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.