How About A Sane Energy Policy Mr. Obamney?

It’s Presidential Election year.  Ergo, time to discuss our 40 year whacked out excuse for an energy policy.  Royally botched up by every President since, umm?


Make US energy supply cheap for the US consumer and industry, fast growing and profitable for the American energy sector, clean, widely available and reliable, and secure, diversified, environmentally friendly and safe for all of us.


Cheap, Clean, Reliable, Secure, Energy


An Energy Policy that leaves us more efficient than our competitors

An Energy Policy that leaves us with more and more diversified, supply than our competitors

An Energy Policy that leaves us more reliable than our competitors

An Energy Policy that makes us healthier and cleaner than our competitors

An Energy Policy that makes us able to develop adopt new technologies faster than our competitors

An Energy Policy that makes it easy for industry to sell technology, energy, and raw materials to our competitors

An Energy Policy that keeps $ home.

A Sane Energy policy


Think more drilling, less regulation on supply, lower tariffs, more investment in R&D, tighter CAFE and energy efficiency standards, simpler and larger subsidies for new technologies, less regulation on infrastructure project development.


A couple of key action items:

  • Support the development of new marginal options for fuel supply, and support options that improve balance of payments, whether EVs ethanol, solar et al
  • Make crude oil, refined products, Gas, LNG and coal easy to import and export
  • Drive energy efficiency like a wedge deep in our economy
  • Support expansion and modernization of gas, electric, and transport infrastructure
  • Support long term R&D in both oil & gas, electric power, and renewables
  • Reduce time to develop and bring online new projects of any type (yes that means pipelines, solar and wind plants, offshore drilling, fracking and transmission lines).
  • Support policies and technology that enable  linking of energy markets
  • Challenge the OPEC cartel like we do EVERY OTHER cartel and break the back of our supply contraints
  • Support the export of our energy industry engineering, services and manufacturing  sectors overseas
  • Incorporate energy access into the core of our trade policy
  • Support deregulation of power markets
  • Support long term improvement in environmental and safety standards
  • Broadly support significant per unit market subsidies for alternatives like PV, wind, biofuels, fracking as they approach competitiveness

Or we could do it the other way:

  • Leave ourselves locked into single sources of supply in a screwy regulated market that involves sending massive checks to countries who’s governments don’t like us because that’s the way we did it in the 50s?
  • Keep massive direct subsidies to darling sectors so the darling sectors can fight each other to keep their subsidies instead of cutting costs?
  • Keep a mashup of state and federal regulatory, carbon and environmental standards making it virtually impossible to change infrastructure when new technology comes around?
  • Promote deregulation in Texas, and screw the consumer in every other market?
  • Every time there’s a crisis, we can shoot the industry messenger in the head, stop work, and subsidize something.
  • Continue the Cold War policy of appeasing OPEC so they can keep us under their thumb for another 30 years
  • And drop a few billion here and there on pet pork projects

Come on guys, stop the politics, let’s get something rational going.  Oh wait, it’s an election year.  Damn.

And in the meantime how about making energy taxes (a MASSIVE chunk of your gasoline and power prices) variable, so they go DOWN when prices go up.  Then at least the government’s pocket book has an incentive to control cost, even if they’re incompetent at putting together a policy that does so.

Fighting the Military on Energy Strategy

For several years, the U.S. military has been one of the most active proponents and early-adopters of renewable energy and alternative fuels, with their Operational Energy Strategy.  Why?  Several reasons:

1.  Fuel delivered to the remote front-lines such as in Afghanistan for use in power generation and transportation has an “all-in” cost of $400/gallon.  Any energy source that can be supplied locally, such as solar, to reduce fuel has significant potential for economic savings.

2.  Being of critical logistical importance, convoys to deliver fuel are often the target of insurgent attacks, resulting in casualties to American servicemen and -women.  Anything that can reduce the quantity and frequency of these convoys should obviously be a very good thing.

3.  In buying so much oil, America sends hundreds of billions of dollars each year to regimes that not only don’t like the U.S., but actively attack U.S. interests.  As many astute observers such as James Woolsey, former head of the CIA has said on a number of occasions, “we are funding both sides of the war on terror.”  Military reliance upon oil is a key contributing factor.

Now comes James Bartis of the RAND Corporation, who argues in a recent study that “military planners are afflicted with petroleum anxiety.”  He says that the military shouldn’t be so worried about oil price increases and supply insecurity:  “they think prices are heading in only one direction:  up.  But history teaches us otherwise.”

Senator John McCain (R-AZ) is piling on to this argument.  McCain is alleging that the U.S. DOD long-term strategy to reduce reliance on fossil fuels is “an incredible waste of taxpayers’ money.”  In the mother of all current smears, McCain is wary of “another Solyndra” that might stem from this effort.

I pronounce Bartis and McCain guilty of imprudent short-term thinking — which is surprising and highly disappointing, since I have generally considered RAND and McCain himself as having a good grasp of the big picture. 

Fortunately, the military is keeping its head down and pushing forward with its plans:  earlier this month, the Army released a $7 billion RFP for renewable and alternative energy projects to be installed over the next 10 years.

The military’s energy strategy is not solely or even mainly about minimizing $/gallon or c/kwh, and it’s certainly not about environmental benefits.  This is about building and operating a military that is best suited to win against a dispersed enemy that derives its income from oil sales and targets oil supply lines to impede American military effectiveness and kill Americans. 


Reducing oil consumption as much and as quickly as reasonably practicable is key to unhooking our military from this thorny problem.  True, part of reducing oil consumption is through increased efficiency, but part of reducing oil consumption can also be via substitution of alternatives:  biofuels, solar, and wind.

Whether the military’s push for renewable energy will be as successful as desired is unclear.  However, the only way to know is to try.  If they don’t try, the U.S. military — and our country more generally — will just paint itself further into the corner in which it finds itself strategically today.

Corn Flakiness

The historic drought this summer across most of the United States has severely damaged this year’s corn crop.  According to the U.S. Department of Agriculture, corn production is expected to be down more than 10% from last year.

Not surprisingly, corn prices have surged.  What may be surprising is how much they’ve surged:  up to record levels exceeding $8.00/bushel, up 60% over the past few months.  

Since prices have risen (60%) far more than volumes have fallen (10%), this is great news for corn farmers.

Of course, what’s good news for corn farmers is not necessarily good news for corn consumers.  The two biggest consumers of corn are livestock farmers/ranchers and ethanol production plants, and these twin pillars of corn demand are butting heads. 

Yes, this is another manifestation of the “food vs. fuel” debates so prevalent a few years ago.

By various measures, 28-41% of U.S. corn supply is used for ethanol production.  In turn, ethanol production is strongly influenced by U.S. energy policy — specifically, the Renewable Fuels Standard (RFS) implemented as part of the Energy Independency and Security Act of 2007, passed under the Bush Administration.  In 2012, the RFS stipulates that 13.2 billion gallons of ethanol must be produced and blended into gasoline for automotive use.

Without the RFS policy, it’s pretty clear that ethanol production would fall considerably under current market conditions.  Even with the RFS setting minimum levels, ethanol production is on the ropes, simply because the cost of the corn feedstock has risen much more than the price of ethanol has risen.  Put another way, ethanol margins have dramatically deteriorated — and in many cases are now negative.  In response, marginal ethanol plants are being idled.

Even with these adverse conditions, it’s widely expected that the ethanol quantities stipulated by the RFS for 2012 can still be met.  Pre-existing inventories of ethanol can be drawn down, ethanol exports from the U.S. can be reduced, and there are leftover Renewable Identification Number (RIN) credits from last year that can be applied to this year’s requirements.

Although financially bleak for this year, the ethanol markets won’t break.  Same with the livestock markets, but that isn’t stopping farmers/ranchers from raising objections:  they are pressing the U.S. EPA to at least temporarily relax the RFS to help alleviate the upward pressure on corn prices.  In the past few weeks, 156 House members and 25 Senators have written EPA Administrator Lisa Jackson seeking intervention.

A waiver on the RFS is probably not gonna happen right now, both because of economics and politics.

A recent study by Bruce Babcock of Iowa State University entitled “Preliminary Assessment of the Drought’s Impacts on Crop Prices and Biofuel Production” indicates that eliminating the ethanol mandate of the RFS would only reduce corn prices by $0.28/bushel, or less than a 5%.  In short, it doesn’t seem that relaxing the RFS will have that much beneficial impact on corn prices, as livestock interests are assuming. 

