In the race to replace oil, electric cars seem to be leaving biofuels in the dust.

Five years ago, biofuels such as ethanol and biodiesel looked like the best bet for breaking the world's addiction to oil. Biorefineries turning corn into ethanol sprouted across the Midwest, while startups trying to make fuel from wood chips or grass soaked up venture capital. Big automakers considered electric cars a lost cause.

Now the situation has been reversed. The buzz surrounding electric transportation has never been louder, while the biofuel industry struggles to regain momentum after two brutal years.

By the end of 2010, two global automakers will start selling plug-in cars priced for the mass market. Nissan will introduce the all-electric Leaf, while General Motors offers the Chevrolet Volt, a plug-in hybrid that runs solely on batteries for the first 40 miles of every trip. Automakers as different as Ford, Toyota and Porsche all have plans to go electric.

"Progress is coming at an unbelievable pace," said Carlos Tavares, executive vice president of Nissan North America, speaking at an electric car conference in San Jose last week. "One year from now, there will be thousands of Nissan Leafs driving on the streets of America."

The biofuel industry, however, took a hard blow when the recession hit in 2008. Oil prices dropped, making it harder for biofuels to compete. Biorefineries closed, and some companies plunged into bankruptcy. Startups that needed money to build demonstration plants for their experimental biofuels watched financing vanish with the credit crisis.

Put on hold

"You had projects get put on hold because the price of oil dropped so low, and then the project finance market was so weak that they never got back on track," said Jonathan Wolfson, chief executive officer of Solazyme, a South San Francisco company that uses algae to make substitutes for diesel and jet fuel.

As the recession deepened, venture capital funding for biofuels dwindled, dropping from $1.08 billion in 2007 to $524 million in 2009, according to the Cleantech Group. And companies that make ethanol from corn came under fire for contributing to a worldwide increase in food prices.

"Biofuels got what they deserved," said Marc Geller, one of the founders of Plug In America, an advocacy group for electric cars. "The conversation should get narrowed down to, 'Where do we really need liquid fuels?' "

Many energy analysts, however, caution against counting biofuels out.

Cellulosic ethanol - made from crop stubble, wood chips or grass - could prove to be economical in the next few years, they say. The recession may have delayed the progress of cellulosic entrepreneurs, but it didn't wipe them out.

In addition, most energy analysts believe both electricity and biofuels have a place in transportation's future, even if their exact roles have not yet been decided. For example, electricity may be a fine option for powering cars, but not planes.

Spreading the risk

"There are three horses in this race - electric vehicles, biofuels and hydrogen (fuel cells)," said Roland Hwang, transportation program director for the Natural Resources Defense Council. "At any given time, there's going to be one that looks more promising. But you want to spread your bets around. Too much focus on a single one is not a good risk."

Paul Koehler experienced the biofuel industry's trials firsthand.

His Sacramento company, Pacific Ethanol, had to close plants in Stockton and Madera early last year, laying off about 80 people. The Stockton plant had been open fewer than five months.

Pacific Ethanol's production facilities filed for bankruptcy in May 2009, emerging one month ago. But the Stockton and Madera plants remain shut. The company plans to reopen them as the market improves but does not yet have a firm timetable, Koehler said.

"Corn ethanol companies are keeping their heads above water," said Koehler, Pacific Ethanol's vice president of corporate development. "It's still a challenging business environment. Marketing conditions are challenging. Be that as it may, the underlying demand is there."

Indeed, the market for biofuels remains, supported in large part by government mandate.

Federal law requires the nation's motor fuel suppliers to blend an increasing amount of biofuels into their products each year. The federal "renewable fuel standard" gives biofuel companies, mostly corn ethanol producers, a base level of demand they can rely on.

Renewable standard

Last year, the nation's biorefineries pumped out 10.6 billion gallons of ethanol, the overwhelming majority of it made from corn. The renewable fuel standard also includes specific mandates for the production of cellulosic biofuels, but so far, the industry hasn't been able to make as much as the government wants. The standard originally called for 100 million gallons of cellulosic biofuels to hit the market in 2010, but the Environmental Protection Agency had to scale back the requirement to 6.5 million gallons to match production.

The recession and credit crunch struck just as many cellulosic companies were trying to build demonstration plants, hoping to prove that their technologies could work at commercial scale and not just in the lab. Suddenly, biofuel entrepreneurs couldn't find funding. Few companies of any kind could.

"The timing was pretty bad," said Jeremy Martin, senior scientist with the clean vehicles program of the Union of Concerned Scientists. "The cellulosic people were just starting to get going when things got really ugly."

The recession may have delayed the commercialization of cellulosic biofuels. But many companies are still pursuing that dream. And they're starting to find funding again, sometimes from the federal government.

"There's a tremendous amount of development going on, and I think we're getting very close to scale-up and commercialization," said Dan Verser, executive vice president of ZeaChem, a cellulosic biofuel company based in Colorado.

ZeaChem is building a plant in Oregon, helped by a $25 million grant from the U.S. Department of Energy. Verser said the company is probably a year behind its initial schedule.

He too sees a place for both electric cars and biofuels. Plug-ins work well in urban environments, for commuting or errands. But with battery range still limited, liquid fuel remains a better choice for long-distance travel, Verser said. And Americans still love to travel.
"I think there's room for all of these solutions," he said.
E-mail David R. Baker at dbaker@sfchronicle.com.
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