In the past, producers made a biofuel and then worked to convince the world that it was a good product worth purchasing.” That hazard is familiar to Gordon Ommen. He cofounded one of the country’s largest ethanol producers. His new biofuels start-up, St. Paul–based JetE, tries to sidestep the pitfalls of the industry’s first-generation businesses.

JetE wants to help ethanol and biodiesel producers make a new kind of fuel for the aviation, military, and industrial markets. Demand is already demonstrated, Ommen says. The aviation industry is asking for green jet fuel and has “gone so far as to establish a specification for that fuel.” JetE’s biorefineries would meet the spec. Another advantage that ethanol didn’t have: Their fuels would be “compatible with existing engines and distribution infrastructure.”

Ommen cofounded U.S. BioEnergy Corporation, the Inver Grove Heights–based ethanol distiller, in 2004, and was its CEO. The company raised $1.5 billion, engineered a successful IPO, and grew to 700 employees. Early in 2008, South Dakota’s VeraSun Energy Corporation acquired U.S. BioEnergy. Before the year was out, VeraSun—struck by volatile corn prices and its own failed price hedging—declared bankruptcy and later sold its assets.

Meanwhile, Ommen had departed to focus on his private equity firm, Capitaline Advisors, LLC, and to start JetE, where he says the opportunity “is much bigger” than for U.S. BioEenergy.

Airlines, which burn some 25 billion gallons of fuel annually, have won regulatory approval for a new biofuel that meets standards set by the benchmarking group ASTM International. Airlines want to buy this new fuel, JetE says, but there is no commercial-scale production yet, at least in the U.S.

JetE proposes to kick-start domestic production by selling a biorefinery system and a proprietary version of a hydroprocessing chemistry as an add-on to existing ethanol plants or a conversion at biodiesel plants. JetE would build the biorefinery, then turn the keys over to the owners.

“It’s a little bit like a franchise,” Ommen says. The process would rely on corn oil that ethanol plants typically sell off now as part of their dried distillers-grain byproduct (which is used as livestock feed). At biodiesel plants, it would use the same soy oil that’s used now. Eventually, other biofeedstocks could be used.

For struggling ethanol plants in particular, the attraction would be diversification and value added to a byproduct. Ommen estimates that deploying JetE’s system would boost profits by $1.2 billion annually at the nation’s ethanol plants and $1.8 billion at biodiesel plants. The company’s Tim Kubista says bio jet fuel would be priced competitively with conventional jet fuel. In early February, that would be just under $2 per gallon.

JetE says it could “democratize trans- portation fuel” by putting more produc-tion close to biomass sources, and putting control and economic benefits into rural communities. That’s a rallying cry familiar from the ethanol industry.

Tom Halverson, who heads the clean-tech and renewable-energy group at local investment bank Piper Jaffray, helped Ommen raise capital for U.S. BioEnergy. He believes JetE will succeed: “My experience with Gordon is that he can take a very complicated, large endeavor, crystallize this strategically, and just get it done.”

Ommen won’t disclose how much money JetE has raised, but says funding is mostly from Capitaline, where he is the sole principal. He still cites as JetE’s three big challenges, “capital, capital, and capital.”