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.