Biodiesel: Green Star Products

I admit it. I like things simple. When something isn't readily transparent or understandable, I get twitchy. My antenna starts to quiver.

Green Star Products (stock: GSPI) makes my antenna quiver. And not just because of their rudimentary website design...

The company recently announced that, with it's "consortium of independent companies" will "begin construction of two demonstration algae-to-biodiesel production facilities in the U.S. and abroad... The Consortium has developed a patent pending proprietary algae processing system and it also has assembled a seven-member research team, which has been in operation at the University of Baja California in Ensenada, Mexico."

Now, I've already written that I love the algae to biodiesel process (see Algae Biofuels posting from 3.27.07). It seems to have a lot more potential than feedstock derived biodiesel. I confident that there will be a sound investment opportunities for companies seeking to leverage related technologies.

Green Star Products does not seem to be one of them, however. Here's some of the gems from their last letter to company shareholders:

• "...we are slightly behind on finishing our financials because, as many of you know, the accounting procedures have become immensely more complex over the last two years due to the Sarbanes Oxley Act."
• "GSPI still owes the IRS approximately $200,000 in back-taxes stemming from an item from 1993. Given the related details GSPI does not see this as a particularly detrimental item in our balance statement."
• [Regarding a fire that destroyed their Bakersfield facility that was not covered by insurance]: "The biodiesel industry is a new industry to all the insurance companies. They have no history and they cannot calculate their exposure. We were diligently pursuing insurance on the Bakersfield plant for a long time. Four days after the fire, we received a proposal, which could have insured the plant for only $300,000!"

The president of the company, Joseph P. LaStella, is listed as the principal point of contact on all press releases. Makes me think this is a pretty small operation.

Admittedly, I haven't talked to anyone from Green Star. It's hard to when your antenna is quivering so much...

Autos: Zap

So Zap is in a pilot program with the city of Richmond to use their all electric XEBRA cars in a fleet setting. The 3 wheeled XEBRA is manufactured in China, and will be sold in the US for about $10K. It apparently has about a 25 mile range and can hit 40 mph.

Good for Zap. But don't run out and gobble up Zap stock just yet.

I've had the opportunity to sit down with members of the Zap team a couple of times in the last 2 years, and have not exactly come away enthusiastic. Like their cars, the management team seems to lack the horsepower needed to make the company go.

Case in point: Zap is the company that figured they'd sell the Smart Car in the US based on a "handshake" agreement with Daimler Chrysler. Then, when D/C decides to sell the car on their own (after then vehicles have been "Americanized" by Penske), Zap is shocked, yes shocked, when they're issued a cease-and-desist related to their own Smart activity.

Needless to say, it's a little hard to find much about the Smart Car on the Zap website these days...

Biodiesel: Algae BioFuels

It gets interesting when discussion turns to making biodiesel from algae rather than plant or feed stocks. Not only do you remove any moral questions regarding the re-tasking of food for fuel, but certain types of algae have the potential to be substantially more productive than plant based alternatives. The below chart (based on a a Univ of New Hampshire study) seems to bear this out.

Gallons of Oil per	Acre per Year
Corn	18
Soybeans	48
Safflower	83
Sunflower	102
Rapeseed	127
Oil Palm	635
Micro Algae	5000-15000

Not surprisingly, many companies are looking to exploit this potential, including Algae Biofuels, a wholly owned subsidiary of PetroSun, Inc. On the surface, PetroSun (PSUD.PK), with their apparent experience in traditional energy markets (they own drilling rights in the US and Australia) has as much as chance as anyone to bring algae-based biodiesel to market.

But penetrating PetroSun's corporate structure is a struggle. PetroSun appears to be owned by the the Cronus Corporation. Web references to Cronus drop off shortly after the acquisition of PetroSun in 1997. A 1997 listing for Cronus indicates an OTC stock for a company with three employees. Information related to the ticker symbol (CRON.PK) is nonexistent. Finally, of the 4 key executives listed in general information for PetroSun, 3 appear to be from the LeBlanc family and the 4th is a former player for the Dallas Cowboys.

