Just like the Gold Rush prospectors, today's moneymakers know that biofuels - fuel and petrochemicals made from plant-based materials - are the next big thing in business. And environmentalists know that there is really no other way. Last year's BP oil spill off the Florida coast demonstrated that fact.

With a stamp of approval from Vinod Khosla of the eminent clean-tech investment firm Khosla Ventures in the form of an investment, the Israeli company HCL Clean Tech is looking to capitalize on a new niche in the biofuels market: Converting wood chips into a high-value feedstock for biofuels and the plastics and chemicals industries.

In simple terms, the company is making sugar from wood.

HCL has found a way to turn the cellulose fibers in wood into a sugar that can be converted to ethanol or another biofuel, or as a raw material useful in the biodegradable plastics industry. According to the company, the cost of this wood-based sugar is 17 percent less than the cost of corn mill sugars of roughly the same quality. Although the extraction material hydrogen chloride (HCl) is a poisonous substance, the company's closed-loop process is 80% more environmentally friendly than the industrial processes that go into harvesting corn mill sugars, they say.

And using wood chips from harvested softwood and hardwood trees, as well as from wood waste, does not compete with food sources.

To this end, HCL plans to build feedstock factories around the world. A pilot site operating in the United States will soon be joined by a commercial plant.

Invigorating a 'lumbering' industry

Sugar is energy, no matter how it's derived, explains Eran Baniel, the managing director of the company based in Herzliya, Israel, and North Carolina. Beyond fuel, HCL Clean Tech taps into a unique caveat. He explains: "What makes it interesting is that our feedstock can be used for food and feed. It can be used for food fermentation and put into food additives, then used for feed - in the form of additives for meat and other food productions. We've turned the table on the industry... We take wood waste and can turn it into food materials."

HCL's sugars have shown a very encouraging flexibility, Baniel adds.

Why wood? The corn sugar market is unstable and volatile, he explains. Feedstock from wood introduces an alternative, especially in a faltering wood industry where trees were previously used by paper mills now sitting dormant.

The US Department of Energy is on board with the HCL idea and has invested a $9 million grant in the project. To date, the company has raised $15.5 million in three rounds, and is about to announce a new investment and commercial plant launch in the United States.

The man behind the process

Insisting that his chemist father, Prof. Avraham Baniel, is Israel's youngest entrepreneur at 92 years old - obviously young at heart - Baniel says the idea for HCL's process came by way his father's ingenuity. Avraham, who is of Polish descent, came to Israel as a young boy before World War II and the death of some of his family members in the Holocaust.

Keeping up with the news in the chemical industry, he was reading about biofuels and the problems with finding commercially feasible alternatives to feedstock made from plants. He remembered a solution that a German chemist, a Nobel prizewinner, had suggested using hydrogen chloride for turning the cellulose in wood into a sugar.

There were some problems with the approach that Avraham was keen on solving. The professor emeritus from the Hebrew University of Jerusalem asked his son to rent him a lab to test the new approach and the lab results proved that the idea could work. "When that proved feasible the company was founded," says Eran Baniel. Using hydrogen chloride, and a novel extraction and separation technique, Avraham (the subject of a forthcoming documentary film) was able to formulate a feedstock from wood that preserved the sugar bonds, which were susceptible to damage in other chemical extraction processes.

Technique could be applied to other materials

HCL Clean Tech has 27 employees in the Israel and US locations, with the majority working in research and development. All financing to date has been done by investors on the inside. Out of $15.5 million raised, 92% has been used in R&D.

Though wood chips have proven to be an excellent source of sugar, the company's technology theoretically can work with any cellulosic material, says Baniel. "We use low-quality wood and turn it into sugars of very high quality and waste. We can also use bagasse - what's left over when you have extracted the sugars from the sugarcane. Essentially we can work with any agriculture waste," he says, stressing that wood was simply a good starting place.​