Representing the ethanol industry, the Renewable Fuels Association released a statement arguing that there is no need to waive the RFS requirements in the face of a tough corn crop.  The Obama Administration seems to be on the same page:  USDA Secretary Tom Vilsack continues to staunchly support the ethanol market.  Corn farmers do too — and there are a lot of voting corn farmers in swing states like right here in Ohio.

Given that it’s politically controversial during an election season and doubtfully effective anyway, it seems unlikely that Obama will relax the RFS.  And then, by November, a lot of the pressures caused by ethanol on the corn markets will have eased, since the demand for fuels peaks in the summer.

Now, if we have another serious drought during the 2013 growing season…?  The Dust Bowl years of the mid-1930’s tell us that unpleasant scenario is not unprecedented.

Top 10 Cleantech Subsidies and Policies (and the Biggest Losers) – Ranked By Impact

We all know energy is global, and as much policy driven as technology driven.

We have a quote, in energy, there are no disruptive technologies, just disruptive policies and economic shocks that make some technologies look disruptive after the fact.  In reality, there is disruptive technology in energy, it just takes a long long time.  And a lot of policy help.

We’ve ranked what we consider the seminal programs, policies and subsidies globally in cleantech that did the helping.  The industry makers.  We gave points for anchoring industries and market leading companies, points for catalyzing impact, points for “return on investment”, points for current market share, and causing fundamental shifts in scale, points for anchoring key technology development, points for industries that succeeded, points for industries with the brightest futures.  It ends heavy on solar, heavy on wind, heavy on ethanol.  No surprise, as that’s where the money’s come in.

1.  German PV Feed-in Tariff – More than anything else, allowed the scaling of the solar industry, built a home market and a home manufacturing base, and basically created the technology leader, First Solar.

2. Japanese Solar Rebate Program – The first big thing in solar, created the solar industry in the mid 90s, and anchored both the Japanese market, as well as the first generation of solar manufacturers.

3. California RPS – The anchor and pioneer renewable portfolio standard in the US, major driver of the first large scale, utility grade  wind and solar markets.

4. US Investment Tax Credit for Solar – Combined with the state renewable portfolio standards, created true grid scale solar.

5. Brazilian ethanol program – Do we really need to say why? Decades of concerted long term support created an industry, kept tens of billions in dollars domestic.  One half of the global biofuels industry.  And the cost leader.

6. US Corn ethanol combination of MTBE shift, blender’s, and import tariffs – Anchored the second largest global biofuels market, catalyzed the multi-billion explosion in venture capital into biofuels, and tens of billions into ethanol plants.  Obliterated the need for farm subsidies.  A cheap subsidy on a per unit basis compared to its impact holding down retail prices at the pump, and diverted billions of dollars from OPEC into the American heartland.

7. 11th 5 Year Plan  – Leads to Chinese leadership in global wind power production and solar manufacturing.  All we can say is, wow!  If we viewed these policies as having created more global technology leaders, or if success in solar was not so dominated by exports to markets created by other policies, and if wind was more pioneering and less fast follower, this rank could be an easy #1, so watch this space.

8. US Production Tax Credit – Anchored the US wind sector, the first major wind power market, and still #2.

9. California Solar Rebate Program & New Jersey SREC program – Taken together with the RPS’, two bulwarks of the only real solar markets created in the US yet.

10. EU Emission Trading Scheme and Kyoto Protocol Clean Development Mechanisms – Anchored finance for the Chinese wind sector, and $10s of Billions in investment in clean energy.  If the succeeding COPs had extended it, this would be an easy #1 or 2, as it is, barely makes the cut.


Honorable mention

Combination of US gas deregulations 20 years ago and US mineral rights ownership policy – as the only country where the citizens own the mineral rights under their land, there’s a reason fracking/directional drilling technology driving shale gas started here.  And a reason after 100 years the oil & gas industry still comes to the US for technology.  Shale gas in the US pays more in taxes than the US solar industry has in revenues.  But as old policies and with more indirect than direct causal effects, these fall to honorable mention.

Texas Power Deregulation – A huge anchor to wind power growth in the US.  There’s a reason Texas has so much wind power.  But without having catalyzed change in power across the nation, only makes honorable mention.

US DOE Solar Programs – A myriad of programs over decades, some that worked, some that didn’t.  Taken in aggregate, solar PV exists because of US government R&D support.

US CAFE standards – Still the major driver of automotive energy use globally, but most the shifts occurred before the “clean tech area”.

US Clean Air Act – Still the major driver of the environmental sector in industry, but most the shifts occurred before the “clean tech area”.

California product energy efficiency standards – Catalyzed massive shifts in product globally, but most the shifts occurred before the “clean tech area”.

Global lighting standards /regulations – Hard for us to highlight one, but as a group, just barely missed the cut, in part because lighting is a smaller portion of the energy bill than transport fuel or generation.


Biggest Flops

US Hydrogen Highway and myriad associated fuel cell R&D programs.  c. $1 Bil/year  in government R&D subsidies for lots of years,  and 10 years later maybe $500 mm / year worth of global product sales, and no profitable companies.

Italian, Greek, and Spanish Feed in Tariffs – Expensive me too copycats, made a lot of German, US, Japanese and Chinese and bankers rich, did not make a lasting impact on anything.

California AB-32 Cap and Trade – Late, slow, small underwhelming, instead of a lighthouse, an outlier.

REGGI – See AB 32

US DOE Loan Guarantee Program – Billion dollar boondoggle.  If it was about focusing investment to creating market leading companies, it didn’t.  If it was about creating jobs, the price per job is, well, it’s horrendous.

US Nuclear Energy Policy/Program – Decades, massive chunks of the DOE budget and no real technology advances so far in my lifetime?  Come on people.  Underperforming since the Berlin Wall fell at the least!


The World According to BP

On January 18, BP (NYSE: BP) released Energy Outlook 2030, its official corporate view of the future of energy.  Every year, BP releases its Statistical Review of World Energy that serves as an excellent compendium of historical and current data on a host of energy-related issues, but rarely does BP present its projections of trends and the associated implications on the energy markets.

At the release event in London, BP’s CEO Bob Dudley made a brief speech covering the highlights of the Outlook.  It’s an easy and good read, which I will summarize here.

Dudley began by reciting what he termed “five realities”.  In reality, these so-called “realities” are nevertheless anticipations of events to come.  However, they do seem like pretty safe bets as playing out as described:

  1. Global energy demand will increase by 40% by 2030.  As Dudley notes, “that’s like adding one more China and one more U.S. to the world’s energy demand by 2030.  Nearly all that growth – 96% in fact – is expected to come from the emerging economies with more than half coming from China and India alone.”
  2. Fossil fuels will supply roughly 80% of global energy demand in 2030.  Dudley continues, “renewables will grow rapidly, but from a very low base.”  In other words, while renewables will be a great growth industry for the next few decades, the enormous head-start in market share that fossil fuels enjoys from more than 100 years of development, along with continued demand growth, means that energy markets and the energy industry will be dominated by fossil fuels for the lifetime of anyone who reads this blog post.
  3. Oil will continue to be essential for transportation, with 87% of mobility based on petroleum.  While increased fuel efficiency, hybrid vehicles, and expansion of biofuels will reduce needs for petroleum, the explosive growth of the developing economies and their voracious desire for vehicles means that oil demand will continue to grow.  Dudley notes that oil demand growth will be less than 1% annually, which “doesn’t sound like much, but it adds up to an additional 16 million barrels per day by 2030.”
  4. To supply this increasing demand, new frontiers will continue to be tapped.  This will be oil from deep water – what should be a sticky subject for BP, given the Deepwater Horizon debacle from less than two years ago – heavy oil such as the oil sands in Alberta (which Dudley noted needed to be “produced carefully and responsibly”), and unconventional gas plays such as shale gas and tight gas.
  5. Global CO2 emissions will rise by almost 30% by 2030.  Dudley emphasized that “this is a projection, not a proposal.  BP supports action to limit emissions including a carbon price and transitional incentives that encourage renewable energy to become competitive at scale.”  The last two words – “at scale” – are critical, not just for cleantech advocates and for the planet, but also supermajors like BP, who by their sheer size can only be bothered with energy phenomena that represent more than niches.