Like I said, there's a lot of potential in algae based biofuels. From an investment standpoint, however, I'm unconvinced PetroSun in the place to look for it though...

Autos: Phoenix Motorcars

Phoenix Motorcars of Ontario, California is beginning to market an all electric Sport Utility Truck build on the chassis of a South Korean made truck. The battery pack is supplied by AltairNano (more about them in a future post), and company reps claim that the vehicle has a 130 mile range, and can recharged in 10 minutes (at a 220 volt outlet... longer at the household standard 110.)

Interesting news: Phoenix and Pacific Gas & Electric ( the dominant utility in Northern California and major proponent of electric vehicle and PHEV adoption, for obvious reasons) just announced a pact where PG&E will take delivery of 4 Phoenix SUTs.

Perhaps Phoenix finds success in this niche (fleets). It's somewhat limiting insofar as overall growth (e.g. no immediate mass market product), but it certainly bears keeping the company on your radar.

Ethanol: Range Fuels

Despite all its promise, one prominent concern with ethanol is that it diverts food stocks into fuels stocks. The results of this can be seen in the recent skyrocket in corn prices (about 70% in the last 6 months) resulting from increased speculation in ethanol opportunities.

(Perhaps foreshadowing political issues to come, major protests in Mexico about increases in corn tortilla prices are attributed to renewed American interest in ethanol.)

One possible solution is deriving ethanol from non-corn sources. Privately held Range Fuels is currently perfecting this process, concentrating not on corn but instead on wood chips, plant cellulose, and other "waste" plant sources. The potential benefits are substantial, due primarily to the ability to derive ethanol from the entire plant, not just corn grain.

The Department of Energy apparently sees the potential of Range as well. The DoE recently awarded a grant worth up to $76 million to Range to capitalize construction of a commercial scale production plant in Georgia.

Range is funded primarily by Kholsa Ventures, which has made several large investments in alternative energy start ups.

Batteries: A123 Systems

Plug In Hybrids (PHEV) are a modified version of the hybrids currently on the road. Fundamentally, PHEVs increase the electrical range of a hybrid vehicle by incorporating a larger on-board battery and plug that allows for charging the battery off the electrical grid.

While there a number of benefits associated with PHEVs (see CalCars website for a comprehensive overview), the biggest delimiter appears to be battery capability. The common refrain from auto makers seems to be that they would love the build the vehicles, but existing battery technology is not safe enough, does not have storage capability, and/or is too expensive.

A123 Systems of Waterford, MA is working to overcome these challenges. Their story is reminiscent of Akamai: MIT scientists start company at a key moment of industry growth. By using iron phosphate instead of cobalt oxide, and employing nano-technology in the assembly process, A123 has been able to extract more power from batteries in a safer environment. Good overview article in the New York Times.

A123 has raised more than $100 million in venture funds from several investors, and is currently in neogiation with GM (and others) to provide batteries for next generation hybrids and PHEVs. Product lines also extend to battery intensive applications unrelated to autos, such as power tools and remote control. Not surprisingly, the DoD is also interested in their technology.

There are others in the battery technology category, but A123 has generated the most buzz by far. Much more to come.

Intent

It's no surprise that the auto industry is currently undergoing a sea-change in terms of new technologies and fuels. A perfect storm of issues related to national security, environmentalism, and economics has produced innovation in an area previously overlooked in terms of investment opportunity.

The purpose of this blog is to shine a light on companies and individuals that are leading innovation in the area of alternative fuels and efficiency technologies for the automobile.

For the last 3 years, I have been interviewing entrepreneurs, academics, government organizations, and companies in the alternative fuels and technology fields as part of my work with the American Automobile Association's Greenlight Initiative. It's provided access to information and insights that I hope will prove valuable to people interested in the field.