What to Expect in 2008

This is the crystal ball time of year in 'mainstream' media, so I don't see why this blog should be any different. Here's some things to consider / look out for in 2008, a year that could be a watershed for development of new fuels and efficiency technologies for the automobile.

People Will Continue to Throw Money at Corn Ethanol
And no one will be able to give good reason why. I've made no secret of my almost complete and utter disdain for corn-based ethanol (comparatively low energy output, water absorption, infrastructure challenges, diversion of food supply, etc.) In addition to these much discussed shortcomings, now we learn that farmers seeking to benefit from the Corn Boom of the Mid-Aughts have dumped so much nitrogen-based fertilizer into the Mississippi River, it's killed off virtually all species in a 7,900 square mile area in the Gulf of Mexico, a place fetchingly called the "Dead Zone".

So with all that going against corn ethanol, of course we can expect huge increases in spending in this area. Why? Three things: politics, politics, and politics. It's an election year, so pandering to Midwest farm states is essential. The recently passed Energy Bill (excuse me, the ‘‘Energy
Independence and Security Act of 2007’’) dramatically increases funding on ethanol production and research, leading elation on the part of upstart suppliers like VeraSun.

Order of the Day (er, Year): Mergers and Acquisitions
Maybe you saw the news about VeraSun acquiring USBioenergy for stock. The resulting company will have enough (planned) capacity to put sector titan Archer Daniels-Midland in the number 2 spot.

Oh, we're just getting started. There's a glut of small, cooperatively owned ethanol producers throughout the Midwest (Iowa alone has 29 plants up and running with another 18 under development.) Next, the ethanol craze has produced a high demand for corn , thereby dramatically increasing costs for these small producers. Lastly, the federal government has legislated a huge jump in biofuel capacity, making the big suppliers eager to jockey for position.

The result? A whole bunch of small suppliers are going to turn the keys over to the big boys. The shakeout that follows will benefit the usual suspects like ADM and Monsanto. Smaller winners maybe VerSun, Range Fuels, Pacific Ethanol, and some others.

While ethanol company activity will get the lion's share of attention, M&A activity will extend to other alternative sectors as well. A precursor could be Ballard's sale of their automotive fuel cell business to Daimler and Ford.

OK, this is getting too long. I'll break it into separate posts. More later (I've still got 9 days before the New Year...)

EVS 23 Brain Droppings

Had an opportunity to spend the day down at the Electric Vehicle Symposium last Monday in Anaheim, CA. What follows are some top line observations and some really awful pictures I took with my exceedingly lame camera phone.

Two "Oh Crap" Moments: A number of presentations included some telling projections. For example:

• Current vehicle ownership: 12% of the global population (820 million vehicles). By 2020, it'll be 15% (1 billion vehicles). Highest growth, not surprisingly, will be in the developing world (India, China, Brazil, etc.) That’s 150 million more vehicles on the road in 12 years. Good chance that a large percentage of these will have to be alt fuel.
• California GhG Emissions goals. 80% reduction by 2050. To get there, one scenario
  estimates that 11% of the cars on the road will be gasoline powered ICE. The vast majority will be alt fuel mixed with battery driven electric drive. (BTW, hydrogen was estimated to be ~12%. I doubt it'll even be that much.)

Batteries Will be Ubiquitous: No matter what technology or fuel was being discussed, batteries are invariably the central theme. Now, granted it’s a conference about electric vehicles, so batteries are going to be part of the conversation. That said, the constant attention paid to batteries (chemistry, capabilities, etc.) speaks to the critical role advances in these technologies will play. Not surprisingly, the companies seeking the fill this rapidly growing need were present and accounted for: A123, EnerDel, etc.

First Sign of the Apocalypse Confirmed: In a presentation on the Chevy Volt, GM admitted that they’ve “made some mistakes in the past” related to efficiency technologies. Come to think of it, that probably qualifies as Understatement of the Decade as well...

Legislation Will Impact the Alt Fuel Market From All Directions: Whether it be emissions reduction (e.g. UK Low Emissions Zone around London), spurring innovation (e.g. Austrian Agency for Alternative Propulsion Systems), or other areas, governments will continue to be play a critical role. A combination of legislative carrots and sticks will provide huge opportunities for those companies that are to successfully anticipate and react.

I Get the Feeling China Is Big: No conference today is complete without a discussion about China and the implications of its market. No exception here. An official from the Chinese Ministry of Science and Technology gave a brief talk on the state of EV research and emissions there. Essentially, the combination of a rapidly growing energy gap (resulting from a deficit of oil imports compared to growth in vehicle ownership) and air quality (or lack thereof) mean the government will be playing a very active role in developing and promoting alt fuel and efficiency technology adoption. One way will be through legislation: in 2000, the floor of Chinese vehicle efficiency was 9.5 liters per 100 KM. In 2010, that will drop to 6.7L / 100KM. The expectation is that the Chinese government will be investing heavily in R&D to facilitate necessary breakthroughs. One estimate was the MOST will receive 2.5% of GDP by 2020 (compared to 1.4% todat and under 1% in 1996.)

Tesla Update: The upstart EV car maker had a only a small booth, but had the foresight to put one of their roadsters in it. As a result, their set up regularly out drew the larger manufacturers, including Chevy Volt and the largely ignored Honda FCX Clarity. To be sure, the company still draws considerable buzz, but you get the feeling that there’s a certain antsiness to see these cars on the road after so much hype. At a presentation on the battery system, the Tesla rep pointedly wouldn't address questions regarding the transmission challenges they've been having. Still, he indicated that first deliveries will take place Q1 2008. Also, no warranty info about the battery pack as of yet, but the speculation is that it will be about 5 years / 100K miles driven.

Battery Buzz: Argonne National Labs partnered with EnerDel to research battery technology focusing on lithium Manganese spinel /lithium-titanate chemistry. Findings seem to indicate excellent power capability and life potential for a lower cost than comparatives.... A representative from Japan's Yuasa Corporation gave a technical discussion of their EH6 battery product. Given the reaction from the (very large) audience, there was a high degree of interest in the product. Lots of questions regarding cost, availablity for testing, distribution, etc. No other presenter in the forum had a similar level of interest.

Bob Lutz and I Are on the Same Page About Hydrogen

Timing is everything, I suppose.

Just posted last week about my lack of enthusiasm for hydrogen. Well, it turns out that GM's Bob Lutz isn't exactly setting his watch by the anticipated arrival of the hydrogen economy. Here's what Lutz had to say to US News and World Report's Rick Newman on November 16:

Newman: "So of all the different technologies GM is working on, how would you prioritize them?"

Lutz: "Electric. Advanced hybrid. Plug-in hybrid. Advanced clean diesels. And far out, there's hydrogen."

Not quite a ringing endorsement for the near term (or even long term) application of hydrogen. Click here for the full text of the interview.

Easy Hydrogen a Nice Idea, But No Quick Fix.

I admit it. I'm biased against hydrogen. I rarely write anything about it here because, frankly, I remain overly dubious about hydrogen ever making a meaningful impact on personal transportation. The number of hurdles that hydrogen has to surmount to become viable (processing, infrastructure, vehicle development, etc) are well chronicled. And after decades of work and billions of dollars spent, we don't seem any closer to the proverbial "hydrogen economy."

