some fanfare. Roe said then that the financing coming in from the auto giant is enough to make Coskata “a speed-to-market play.”

Now he’s waiting for a loan from the U.S. Department of Energy.

“That’s my only alternative at this particular point in time,” Roe says. “Absent getting that loan, we are stalled.”

This is exactly why you don’t overhype your technology. If you overhype, the expectations are high – so there can’t be any excuses for not delivering. As I said last year after the investment by GM was announced “GM can’t be wrong, can they?” (Checking GM stock; now trading at $1.76 which is slightly off its 52-week high of $24.24). If Coskata could really produce ethanol for under $1/gallon from biomass – as they claimed – they would be printing money. Yet they have now raised at least $76 million, and still no prospects for a commercial plant. Here is what Vinod Khosla had to say when he announced his investment in Coskata:

“As a nation, we’ve been dependent on oil for so long, we continue to think we will be dependent on oil to meet our future energy needs,” said Vinod Khosla of Khosla Ventures. “Scientists, technologists and entrepreneurs like Coskata are here to prove it doesn’t have to be this way. With the development of an economically-viable ethanol solution, Coskata has the propensity to change the types of fuel consumers find at the pump – providing fuel derived from widely-available national resources, rather than foreign imports.”

Coskata had estimated that a 100 million gallon plant would cost them $300 million, and later updated that to $400 million. I say that if Vinod Khosla is so confident of success, have him pony up the rest of the money. That’s a pretty big bet, but he has made some pretty bold claims about next generation biofuels.

While all that hype might help you pull in some investor (and taxpayer) money, it is going to make it a lot tougher for the next guy – who might have a better technology. But so many investors are going to get burned on second generations biofuels that in a few years nobody will want to touch this sector. Except for us taxpayers, of course.