The latest issue of Fortune magazine tells the story of a failed biofuel project in Mississippi. Katie Fehrenbacher’s article offers observers another reason to treat grandiose “green economy” claims with a grain of salt.
The plant’s supporters once envisioned it as the embodiment of a clean-energy future. The company that owned it was valued at more than $1.5 billion, and its shares publicly traded. The factory, the first of several planned in the state, was intended to employ hundreds of workers and create new demand for the state’s timber industry.
But on a hot, sunny afternoon in October, the factory is a dead zone. Long weeds have sprouted up around an empty parking lot. No workers are operating any machinery. The plant hasn’t produced any biocrude in close to two years. Days before, a big chunk of the facility was sold for $2.1 million. Another piece was unloaded weeks before that for $1.6 million. The plant, a former paper mill, had cost more than $215 million to buy and convert to green energy production.
The factory was run by a company called KiOR, which was once a symbol of the promise of the next generation of biofuels and the role that Silicon Valley and government could play in incubating clean-energy technology. Its soaring ambitions—and hype—largely stemmed from the imprimatur of Silicon Valley venture capitalist Vinod Khosla and the millions he had invested in it. All told, the company spent more than $600 million. In its brief time in operation, it generated $2.3 million in revenue; when it filed for bankruptcy it listed assets of $58.3 million.
At one time KiOR was an important company for Khosla, whom Fortune called “the most successful venture capitalist of all time” in 2000. He’s a billionaire who moves in rarefied circles; he hosted a dinner for President Barack Obama at his home a few years ago. In 2004 Khosla left the elite venture capital firm Kleiner Perkins Caufield & Byers. He launched Khosla Ventures partly because he wanted to make an outsize bet on clean technology. The next generation of biofuels, made from plants and biowaste (so-called cellulosic materials), which have lower carbon emissions than oil, were a particular passion. Khosla invested hundreds of millions of dollars in about a dozen biofuel and biochemical companies. …
… Yet only 2½ years after a gala groundbreaking, KiOR’s Mississippi facility, riddled with problems, stopped producing biofuels. Eleven months after that, in late 2014, the company filed for bankruptcy.
Unlike most failed startups, KiOR hasn’t just shut its doors and disappeared into oblivion. Today recriminations, investigations, and litigation continue to surround it. The Securities and Exchange Commission has been examining whether the company made false statements, including on a critical point: the yield of its biofuel (the amount that can be made per ton of wood chips). Two KiOR executives and Khosla himself are also facing a class action suit alleging that company executives misled investors about production volumes and yield.
The state of Mississippi is also suing Khosla and key KiOR executives on similar grounds, claiming they hoodwinked the state to obtain a $75 million loan. The case provides a striking image. One of the poorest states in the country, which received only $6 million of its money back before KiOR went bankrupt, is seeking to collect from a Silicon Valley billionaire. In the suit, Mississippi Attorney General Jim Hood described KiOR as “one of the largest frauds ever perpetrated on the State of Mississippi.