It’s a daunting picture.  As Dudley states, “this is not an outlook for the world as we wish to see it,” but nevertheless “it should be important input for policy-makers.”  And, it should be added, for participants and advocates in the cleantech space.

From this sober perspective, Dudley outlines “five opportunities” surfaced in the Outlook:

  1. Energy efficiency gains will be critical to the world of the future, as they simultaneously reduce consumer costs, improve energy security and cut emissions.  Frankly, this is “motherhood and apple pie” that just about all observers of the energy sector point out – nothing new here.
  2. Technology advancement will be crucial.  Dudley notes that BP thinks “the efficiency of the internal combustion engine is likely to double over the next 20 years” – an extraordinary possibility for a technology that’s over a century old and ought to be quite mature.  Innovation is not only imperative for efficiency gains but also for supply expansion to meet worldwide demand growth even netting out improvements in efficiency.  New energy supply technologies are not just in the realm of renewables but also in the realm of hydrocarbon production as well, increasing the economic access to fossil fuels on the frontiers described above.
  3. Competitive forces are an essential stimulant of capturing efficiencies and pursuing innovation.  Although Dudley doesn’t exactly say so, I think this is code for “expect increasing energy prices”, thus driving efficiency and new technology.  (Also unsaid:  “Don’t blame us or accuse us of gouging when energy prices are high.”)  I think these comments are also a soft unobtrusive plea for more access by private sector companies, and correspondingly fewer obstacles thrown up by governments, to developing new energy resources.
  4. Natural gas will be a very big thing.  Dudley calls natural gas a “sustainable option being deployed at scale”.  The latter claim of scale is inarguable, though the former claim of sustainability is semantically dubious.  Even so, it is true when Dudley says “gas typically generates fewer than half the emissions of coal” – notably, the one and only time that the word “coal” is uttered by Dudley in his entire talk.  (Admittedly, BP doesn’t have any coal business, but coal remains a sizable piece of the global energy economy, and to mention the role of coal just once is telling.)
  5. Biofuels show great potential.  According to Dudley, BP has “an optimistic view on the future of biofuels,” but “the world needs to focus on biofuels that do not compete with the food chain and are produced in a sustainable way.”  Thereafter follows some touting of second-generation biofuels (e.g., cellulosic ethanol), which still remain tantalizing but commercially-unavailable.  To me, this fifth “opportunity” is the most speculative of the bunch.

Dudley closes his comments by discussing BP’s obviously very substantial place in the world of energy. 

He acknowledges the Deepwater Horizon tragedy, and BP’s activities in expanding production of the controversial oil sands in Alberta.  No doubt, he had to, in order to avoid allegations of “greenwashing” BP’s record.

However, he tries to counterbalance this by extolling $7 billion of investments in renewables since 2005, “focused on creating large-scale commercial businesses that are not dependent on subsidies,” and BP’s emphasis on improving energy efficiency – in part because BP requires “all new projects to calculate the impact of future carbon pricing on their operations”, planning for “a future where carbon does have a price.”

Perhaps this is the most optimistic item in Dudley’s synopsis of BP’s future view of the energy sector over the next 20 years.  Hopefully, not unrealistic.

IPOs and Bankruptcies and Cleantech “Hot or Not”

Last night while watching Office reruns, I realized I’d been remiss, and a lot’s had been happening in the public equities end of the cleantech sector.  Not to mention yesterday’s billion dollar BK broiler announcement by the one-time Next Greatest Thing, Solyndra.

So, with my usual aplomb, I thought I’d simply peanut gallery what’s “Hot or Not” in cleantech.


Bled Out on the Operating Table

Solyndra – BK (and not the burger kind). Well, we wrote about it a lot, and nobody believes us.  But bad product is bad product, and high cost is high cost, regardless of how much money you throw at it.  So who’s going to calculate the impact on the DOE loan guarantee program’s projected loan losses? Not.

Evergreen Solar (NASDAQ:ESLR)  – :(  And it was such cool technology, too.  I’m very sorry to see this one go.  At one point some years back it was the savior deal of the sector.  But we are in a race to cost down or die. Not.


Filed, Not Yet Hell for Leather

Enphase – I’m very very interested in seeing these guys make it.   Lots of growth.  Very thin margins so far.  Product costs looks miserably high.  Need to cost down like a banshee running from the Bill Murray.  But you’ve got to love the category killer potential and how fast they’ve executed.  First microinverter guy to manufacturing maturity eats the others like oatmeal (sloppy but eaten nonetheless). Hot.

Silver Spring – Hmmmmmmmmh.  Home run potential, but what’s the term?  Very high beta?  These contracts are massive, far strung, very very tight margin.  They’ve shown they can get the growth.  But with long lead time sticky contracts, it’s about managing costs during slippage and change-orders well, and it’s a very competitive business.  One blown contract gives back all the profits on the last 8.  But, give kudos for getting this far and making it to be a real player.  Now we’ll see if you can execute. Hot.

Luca Technologies – Hello?  Are you serious?  I read this S-1 cover to cover.  I had my technologist read it and go find their patents.  We love this area.  The concept of microbes for in situ is old as can be, but very very interesting..  The challenge is always cost and performance (not really a new nutrient mix?).  How do you get the bugs, nutrients, whatever you’re doing, down the hole and into the formation far enough and cheap and effectively enough to make a difference.  But in the entire S-1 and website, there is not a single technology description, fact, proof point or ANYTHING that suggests they’ve actually cracked the real nut.  The few numbers they do mention are not even to the ho-hum level.  Did a real investment banker really sign up to this?  Who wrote this?  Their PR guy with a liberal arts studies degree?  Really?  This smacks of a “trust us I’m Jesus and daddy needs an exit” deal.  In reality, probably interesting, but still very very very very very very very early science project.   Not.


We have a whole collection of biofuels stocks to discuss now.

Solazyme (NASDAQ:SZYM) – half of its 52 week, less than a buck over its low. Not.

Kior (NASDAQ:KIOR) – Somebody correct me, but did the filings really indicate Khosla put money IN to this IPO?  And it got off at low end of the range even after that? From one of their filings: “In conjunction with the Issuer’s IPO, an entity affiliated with the Reporting Persons purchased 1,250,000 shares of Class A common stock, resulting in an increase in beneficial ownership by the Reporting Persons by that amount. The
purchase was made at the initial public offering price of $15.00 per share, for an aggregate purchase price of $18,750,000. The source of funds used to purchase the shares of Class A common stock was Khosla’s personal assets.” At least it’s money where it’s mouth is.  Not.

Amyris (NASDAQ:AMRS) – 58% of its 52 week high, 20% over it’s low. Not.

Gevo (NASDAQ:GEVO) – 40% of its 52 week high, c. 20% off it’s low. Not.

Codexis (NASDAQ:CDXS) – 55% of its 52 week high, c. 20% off it’s lows. Not.

I’d comment on the fundamentals of each one, but I don’t want you to think I’m depressed.  Oh, by the way.  Did I ever tell you the story about the cleantech sector’s magically changing cellulosic biofuels business plans to “cellulosic bio-anything-but-fuels” plans as people finally woke up and realized how tough using lousy feedstocks and high cost processes in a commodities market actually is.  Of course, careful you don’t change from targeting fuels to making feedstock for dirt cheap who would want to be in that business commodity chemicals or specialty chemicals with a global aggregate gross margin market less than your cash on balance sheet.

And a Few Tidbits

Advanced Energy (NASDAQ: AEIS) – I still really like this company.  Somebody’s going to own inverters.  And the numbers look very interesting.  Very. Need to dig deeper. Hot.

American Superconductor (NASDAQ:AMSC) – Ummm.  Do you believe their wind business ever recovers?  One customer.  Buying a competitor with one customer.  Both in China.  Customer doesn’t like single supplier risk where the supplier makes high margins?  What did you think was going to happen?  Ugly ugly story.  Very real possibility that they trade on a log curve to straight zero.  Some chance of sunshine, but I’d cancel the picnic. Not.

A123 (NASDAQ:AONE) – I really really really want this to work.  But what’s the path to profits?  Not feeling it. Not.

Tesla (NASDAQ:TSLA) –  “Don’t worry, the NEXT car will fix my company’s fundamental problems” – quote attributed to the Tesla CEO who replaces the next Tesla CEO. Not.