That all said, there's some interesting research going on at Penn State. In work funded by Air Products and Chemicals and the National Science Foundation, scientists have filled out patent applications for a process that converts organic waste to hydrogen "cheaply and efficiently."

Now let's be clear. If I tried to track all the research that's going on this area, I'd have to quit my day job (and you people aren't clicking on my adwords enough to let me do so...) And frankly, much of the research falls into the, shall we say, overly academic space (like using spent eggshells as a fuel source.)

There's something about Professor Bruce Logan's research, though, that's interesting. Maybe it's because he seems to solve problems associated with cellulostic ethanol (to difficult to break down the sources) and hydrogen (too expensive/wasteful to produce the hydrogen) in one fell swoop.

Using microbial fuel cells and a variety of fairly generic ingredients (e.g. off the shelf exchange membranes, acetic acid, etc.), the researchers were able to generate hydrogen at a rate about 4x - 5x more efficient than standard water hydrolysis. The results, it would seem, are remarkable:

"This process produces 288 percent more energy in hydrogen than the electrical energy that is added to the process. Water hydrolysis, a standard method for producing hydrogen, is only 50 to 70 percent efficient."

Too good to be true? Time will tell. And we'll have lots of it, because even if Logan's research continues to bear fruit, there's still a long way to go before hydrogen is the future fuel many want it to be.

Will It Really Be A Better Place?

Shai Agassi's been in the news a lot recently. The former SAP wunderkind recently launched Project Better Place, a company focused on developing recharging systems to support a presumed mass adoption of electric vehicles. With $200 million in first round startup capital (from sources like Venture Partners and the Israel Corporation), the resources are in place to get Agassi's unique concept rolling.

His plan is to attack two sides of the EV equation. The first, and this is the part that's gotten most of the attention, is to develop "extension cords", or places where EVs can either power up. This would involve developing infrastructure at fixed locations such as parking lots, homes, office parks, etc. For long range travelers, Agassi envisions battery "hot swap" locations: drive in, pull out a drained battery, push in a charged battery, drive off.

The second, less visible part of the company strategy involves, for all intents and purposes, the infrastructure for the infrastructure. Agassi is leveraging his SAP experience to develop the software that will "run" these new charging systems: integrating disparate grid systems, managing demand, setting priority, etc. From the man himself:

"This is where my expertise comes from. I had a great school at SAP, [I've developed] an understanding of business models and the complexity of multiple different systems in multiple different industries."

With enormous start up capital, management pedigree and experience, PBP would seem to be one of the new alternative transportation darlings of Silicon Valley. And why not? PBP has requisite trappings: a game changing, disruptive idea that (if successful) will fundamentally change the way people approach driving.

But is it a viable idea?

Personally, I love the concept, as it wholly re-envisions the auto industry. The idea of battery "hot swapping" is particularly interesting, as it helps remove one of the major obstacles to mass adoption of EVs: concerns about the cost, capability and longevity of batteries.

But it seems that a project of this magnitude is going to have a very long burn. There are enormous hurdles to clear, mostly around getting government, grid operators, auto manufacturers, etc. to place nicely in the sandbox together. And then there was this tidbit from the Q&A at the company launch (video here):

"You'll see us scale to a pretty wide test to test hundreds of thousands of vehicles in 2009."

Now unless he's going to be using some of that money to greatly expand the current fleet of EVs currently on the road, I'm not sure where these test subjects are going to come from. Maybe that line is for the investors, but its one of a number of comments that seems slightly disconnected from the current state of EVs.

In the end, I suppose that the real goal of Project Better Place is the software development component. If they plan on rolling out regionally (with local investment playing a significant roll in doing so), the software becomes to the money maker, while putting the onus of hardware implementation on others.

Range Fuels Featured in NYT

Nice article on the front page of the NYT business section about Range Fuels today. While Range isn't the only biomass-focused company to be mentioned (Bluefire, Virent Energy Systems, and Dynamotive Energy Systems all receive nods), Range gets the lion's share of the attention due to the ground breaking on their Georgia facility.

Not much new information explored or revealed that we didn't already know (see earlier Range posts here and here.) That said, the groundbreaking and ensuing media attention point to a company that, while still in its infancy, appears to have its act together.

Telsa Starts Getting Its Act Together

The regime of new Tesla Motors CEO Michael Marks (earlier post) has already started to pay dividends .

Back at the beginning of the year, Tesla announced that, in addition to launching a new car company, it was going to into the battery systems market. What, taking on the established old guard automotive industry isn't enough? You also need to pick a fight with the rapidly growing a hyper-competitive new battery technology crowd? Sounded like a two front war... one that would have stretched company resources to the breaking point.

Enter Marks (replacing former CEO Martin Eberhardt) and exit the battery business. In the company blog, Marks makes clear that the focus is on the company's nascent vehicle business.

While tearing up the $43 million contract the company had with Norwegian EV maker Think (careful following the link: annoying audio after the jump) couldn't have been easy, it allows Tesla to concentrate resources on nailing down outstanding issues related to the launch of their roadster and, ultimately, the four doors sedan.

Indonesia Becoming Hot Ethanol Producer

By now, everyone is more or less familiar with Brazil's position as a leading supplier of sugar-based ethanol. The country has leveraged its immense sugar cane production into a fuel economy that's been in place since 1975.

Not surprisingly, that's recently caused a couple of names to come calling. The President was in Brazil talking up the possibility of an ethanol pact last March, with an eye undoubtedly looking to the possibility of creating the biofuel equivalent of OPEC.

On the heels of this visit, agribusiness giant Arthur Daniels Midland (ADM) announced it was getting into Brazil's sugar can market (previously blogged here) either through development or acquisition. Given the weakness of the current corn ethanol market in the US (high corn prices, abundance of small ethanol producers), accessing Brazil's sugar cane crop makes sense for a long term strategy to guard against price fluctuations.

But even with all that sugarcane and technical expertise, Brazil cannot come close to meeting US energy needs. Which leads us to .... Indonesia.

Shortly after US-Brazil ethanol pact, Brazil entered into a relationship with the Indonesian government to provide technical expertise in developing and expanding Indonesia's sugarcane industry. Indonesia already has about 5.5 million acres slated for sugarcane ethanol production, and several Indonesian companies are looking to double (or triple) their holdings. The Indonesian government is also preparing to spend over $1 billion on subsidies towards local farmers, and has already signed agreements with a number of companies to pump another $12 billion into the ethanol industry.

Given this aggressive growth position, Brazil may soon find that it is surpassed by its student...

Propel Biofuels Growth Powered by Coffee?!?

Well, not exactly, but hopefully the headline grabbed your attention...

Companies that are grabbing the most attention in the growing alternative fuels market are fuel developers. Not surprisingly, investors are drawn to the proprietary processes and intellectual property opportunities that promise immense return on investments.

Seattle-based Propel Biofuels, however, is looking to make a name for itself by developing the "last mile" of the biofuels market: getting these new fuels to consumers. Company strategy centers around providing "turn-key" biofuel fueling systems to independent filling stations and non-traditional retail locations. Propel provides equipment, training, marketing at no start up cost to operators.

Two notable Seattle-based companies are intricately intertwined into Propel's future success:

• Imperium Renewables: The leading biodiesel producer (previous posts here and here) provided Propel with a loan to jump start the build out of their distribution strategy. No surprise that Propel will sell Imperium fuel at their stations.
  
