Biosynthetic Technologies: A Future So Bright They Gotta Wear Shades

In the real world, change happens slowly. A nation, or a neighborhood, isn’t knee deep in fossil-fuel wastes one day and “green” the next. This gradual transition is something that Allen Barbieri, CEO of Irvine, California-based Biosynthetic Technologies LLC, understands very well.

Biosynthetic Technologies is one of a small but growing number of energy companies looking for ways to improve the environment without turning the current energy paradigm on its head and forcing the Western world back into the Neanderthal era.

For Barbieri, this means a synthetic lubricant that not only meets or exceeds today’s premium oils – scoring 8.5 on Piston Deposit ratings – but offers a non-petroleum-based fluid that is 76-percent biodegradable in 28 days as compared to popular motor oils, which require 40 days and leave traces in the environment for years.

The oil was originally a U.S. Department of Agriculture project. The USDA took the development as far as it could, then patented it six ways from Sunday and – via the development and technology transfer entity CaliforniaLifeScience.com – transferred it to Biosynthetic Technologies, which added another 50 patents to insure its business platform.

The oil is 100-percent natural, converting the fatty acids from plant feedstocks into an ecologically sound product that will mitigate some of the damage caused by car owners who change their own motor oil and dump the old stuff down storm drains.

Equally as important, the synthetic oil blends very well with petroleum-based products.  However, as Barbieri also points out, there is a distinction between “environmentally safe” and “environmentally friendly”. The former implies no harm; the latter acknowledges the (ongoing) presence of small amounts of petroleum-based oil as well as additives to reduce friction, corrosion and foaming.

The one downside (from an environmentalist’s point of view at least) might be the company’s alliance with such names as BP Oil and Monsanto – whom Barbieri jokingly refers to as “the two most hated companies in the world.”

“At one point, I thought of adding Halliburton to the mix,” he added, laughing. “So that I could call it the Axis of Evil!”

Instead of focusing on potential downsides, however, Barbieri notes that the affiliation may signal even greater efforts on the part of these two multinationals, one vested in energy, the other in agriculture, to brighten up their tarnished images and join the race to the green. According to Barbieri, these efforts have resulted in BP putting a lot more energy and money (that other “green”) into environmental ventures than some other equally large, international oil companies.

Moreover, the alliance enables Biosynthetic to tap into highly developed company marketing, sales, and distribution networks, which means that this very eco-friendly oil will reach consumers under recognizable, branded names much sooner than otherwise – a B to B relationship far superior to B to C marketing, which – as Barbieri points out:

“If I tried to do it on my own, it would be my label on the motor oil container, and when you have an expensive car, you are much less likely to put in Biosynthetic Technology oil – a company you have never heard of – than you are to use Mobil Oil, for example.”

BP is not the only energy company to invest in Biosynthetic Technologies. In fact, the move toward more earth-friendly motor oils has prompted energy companies as diverse as Exxon Mobil, Phillips 66 to venture into the biotech arena searching for a lubricant base that will allow them to attach an environmentally friendly label to their products.

For some, the dilution with biosynthetic oil will be as small as 30 percent (or less), which offers environmental bragging rights with little need for recalibrating or retooling factory settings and even less reason to worry that biotech motor oil might not stand up as well as advertised in today’s pricey, high-performance engines.

Other oil and gas companies will make the effort, however, and ratios potentially as high as 85 percent bio and 15 percent fossil fuel will not only allow them to fly the green flag but to feel sincere doing so.

And the oils themselves? Branded Lubrigreen, these high-oleic soybean oils are industry-transformative. Another product, Cocoestolide, containing 35 percent Biosynthetic base oil and applicable in the personal care and cosmetics marketplace, is further down the pipeline but shows just as much promise, given the $36.5 billion in revenues in 2010 in the U.S. alone. The motor oil industry represents approximately $296 million per year (in 2013 figures).

The feedstock is Vistive Gold soybeans, a Monsanto product. Vistive Gold uses RNA interference, and it is Roundup Ready (aka glyphosate-resistant). This herbicide has been charged with spurring the development of “superweeds”, though experts speculate that Roundup overuse is the root of the epidemic. In other words, as farmers discovered Roundups ease-of-use, they made a typical mistake:  if a little was good – more was better.

The RNAi technique, a relatively new way to genetically engineer plants, troubles bioscientists because it has not been around long enough to evaluate.

