Back in the Q

As area business writers and economic-development leaders were compiling their top stories of 2008 last December, one near the top of that list was the apparent loss of a green-energy venture called Qteros, which was working with something called the ‘Q microbe’ to revolutionize ethanol production, to the Worcester area. But while the company’s headquarters has in fact moved, Qteros still has plans for a big presence in Western Mass., with a pilot plant it wants to develop in Indian Orchard. The talk now is that Qteros isn’t a loss; instead, it’s a potential spark for clean-energy-sector growth.

t was only a few months ago that Qteros, the company formerly known as Sun Ethanol, was also referred to as the ‘one that got away.’

It earned that distinction after company leaders announced last December that the venture, created to take the so-called ‘Q microbe’ and use it to revolutionize production of ethanol, would be moving its headquarters from Hadley to the Worcester area. Many area economic-development leaders referred to that announcement as a sad day for the region.

But now, Qteros isn’t simply the one that didn’t get away, it’s also the one that could produce a spark with regard to efforts to create ‘green,’ or clean-energy, jobs in the region.

“We’re Western Mass. people,” Qteros co-founder Jef Sharp told BusinessWest recently. “The company was founded in Western Mass., the technology came from the Quabbin and UMass Amherst, and we still work closely with the university on sponsored research. We live in this area, and we want the pilot facility to be within driving distance to our Marlborough lab.”

This sudden and dramatic change in fortunes and presence within the community came into focus last month, when the leadership team at Qteros announced their intentions to create a multi-million-dollar pilot facility in Indian Orchard at the sprawling Solutia complex. During and after that press event, attention shifted to the massive potential such a development would have in terms of giving the region some cache as it attempts to become a center for clean-energy jobs.

Indeed, Qteros isn’t alone in looking to the Springfield area as a home base for pioneering technologies. Mayor Domenic Sarno has a commitment to his city becoming a hub for green industry, and with a multi-million-dollar investment by Qteros, the company sees this as a foundation which will be laid for others.

Over the next several weeks, Qteros officials will be spending as much time in the nation’s capital as in the lab, with the goal of securing $18 million in Department of Energy grant money, all for advanced stages of development at that Indian Orchard pilot facility.

Sharp said that the DOE has already been a partner of earlier Qteros projects, “and they’ve given us a couple of smaller Small Business Innovation Research grant awards. We’ve got a relationship with them that we hope will be fruitful as they review the grant applications.”

In this issue, BusinessWest looks at how and why Qteros is, once again, a Western Mass. business story.

In the Beginning

Qteros’ history in the region goes way back before the company came into existence, and it all started with a walk in the woods.

Dr. Susan Leschine, a microbiologist at UMass Amherst, was looking in the Quabbin Reservoir watershed for a microbe that would break down plant matter. However, what she and her research assistant found one day in 1996 was something of far greater importance.

From a “spoonful of dirt,” they discovered what was later identified as an incredibly efficient microbial engine for breaking down cellulose, found in all plant and woody matter, into ethanol. The director of the National Renewable Energy Lab has termed this Q microbe (so named for its point of origin) a “holy grail” of cellulosic ethanol production.

It would take 10 years from that day in 1996 for the company to finally launch into the big leagues of the biofuel industry. SunEthanol Inc. was the first company that Leschine and Sharp began, and before long the world took notice. By late 2008, the company had secured more than $25 million in private funding.

Ethanol is considered to be one of the best potential replacements for gasoline, what is known as a biofuel, but the common concern heretofore has been the costly means of its production.

Sharp explained the Q microbe’s process. “It basically consumes plant matter and spits out ethanol. We have so far scaled its productivity up 15-fold, and if we can scale that up another two-fold, there will be no question that it will be the most cost-effective solution for manufacturing ethanol.”

“It wasn’t hard convincing the investors to invest,” Sharp told an ethanol industry journal recently. “They recognized that the industry has been searching for a microbe that could do this for some time.”

But with that outside funding came outside influence, and by the end of that year, Qteros officials announced that they were leaving their Hadley offices and taking up residence in Marlborough, in the hot biotech corridor around Worcester.

At the time, Leschine mentioned that the company’s needs had outstripped the resources in the Pioneer Valley, and that Worcester County had systems in place for their immediate vertical expansion. What had been a great year for Qteros was turning out to be bad news for the company’s Western Mass. roots. The migration meant a loss of both jobs and a benchmark biotech firm, not to mention the stinging blow of another homegrown industry moving east.

But the big news this past month was that the Q is back.

Plant Maintenance

Actually, it never left, said Sharp, who spoke to BusinessWest from Washington D.C., where he and company CEO William Frey have been spending a lot of time recently. Qteros is in the midst of negotiations with the DOE to secure close to $20 million for the company’s expansion into Indian Orchard, at the old Fiberloid factory site on Worcester Street.