Active Power (NASDAQ: ACPW) – Hey, did anyone notice these guys are growing revenues AND margins?  A long haul, but keep it up!  Need careful consideration before I’d jump into flywheels, but someone deserves a ton of credit as coach of the year.  Hot.

Satcon (NASDAQ:SATC) – Hammered, but still a market leader.  Got to think about this one – it’s historically traded for more than it’s fundamentals justified, but with PV Powered and Xantrex snapped up, hard to imagine they stay independent for long. Hot.

SunPower (NASDAQ:SPWR)  – Wow.  Total. No guts no glory.  Highest cost producer, shall we call it the “performance queen”.  I do like this bet by Total, but it takes guts.  But when a market leader’s stock’s been hammered that far down somebody’s got to move and Total did . . .  Whether an individual investor can play is another story. Hot.

Ascent Solar (NASDAQ:ASTI) – Holy star solar batman!  These guys can sell ice to eskimos are have always been great R&D guys.  Still maybe the highest cost CIGS process known to astronauts.  I like these guys, but I’m not sure more cash fixes anything. Not.

Solon – What does “New US operational strategy” mean?  It means solar is a game of scale and execution.  Not.


“Power Hungry” is Filling, But Not Fully Satisfying

It had been on my nightstand for awhile, but I finally got around to finishing Power Hungry: The Myths of ‘Green’ Energy and the Real Fuels of the Future by Robert Bryce.

According to his own bio on the book jacket, “Bryce has been producing industrial-strength journalism for two decades” –whatever “industrial-strength” is supposed to mean.  And, by his own writing, he states that “I am neither a Republican nor Democrat.  I am a charter member of the Disgusted Party.”

Given his angst-ridden and self-assured stance, perhaps it shouldn’t be surprising that Bryce’s narrative is laced with the type of adjective-overladen hyperbole that has come to dominate the media in our Michael Moore and Glenn Beck era – a rhetoric style that I personally find annoying and unhelpful in its seeming desire to provoke.  (Though, I would pay good money to see Bryce call someone like Dr. Gal Luft an “underinformed-but-persistent sophomore” to his face as he implicitly does in writing.)

If one can get past the sometimes maddening and offensive passages, the book has its share of merits.  Bryce is right to focus on facts, to seek to strip away untenable claims, and to decry the lack of clarity of thinking in the national energy discourse.  Part One of the book is an occasionally masterful primer on many of the basics about energy production and consumption in the modern world, studded with facts – mostly accurate by my superficial review.

But, as the Einstein principle implies, “A theory should be as simple as possible, but no simpler.”  And, in striving to simplify the energy topic by driving towards sound-bites from a massive but still incomplete set of facts, Bryce sometimes strides too far.  He sometimes pieces the facts together in such a way so as to draw skewed conclusions.  And, his lack of nuance – indeed, his distaste for nuance – leads ultimately to oversimplification and conclusions that are at best only partly correct.

Part Two of the book is consisted of chapters devoted to debunking “myths” about green energy.  I guess it’s fair to tackle this, in that some commentators supporting green/renewable/alternative energy really have been guilty of overstating the facts and creating too much unsustainable hype as a result.  Yet, for the most part, the myths that Bryce attacks are constructed in such a way as to be too easily knocked down like a cheap strawman. 

For instance, the chapter entitled “Myth:  Denmark Provides an Energy Model for the United States” is written as though someone actually thinks that Denmark and the U.S. are sufficiently similar that the Danish energy system can be largely replicated in the U.S.  Maybe some people do actually think that the U.S. should really pattern itself after Denmark, but most of us in the energy sector know that’s a naïve thought.  Even so, that’s not to say that the U.S. can’t learn valuable lessons from the Danes – and in fact, Bryce acknowledges as such in the chapter itself, though you might not notice because of the chapter title.

I could go on with a number of other examples of how Bryce makes himself a valiant protector of Joe Six-Pack by dismissing so-called “myths” that are portrayed as elitist ideals of little substantiation and hence value – even when the “myths” he’s debating are drawn in a hopelessly indefensible manner. 

Bryce can’t seem to accept that, just because some people have said stupid things about green energy, it doesn’t mean that green energy is stupid.

It’s clear that Bryce is an devout disciple of the Peter Huber & Mark Mills school of energy analysis, in which energy density is the primary factor driving winners and losers in the energy sector.  By this way of thinking, nuclear and fossil fuels are clearly superior to wind, solar and bioenergy, which require large footprints.  It’s an intriguing perspective, and definitely applies well to mobile and transportation energy, in which density is a critical driver of commercial acceptability. 

However, I’ve never been convinced that energy density is a significant factor in “stationary” energy to power, heat and cool buildings:  it’s all about economics, and if the cost of land and delivery is sufficiently cheap (i.e., in a remote area connected via a delivery system), who cares how dense the energy is? 

(Let’s not forget that Huber/Mills have been less than an infallible source of energy prognostication, as any reader of the fascinating but yet wholly inaccurate Huber-Mills Digital Power Report from the early 2000’s – sample forecast:  ubiquity of digitally-managed distributed generation – can attest.)

It’s equally clear that Bryce passionately hates several things:  virtually all political figures of all stripes, T. Boone Pickens, wind energy, and biofuels.  Bryce has no use for them, can find no virtue or benefits from any of them; the dislike seems to go beyond the rational. 

Putting aside politicians and Pickens, I’m well aware of the limitations of wind energy and biofuels, but that doesn’t justify throwing the baby out with the bathwater, as Bryce does.  Rebuttals to Bryce’s diatribes on wind energy and biofuels can be constructed to indicate where, how, when and why wind and biofuels can indeed make sense, but it would be a Herculean task just to overcome the volume of volleys he lobs.

Part Three of the book provides Bryce’s (over)simplifying conclusion to our whole energy problem:  we’re finding immense amounts of natural gas in shale, more than we could have ever expected a few years ago, so we need to use all of this to bridge to a nuclear future, which is the ultimate long-run solution and for which technology and economics will ultimately prevail.  As Bryce calls this vision of natural gas to nuclear, N2N.

I’m not intrinsically against increased utilization of natural gas and nuclear energy.  I’m more sanguine about the natural gas – though I don’t know if the shale plays will have the duration Bryce expects, due to the steep decline curves encountered so far – than I am about nuclear energy, which both has poorer current economics and lower public acceptability than the wind energy that Bryce damns to high heaven.  (And, Bryce is super eager to gladly accept all the hype he can accumulate on nuclear energy, especially about waste management safety and fuel recycling technology advancement.)

The problem I have with Bryce’s N2N synopsis – the oversimplification resulting from his lack of appetite for nuance – is the “silver-bullet” mentality about energy that has played a large part in getting us to where we are today.  Bryce seems to think that there should be one answer for most if not all our energy needs:  natural gas in the immediate future, nuclear in the longer future.  He doesn’t see a future for renewable energy, in large part because he seems to think that something that represents only a part of the solution isn’t really a solution.

I disagree, and believe we need a highly diversified all-of-the-above energy strategy, as I don’t see a one-size-fits-all energy approach as workable.  For example, if wind can supply 15% and solar 15% of our needs (at prices that are likely to decline with volumes to levels approaching competitiveness with fossil fuels), that shouldn’t be pooh-poohed just because it doesn’t supply a majority of our needs.  Indeed, going from less than 1% to more than 10% in either of these forms of energy represents a huge growth potential and huge wealth creation opportunity.

Notwithstanding its flaws, I do recommend cleantech advocates read the book.  It is cited widely by opponents of renewable energy and media articles and outlets unfavorable to renewable energy, so it’s good to have read the raw source material. 

Though you may need to have some industrial-strength antacid at your side when reading his so-called “industrial-strength journalism”.

Israel Awakening to Cleantech

by Richard T. Stuebi

In early November, I  participated in a week-long delegation concerning energy in Israel, at the invitation of Project Interchange, an educational program of the American Jewish Committee

In addition to learning a tremendous amount about Israel’s history, culture and political situation, my fellow travelers and I were fortunate to talk with many leaders active in various aspects of Israel’s cleantech sector.  From a cleantech standpoint, the key takeaways I gained from our tour were:

Even with a population of only 7 million people, Israel can nevertheless be an important force in cleantech, given that Jews have consistently played a disproportionately influential role in scientific and social advancement of the human race throughout history.