• Starbucks: Yes, this is where the coffee headline becomes relevant. In landing $4.75 million in venture funding from @Venture and Nth Power, Propel also got Arthur Rubinfeld as a member of the company’s board of directors. Rubinfeld was previously Executive VP at Starbucks, where he was responsible for the planning and execution of Starbucks’ retail brand design, positioning, real estate, and store growth strategies. With over 3,800 stores worldwide, I suppose he's done a good enough job...

These are, obviously, tremendous assets for Propel. Imperium's leading market position and Rubinfeld's expertise can pay big dividends.

Something to keep your eye on, though. Starbucks became a retail success story by rigorously controlling every aspect of the customer experience, most especially the retail environment. For the time being, Propel is relying on partnerships with independent operators to grow the business. The benefit is access to existing infrastructure. The drawback is an inherent inability to control that all important costumer experience. How well Propel is able to adapt Rubinfeld's expertise is a key issue.

Lifting the Curtain (Barely) on Mobius Power.

OK, so perhaps I'm getting a little obsessive about Mobius Power (don't both following this link to their site: there's nothing there...) But I can't help it. The secretive battery maker is tighter with information than VP Dick Cheney after he's forgotten to take his anti-psychotics.

A couple of tantalizing tidbits have appeared recently, though. To whit:

1. Job Postings on FlipDog. In job listings for Chemical and Process Engineering Techs, the company description specifically mentions Lithium Ion as the root technology. Also, lots of mention of experimentation in the position descriptions, so I guess we can infer that the company is a ways off from commercializing their technology.

2. New Office Space. According to the Contra Costa Times, Mobius is relocating from Sunnyvale to a 12,000 sq. ft. R&D building in Fremont. The broker who arranged the deal is quoted as saying that there are 10 people with the company, but that there are plans to staff up about 30 in short order.

That's it. I know it's not much. But short of sleeping on their stoop... hey now, there's an idea...

Range Fuels Gets First CFO

Fresh on the heels of Telsa's management shakeup comes news that cellulosic ethanol producer Range Fuels has named Dan Hannon to be its first CFO.

Hannon is an experienced energy industry insider, having come to Range from Reliant Energy where he was Sr VP of Finance and Corporate Development. He played a key role in Reliant's IPO, and will undoubtedly be charged with doing the same for Khosla Ventures-backed Range. Prior to Reliant, Hannon spent 10 years with Exxon Mobile in various capacities.

Hannon's ability to transition from major energy companies to a start-up environment will undoubtedly be a key to his success there. Still, coming shortly after the company got the go ahead to build its plant in Georgia, his addition would seem to be a further strengthening of Range's market position.

Managment (and Philosophy) Shake up at Tesla

Word today that Tesla Motors is replacing CEO Martin Eberhardt with early stage investor Michael Marks. Marks is currently with leveraged buyout specialists KKR, but prior to that was the CEO of global electronics services provider Flextronics. (FLEX).

A large part of Telsa's success to this point has been in carving out the a design niche that separates their roadster from the nebbish EVs of the past. It's been positioned as a high performance sports car that just happens to run on electricity (don't kid your self that anyone buying this car is doing so to save the environment: this is a "I-got-one-before-you-did" toy.")

With the installation of Marks as CEO, Telsa is, in effect, saying that style is nice, but now it's time to get down to brass tacks. Consider the interview that Marks gave to BusinessWeek a little over two years ago:

"Design no longer is a competitive advantage. Design is a commodity. Yet design in big companies is just as inefficient as manufacturing and supply-chain management used to be. So brand companies might as well buy the designs for their products off the shelf."

So it looks like Tesla's priorities are changing. The approach to the business will apparently be much more rigorous in terms of outsourcing design and manufacturing. Marks certainly has the chops to make this happen: Flextronics grew from a $93 million company in 1993 to a $14.5 billion company in 2004. He undoubtedly has the connections to make this transition effective.

Oh, I'm sure there will be some grumbling that a bit of the company's 'soul' gets demoted along with Eberhardt, but this would appear to be a necessary step in the long term viavblity of the nascent car maker.

Imperium Renewables is Cruising

Great news for Imperium Renewables (previous post). The biofuel start up recently signed a long term (4 years with a 3 year option) pact with Royal Caribbean Cruises (RCL) to provide the cruise line with biodiesel for the four ships that make harbor in Seattle (the site of Imperium's operations). From Imperium's S-1 filing with the SEC:

"RCCL [will] purchase, at a minimum, approximately 15 million gallons of biodiesel in 2007 and thereafter approximately 18 million gallons of biodiesel annually for four years with an option for a three-year extension. We believe this is the single largest long-term biodiesel sales contract to an end user in the U.S."

Royal Caribbean will also sell it's 7% stake in Imperium's Grey Harbor production facility back to Imperium.

The deal would appear to be a win-win for both companies. The benefits for Imperium are obvious. It provides long term contractually secured revenue for much needed operating income, delivers a large, high profile client to use in future sales initiatives, and showcases (hopefully) the company's ability to deliver products and services to a large commercial entity. For Royal Caribbean, well, let's just say the the cruise industry isn't exactly known for its "tread- lightly-on-the-environment" approach. Using biofuels to generate even a small portion of ship power can only help.

Still, Imperium's got a long way to go before it's all milk and honey for the company. Key issues will include:

• Crop reliance and expense: The company produces fuels from 3 main feedstock oils: soy, canola and palm. Increasing competition and unpredictable yields require that the company explore greater diversity and cheaper sources (these already occupy 60 - 70% of cost of sales. ADM is moving aggressively in this direction by gobbling up corn production infrastructure in Illinois.
  
• Production facility: Increasing production capability in major port and transportation centers is key. Seattle is hell and gone from everywhere.
  
• Diversify customer base: Royal Carribean is a great customer. Hopefully it will serve as a catalyst for securing others.

Still, if you're looking for a market leader in the biofuels space, Imperium is as good as it gets. Their management team is still solid and they've raised over $200 million in venture funding. Perhaps they'll leave the choppy waters and head out to smooth sailing in the near term.

ZAP Struggles for Relevance

Poor ZAP Auto (ZAAP). Given a big head start (founded in 1992) in the race to develop alternative transportation systems, ZAP is getting lapped by relatively new entries into the market like Tesla Motors and Phoenix Motorcars.

Part of this problem is of their own making. The company is notorious for not delivering on promises. Witness the questionable decision to begin selling the Smart car without:

• Permission from brand owner Daimler-Chrysler;
• Approval from National Highway Traffic Safety Administration

No surprisingly, the resulting struggles left most people with certain lack of the faith in the company. Not that CEO Steve Schneider believes this is unjustified:

"Certainly, it would appear from a public standpoint we over-promised and under-delivered."

Not the kind of statement that rallies employees. Or investors.

Give ZAP credit, though: they're not going down without a fight. In recent months the company has:

• Announced development of a crossover type vehicle with Lotus that is theoretically capable of 644 hp, a top speed of 155 mph, and a range of 350 miles on a charge. Oh, and it'll charge in 10 minutes.
• Announced ANOTHER prototype car designed to compete directly with Tesla's roadster. Though it was announced after the aforementioned crossover vehicle, it is supposed to be ready prior, and cost around $30,000.
  