Why biotech? From a performance standpoint, notes Barbieri, bio-based oils are in many ways superior to petroleum-based products. From a financial standpoint, the message has finally reached not only American oil companies but American drivers; that petroleum-based motor oils and lubricants are death to the nation’s waterways. For those who delight in factoids, consider this:

  • According to the U.S. Environmental Protection Agency, or EPA, approximately 185 million gallons of used motor oil are illegally dumped into storm drains
  •  These disposals, when aggregated, represent fully 40 percent of the oil pollution in America’s streams, rivers and lakes.
  • One gallon of oil can create an eight-acre oil slick. Four quarts of oil can contaminate one million gallons of water, or a year’s supply for 50 thirsty people.
  • As the energy equation stands today, manufacturers need 42 gallons of crude oil to get 2.5 quarts of new motor oil.

It is no wonder that Barbieri expects big demand. According to The Scientist, biotech is in for a wild ride as companies come out of the forced dormancy of the recent recession and offer IPOs right and left. For Biosynthetic Technologies, operating out of its Baton Rouge, LA pilot plant and looking forward to full-scale production in its Jacob’s Engineering-built commercial plant, the future is bright thanks to investors like Monsanto, which is in for $7 million.

I for one will be glad to see the eco-friendly motor oil substitute hit the shelves, hopefully next year. I might even check out the Cocoestolide esters to be incorporated into personal care and cosmetic products. It’s got to be better than fossil fuels!

But food? Maybe not. A lot of us with sensitive tummies still haven’t forgotten Olestra, a cooking oil alternative never approved for use in Canada or the EU and dropped in the U.S. as megafood makers paid attention to complaints and quietly switched back to “real” oils, shelf life and “smoke” temperatures be damned.

Tesla Motors – I Love You, But What the Hell?

I do like the Model S.  I think Tesla is doing terrific things to the car industry, direct to consumer, aggressive EV range, great looking car.  My friends who have one love it.  The company is proving it has legs.  But, as to the recent market run-up, not to be catty, but are you SERIOUS?

Tesla $20 Bil market capitalization

Nissan $42 Bil market capitalization

GM $46 Bil market capitalization

2013 Electric Vehicle total unit sales
GM Volt 9,855
Nissan Leaf 9,839
Tesla Model S 10,650

June Sales
Volt 2,698
Leaf 2,225
Model S 1,800

GM non EV revenues $150+ Billion
Nissan non EV revenues $120+ Billion
Tesla non EV revenues $0

There is something very, very wrong here.  Unfortunately this looks like the best short since 2001.  It is outselling the Leaf and Volt in some months, but just barely.  Let alone the $100 Billion plus in other revenues for GM and and Nissan.  How does that warrant Tesla trading at almost half their market cap?  I could buy Nissan, sell everything but the Leaf, and have a car business the same size as Tesla and $40 Billion + in the bank.

Water Pricing is Not the Roadblock to Water Innovation

There is a commonly held view among industry observers that “water is undervalued” and “water is underpriced”. Gloomy venture capitalists frequently cite the fact that “water is underpriced” as having the effect of hindering innovation and adoption of new technologies in the water sector (… and, incidentally of course, the ability to make good returns on venture capital investment). If water were properly priced, so goes the logic, then investment would flourish.

It is worth remembering that the raison d’etre of the water industry is not to provide a vehicle for water technology companies and venture capital investors to make double-digit returns. It is to provide water services in the most efficient manner possible. When a new technology can do this, it has a commercial advantage with the potential to make double-digit returns.  But the technologies need to reflect market realities, not the other way around. There is no onus on the water industry to alter its value and pricing systems to facilitate water technology companies and investors.

Breakthrough innovation does not need to be subsidized by paying more than market rate. In fact, subsidies create a very rocky foundation on which to build a business, as we saw with solar feed-in tariffs. They appeared when the times were good and disappeared when the times were bad.

In my mind, when people speak about the “value of water”, there is an underlying assumption that we should assign some nominal monetary value to our water resources (e.g. rivers, lakes, rain, etc.) to reflect the value of the resource.  The issue of “water pricing” is slightly different. It relates to how much consumers pay for water services and how this relates to the actual cost of providing those services. I would like to discuss each of these concepts in turn.

 

Water is undervalued – The idea that naturally occurring water is a resource that should be assigned some monetary value.

I do not believe that water needs to be assigned a value, unless you wish to prolong the life of natural resource or the goal is to internalize external costs. When discussing naturally occurring water, it is important to note that there are two types of water: renewable and non-renewable. Renewable water is the type of water that flows through bodies of water, such as our rivers and lakes, and is replenished each year from sources such as rain and melting snow. On the other hand, non-renewable water or “fossil” groundwater has been built up over hundreds or thousands of years and will not be replenished at the same rate we are extracting it.