Will the 21st Century be the Fossil Fuel Century?

Will the 21st century be the fossil fuel century?

Whether it’s peak oilers, climate scientists, renewable and sustainable gurus, or cleantech venture capitalists, we all talk like that’s not an option.  We’ve preordained that the 21st century is a green energy, renewable power, cleantech century.

And I’d like to believe that.  But it’s not a done deal yet.  There are 3 points all of us need to keep in mind before declaring victory.

  1. China, the second largest and fastest growing large economy in the world consumes half the global coal consumption, powered in part by North American and Australian coal supplies, and by a huge increase in Chinese domestic coal production.  This year’s EIA reference case 2035 projection has China’s coal consumption doubling by 2035, driving most of a 50% increase in world coal consumption – and virtually no change in coal’s proportion of the energy equation.  Powered of course with current recoverable coal reserves at some 900 billion tons, or 120+ years of current production.
  2. Brazil, the poster child of biofuels potential the last 10 years, is making a play with its deep water subsalt discoveries to be one of the oil exporting superpowers.  And check out the announcement of its $224 Billion 5 year oil investment program.  That’s like a couple of thousand ethanol plants ,or one major oil company.  The Brazilian offshore finds to date represent production something like 5-10x the current Brazilian ethanol production.  Some poster child.
  3. And then there’s shale gas, its potential exemplified by the Marcellus Shale.  By some estimates this resource is big enough to change the entire game in fuels for power. And most of it’s located right down the street from the heart of the US population centers, just like the coal beds were.  Hard to see how electricity prices keep rising to help renewables in the face of that, with natural gas prices being  moderate and all, (unless of course China eats all the coal and drives coal prices up –  a global fossil fuels century either way?).

Imagine a 21st energy century where the US growth is powered by cheap natural gas, and exports our coal to China to even out the balance of payments.  Where increases in ethanol production and offshore oil production and slightly higher gasoline prices and mpgs balance out most of the transport fuel equation. A world where renewables play an important part, but still stay at margin of the King Fossil.

It’s not a world unimaginable.  And it’s not much different that the imagination might have done seen in 2000, or 1990, or 2050.  This shouldn’t be doom and gloom, nor should it be time to declare a cleantech victory.   The 21st energy century will be a long century.  And it’s just business as usual.

Peak Oil: Objects in Mirror May Be Closer Than They Appear

by Richard T. Stuebi

One of my favorite PowerPoint slides about the peak oil phenomenon comes from the dearly-departed Matt Simmons.  The slide depicted a mountain peak in an automobile rearview mirror, the implication being that we would only know for sure when peak oil production has been achieved after it has been achieved and followed by the inevitable decline.

Over the past decade, there has been a lot of debate as to when the date of peak oil would occur.  (It is worth noting that most of the argument has been about when, not whether, peak oil would occur.  Some of the more optimistic forecasters, such as Cambridge Energy Research Associates, have consistently projected peak oil a few decades out.  Some of the more pessimistic observers, such as long-time oilman Simmons himself, worried that peak oil would come much sooner, perhaps within a few years.

Now, according to a new parsing of the data in the World Energy Outlook 2010 by the International Energy Agency (IEA), it might be that peak oil production actually occurred in 2006 at about 70 million barrels per day.  This is a big shift from the IEA’s prior analysis in 2008, in which it projected that conventional oil production would slowly climb for decades to come.

To be clear, there is a bit of semantics at work here.  “Conventional” oil production represents black crude coming out of the ground in liquid form via wells, and that type of oil production may have peaked.  For sure, it’s getting harder to get:  big finds of conventional oil these days are the exclusive domain of multi-billion dollar big oil companies, working in the deepest places in the remotest places on the globe.

But, as you might have guessed by now, demand for transportation fuels (which historically are derived almost solely from oil) hasn’t peaked.  So, what’s backfilling the decline in conventional oil production?  Unconventional oil production – primarily tar sands from places like Alberta, and to a lesser extent natural gas liquids and (maybe more in the future?) coal-to-liquids – and biofuels are making up the difference.

What can declining conventional oil production mean?  For sure, it can only mean upward pressure on crude oil prices.  It also means that alternatives for crude oil in transportation markets become more economically appealing and more widely utilized.

However, the economics and availability of substitutes for conventional oil remains a great concern.  According to a recent study published in Environmental Science and Technology by researchers at the University of California, Davis, the stock market is projecting that the substitutes will not be economically-viable in large quantities at anywhere near the pace that they may be demanded.

Of course, the stock market is not a perfect predictor of anything.  However, if one accepts that the stock market reflects an incredible quantity of information processed by many very sophisticated market participants and further that on average stock prices are properly valued, the findings suggest that the market in aggregate isn’t seeing any huge near-term opportunities to replace oil in a major way.

If peak oil has indeed already occurred and if alternatives aren’t at the ready at competitive price points in meaningful volumes, then it is almost a virtual certainty that we will see some combination of significantly higher oil prices and/or oil demand destruction through reduced economic activity. 

It’s not a pretty picture staring back at us in the mirror.

Cleantech Blog Power 5 – Top Investors in Cleantech

It’s been a long year and a half or so since we published our last Cleantech Blog Power 5 on the top investors in cleantech.  Time for round two.

As usual the criteria for inclusion.

  • Investor made a significant contribution to the cleantech investment sector
  • More smart looking investments than stupid looking investments
  • On balance, I’d like to have your portfolio.
  • I actually might like you.

And the middle two criteria have some wiggle room.

So our Power 5 this year:

  1. CMEA Capital – A long time player, with a slice of venture capital in last year’s top cleantech IPO, A123, one of this year’s top cleantech IPOs, Codexis, and this decade’s biggest cleantech gamble, Solyndra, real hard to leave them off the list.  They come in at number 1.  Hopefully Solyndra doesn’t take back all those profits when it’s solar cattle-guard finally gets caught out.
  2. CalPERS – Despite somewhat skeptical on the performance to date, CalPERS has certainly played its part, and really anchored the explosion of venture money in cleantech.  And it continues to support it with another $500 mm commitment this fall.
  3. Bayard Capital – Makes the list for 1 deal, that is all their deals in one company.  This is the Australian firm who turned their capital fund into Landis + Gyr through a series of acquisitions before anyone in the US had heard of smart grid.
  4. Us – I mean the US DOE – Single-handedly carrying the the entire cleantech venture sector on its back?  Wow.
  5. Foundation Capital – Makes it because despite a couple of deals in their portfolio that make me cringe, they’ve gotten a lot of kudos in California for sticking it out with Silver Spring in the early days, and with one of the better cleantech exits behind them in EnerNOC and multiple bets in both solar power development and financing, and smart grid, I have to like the strategy.

And the 5 for the Royal Questioner to Question:

  1. Advanced Equities – If I need to explain why, you shouldn’t be in investing.  Do your google search.  I’m not even going to give you some links to point to this time.
  2. Every single cellulosic biofuels investor – Hey you guys, start reading our blog and stop playing the “watch my magically shrinking cellulosic biofuels forecast and my oh so please don’t notice the bait and switch to bio-anything but fuels business plan”.  Let alone the, “we can be cheaper than gasoline” or “this process has solved the oh so tricky problems and it’s just a little engineering scale-up”.  And for the record, we think the Cello Energy debacle is hilarious.
  3. Kleiner Perkins – EEStor, Bloom Energy, I turn green 1/3rd of the way down their list.  They’re the originators of the fundamentally flawed “stealth in cleantech investing strategy.”  And they make me look humble (which is hard to do).  Even making a few dollars in Amyris, doesn’t come close to making it up.  Of course, maybe the latest news articles are right, and they’re pulling out of cleantech?
  4. The American Taxpayer/ errrrr, I mean US Department of Energy – Hmmmmmmh.  Who’s the genius who signed off on massive low interest loan guarantees to Solyndra, Tesla, Beacon, and friends?  But just wait until the conditional commitments in big project dollars get spent, I’m sure that will fix it.  But for the record, it’s not generally a good sign when the government brags about out investing the private sector.  How about you guys invest my share of the total in a real chief credit officer.  I’d apply for the job, but only if you term it chief workout officer.
  5. Ok, we’re stopping, now, my stomach is still churning after number 4.