• Ordered $5 million+ of polymer lithium-ion batteries from China's Advanced Battery Technologies (ABAT.OB), the first order ABAT has had from a US company. The batteries will at first be used for testing in "a range of Zap vehicles."
• Launched their new corporate mascot: "Pluggy".
  

Now, I love mascots as much of the next guy. But it seems to me that if your company has a hard won reputation of not delivering on its promises, time would be better spent focusing on the core business model and producing a product that people will want to buy and can compete with in a rapidly growing market segment.

Until then, ZAP's relevance will always be in question.

Peel Power: Citrus Power LLC and FPL Strike Ethanol Pact

You remember Mr. Fusion, right? At the end of the first Back to the Future movie, Doc Brown re-appears and takes Marty McFly to the future. Before they can leave, however, he has to fuel up the modified DeLorean by dropping a banana peel into the Mr Fusion he's installed on the car. Presumably, the organic matter in the peel provides the energy required for time travel (1.21 gigawatts if memory serves).

Well, apparently the folks at Citrus Power, LLC are fans of the trilogy. Or at least a derivative of it.

As the name would imply, Florida-based Citrus Power is focusing on using discarded citrus peel as the feedstock for ethanol conversion. On the surface it makes wonderful sense. In 2006, Florida produced 287 million boxes of citrus. The juicing process produced approximately 5 million tons of wet waste and 1.25 million tons of dry waste. This would put potential production at around 120 million gallons of ethanol per year.

The state of Florida, anxious to create new industrial segment based on the region's biggest crop, recently provided Citrus Power with a $2.5 million grant through the state's Department of Energy. ( The federal DoE has also funded research in the area, providing $134,000 to Renewable Spirits to build out their citrus-to-fuel technology.)

Citrus Power also has a true believer, apparently, in FPL Energy, a subsidiary of FPL Group (NYSE:FPL). FPL recently signed a letter of intent with Citrus to develop a commercial scale citrus peel-to-ethanol plant. They are targeting an output of 4 million gallons of fuel.

I love the idea of closed loop systems: the Tyson-Syntroleum partnership I wrote about here is another example. I love non-food source systems as well, as you avoid the ethical dilemma of re-routing food to fuel.

Citrus Power, however, leaves me wanting. Management team bios are long on generalities and short on detailed experience. The founder is a former computer engineer who previously worked at Renewable Spirits (which led to a recently resolved lawsuit). They are 5 employees.

So in terms of long term strategy, the best bet would seem to be holding on until a larger player comes along to purchase Citrus Power as part of an industry consolidation play. Otherwise, potential investors may want to head back to the future to recoup their investments.

China Says No to Corn Based Ethanol

According to the China Daily, China will eliminate corn as a feedstock for biofuels within the next 5 years. In corn's place, Chinese fuel producers will use sorghum, cassava and sweet potato, all higher yield plants that are not a staple food in the Chinese diet. From the article:

Part of the government’s efforts to develop bio-fuel without harming general food supply and security, the shift will ensure a healthy supply of corn both as food and fodder.

No big surprise, right? The rapidly growing and increasingly financially capable Chinese population needs to be fed, so diverting corn from food and fodder to fuel is by itself a risky gamble.

Add to this that last year China began importing US corn for the first time in 22 years, the result of tightening domestic supplies of grain. With escalating competition between the US and China almost assuredly the script that we'll all be reading from for the foreseeable future, there's no way China is going to put even a microscopic portion of their energy security in US hands and fields.

Right or wrong, the US market for corn-based ethanol certainly has a lot of room to grow domestically. There are too many politicians and investors right now with too much to lose and gain (respectively) but not allowing that to happen.

But for those who get this dreamy look in their eyes envisioning a OPEC-style corn ethanol cartel driven by the US, I have bad news: one of your biggest potential customers is missing.

Diversa + Celunol = Verenium

Peanut Butter and Jelly. Gin and tonic. Laverne and Shirley. All examples of things that are ho-hum on their own but exceptional when put together.

Perhaps it's time to add Diversa and Celunol to the list.

Last month the two companies completed their merger and launched the new company as Verenium (VRNM). On the surface, the move seems to be a smart combination of compatible expertise: Massachusetts-based Celunol has been working on non-feedstock (cellulostic) sources of ethanol. Over on the Left Coast, California-based Diversa's focus is on producing enzymes designed to speed various industrial reactions.

The primary challenge with cellulostic ethanol, of course, is that the cell walls of agricultural waste (the target source for Celunol) are notoriously tough to break down. The hope is that Diversa's patented enzymes will speed this process. By acquiring Celunol's expertise in biofuel systems, Diversa (now Verenium) immediately becomes a potential leader in this burgeoning industry. A pilot facility in Jennings, LA will shortly be joined by a demonstration scale facility.

On the heels of the merger being finalized, Verenium confirmed that it is a member of a team led by Oak Ridge National Laboratory that won a bid from the DoE for a $125 million research center that will seek new ways to produce biofuels. As part of the group, Verenium will receive $4.6 million over 5 years "to discover and develop new enzymes and enzyme cocktails to break down various types of biomass."

The US federal government is a big believer in this market, and continues to advocate for more renewable fuels. The Senate recently passed a bill that would increase the 7.5-billion-gallon renewable fuel standard to 36 billion gallons by 2022 . Verenium is well positioned to grab a portion of this potentially $70 billion market.

It's not all milk and honey (yet another good combination...) Other companies are moving quickly in this space as well (Range Fuels and Iogen, to name two), so Verenium will have to move quickly to smooth out any rough edges of the merger and capitalize on the promise of their combined expertise.

Still, if they execute, Verenium will undoubtedly produce an abundance of dollars and cents (ok, I know, enough already...)

PHEV Converters: Great idea, Not Sustainable

Lots of news about PHEVs these days:

• Ford and Southern California Edison are announcing today a partnership to examine customer usage of PHEV modified Ford Escapes. Ford apparently hopes that focusing on the Escape (rather than a concept car like the Chevrolet Volt) will allow them to bring a PHEV to mass market more quickly.
• The federal government continues to bat around a number of ideas on how to spark development in PHEVs. For example, the House included provisions in the recently debated DRIVE Act aimed at providing for 5,000 PHEV conversions in 5 test locations.

So it appears the PHEV gold rush of the early 21st century is officially on. While the main automakers slowly move their behemoth operations to fill this rapidly expanding niche, several after market PHEV conversion operations have spring to life. These include:

• EnergyCS: One of the first players in this space. Like most PHEV converters, focuses primarily on the Prius with lithium ion technology.
  
• Hybrid-Plus: Lithium-ion conversions. In addition to the Prius, also offering Fortd Escape conversions. While most converters target fleets, Hybrids-Plus targets individuals as well.
• Hymotion: Recently acquired by much ballyhooed A123 Systems. (Admittedly, I'm guilty of abetting the ballyhooing). Canadian-based company converts both Priuses and Escapes for fleets. Will start offering conversions for individuals in 2008.
  
• EDrive Systems: Uses technology originally developed by EnergyCS. Not yet installing.
  
• Green Car Company: A relative new player in this space. PHEV conversions are one of several alt fuel conversions products. Uses lead acid batteries.

That's not a complete list I'm sure, and there will be new additions on a regular basis.

But is it worthwhile from a business perspective? I'm not so sure, for a couple of reasons.