In the case of renewable freshwater flowing in a river, where the quantity available exceeds the rate of abstraction, there is no reason to assign a monetary value to a cubic meter of water unless you wish to internalize external costs (e.g. environmental and social impacts of low flow rates). An analogy for this is solar energy that is a renewable resource. Current solar PV technology is not terribly efficient in absolute terms (approx. 15%), but we don’t often hear complaints that we are “wasting the sunlight” or that “sunlight is underpriced”.

With respect to renewable water, there is a case to be made to adjust water pricing to internalize externalities. For example, if over-abstraction leads to an impact on fisheries, habitats or tourism downstream, should water pricing reflect this?  Who pays for this? The Polluter Pays Principle is often applied in environmental policy and economics. If an upstream city takes water out of a river, affecting cities downstream, there is a case to be made for adjusting the price of abstraction to act as a disincentive to over-abstraction or to reflect the real costs. This is the objective of a carbon tax, which tries to account for the cost of climate change and the petrol pump.

The situation in relation to non-renewable water is somewhat different. Assigning a value above actual costs to a non-renewable resource can help to prolong the life of a natural resource. Renewable water sources, even when transported over distances, can be economical when the renewable water does not have an associated cost; however, non-renewable water does have a cost to supplies.  So in the case of fossil groundwater in the Ogallala aquifer in the Great Plains of the United States, where the water dates back to the last ice age, there is a case for assigning a nominal value or price to this water because the costs of pumping it up do not factor in the scarcity and non-renewable nature of the resource.

There is also a tragedy of the commons taking place here. If you don’t pump water from the aquifer below your property, it may still be drained because your neighbor is pumping up the water and cashing in, so you might as well too!

In summary, naturally occurring water does not need to have a monetary value unless you wish to internalize external costs or prolong the life of fossil groundwater.

 

Water is too cheap – The idea that we are not paying the true cost for water.

In the water business, there are frequent complaints that “water is too cheap”. That is, the consumer does not pay enough for water.  It is worth considering two facts:

  1. For the most part, in the developed world we have access to clean safe drinking water and sanitation.
  2. The companies that provide the infrastructure, technology and services required to provide this water are not doing so on an altruistic basis, but rather to make profits.

If we have access to clean water and sanitation and the companies providing these services are not doing so on an altruistic basis, why then should we pay more for water than we currently do? To help create a market for innovative new technologies developed by inventors and entrepreneurs? Or to deliver better returns to investors? That in it itself is not a valid reason to pay more for water.

Any technological innovation, by definition, should be more efficient and cost effective than its predecessor or incumbent. Hence, innovation should reduce water costs, not increase them. There are two instances I can see where the argument that “water is too cheap” stacks up. Firstly, when discussing whether an end-user is paying their fair share for water services, and secondly, when you consider the costs over a 50-year time span.

Firstly, the fact that water technology and service providers are paid doesn’t mean that each end-user is paying their fair share of the costs of producing that water. While at a national level, someone is paying the private sector companies and highly skilled water utility operators to provide water services, these costs may be cross subsidized from other government funds and not captured directly in water charges. That is an issue of true cost accounting and revenue collection, not a matter of price.

Secondly, in terms of the economic models around water, we do not always factor in future infrastructure replacement costs and put money away for a “rainy day” fund.  An analogy would be a building management company who knows that the windows or the roof may need to be replaced over the lifetime of a building. To prepare, they start a fund into which rates are paid to ensure that funds are available when that “rainy day” comes. Much of our water infrastructure, including water reservoirs, networks and energy grids, is over one hundred years old and was essentially “gifted” to us by our great grandfathers at the start of the last century. There is a valid case to be made that the cost of water today does not include infrastructure replacement costs in 2050, and, in that sense, if you draw the box around future costs, water is too cheap.

In summary, I don’t believe that low water costs are what hinder innovation in the water sector. While we may not incorporate costs for environmental impact or a “rainy day” fund into the cost of water, this does not mean that water pricing impedes innovation. I think what drives innovation is need. Necessity is the mother of invention and creativity. Innovation is driven by factors such as water scarcity, urbanization, tightening regulatory limits, ageing infrastructure and bankrupt utilities. It is also driven by the need to recover and reuse resources and reduce energy costs.  Good innovation addresses these needs competitively, and, more importantly, cost effectively. We don’t need to pay more for water in order for innovation to occur. It should deliver its own value.

