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Ethanol ventures backed by billionaire entrepreneur Vinod Khosla — including Range 
Fuels, which built a failed factory in Georgia — were given the green light for an estimated $600 million in federal and state subsidies, according to an analysis by The Atlanta Journal-Constitution. Yet none of the dozen or so companies financed or controlled by Khosla over the last decade has produced commercially viable ethanol.

Some failed or, hamstrung by unproven technology and insufficient capital, remain behind schedule. Others bet on new technologies.

To date, the companies have tapped about $250 million of the $600 million. Even though they are now unlikely to ever receive the full amounts, tens of millions have been lost.

Range Fuels was approved for $162 million in grants, loans and loan guarantees for the Georgia venture. Half that amount was disbursed — and lost by taxpayers — for the cellulosic ethanol plant, now idle, in the east Georgia town of Soperton.

This month, the AJC reported that the plant was sold for just $5.1 million to another Khosla-backed company. For this story, the newspaper scoured regulatory filings, government reports, company websites and news articles to arrive at the total figure in federal and state subsidies offered to renewable energy ventures backed by Khosla’s firm.

No one alleges wrongdoing by Khosla or his companies.

Khosla declined to be interviewed for this story. In a 
February 2011 letter to The 
Wall Street Journal, though, Khosla said entrepreneurs 
deserve praise for their search for new, cleaner, safer technologies.

“Range’s original formulation may not have been successful, but such risk-taking deserves applause, not derision,” Khosla, who helped start Sun Microsystems, wrote. “In the end, success is never assured.”

The government subsidy pledges underscore Washington’s rush the past decade to build an industry around cellulosic ethanol — derived from wood, as opposed to the corn used in most ethanol — from scratch. They also point up the power and the promise that savvy entrepreneurs like Khosla hold over the nascent industry upon which great economic hopes ride.

Federal and state officials say they adequately scrutinized Khosla’s plans before public money was pledged. And Khosla himself has plowed tens of millions of dollars from his own venture capital firm into cellulosic ethanol companies scattered from Georgia to California. In addition, a handful of initial stock offerings the past two years have raised hundreds of millions more from investors.

Information included with the stock offerings, though, underscores the risk that investors — and taxpayers — face when bankrolling an unproven industry that hopes to one day wean America from its dependence on imported oil.

In its September 2011 initial public offering, the Mascoma Corp., a Khosla-backed company expecting to build an ethanol plant in Michigan, warned potential investors that “we have a limited operating history, a history of losses and the expectation of continuing losses … and we have no experience in the markets in which we intend to operate.”

Companies are required to list risks in regulatory filings prior to an offering. Mascoma also said government grants comprised 86 percent of its revenue.

Robert Rapier, a chemical engineer whose R-Squared blog is widely read by energy industry watchers, and other critics, including Sam Shelton, who 
directs research at Georgia Tech’s Strategic Energy Institute, liken the Range Fuels fiasco to California solar power company Solyndra. It received $535 million in government-backed loans before closing and filing for bankruptcy last August.

“He’s wasting tax dollars, which I find very offensive,” said Rapier. “More importantly, the whole renewable energy sector is tarred with the failures of Range Fuels and Solyndra. They’ve really given the industry a black eye.”

Matt Hartwig, spokesman for the Renewable Fuels Association in Washington, said the federal and state subsidies for Khosla’s ethanol ventures will end up as money well spent.

“It sure sounds like a lot of money — and it is — particularly to an industry trying to get off the ground and succeed,” he said. “But it’s a pittance compared to what we spend on very mature and very profitable technologies like oil extraction that still benefits from billions of dollars each year in taxpayer largesse. There is absolutely a role for the federal government to play in advancing new technologies.”

In Washington, successive administrations have touted ethanol as an environmentally benign solution for America’s dependence on foreign oil. Most ethanol is produced from corn and blended with gasoline. Its production too is subsidized, as are other forms of energy like coal and oil.

Cellulosic ethanol offers the promise of transforming timber, grasses and other renewable biomass into fuel. Proponents say its production won’t drive up food prices or pollute as much as corn-based ethanol. Georgia, with 24 million wooded acres, jumped at the chance to lead the nation’s cellulosic bandwagon.

But nobody, including Khosla, has yet turned cellulosic’s promise into profit.

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