In addition to that lump sum from the DOE, Sharp mentioned a goal for a $4.5 million matching fund requirement that Qteros hopes the Commonwealth will endorse. He said that, with such funding in place, the company can greenlight later phases of operations at the site, currently occupied only by Solutia.

The company is the only tenant on the 250-acre site, which is the largest chemical manufacturing facility in New England, currently employing more than 700 people. Sharp thinks that the company will make a good neighbor.

“We have a good relationship with the people at Solutia who have helped us right along,” he said, adding that “we are currently storing some feedstock for the process there.

“We’ve had conversations with them about the different stages of the pilot programs, and they happen to have a very good location for it,” he continued. “Our engineers have looked at the site, it’s appropriate, we have permits in place there, there’s excess capacity, they have the ability to bring the biomass necessary for the Q microbe in via water and rail, and they have the ability to burn the residuals of the biomass at the power plant there.”

However, he added, “It’s a relatively small power plant, so it’s not going to have a tremendous amount of emissions or anything like that. It’s very benign. Even if we were running one ton of material a day, which we won’t be right away, that’s like a pickup-truck load of grass. From an industrial scale, it’s a pretty small quantity, so it wouldn’t have any negative impact on the air quality or anything else.”

There are three phases in the works for the Qteros pilot plant in Indian Orchard. The first is to put the Q microbe to work beginning later this year. Second and third phases will involve a larger, full-scale plant, depending on those all-important DOE grants. “The second phase is a one- to two-ton-per-day pilot plant that will demonstrate our technology in a much larger scale than we currently can at our labs in Marlborough,” said Sharp. He and his colleagues hope to know the future of the federal funding by the end of June.

If all goes according to plan, the company will soon be a major employer — and perhaps serve as inspiration to other startups in the clean-energy and biotechnology realms.

“The plant will bring at least several million dollars of a project into the city this year,” said Sharp, “and hopefully it will grow into a much larger pilot, and from there into a manufacturing facility, where instead of employing the tens of people that we do, we could employ 100-plus people. If we are successful beyond that, well, there could be the potential for a bio-ethanol facility which would be an ultimate goal for Qteros and the Commonwealth.”

Sharp is quick to point out that the company is happy to be back in the area for a variety of reasons, not the least of which is to acknowledge the connection and contribution of its partner at UMass Amherst.

“The university is a great partner to Qteros,” he said. “There’s work being done in a couple of labs there with the Q microbe, and we sponsor some of that research with contractual arrangements, but we also continue to be engaged with the school due to the fact that we’re their partners. We’ve licensed the technology from them, and they will benefit from a royalty stream once we start producing revenue with the product.

“Obviously you can put a facility in Eastern Mass.,” he continued, “but the UMass campus is very strong, the talent there is impressive, and we want to be able to be closer to that talent.”

Sarno told BusinessWest that he is thrilled to see this component to green technology coming to his city as part of his initiative to see Springfield become a hub for the green-technology industry. Mentioning the UMass Amherst/Qteros development in Indian Orchard, he said, “the idea is that UMass is really putting its footprint here. We already have great colleges in the city, and don’t want to step on their toes, but I see UMass as an economic engine on the R&D that these other colleges just can’t do.”

U.S. Rep. Richard Neal has also been supportive of Qteros and its work in both Western and Central Mass. “Obviously I’m delighted that this is a homegrown technology, once again reminding all of us once again of just how important UMass is as a research institute,” he said. “I think that, based upon the visits I’ve had with Qteros, there’s promise here.”

Neal said he has been active with Qteros both in Massachusetts and in Washington, and he’s confident that the company will spearhead a birth of similar ventures in the city. “I think that, for any start-up, they need a bit of a floor from which to build, and the federal government helped out here in the past and hopefully will continue to with the DOE grant.”

Center of Energy

Sharp sees Qteros, and Springfield, being at the beginning of something big. “We’re thinking that there’s potential for a tremendous impact for the city and the state, not to mention the entire country. We’re pretty convinced of the importance of this technology and the impact it could have.”

He looked past the walls of his new pilot plant, though, saying, “Springfield has the potential to become a bioenergy center and a technology center. I think that Qteros siting the first pilot plant there will be the first phase of what could be a facility that could work with a lot of spin-off technologies from UMass. There are some great bioenergy technologies that are being developed in the labs there now. We’re hoping that this will encourage and accelerate those technologies.”

Sharp said he sees no reason why Western Mass. can’t start to create the momentum needed to build upon one success and to have multiple companies, or an industry cluster. “When you have one company in a hot field, then you have more technologies coming out of the University that are in that hot area.

“Before you know it,” he continued, “you’ve got companies that are supporting each other and having a cumulative effect of people wanting to live there, wanting to do business there.”

The Indian Orchard plant is still a ways from becoming reality, but it already looks like a remarkable turnaround for the company known just a few months ago as the “one that got away.”