Rant on Oil, thanks to the NYT

I know this is a bit off topic for this blog, but did you see the article in the New York Times this weekend called American Energy Policy, Asleep at the Spigot? There were several quotes that made me splurt my coffee onto the paper. Here's two of the gems.

Amazing Quote One: Regarding the current state of oil prices ($145 a barrel today), Chevron CEO David O'Reilly had the following to say:

"We can see how you can get to $100. At $140, I just don’t know how to explain it. We’re surprised."

How's that? The CEO of second largest US-based oil producer doesn't have a clue why his product is trading almost $50 over where he thinks it should be?

I'm going to go out on the limb and figure that Mr. O'Reilly has his finger on most of the market forces that are causing the huge run up in prices: limited refining capacity, increased foreign demand, etc. So when he says that the 50% premium that oil is getting over his expectations strikes me as just a little, uh, peculiar?

It's leading me to think that speculation is playing an ever larger role in the recent price jumps. More people are shoving money into oil to turn a quick dollar through commodity investment. Maybe it's wishful thinking on my part, hoping gas will get cheaper when the oil bubble finnaly bursts...

Amazing Quote Two: From Pete Domenici, ranking Republican member of the Senate Energy and Natural Resources Committee and a 36-year veteran of the Senate:

"Much of what we’re seeing today could have been prevented or ameliorated had we chosen to act differently. It was a bipartisan failure to act."

Pick me up off the floor, a member of the United States Senate showing insight and laying blame at his own feet!

If you want villans in government, then look no further than legendary pols Carl Levin and John Dingell of Michigan. So short sighted are these two charlatans, they actually believed they were helping the US auto industry by preventing changes to CAFE standards when every indicator and measusurement proved that $1.50 per gallon oil was unsustainable. Their collective lack of vision is what's costing their state jobs and tax revenue.

Biofuel Bankrupcies? Shocking!

On Friday, Reuters reported on what everyone paying attention to the alternative fuel market already knew: biofuel markers are succumbing to untenable market conditions:

Soaring corn and soy prices on top of rising construction costs and tight credit markets have pushed about a dozen U.S. biofuel plants to file for bankruptcy protection, experts said.

To this equation you can also add the biblical deluge that the Midwest is currently experiencing and intensifying scrutiny of the biofuel vs. food. End result? A bad situation for biofuels is only going to get worse.

Companies succumbing early include Renova Energy LLC and Ethanex Energy Inc. And while bigger and more diversified players are able to avoid the ax to this point, they're being forced to make adjustments that werre unthinkable a year ago. Case in point: industry bellweather VeraSun will delay the opening of three ethanol plants with a total capacity of 330 million gallons per year.

Hey, Vinod, Make Up Your Mind!

I'm leery of making this blog an ongoing rant against grain-based biofuels such as ethanol. But lately there's been to many things to, well, rant about.

You know Vinod Khosla: started Sun Microsystems, made truckload of money, began VC-ing andm recently, has been making large investments in the biofuel start ups.

A couple of years ago, Mr. Khosla was on the leading endge of a rush of investment into ethanol. Now he might be getting a little defensive about those investments.

VK in October 2006.

"Challenges certainly exist with ethanol, but none are insurmountable, and – with apologies to Al Gore – the convenient truth is that corn ethanol is a crucial first step toward kicking our oil addiction."

VK on May 2008:

"Certain food-based biofuels like biodiesel have always been a bad idea. Others like corn ethanol have served a useful purpose and essentially are obsoleting themselves. We have eight or nine companies producing alternatives to corn ethanol that will be dramatically cheaper. And I just don't see how corn ethanol producers stay in business."

No, it's not a complete sea change. But methinks that one of the fellas behind the Silicon Valley "Green Rush" into new fuels is second guessing a bit...

A.E. (After Ethanol)

So, now what?

As the law of unintended consequences comes into play, the bloom is officially coming off of corn ethanol. A quick recap of some of the big reasons why:

1. Food Riots: Food prices are through the roof all over the world. Food riots in Egypt, Mexico, Haiti, Indonesia, and elsewhere are becoming a regular occurrence. In the US, inflation for food is at its highest rate since the Nixon administration. As a result, diverting a significant portion of the food supply from mouths to fuel tanks is becoming less a philosophical question than an economic one.

2. Net Energy Benefit: Or lack thereof. A growing body of work disputes the net energy benefit of ethanol. Never mind that it can't measure up to gasoline in terms of energy potential. Take into account that it must be trucked (can't distribute it through existing pipelines), and resulting output drops even further.

3. Environmental Disaster: Corn in particular requires intensive amounts of water and pesticides. Record corn prices have driven farmers to plant land that had been set aside for conservation efforts. Any GHG benefit is hotly debated.

4. Political Season Ending: The interminable US primary and presidential election will be drawing to a close in short order, meaning that the naked pandering for corn-belt special interest votes will lessen (though never go away...)

Again: so now what? After all, with the cost of a barrel of oil currently standing at over $118(4/23/08), the need to find alternative sources of energy isn't dissipating. If we assume that corn ethanol is really teetering toward its inevitable collapse, what are the the next options? Who/what are the winners? And losers?

Some initial thoughts:

1. Cellulosic Ethanol Specialists: While still a long way from being practical/affordable, cellulosic ethanol at least removes the corn part of the equation by focusing on sources like waste wood or non-food crops. It's also got some political heft to it, ever since the President's switchgrass reverie. There's also considerable investment capital being spent in this area. Companies to consider: Range Fuels, Verenium, and Iogen.

2. Big Agriculture: Multinationals like ADM and Monsanto are financially positioned to weather the coming corn-ethanol storms, and leverage their growing investments in alternatives like cellulosic ethanol. Buying sprees are probably inevitable.

3. Batteries. Most people agree that the next iteration of the car will not necessarily rely on any one technology (as in gasoline) to power it. There is no silver bullet. One possible exception here is advanced batteries. Each of the fueling sources are enhanced through effective 'range extension devices' (as burdensome a way of saying batteries as can be though of.) Applicability of lithium-ion, advanced lead acid, and other TBD battery technologies will most likely have near universal applicability. Some companies to consider: A123 Systems, EnerDel, Firefly, and Mobius Power (maybe...)

4. Hydrogen: I'm certainly no big fan of hydrogen. But, like it or not, investment $$$ still heads in this direction. It's not likely that this stream of money will expand greatly in the near term (given other priorities), but it will continue.

Zapped

Not to pile on or anything, but... well... I'm piling on.

Not doubt that you've all seen the article in Wired that throws Zap under the (presumably alt fuel powered) bus.

I knew it was bad, but not this bad. I naively figured that the folks at Zap were just idealistic incompetents. Despite my past ranting about the "company", I didn't fully grasp the level of duplicity that masqueraded as a management strategy.

Hopefully, this will be the end of Zap. Eliminating this bunch of charlatans from the conversation about new fuels and vehicle technologies will hopefully allows us to focus on the real innovators and entrepreneurs.

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.