• Market: Most of the converters are focused on the broad swath of Prius owners as their target audience, figuring that these early adopters will be willing to pony up for a product that dramatically extends the range of their vehicles. But with manufacturer built solutions about 3-5 years away, my impression is that the vast majority of owners will wait for one of these. These cars will provide the personal statement that early adopters are seeking (the main reason people buy a Prius in the first place) that a converted car cannot provide.
  
• Expense: Conversion aren't cheap. Baseline at present is $10,000 USD. Will the mass market use those funds to convert an older car or use it as a down payment on a newer one when it becomes available.
• Bandwidth: Converters are small companies. By the time they effectively ramp up to deal with potential demand (for both installation and service), the big players will be that much closer to roll out their own products. Which, by the way, will be supported by their existing warranty and service infrastructure.
  

PHEV converters have played an invaluable role in drawing attention to the promise of these vehicles, and have spurred major automakers to really commit to the development of PHEVs.
Unfortunately, the long terms viability of these companies remains in doubt.

More batteries: Mysterious Mobius and Fascinating Firefly

No matter what fuel or technology you're interested in or advocating for, there's one thing they all have in common: a need for advanced batteries. Extending the range of a vehicle to enhance efficiency and reduce emissions demands an advanced battery system. Doesn't matter if it's fueled by ethanol, hydrogen, electricity, or cow manure.

As a result, some of the most interesting advances are coming from battery start ups. (Consequently, a ton of money is pouring in here as well.) Here's a couple more to keep an eye on.

Mobius Power
I just read on Venture Beat that a battery maker named Mobius Power just raised $4.5 million in venture funding. No description of the technology appeared. Oddly, the announcement included the following statement from Wade Woodson of Sigma Partners, one of the investors: the company is “too unformed to be interesting.”

Which can mean only one thing, perhaps: that the company is very interesting, and there's some objective to downplaying it at this time.

The company website is a placeholder. Not much else to speak of on the web. Very stealthy.

Firefly Energy
A spin off from heavy equipment maker Caterpillar, Firefly Energy is breathing new life into an old battery technology: lead acid. The company uses a patented process that replaces the traditional lead plates of a lead acid battery with a carbon or graphite foam. With a greater surface area, the foam increases energy interaction leading to greater capacity and reduced charge time.

By combining new tech with old tech, Firefly is theoretically able to produce a well performing product at an aggressive price point: about $100 - $150 per kilowatt hour (at least according to company spokespeople...) Compare that to ~ $800 per kilowatt hour for NiMH, and ~$1,000 for Lithium Ion. Now these cost estimates swing widely based on purchase volume and quality of product, but you start to get the idea.

Don Hillebrand leads research regarding hybrids and PHEVs for the Argonne National Laboratory, and he seems ready for coronate the Firefly product, calling it "potentially game-changing technology."

Others apparently think so, too. Electrolux is both an investor and customer (for brands including Husqvarna, Poulan, and Weed Eater). British Aerospace company BAE is also an investor.

Range Fuels Gets Go Ahead from Georgia

The state of Georgia has permitted start-up Range Fuels to begin construction on a cellulostic ethanol plant capable of up to 100 million gallons per year. The plant should be up and running in 2008 (excluding the almost certain delays).

The plant (really Phase 1 in a larger development process) will initially be capable of 20 million gallons. The primary stock will be wood waste from Georgia's pine forests, but conversion is not limited to wood. Range claims it can gasify biomass waste from other sources as well, including agricultural wastes, grasses, cornstalks, hog manure, municipal garbage, sawdust and paper pulp. Catalysts then convert the resulting syngas to ethanol.

Certainly, creating a viable ethanol product from a diverse source pool of is more compelling than the typical corn-based approach. It provides a certain level of immunity to the vagaries of a corn harvest, specifically the inevitable boom-bust cycles that will wreak havoc on ethanol prices. A diversified source supply allows the Range product to covert the most cost-effective supply of materials.

Range is a bit of darling in the ethanol space (earlier post), and this development certainly won't hurt. Range is backed primarily by Khosla Ventures, which has placed big bets in ethanol. Add in $76 million from the Dept of Energy to build this pilot plant, and things look fairly rosy.

Syntroleum: Fat is good

Syntroleum, a company perhaps best known for their coal-to-liquids conversion technologies (as bizarre an alternative fuel as there possibly is, but that's another story), recently announced it's getting into the fat-to-fuel business with leading meat processor Tyson Foods.

The stated objective for the partnership is to produce 75 million gallons of diesel and jet fuel (!) from cow, pig and chicken waste fat. The plant is to come online in 2010.

For Tyson, this is big step number two in their attempt to enter the alternative fuels market. Tyson, you might remember, recently launched a similar partnership with petroleum giant CononoPhillips (which I blogged on here.) It's an intriguing tactic in that it is taking a byproduct that is quite literally waste and transforming it into a commodity (versus re-tasking a food stock grain such as corn into ethanol, which, incidentally, just gets less appealing by the day... see this BBC article.)

For Syntroleum, the early returns say it all: stock value increased 12% in the day following the announcement. Things have cooled off a bit since, but Syntroleum isn't going away anytime soon. In addition to its new Tyson deal, the company has some proprietary technology in converting natural gas into diesel that has attracted the attention of the Department of Energy and Marathon Oil. I figure this quote from Hillary Kramer at Seeking Alpha says it all:

Syntroleum’s gas-to-liquid technology is patented, it is developing coal-to-liquids, and if it can get plants off the ground smoothly, it should fly high. Further, this an acquisition target: a great option for a larger energy company looking to acquire this cutting edge technology, and if acquired, imagine the upside to the stock under those circumstances.

Certainly Syntroleum is no sure thing, but if you're looking for early stage alt fuel investment opportunities, its certainly worthy of consideration.

Ethanol from Corn Continues to Underwhelm

I've been accused in the past of being a bit of an ethanol basher. That's not true. Ethanol has some potential, provided it's not made from corn.

It's the corn thing that gives me pause. The ethics involved with moving food to fuel, the global impact on rising corn demand on food prices, and questionable energy capability of the kernel make corn (at least in my humble opinion) a less than thrilling alternative fuel source.

Now add to the equation the fact that the price of corn and crude oil have merged. Good article in the Economist on this topic recently. It references Jeff Currie of Goldman Sachs, opinion that planting more corn will not reduce its price:

Since high oil prices and generous government subsidies ensure that biofuels are profitable, any extra grain will be used to make more of the stuff. That will not dent the oil price, since the volumes remain tiny compared with global oil consumption. Instead, the price of biofuels has risen to that of petrol, and the price of corn and crude oil, the main feedstocks for the two, have converged. For grain prices to fall, Mr Currie argues, either governments must pull the plug on biofuels programmes, or the oil price must fall.

Now, is this going to stop people from investing in a corn-based ethanol future? Not a chance. Too much lobbying in the US from agribusiness and financial groups who have staked large bets on corn for it to go away. But as people realize that the performance of corn is underwhelming and does not compete on price, opportunities will arise for other alternatives.

ADM goes to Brazil

I usually try to focus on new companies in this blog. It's where the greatest amount of innovation is taking place, and (frankly) I find the topic more interesting.

But when global agriculture heavyweight ADM says it's headed to Brazil to enter the sugar cane market, it's worth taking notice. According to the Wall Street Journal, the company is exploring different entry strategies, from greenfield development to acquisitions. This could include the outright purchase of Cosan, Brazil's largest sugar and ethanol producer (market capitalization of about ~ $3.5 billion USD). That's about all ADM executives are saying at this point.