 

About BlueTech® Research

BlueTech® Research provides investors, water companies, researchers and regulators with the latest information at their finger tips, providing clarity and critical analysis on emerging water technology market areas. We map and analyze the area of water technology innovation. We are focused on what is changing and how new approaches, technologies and needs are re-shaping the water technology market.  To learn more, please visit www.bluetechresearch.com.

Electric Vehicles Are Outpacing Historical Hybrid Car Growth 3 to 1

For a project we are working on, we have been analyzing EV and HEV historical sales performance.  The numbers are striking.

In the US Hybrids took until their 6th year to achieve 100,000+/year in unit sales and 1% in market share of new vehicles sold.

Electrics and Plugins are currently on pace to do that in 2013 and 2014, 2-3 years ahead of Hybrids.

EVs are currently outpacing hybrid sales growth by a stunning amount in their first three years vs the first 3 years of hybrid cars, and the rate of outperformance has been accelerating each year:  EVs are 1.9x, 2.6x, and 3.4x the unit sales level of hybrids over the first 3 years.

Using US historical hybrid vehicle numbers as a benchmark that rate of outperformance would equal nearly 1 mm/year sales by 2018, and 4.2 mm EVs on the road by the end of the decade in 2020.

There are now 4 electric / plugin hybrid car platforms around the 20K+/year mark, which essentially marks the level of a “real” car:

It took hybrids nearly decade to achieve that.

  • Tesla
  • Ford Energi / Focus Electric (taken as a group)
  • Nissan Leaf
  • Chevy Volt

That means essentially 4 car companies are already at  the $500 mm to $1 Bil/year level in EV revenues.

There are 20+ vehicle platforms behind them, and 2 of those four are in just their first full year, with the Toyota Prius plugin just beginning to rollout broadly.

Virtually every major platform has seen 20-30% price cuts, and seen drastic and rapid sales improvement when they did.  The carmarkers have basically found the price level to scale.

The Nissan LEAF achieved it’s 100,000th car sold globally earlier this year.  That’s level where the Prius is generally acknowledged to have broken even according to Bill Moore editor of EVWorld.com.   To put in perspective, that’s somewhere over $3 Billion in Leaf revenues to date.

Our internal baseline numbers now have Hybrids at 7.4 mm fleet size in 10 years, and EVs/PHEVs at 4.1 mm.  That would represent barely 6-7% market share, an extremely moderate share growth rate, and assumes heavy cannibalization of future HEV growth by EVs.

EVs may have been underselling the hype, but they are outselling the reality.  Given all of this we would welcome discussion, predictions and inputs on what reasonable expectations on EV growth are.

 

Kior, Solar, and Storage

Kior, one of the farthest along cellulosic biofuels producers shipped its first drop in cellulosic biofuels from its pilot plant, but was way below its prior production targets.  And Biofuels Digest reports it is now considering a smaller scale expansion of its pilot before launching its long announced commercial plant in Natchez.  This sounds like more slide to the right and technical issues than the company would like to admit, especially given the sliding cash balances.

Rising RIN prices from the increases in the Renewable Fuels Standard can bail out a lot of cellulosic ills, but only if on can physically produce.

 

First Solar announced weaker revenues and earnings in 2Q vs both prior quarter and year, amid projects sliding to the right and revenue recognition changes.  Analysts have been voicing concern over whether the project pipeline is adequate to deliver growth, as competitors have caught up with First Solar’s vertical integration strategy.  Underneath that the production cost per watt continues to fall.

Canadian Solar announces strong growth, and continues to take market share and reaffirmed it’s prior estimates of c. 10% $/Wp unit cost reductions in 2013.

But overall, the story in solar in the US continues to be about increasingly project development and new financing vehicles.

 

 

FERC Order 784 saw it’s final rule in July, potentially a boon for batteries and other fast responding grid energy storage technologies.

“The final rule on this subject came out in late July as Order No. 784. It permits third parties to supply various ancillary services at negotiated rates to transmission utilities, without the third party having to prove it lacks market power for such services, if the third party passes existing market power screens for sales of energy and capacity, the rates are established in a competitive solicitation or they do not exceed the published
rates in the utility’s “OATT” or open-access transmission tariff for the services.”

“Order No. 784 also requires each transmission utility to add to its OATT schedule 3 a statement that it will take into account the speed and accuracy of regulation resources in its determination of reserve requirements for regulation and frequency response service, including as it reviews whether a self-supplying customer has made “alternative comparable arrangements” as required by the schedule” – Chadbourne & Park LLP.  Greentech Media had a great summary.