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.