If, as expected, ADM uses Brazil investments to serve as a base for exports to the US, has the potential to radically reshape the nascent ethanol market (which in the US is so heavily linked to corn.) That, and it's going to make everyone who has invested so heavily into corn-based ethanol a little nervous.

UQM is Motorin'

Let's review the last several months for UQM Technologies, maker of propulsion systems for the growing electric vehicle market.

• Phoenix Motorcars orders $9.25 million of UQM motors for Phoenix's new all electric SUT.
• Forms strategic alliance with advanced battery maker Altairnano, one of the fastest risers in this critical market space.
  
• Obtains over $1.7 million in two separate contracts from the US Air Force.
• Announces development of a new 150kw motor ready for use in high performance vehicles (are you reading this Tesla?) and heavy duty commercial/military vehicles.
  

UQM has over 25 years of experience developing electric power systems for advanced vehicles. They've got proven contacts in both military and civilian markets. Their technology is proven, and is advancing.

As developers of next-gen EVs look for suppliers of motor systems, the safe bet is that UQM will be on their short list.

All Charged Up: Quick Battery Update

Lots happening with some of the leading makers of advanced batteries targeted for the transportation industry.

• A123: GM announced the winners of their Volt battery beauty pageant, and Germany-based Continental Automotive Systems, a division of Continental AG, was one of the two winners. A123 supplies Continental with their battery technology. GM will evaluate battery product through June 2008, and then make a determination of how to best to move forward.

• Compact Power, Inc. (CPI): CPI is the other GM pageant winner. Based in Troy, MI, CPI is owned by Korean battery maker LG Chem. CPI's large format batteries use a proprietary formula that apparently can withstand 300K recharge cycles. The company further claims a 15 year product life span. Key point: LG Chem will develop and supply all the batteries; CPI is only responsible for design and assembly of the cell packs that will be supplied to GM. Essentially the opposite of the relationship between A123 and Continental AG.
  

• Altairnano: The good news for Altairnano is that performance claims surrounding their batteries were recently verified for the California Air Resources Board by AeroVironoment. AV ran "50 ten-minute fast charging cycles at the module level with a 120-minute discharge to simulate travel at 60 mph" with no battery degradation at all. The findings seem to confirm Altairnano's claim that the battery should be "good for tens of thousands of cycles equivalent to 500,000 miles of vehicle travel." Also, looks like the folks at Altairnano found their Tesla. London-based Lightening Car Company will produce an EV sports car using Altairnano's NanoSafe batteries. At a cost of close to $300K US, it's not going to be a big seller. But, then, no one expects the Tesla Roadster to gain wide market share either. The purpose of an exotic is to draw attention to a technology that will eventually find broader application.
  

Solazyme: Small Product, Big Business

Solazyme seems to be on a bit of roll. This maker of bio-engineered algae stocks recently signed a production and distribution agreement with Imperium Renewables, the leading biofuel company on the US West Coast. (A previous post on Imperium is here.) Solazyme will use their proprietary algae strains to produce feedstock oil for Imperium, who will then convert it to biodiesel.

The agreement comes on the heels of the company's recent completion of Series B funding. The Roda Group and Harris &Harris Group are lead investors.

I suspect that that Solazyme will not have too much trouble raising additional capital in the near future. The company can lure potential funders with a line baited with a business model that is positively redolent with investors' current favorite flavors: biotechnology and alternative energy.

Frankly, it's great to see a company that combines the potential of algae-based bio-fuels with an apparent keen business sense. Other players in this area have suspect business plans or questionable histories.

Is there a lot of work left to do before biodiesel derived from algae is commercially viable? Without question. (See great post on R-Squared Energy blog for algae-to-biofuel hurdles.) However, with it's growing investor population, strategic partnerships, and varied product line (i.e. not wholly focused on energy), Solazyme stands to be able to weather any future storms.

Iogen: Cellulosic ethanol from the Great White North

Cellulosic ethanol pioneer Iogen is currently converting 40 tons of wheat straw per day into ethanol at a demonstration facility, prompting this quote from Elizabeth May, Executive Director of the Sierra Club Canada:

"Iogen has figured out how to weave gold out of straw."

Rumpelstiltskin metaphors aside, it's a statement that's only marginally hyperbolic. To whit, consider the company's recent investors (all figures in USD):

• Goldman Sachs: $30 million
  
• Petro Canada: $24.7 million
• Royal Dutch Shell: $46 million

The funding will be used to expand the company's commercialization of their technology. Interesting to note: this does NOT include building more facilities. Rather, the company is going to concentrate on what it knows best: licensing their technology and patented enzymes to ethanol producers. Given the explosion in plant construction in the American Midwest, there's going to be no shortage of potential customers.

Established in 1974, Iogen has an history in developing enzymes for commercial use. In addition to fuels, the company addresses enzymatic needs in sectors including animal feeds , textiles , and pulp and paper business. The company first began working with cellulostic ethanol in the 90's, and now it appears the work is paying off.

Strong financial backing from both institutional and industry investors, broad industry expertise and experience, and a low overhead business model combine to suggest that Iogen will continue to play Rumpelstiltskin in the alternative fuel markets.

A123: The Company They Keep

Had a chance to attend a conference put on by GE last week that centered around their Ecomagination campaign/business initiative. The centerpiece of the event was a press event hosted by GE CEO Jeff Immelt. Jeff was joined on stage by leaders from other companies that are in the process of "greening" their businesses to various degrees. The panel of 10 included Lewis Gillies of BP, Charles Zimmerman of WalMart, and Jim Young of Union Pacific.

Oh, and David Vieau of battery maker A123 Systems.

While Vieau didn't make any dramatic announcements during the event, his presence was notable in that he was positioned as the de-facto leader in the advance vehicle technology sector. Additionally, his ability to network with other business leaders at events like this will only solidify A123 positioning in the market. Other battery makers (Altairnano, Lithium Tech Corp, etc.) will be struggling to keep pace with A123 business capabilities, even is they have superior technology.

Lithium Technology Corp: Some pics.

I wrote about Lithium Technology Corp not too long ago. The father of the PHEV, Dr Andrew Frank of UC Davis, had some nice things to say about their battery technology.

included here. Interesting to note that the battery pack, which LTC claims (througLTC recently posted pictures of their battery packs, which I'veh assumption based on smaller pack performance) could support fuel economy of up to 125 miles per gallon, is meant to replace the OEM battery. Most other conversions systems I've read about / seen supplement the existing on-board battery.

Next steps including further testing of the pack performance in the converted vehicle. Here's a link to the release.

Ethanol: Ripples of Corn

The Center for Agricultural and Rural Development @ Iowa State University is forecasting a long term increase in corn prices. Here's their full report.

Well, no surprise there. The explosion in ethanol plant building and record corn prices have been reported on widely. A couple of interesting points, though:

1. Sacrificing Soybeans: To keep up with increased ethanol demand, US farmers are expected to grow their acreage to 94 million acres. Farmers will most likely replace their soybeans crops with corn to do so. The irony, of course, is that the soybean is a more efficient feed stock source of biofuel at a rate of about 3:1. But don't get me started on this, as I've already commented on it here and here.
2. Ripple Effect: No surprise with all that corn headed to fuel, other parts of the economy will be significantly impacted. Inevitable higher feed costs for livestock would increase US food prices by an estimated 1.1% over baseline. Specifically, meat and poultry would jump by 4% and eggs by 8%.
   