Note to all:  This list is waaaaaaaaaaaaaaaaaaaay too US centric.  I’m feeling very parochial.  More international suggestions please?

California’s Cleantech War – Prop 23

According to pick your favorite cleantech and carbon media outlet, California is at war. 

AB 32 is California’s carbon cap and trade law.   The law is most the way ready to implement, with the rulemaking in process now.  It’s aimed squarely at two goals, one, reduce California’s greenhouse gas emissions, and two, since such a reduction is largely symbolic without the rest of the world participating as well (CO2 is the only environmental pollutant that really doesn’t care where in the world it goes in or comes out, so is a truly global pollutant requiring a global response) continue California’s trend of environmental policy leadership, and be the beacon on the hill.

As it currently stands, AB 32 rules (as with most of these things the devil’s in the details, and the 2008 law takes a long time to work out the details) are supposed to be ready to go at the end of this year, and implemented in 2012.

Proposition 23 is an initiative on the ballot designed to indefinitely delay implementation of AB 32.  And for the record, if you don’t click that link at least read the Legislative Analyst’s analysis, I suggest you skip the vote.

The actual impact according to the California voter information guide would be to suspend part of the measures in the Scoping Plan (California’s overall GHG Plan), targeting about half of the emissions in the Scoping Plan:

“Various Climate Change Regulatory Activities Would Be Suspended. This proposition would result in the suspension of a number of measures in the Scoping Plan for which regulations either have been adopted or are proposed for adoption. Specifically, this proposition would likely suspend:

  • The proposed cap–and–trade regulation discussed above.
  • The “low carbon fuel standard” regulation that requires providers of transportation fuel in California (such as refiners and importers) to change the mix of fuels to lower GHG emissions.
  • The proposed ARB regulation that is intended to require privately and publicly owned utilities and others who sell electricity to obtain at least 33 percent of their supply from “renewable” sources, such as solar or wind power, by 2020. (The current requirement that 20 percent of the electricity obtained by privately owned utilities come from renewable sources by 2010 would not be suspended by this proposition.)
  • The fee to recover state agency costs of administering AB 32.

Much Regulation in the Scoping Plan Would Likely Continue. Many current activities related to addressing climate change and reducing GHG emissions would probably not be suspended by this proposition. That is because certain Scoping Plan regulations implement laws other than AB 32. The regulations that would likely move forward, for example, include:

  • New vehicle emission standards for cars and smaller trucks.
  • A program to encourage homeowners to install solar panels on their roofs.
  • Land–use policies to promote less reliance on vehicle use.
  • Building and appliance energy efficiency requirements.”

Because it is expected to scrap CARB’s proposed expansion of the California RPS to 33% of power from renewable sources up from the current goals of 20% (we’re not there yet), and the removal of the planned Low Carbon Fuel Standard, the entire cleantech sector is up in arms. 

Contrary to popular opinion, a Yes on Prop 23 probably won’t gut the cleantech sector – since cleantech is global and California’s cleantech companies are driven by programs well beyond its borders, since all the major programs Prop 23 affects haven’t actually been enacted yet and several key programs would be untouched (as well that the LCFS probably gets served by things other than cleantech biofuels anyway at least in the first years).  But it would cut into the future growth of renewables in the state a few years down the road, esp wind and large scale solar.

What it would definitely do is kill the nascent push in the US towards real cap and trade just a month ahead of the next round of international climate change negotiations in Cancun.  Quite frankly if California can’t deliver on its own cap and trade law, who else can?

And it would send a signal to the world that California voters are not quite as ready to be the beacon on the hill for environmental issues as they once were.

Will it hurt the economy and kill jobs if we don’t pass it and AB 32 continues?  Unfortunately it depends, with the pain more certain and likely nearer term, and the huge economic benefits more uncertain and likely longer term – though quite substantial in possibilities.  Yes, in the short term and medium term LCFS and 33% RPS and cap and trade will push up power prices and fuel prices in California, hurting consumers, and pushing some production out of the state (if other states and countries don’t continue to match the increased regulation).  That’s why it’s called alternative energy – it’s still more expensive.  But yes, it will probably simultaneously catalyze more venture capital investment (VC services is a big export for us), carbon markets investment (I know about two dozen companies that moved into California specifically because of AB 32 and its first mover advantage in US cap and trade and I helped bring 2 of them in myself), and certainly add some manufacturing and construction jobs in the cleantech sector. 

Net net, higher energy and manufacturing costs in California and an effective renewable and carbon quota mean economic losses in comparative advantage and to consumers in California.  But how much depends on exactly how good a job it does of catalyzing jobs in California for export or replacing business that we currently import to offset that.  And it is very, very hard to underestimate how good California’s environmental leadership has been at catalyzing US and global change.  Meaning the that comparative advantage loss may be short-lived (higher power prices from more low carbon renewables don’t cost California many jobs if its competitors adopt effective carbon prices as well), and if a new export industry and venture capital emerges to be a world leader (which basically pulls dollars from all around the world into Silicon Valley) it means more new California jobs gained than those lost from the comparative advantage shift, then all is good.

Unfortunately, some of that depends on how well CARB actually designs the final rules, and my big fear for California on AB 32 stems from how badly the state screwed up its last major energy deal – power deregulation.  Keep in mind Texas got that one right, and California’s was a fiasco (then as now blamed on the Texans – but I can buy 100% wind power for 11.4 cents a Kwh flat rate in Texas).

So, vote yes, and kill AB 32, and carbon leadership, and ding the rest of the cleantech sector, and you’ll probably never feel the impact in you pocket book (or realize it if you do).  But if you vote yes, you lose all moral right to claim cleantech and environmental leadership for the state.

Or vote no, and keep the state headed in the direction its going – leadership in renewables and carbon, and signal to the world that you care.  More than that, you tell yourself you believe that policy enabled innovation can change your fortune for the better, and outweigh the investment.  That’s technology and venture capital, and that’s what California does best. 

But please, vote for what *you* believe – not because the cleantech sector is screaming that you’re taking away their subsidy or because a couple of independent Texas oil companies are funding the no vote (they are, but to be fair, they provide a lot jobs and taxes to the state, California has not exactly gone out of its way play fair for them in the implementation of AB 32).  And don’t vote one way or the other just because you think it create or kill jobs – because which way the net outcome sways lies on our shoulders, too, from policy makers and CARB staff to the energy industry to the California consumer and business who will pay the final price and reap the final reward either way. 

Neal Dikeman is a founding partner at cleantech merchant bank Jane Capital, has help found or has interests in businesses in carbon (as founding CEO of Carbonflow), solar, superconductors, and green products, and personally stands to lose a lot of money if Proposition 23 passes and AB 32 goes down.

Craton Barreling Ahead

by Richard T. Stuebi

Being a senior advisor to the firm, I attended last week’s annual meeting of Craton Equity Partners, a cleantech private equity fund manager based in Los Angeles.

While cleantech in its focus, Craton doesn’t take on much technology risk. Rather, Craton generally invests in companies that have largely proven their technologies – or frankly don’t rely much on proprietary technologies – and are already generating substantial revenues, requiring growth capital to build out their business models into sizable scale.

This was illustrated by the stories told by three of Craton’s portfolio companies:

  • Propel Fuels, which is developing a critical mass of biofuel retailing locations – by leasing space at existing gas stations, installing necessary equipment for biofuels, managing fuel delivery logistics, and retail marketing via co-branding – across California, with a view towards replicating this model in other geographic markets in the U.S.
  • Petra Solar, which has standardized a photovoltaic product for installation on power poles, thereby enabling utilities to meet renewable portfolio standard requirements while also improving the quality and management of power throughout their distribution grids.
  • GreenWave Reality, which is aiming to extend the smart-grid “beyond the meter” and into the home, via a centralized radio-broadcasting gateway at the service entrance and a variety of intelligence-enabled radio-controlled applications throughout the home to manage energy usage.

Along with these three presentations by portfolio company CEOs, the Craton senior partners provided their perspective on the state of the cleantech investment markets.

Of note, the Craton partners believe that the collapse of the credit markets over the past few years has yielded good opportunities for its fund to invest equity in companies – some of whom are generating tens of millions of dollars of revenues, and already profitable – that really ought to have been able to secure debt during more normal times, thereby generating attractive risk-return profiles upon which Craton could capitalize. Clearly, Craton was fortunate to have been focused on later-stage private equity opportunities, rather than earlier-stage venture capital opportunities, where the credit crunch has provided no such opening.

