Clean-tech venture capitalist Vinod Khosla’s KFT Trusts, a longtime backer of the company, threw KiOR a lifeline yesterday, offering up to $25 million in financing and helping boost the stock price by 60 percent. Once trading at a high of $20.74 per share, KiOR’s stock has sunk to less than $1. KiOR is seeking out additional funding, said a spokeswoman.

The bad news that has rocked KiOR has had a slight chilling effect in the industry, despite ongoing optimism.

“It’s one in which you have an elevated level of caution just because we haven’t seen much in the way of execution from a lot of these companies,” said Justin Jenkins, a research associate in the energy equity research division of Raymond James & Associates. “But [investors are] still interested in the idea that these technologies have been proved, that if we can just get them to scale, they might actually work in the future.”

Cellulosic fuels — advanced biofuels made from grasses, agricultural residues, wood and even household trash — have a tiny carbon footprint compared to fossil fuels. Indeed, scaling has been a challenge for many companies. Range Fuels, another wood-to-fuel venture backed by Khosla, went bankrupt in 2011. Some advanced biofuels companies, like Gevo and Solazyme, stay afloat by selling biochemicals and molecules to make plant-based plastics.

Other plants ready to produce

“KiOR’s cellulosic fuels products are its only products, so if it is not producing and selling those, it has no other product revenue streams,” said Claire Curry, a bioenergy analyst with Bloomberg New Energy Finance.

KiOR’s fuel works, said Curry, but it’s very expensive to make, and the company could not recoup its cost by selling it at $4 per gallon.

“KiOR knows how to reduce its production costs; it just needs money to do so,” said Curry.

KiOR’s drawbacks shouldn’t detract from its successes, said Advanced Biofuels Association President Michael McAdams. To date, KiOR is the only company in history to generate cellulosic renewable identification numbers (RINs), credits that oil companies can buy and trade to comply with the renewable fuel standard. U.S. EPA based its 2013 renewable fuel standard obligations for blending cellulosics into the greater fuel supply — 6 million gallons — almost entirely on KiOR. According to EPA’s Moderated Transaction System, KiOR produced close to 515,000 gallons last year.

“The market will adjust to it, and we hope to bring on more fuels,” said McAdams of the industry’s potential.

It’s hard to tell what the impact will be on this year’s quota for the renewable fuel standard, the policy to increase biofuels production by 36 million gallons by 2023. EPA released a controversial draft rule in November that rolled back requirements for the making and blending of corn ethanol, as well as advanced biofuels like Brazilian sugar-cane ethanol and biodiesel.

According to the proposal, the cellulosic industry must produce 17 million gallons for oil companies to blend in the fuel supply in 2014. Along with INEOS Bio, a Florida-based plant that makes cellulosic ethanol from citrus waste and trash, three large cellulosic plants are expected to come online: Abengoa Energy’s 25-million-gallon Hugoton, Kan., plant; POET-DSM’s 20-million-gallon Project LIBERTY in Emmetsburg, Iowa; and DuPont’s 30-million-gallon plant in Nevada, Iowa. INEOS Bio opened its plant last summer and generated its first RINs in January.

The most important thing for the sector is for EPA to be accurate in what it will require, said Brooke Coleman, executive director of the Advanced Ethanol Council.

“There’s two things that can hurt us: bad numbers and bad signals,” he said. “If the right number for KiOR is zero, that’s fine; that’s not going to send shock waves through the industry, because that’s one company and one industry.”

Bad signals from EPA, said Coleman, could be more problematic. If EPA ignores gallons that do exist when the rule is set, that could send ripple effects through the industry.

But despite the race to commercialization — and KiOR’s desire to outgrow the RFS and operate in a free market, as is apparent in the company’s reports — the cellulosic industry is still relatively fragile. Asking if these first players will fulfill a government mandate may be the wrong question to ask.

“Another way to frame it is, is the RFS giving companies like KiOR the support they need?” said McAdams.