3. Cellulostic Fantasy: The much ballyhooed cellulostic ethanol is essential dismissed out of hand for the simple reason that the authors do not envision economic feasibility in the long term for farmers. Too expensive to haul corn stover over long distances to a commercial production facilities, apparently.
   

Admittedly, much of the report reads like a statement of the obvious, but it's worth a read.

Lithium Technology Corp: Battery Tech Darkhorse?

Trying to keep up with developments in battery technology these is a little like being the circus act where the guy spins dishes at the end of long poles: every time you pay attention to one area, a new development takes place somewhere else.

An announcement today from Lithium Technology, however, made me take notice not so much because of what it said, but for who said it.

Lithium (OTC symbol: LTHU.PK) released information about a new line of large format battery cells using lithium iron phosphate technology. Interesting, yes, but the company release features a quote/testimonial from Dr. Andy Frank of the University of California, Davis. (Dr Frank is widely recognized as the creator of the Plug In Hybrid concept, and has approximately 20 - 25 years of research in the field.) So, understandably, when he makes a quote like the following, it's worth taking notice:

"Batteries made of LTC's cells can provide 3000 charging cycles, which would be able to do 150,000 miles to 80% capacity for a 100 km or 60 mile all electric range plug in hybrid, which no other technology can claim. The new cells... provide improved safety with the iron phosphate chemistry while delivering the impeccable performance they are known for, which is what the auto makers have been in search of; this is a Company that is seriously committed to making hybrid, plug-in hybrid and electric vehicles an affordable reality for the consumer."

It's worth noting that LTC has supported Dr. Frank's research in the past by supplying battery packs used in build competitions such as Challenge X, so there's obviously a history there.

However, even with that minor caveat, I'd still recommend keeping an eye on developments related to LTC.

Friday Round Up: Some old friends...

Worth noting a couple of news items featuring some folks we've blogged on in the past.

GreenStar Products (view previous entry) recently completed "Phase 1" of a demonstration facility for their algae to biofuel technology process. The objective of Phase 1, apparently, was to determine if they were able to sufficiently control H2O quality (temperature, salinity, ph, etc.) to create an optimal growth environment for algae stocks. Here's a link to the (long) GreenStar press release that includes a couple of pictures of the test facility.

I've got some issues with GreenStar (which you can review in that previous post), but algae conversion to biofuel is an interesting opportunity to bears watching. Hope the company gets it's stuff together.

Tesla Motors scored another $45 million in series D financing. The capital will be used for further development of the White Star EV passenger sedan, developing sales and service infrastructure, and mass production of the Dark Star Roadster.

Seems like that's a lot to ask of $45 million. Keep a look out for Series E...

Impressive Imperium?

Here's what I like about Imperium Renewables, the Seattle based manufacturer of biodiesel products:

• They're well funded: To the tune of $214 million last February. According to Clean Edge, the equity round is one of the largest private equity investments in a US-based biodiesel company, and one of the top five single investments in a renewable energy company ever. The money is earmarked for plant development aimed at boosting capacity.
  
• Blended skills: Management has a blend of start up and energy experience. CEO Martin Tobias comes from Microsoft, digital media start ups, and (most recently) venture capital firm Ignition Partners. President John Plaza has the background in biofuels that is complemented by an advisory board comprised of chemical and petroleum experts.
  
• A better (though maybe not best) fuel source: Imperium forged a relationship with Washington state-based grower Natural Selection Farms to supply enough canola to produce 1 million gallons of biodiesel. With a yield potential of about 140 gallons per acre , canola far outstrips traditional sources such as soy (~48 gallons per acre). Only palm oil and algae have more potential (see earlier post). The fact that the oil comes from a local producer only increases the efficiency of the product.
  
• Friends in the right places: Speaker of the House Nancy Pelosi recently stopped by for a visit. Can't hurt, right?

Plans for expansion are progressing, as plans for plants in Argentina and Hawaii have been submitted and are awaiting approval.

Rosy Projections for Advanced Battery Makers

The axiom about supplying picks and shovels to miners as the pathway to financial success seems to be playing out for advanced battery makers as well...

According to The 2007 Advanced Automotive Battery Industry Report, global sales of hybrid vehicles, estimated at 384,000 vehicles in 2006, will reach 1.1 million units in 2010 and 2 million units by 2015. Sales are obviously contingent on a number of factors (continued high oil prices, HEV model availability, etc) but the need for capable batteries looks significant.

Currently, that means nickel metal hydride batteries, but that looks to change. The author of the report, battery expert Dr. Menahem Anderman, suspects that NiMH batteries will continue to capture a dominant part of the market for the immediate future, but that adoption of lithium ion batteries will row rapidly, moving from a projected 5% of market share in 2010 to 36% in 2015.

Dominant NiMH suppliers Panasonic and Sanyo are rapidly developing their lithium ion capability, but are being chased by advanced battery technology being supplied by new companies using nano-technology techniques like Altairnano, A123, and others.

As these new companies to capture the business of automakers (e.g. A123 with GM, and Altairnano with start up Phoenix Motorcars), we could be looking at a new chain of dominant suppliers.

Startech Environmental: Waste Gasification

I've had been poking around the edges of waste gasification technologies for a bit for a couple of reasons:

1. I'm trying to understand how it works.
2. Fuel from garbage? Cool.

Startech (STHK.ob) is a good example of this kind of technology (so is SkyGas). Essentially, they are using a plasma arc at temperatures of over 30K degrees Fahrenheit to 'molecularly disassociate' (aka completely incinerate) any kind of solid waste to produce 2 byproducts: gas that can be used as a fuel and a super hard stone. At these temperatures, you can pour just anything with carbon in it into a reaction chamber to produce the gas; sludge, garbage, even highly toxic materials get completely molecularly disassociated (yes, I just like to use the phrase... I'm looking forward to throwing it out at a cocktail party...) Furthermore, Startech has licensed technology that isolates hydrogen from the gas products, and plans to sell that in the coming hydrogen economy.

Nice, yes? Time to put StarTech on a watch list? Well...

First, read this excellently detailed post from David Miller of Seeking Alpha. He isolates the challenges faced by Startech as follows:

• Limited board experience: The board of directors has virtually no experience in the market place. Company founder Joe Longo has the most relevant business experience, and that's in waste management.
  
• Reliance on hydrogen in business model: It's going to be a looooooong while before there's a payoff with hydrogen fuel systems.
• Expense acceleration: No argument here about the benefits of disposing of toxic wastes. But storage, transportation, permitting, etc are time consuming and expensive.
  

Furthermore, there's questions regarding ultimately efficiency of this type of technology. Reed Benet at the UC Davis Institute of Transportation Studies, who is working on an exothermic variant:

"They essentially make artificial lightening to create high temperatures to gasify lots of things. It’s all great until you consider the huge amount of external electricity you need to use to create artificial lightening. I’ve seen 7% efficiencies for these type of things..."

Not to say that's necessarily the case with Startech. Something to consider, however.

Easy as A123? Maybe not so much.

David Vieau, the CEO of A123 Systems, recently testified before the US Senate Committee on Finance abut the future of advanced vehicles. A significant part of his testimony focused on a recent decision to partner with Hymotion to to develop and sell range extension conversion kits to owners of existing hybrid vehicles.