The recent addition of Kevin Wall to the Craton team, possessing significant high-level contacts around the world, reflects Craton’s view that many of the best growth and exit possibilities for cleantech in the coming years will occur internationally. This is a sad but entirely legitimate commentary on the state of the U.S. cleantech marketplace: if you want to really do well in cleantech investing in the next several years, you’re going to have to focus a lot of attention overseas.

Consistent with my personal experience, the Craton team noted that the key success factor for their portfolio companies continues to be management quality. Fortunately, they are seeing (as I am) an influx into cleantech of a greater quantity of better talent in the past few years. Of course, this is in part driven by deteriorating economic conditions and opportunities in other sectors of the economy. But, I also sense it’s because many capable people are increasingly drawn to cleantech for other intangible attractions. (I was recently on the phone with an old friend of mine who made a lot of money in real estate and didn’t find it challenging enough – so he’s moving into cleantech. Five years from now, I’m sure this friend of mine will not complain that making money in cleantech wasn’t sufficiently challenging!)

On the whole, it appears that Craton’s first fund is doing generally well, and the firm is beginning to prepare for raising its second fund. The question will be whether Craton’s good performance on paper (no liquidity events yet) will be able to overcome a very tough fund-raising environment. Given their strong relationships in the California marketplace – where cleantech has the most traction of anywhere in the U.S. – Craton’s progress in the coming 12-24 months will be a good barometer of the health of the cleantech investing thesis in the U.S.

Richard T. Stuebi is a founding principal of NorTech Energy Enterprise, the advanced energy initiative at NorTech, where he is on loan from The Cleveland Foundation as its Fellow of Energy and Environmental Advancement. He is also a Managing Director in charge of cleantech investment activities at Early Stage Partners, a Cleveland-based venture capital firm.

Shell’s new $12 Billion Investment in Advanced Biofuels with Cosan

By John Addison (8/25/10) original post at Clean Fleet Report

Shell (NYSE: RDSA) and Cosan (NYSE: CZZ), one of the world’s largest sugarcane ethanol companies based in Brazil, signed binding agreements to form a $12 billion joint venture for the production and commercialization of ethanol and power from sugar cane. The resulting joint venture, if completed, will be the third largest ethanol producer in the world with 4,500 retail stations and annual production capacity of 2 billion liters (440 million gallons).

This venture gives Shell an opportunity to lower the carbon footprint gasoline which can have ethanol blended to 10 percent and still be supported by the warranties of all major auto makers. Currently Shell is producing more oil from tar sands using environmentally destructive processes that increase the carbon footprint of gasoline, diesel, and jet fuel refined from tar sands crude.

Sugarcane is the currently the most efficient feedstock for larger scale ethanol production. While corn ethanol delivers little more energy output than the total energy necessary to grow, process, and transport it; sugarcane ethanol delivers eight times the energy output as lifecycle energy input. Also, sugarcane typically produces twice as much fuel per acre as corn.

Brazil produces almost as much sugarcane ethanol as the United States produces corn ethanol, but at a fraction of the energy cost. Sugarcane is also grown in the southern U.S., from Florida to Louisiana to California.

Brazil is free from needing foreign oil. Flex-fuel vehicles there get much better mileage than in the U.S. If you drive into any of Brazil’s 31,000 fueling stations looking for gasoline, you will find that the gasoline has a blend of at least 20% ethanol, as required by law. 29,000 of the fueling stations also offer 100% ethanol. Ethanol in the U.S. is normally delivered on trucks, increasing its cost and lifecycle emissions. Brazil’s largest sugar and ethanol group, Cosan SA announced the creation of a company to construct and operate an ethanol pipeline.

Most sugarcane is grown in the southern state of Sao Paulo. Economics do not favor its growth in rain forests, although those who favor blocking its import make that claim. It is cattle, soy, palm oil, logging, and climate change that most threaten the rain forests. Some environmentalists are concerned that a significant percentage of Brazil’s sugarcane is grown in the cerrado, which is one of the world’s most biodiverse areas. The cerrado is rich with birds, butterflies, and thousands of unique plant species. Others argue that without sugarcane ethanol, more oil will come from strip mining Canadian tar sands and from a new “gold rush” for oil in the melting artic.

“In addition, the residue of sugarcane ethanol, bagasse, can be used for further energy production. While this may likely be used for generating carbon-neutral electricity, it could also be used in cellulosic biofuel production, potentially generating an additional 400-700 gallons per acre.” (California Low Carbon Fuel Standard Technical Analysis p 87-88)

Sugarcane growers are planning the development of varieties that can produce a larger quantity of biomass per hectare per year. These varieties are being called “energy cane” and may produce 1,200 to 2,000 gallons of ethanol per acre, contrasting with 300 to potentially 500 gallons of ethanol from an acre of corn. Sugarcane ethanol is currently the low-cost winner of biofuels.

Advanced Biofuels

Shell will contribute its 16% equity interest in Silicon Valley-based advanced biofuels company Codexis (NASDAQ: CDXS) to the new Cosan JV with the goal of deploying next generation biofuels technologies in the future. Codexis has a multi-year research & development partnership with Shell to develop advanced biofuels from non-food based biomass including sugarcane stalks.

The proposed joint venture, which still requires regulatory approval, will produce and commercialize ethanol and power from sugar cane and distribute a variety of industrial and transportation fuels through a combined distribution and retail network in Brazil. It will also explore business opportunities to produce and sell ethanol and sugar globally.

With annual production capacity of over 2 billion liters, the proposed joint venture will be one of the world’s largest ethanol producers. The inclusion of Shell’s equity interests in Iogen Energy and Codexis would enable the joint venture to deploy next generation biofuels technologies in the future. The company will also generate electricity from sugar cane bagasse in cogeneration plants at all mills. Ten cogeneration plants are already operational.

With total annual sales of about 18 billion liters of fuels, the proposed joint venture will have a competitive position in the Brazilian fuels distribution market built upon a network of about 4,500 retail sites.

Shell is also investing and partnering in other advanced biofuel ventures. Shell is a venture investor in Virent Energy Systems which converts plant sugars directly into a range of high performance liquid transport fuels such as biogasoline. Shell also has a joint venture Cellana in Hawaii that is developing a small pilot facility to grow marine algae and produce vegetable oil for conversion into biodiesel.

Clean Fleet Biofuels Reports

Disclosure: No positions

Kleiner Perkins on Biomass

by Richard T. Stuebi

I was recently forwarded an article by Amol Desphande, partner of the renowned venture capital firm Kleiner Perkins, entitled “Investing in the Biomass Industry”, which appeared in the September 2009 issue of BioCycle magazine.

No doubt seeking to contrast Kleiner Perkins from its peers, Deshpande questions the prudence of investing in large-scale biorefining operations — whether first- or second-generation — and instead characterizes the attributes of biomass technologies that make for more appealing investment candidates:

  • Scales down and can operate in a distributed manner
  • Produces a product that is supply chain compatible (e.g., grid connection, pipeline access points)
  • Uses a feedstock that already has a supply chain
  • Has a beneficial reuse and is free of harmful contaminants or odors
  • Uses available feedstocks of low value and that require minimal pretreatment
  • Costs less than $5 million to demonstrate at semi-commercial scale
  • Consumes minimal water and parasitic energy
  • Has one step for its primary energy conversion (i.e., one primary unit operation, like an anaerobic digester)
  • Takes less than six months to build a commercial plan from “shovel in ground”

Apparently, Kleiner Perkins has seen a number of venture opportunities possessing most of the above characteristics, having invested in Amyris, Harvest, Mascoma, and Sundrop Fuels.

Deshpande closes passionately with the following call to action:

“This is the greatest time in history for entepreneurs in the biomass industry. Rising energy prices, public awareness, technology breakthroughs and carbon credits will make the next 10 years a great time to innovate…Distributed biomass power technologies are available and should be deployed in the short-term. Over the long-term, we probably need to change the way we grow our food. These changes present opportunities for entrepreneurs willing to take the challenge to innovate and transform biomass in a more efficient way.”