Now, the folks at A123 are smart folks (I've said as much previously). Far be it from me to critique a bunch of MIT professors and the like; engaging them in a battle of wits would be like sending me into a knife fight with a feather duster.

But with all the major car makers racing to be the first to produce PHEVs (with A123 supplying the battery technology to GM), my sense is that the crop of after market conversion suppliers will shortly be irrelevant.

Vieau points to the fact that there are will be 1 million HEVs on the road by the end of the year, and perhaps 5 million by 2010. OK, that's a lot of cars.

But at a cost of $10,000 (less a purported $3,500 tax credit), the average consumer is going to balk at the cost. Furthermore, manufacturers will almost certainly be close to launching their own PHEVs by 2010. It's reasonable to expect, I think, that a significant portion of hybrid owners will be more interested in upgrading to a new PHEV versus converting their old HEV.

Is there a market for after market conversion? The numbers on the surface seem compelling. But I'd be surprised if 1% of those projected 5 million actually pursued conversion.

Alt Fuels: Not Ready for Private Equity Primetime?

Interesting article out of U Penn's Wharton School of Business about the role of private equity and energy. The basic premise: while the energy sector is experiencing unprecedented interest from private equity investors, it's doubtful that alternative fuels will. At least at this point.

No surprise why private equity is moving into 'traditional' energy. The article lists the following data supplied by the U.S. Energy Information Administration:

• World oil prices will be 35% higher in 2025 than was projected in 2005.
• World economic growth is increasing at an average annual rate of 3.8% over the period through 2030.
• World energy consumption is expected to expand 71% by 2030. (From 421 quadrillion BTU in 2003 to 722 quadrillion BTU in 2030).

According to Jonathan Farber, cofounder of energy specializing private equity firm Lime Rock Partners energy: "In 1998, there were just five or six other private equity firms in the energy business with about $2 billion worth of capital invested. Now, there are 15 to 20 competing firms with $30 billion invested in the industry."

Makes the $32 billion spent by the consortium of private equity groups led by Kohlberg Kravis Roberts to acquire Texas based energy supplier TXU Corp seem pretty straightforward.

Alternative fuel companies shouldn't hold their breath for an onslaught of private equity $, however. Here's why, according to Bill Macaulay, chairman of First Reserve Corp., a 25-year-old private equity firm focused on energy:

"Alternative energy investments may be attractive for smaller firms or venture capitalists, but they are unlikely to attract classic buyout artists because there is often little, if any, cash flow to pay down debt. Alternative energy is [also] extremely price sensitive... you need high prices to justify almost any alternative."

Tesla: I Don't Get It

Apologies: I know I just posted on Tesla recently. But something's bugging me.

Far be it from me to denigrate the great job that Tesla has done so far with their roadster. They figured out one of the great issues related to EVs: there's no significant market for a electric far that looks goofy. Their roadster, despite a recent drop in estimated total range, is a sexy, exciting high performance car that has changed the way people look at EVs. Yeah, the phrase is tired, but it's a paradigm shift for electrics.

But I can't figure out their marketing plan to save my life. Reading the company blogs related to marketing, you learn that the company is taking the car on a road show. In addition to showcasing the vehicles to suppliers, Tesla staff are visiting car shows, Earth Day events, and all manner of grassroots car events and organizations.

On the surface, this is a HUGE waste of time and money. Taking the Tesla roadster to an Earth Day event is like trying to sell hamburgers to Hindus: wrong market. Yes, environmentally conscious audiences will lust for the car. But it's a long trip from lust to purchase.

Tesla needs to go back to what makes the roadster so compelling in the first place: it's a limited edition, high performance, attractive car that attracts attention. It's aspirational. It's expensive. It just happens to be an EV. This electric status sets it apart from competitors like Porsche, BMW, and the other high end performers that Tesla should be considering competitors.

Marketing plans should be adjusted accordingly. Opening boutique "showrooms" on the most exclusive shopping districts in the US : Rodeo Drive, Park Avenue, the Miracle Mile, etc. Marketing partnerships with other aspirational brands: Rolex, Coach, etc.

With the roadster entrenched as an object of desire, future releases planned for the rest of us will enjoy the roadster's halo effect. That's the pathway to future economic success.

Ethanol: Khosla is at it again

Khosla Ventures has staked claim to a leadership position among VCs active in the emerging fuels, particularly ethanol. (Not this is any big secret: see founder Vinod Khosla's article in Wired.)

To reinforce the point, Khosla just put $3.5 million into LanzaTech, a New Zealand-based developer of a process that uses fermenting bacteria to convert carbon monoxide into ethanol. From the press release:

"The technology could produce 50 billion gallons of ethanol from the world’s steel mills alone. The technology will also contribute to the production of biofuels from cellulosic feedstocks, as it can convert syngas—comprising hydrogen, carbon monoxide, and carbon dioxide—into ethanol."

The Khosla money will be used for several purposes, most interesting of which is production of a pilot production facility.

Frankly, it's encouraging to see funding support for ethanol production in areas other than corn, which is of questionable value (see earlier post). The LanzaTech solution has a nice closed loop feel to it, and appears to have an experienced group working on the technology (including the former senior scientist from Genentech.)

Should be an interesting one to watch.

Ethanol: What Falling Corn Sounds Like

Scratch the shiny surface of the ethanol "boom", and you get something just beneath that's far less attractive. Don't believe me? Ask Goldman Sachs analyst Arjun N. Murti: he just released a report lowering his stance on biofuels from "Neutral" to "Cautious".

(You might remember Mr. Murti's assertion in the summer of 2005 that we were headed for a "super-spike" in oil prices, potentially as high as $105. At the time oil was trading at ~$45/barrel, and would soon reach over $70 a barrel. No, it didn't reach the lofty heights he predicted, but that's a pretty significant spike nonetheless.)

Why the caution? Pretty simple: dropping ethanol prices and record prices for corn. Not exactly a recipe for success.

The impact of this new caution was pretty quick, and probably best exemplified by VeraSun Energy (VSE). The company announced it is building a sixth processing plant that will raise the company's total output capability to 670 million gallons. Their shares responded by losing 3.6% of their value.

It's pretty apparent , at least to those outside the Midwest, that the future of ethanol does not lie with corn but instead with other, non-feedstock sources. Hopefully the rush by those seeking to curry political favor from the Farm Belt will not trample innovation in developing ethanol from other, technically superior sources.

Autos: Tesla Range In Doubt

File this under "too-good-to-be-true"?

Much has been written about Tesla Motors, the electric car start up that has become synonymous with the recent innovation explosion in alterntive fuels and efficiecy technology. VCs (VantagePoint, Draper Fisher Jurvetson, JP Morgan Bay Area Equity, etc.) and private investors (notably Google co-founders Larry Page and Sergey Brin) have provided the company has been funded to the tune of over $65 million.

Initial range estimates for the company's first roadster model (the Dark Star, pictured here) indicated 250 miles before a required recharge. Following EPA compliance testing, however, that estimate has now dropped to 200 miles. The company attributes this to required added weight for the final production version of the car.

Let's hope that this number doesn't change further. 200 miles of range may still be acceptable to their market. Should it drop below, however, perceptions about the car may begin to shift, impacting the ability to move vehicles after early adopters are sated.