Richard T. Stuebi is a founding principal of NorTech Energy Enterprise, the advanced energy initiative at NorTech, where he is on loan from The Cleveland Foundation as its Fellow of Energy and Environmental Advancement. He is also a Managing Director in charge of cleantech investment activities at Early Stage Partners, a Cleveland-based venture capital firm.

Why Corn-Based Ethanol Sucks

by Richard T. Stuebi

While it is increasingly recognized that subsidies for corn-based ethanol are bad policy, a nod must be given to C. Ford Runge, a professor at the University of Minnesota, for his pithy and merciless analysis in his note “Biofuel Backlash” published in the May/June issue of Technology Review.

In the space of just a few short paragraphs, Prof. Runge cites the work of Earth Track (a firm dedicated to exposing subsidies detrimental to the environment) projecting $400 billion of U.S. subsidies to ethanol between 2008-2022, notes a recent estimate by the Earth Policy Institute that the 2008 U.S. corn crop diverted for ethanol production would have been sufficient to feed 330 million people for a year, and provides a reference to modelling that indicates a near-doubling of greenhouse gas emissions due to changes in land-use patterns associated with corn-for-ethanol production.

It’s amazing that such awful policies, which are so adverse on so many dimensions, can survive. But, in the gameboard that is U.S. energy, environmental, and agricultural policy, only grand compromises supported by the big boys can get enacted — which are then extremely difficult to overturn when they are seen to be nothing more than gifts to their well-positioned and deep-pocketed sponsors and supporters.

Reiterating a point I’ve made before: I have nothing against ethanol per se. Cellulosic ethanol, if it can be accomplished cost-effectively, is a promising prospect for reducing greenhouse gases and reliance on Middle Eastern petroleum without chewing up valuable foodstuffs. But corn-based ethanol plainly sucks. And, the notion of using corn-based ethanol as a bridge to cellulosic ethanol is dubious at best.

The old adage says that a camel is a horse designed by committee. Would it were that U.S. biofuels policies were as lovely as a camel.

Richard T. Stuebi is a founding principal of NorTech Energy Enterprise, the advanced energy initiative at NorTech, where he is on loan from The Cleveland Foundation as its Fellow of Energy and Environmental Advancement. He is also a Managing Director in charge of cleantech investment activities at Early Stage Partners, a Cleveland-based venture capital firm.

BP Oil Spill

Barrons had an interesting take on biofuels from garbage:

I have been following this movement for some time and there does seem to be an extraordinary amount of capital and brainpower going into this space. People talk a lot about ethanol and I am a big of ethanol, mostly because I like the constiuency and channel to market it creates. More importantly, I am big fan of all of the other alternatives such as biofuels to garbage which has big proponents from Waste Management to others and Barrons claims that we might be able to get as much as 600,000 barrels a day of oil equivalent from this source. Not much compared to the almost 20,000,000 barrels a day that we use in the US alone.
Efficiency within existing ICE engines is another area we should focus on:
My friends at BP think that for an extra $4K per car you could reduce fuel usage by 50% within the next 4 years (typical auto planning cycle).
Electric Vehicles are a good choice as well:
For many applications, if you can put together the right financing you can achieve a lower cost per mile than diesel powered delivery vehicles today.
T Boone Pickens and others have talked about Natural Gas. With gas prices so low right now, there is some financial justification for this approach, particularly for heavy trucks — where less incremental infrastructure is required.
What the idea above show is that this will be a tough nut to crack, but on diversification arguments alone we should start the task of moving away from a largely oil based fuel future to one that diversifies away from oil.
Oh and it will be cheap and pay for itself in lower fuel and oil prices!
Jigar Shah
Carbon War Room

Frogs and Fuels

by Richard T. Stuebi

Thanks to my friend and fellow blogger Ed Beardsworth for making me aware of this gem:

As discussed in overview in this article, researchers at the University of Cincinnati have found that frogs of a certain species, the Tungara frog to be exact, secrete a foam that seems to turbocharge the photosynthetic effect — thus offering the tantalizing prospect of removing carbon dioxide in the air while increasing the productivity of converting organic matter into biofuels.

The paper, “Artificial Photosynthesis in Ranaspumin-2 Based Foam” in the journal Nano Letters, cannot be found at your local newsstand and is not likely to become a bestseller. But, maybe some synthetic foams with the same properties as the Tungara frog’s might become commercially-interesting in both carbon sequestration and biofuel production.

Richard T. Stuebi is a founding principal of NorTech Energy Enterprise, the advanced energy initiative at NorTech, where he is on loan from The Cleveland Foundation as its Fellow of Energy and Environmental Advancement. He is also a Managing Director in charge of cleantech investment activities at Early Stage Partners, a Cleveland-based venture capital firm.

Biofuel Beatdown

by Richard T. Stuebi

A few weeks ago, the Wall Street Journal ran an article entitled “U.S. Biofuel Boom Running on Empty”, which presented a blistering across-the-board slam on biofuels. Perhaps more interesting than the WSJ article itself was an email reaction I received from a prominent energy tech venture capitalist with keen visibility into the transportation fuel space (whom I will keep anonymous), who said:

“The article makes the common mistake of using the broad term ‘biofuel’ when they should be focusing down to ‘biodiesel’ and ‘corn-based ethanol’….Renewable diesel and ‘green’ gasoline are still alive and attracting big VC dollars. Engineered microbes, bacteria and algae work to produce drop-in fuels are still going.”

Notwithstanding the bad recent press — a virtually-forecastable reaction to the excessive biofuels hype of the 2005-2007 era — reasonable potential for biofuels still remains. To wit, a new report from the United Nations entitled “Towards Sustainable Production and Use of Resources: Biofuels” makes clear that certain biofuel feedstocks and production approaches are much more environmentally-friendly than others. And, as more of these biofuel production schemes turn away from inputs subject to the vagaries of food market dynamics, the financial volatility facing producers should substantially decline (though price fluctuations in the output fuel markets will always remain).

Biofuels have fallen prone to oversimplification. Because corn-based ethanol and soy-based biodiesel are both environmentally marginally beneficial and economically unattractive at current prices for feedstocks and fuels, many immediately leap to the conclusion that all biofuel technologies are inherently and forever unattractive. Don’t fall prey to that mistake. It’s just not true.

Richard T. Stuebi is a founding principal of the advanced energy initiative at NorTech, where he is on loan from The Cleveland Foundation as its Fellow of Energy and Environmental Advancement. He is also a Managing Director in charge of cleantech investment activities at Early Stage Partners, a Cleveland-based venture capital firm.

A Quick Take on Joule Biotechnologies

by Gypsy Achong

Joule Biotechnologiesʼ recent press release has stimulated a bit of excitement and speculation on their technology, including by our own blogger Paul O’Callaghan.

A quick look at Joule Biotechnologiesʼ patent filing suggests that they are engineering a fast growing bacterium – Escherichia coli – capable of converting light and carbon dioxide into fuel. The advantages of using E. coli over algae are clear:

  • E. coli is significantly easier to genetically engineer than algae. Thus, Jouleʼs culture will allow greater flexibility in output of fuels / chemicals as policies and product prices change
  • E. coli grows ~10x faster than algae. As long as the metabolic load of photosynthesis does not slow down growth, Jouleʼs culture has potential to capture light at a greater rate than algae
  • Also, algae grow slower if light intensity gets too high. Jouleʼs plan to use a solar concentrator suggests that their engineered organism is less susceptible to light intensity.

In addition, use of a solar concentrator presents an opportunity for increasing light capture efficiency of a reactor. The benefits of Jouleʼs approach have potential to be game-changing, and they have assembled an A-team to deliver. Resumes of the inventors, Eric Devroe, Dan Robertson, Frank Skraly and Christian Ridley, include a whoʼs who of prestigious research labs and synthetic biology companies including Diversa (now Verenium), Metabolix and Codon Devices. George Church, a Harvard professor of genetics and serial entrepreneur, is an advisor (

Still, development risks are high. Creating a photosynthetic organism from scratch is not facile – photosynthesis is one of the most complicated metabolic pathways that exist in nature, and includes membrane proteins – typically the hardest proteins to move between organisms. But perhaps Joule is a company to keep on the radar.

Gypsy Achong is a guest blogger on She was most recently a management consultant at the Boston Consulting Group, focusing on energy and biotechnology. She has a Ph.D. in environmental microbiology from Stanford University.