A Crystal Ball for 2013

Happy new year everyone.  As we reflect upon the year now past us, it’s also that time of year to look ahead.

For the cleantech sector, Dallas Kachan from Kachan & Co. recently put his neck on the line with his “Predictions for Cleantech in 2013”.  It’s a good read, well-reasoned.  The sound-bite version:

  • Cleantech venture capital may never again reach the heights (at least in terms of dollars invested) of 2011.  As Kachan notes, and I concur, that’s not necessarily a bad thing.  It just means that capital-inefficient deals that used to attract VC dollars won’t so much in the future.  And, it means that a lot of ineffective cleantech VCs will be washed out of the sector.  Moreover, other sources of private finance – especially corporates, but also family offices and sovereign wealth funds – will step in.
  • The solar and wind sectors face increasing challenges because grid-scale energy storage technologies aren’t coming to the fore as expected.  Dispatchable power sources with lower emissions will gain ground.  This is especially the case for natural gas, but Kachan controversially also sees a growing role for new nuclear technologies.
  • Clean-coal technologies become less oxymoronic.  Great quote here:  “No, clean coal doesn’t exist today.  But that doesn’t mean it shouldn’t.”  Kachan claims to have visibility on some promising new technologies in this realm.  Personally, I’m a little skeptical – I’ve heard such things many times before – but I’d be glad to be wrong.
  • Significant improvements are afoot for internal combustion engines, further stifling the advent of electric vehicles (EVs).  I agree with Kachan that a lot is being undertaken to improve the old piston engine.  Those innovations being pursued by tier one auto suppliers have a fair chance of quick adoption.  However, a lot of the potential breakthroughs I’ve heard about are being explored by venture-backed start-ups or garage-tinkerers, and I am less optimistic than Kachan appears to be that these companies can make large inroads into the incredibly demanding automotive supply chains within a year.
  • Mining and agriculture will become more important segments of the cleantech sector.  Especially with respect to agriculture, I agree with Kachan wholeheartedly, as increased corporate venture activity is beginning to burble in such stalwarts as Monsanto (NYSE: MON), Syngenta (NYSE: SYT), and Cargill.

Though I haven’t gone back to review his track record, Kachan claims a good history of prognostication from recent years.  I think many of his views for the near-future are justified and hence likely (if not for 2013 then more generally for the next couple of years), but he’s thrown in enough unconventional wisdom to make things interesting.

Let’s make 2013 a good one, shall we?

Cleantech to “Backtrack” in 2013?

Our firm, Kachan & Co., has just published its latest annual set of predictions for the cleantech sector for the year ahead.

To our analysis, 2013 is shaping up to be something of a year of backtracking for the cleantech industry, a year that calls into question some of its traditional leading indicators of health, and one that surfaces long term risk to such cleantech stalwarts as solar, wind and electric vehicles.

Do we think cleantech is finished? Not at all. But much like young Skywalker learned in Episode V, cleantech is about to find out that the Empire sometimes gets its revenge.

In brief, (click here for long version) our predictions include:

Cleantech venture investment to decline –  Expect worldwide cleantech venture capital investment in 2013 to decline even further than it did in 2012, never to return to the previous highs it achieved before the financial crisis of 2007-2008, we believe. Among the factors: the departure of many venture investors from the sector because of disappointing returns, poor policy support worldwide and a lag time in the pullback of equity and debt investment.

But this doesn’t mean the sky is falling in cleantech. Family offices, sovereign wealth and corporate capital are now having more significant roles, filling gaps where traditional VC has played in recent years. It’s a sign the sector has matured, we believe. Fewer VC cooks in the kitchen may indeed impede innovation, but deep pocketed corporate capital should help clean technologies that are already de-risked reach more meaningful levels of scale.

Long term risk emerges for solar and wind – The solar and wind markets suffer today from margin erosion, allegations of corruption, international trade impropriety and other challenges. In 2013, we think poor progress in grid-scale power storage technology will also start to put downward pressure on solar and wind growth figures. Prices per kilowatt hour are falling, yes, but the cost of flow batteries, molten salt, compressed air, pumped hydro, moving mass or other storage technology needs to be factored in to make intermittent clean energies reliable and available 24/7. When also considering continued progress in cleaner baseload power from new, emerging nuclear technologies, natural gas and cleaner coal power, the growth rates for solar and wind appear increasingly at risk.

Clean coal technologies gain respect – We predict 2013 will be the year a new set of technologies will emerge aimed at capturing particulate and CO2 emissions from coal fired power plants and help clean coal technologies begin to overcome their negative positioning. The barrier to capturing coal emissions has been cost and power plant output penalties. Our research has identified encouraging new technologies without such drawbacks, and we think the world will begin to see them in 2013. China is expected to target domination of the clean coal equipment market, like it does already in many other cleantech equipment categories.

The internal combustion engine strikes back, putting EVs at risk – Important innovations quietly taking place in internal combustion engines (ICE) could further delay the timing of an all-electric vehicle future, we think. In 2013, unheard-of fuel economy innovations in ICEs will enter the market, including novel new natural gas conversion and heat exchange retrofits of existing engines aimed at dramatically lessening fuel needs. Some of these technologies, when combined, claim to be able to reduce fuel costs by 90%. That could push out the timing of EV adoption.

Cleantech adoption in mining – Notoriously conservative mining companies and their shareholders are starting to realize that the capital expenses of new clean technologies can be offset by reduced operating costs and the potential for new revenues. In 2013, we predict more adoption of cleantech innovation in mining, in areas such as tailings remediation, membrane-based water purification, sensors and telematics, route optimization software intended to lower fuel and equipment maintenance costs, and low water and power hydrometallurgical and other novel processes for mineral separation.

Big ag steps up and cleans up – We estimate that 2013 will be the year the world’s leading agricultural companies embrace new innovation in significant ways. Expect accelerated corporate investment, strategic partnership and agricultural M&A in 2013, as agricultural leaders race to meet consumer demand for cleaner, greener ways of producing food, having weathered intense consumer GMO-related and other backlash.

Want more rationale & data? Read our predictions for cleantech/greentech in 2013 in their entirety.

Agree? Disagree? Weigh in on our original article here.

2011 In The Rear-View Mirror: Objects May Be Closer Than They Appear

It’s that time again:  sifting through the detritus of a calendar year to sum up what’s happened over the past 12 months. 

Everybody’s doing it — for news, sports, movies, books, notable deaths…and now even for cleantech:  here’s the scoop from MIT’s Technology Review, and here’s a post on GigaOM.

So, my turn [drum roll, please], here’s my top 10 take-aways from 2011:

  1. Solyndra.  The utter failure of Solyndra, and the messy loan guarantee debacle, has been a huge black-eye to the cleantech sector.  It’s a political football that will be kicked around extensively during the 2012 election cycle, further widening the schism of support levels by the two major U.S. political parties for cleantech.  In other words, cleantech is becoming an ever-more polarizing issue — with Solyndra serving as the most visible tar-baby.
  2. Shale gas and fracking.   A chorus of ardent proponents of natural gas development, most vocally Aubrey McClendon, the CEO of Chesapeake Energy (NYSE: CHK) — the largest player in the shale gas game — is repeatedly chanting the mantra that shale gas is so plentiful that it can very cheaply serve as the major U.S. energy source for the next several decades.  And, recovery of this resource will create a bazillion jobs for hard-working Americans in rural areas.  In this view, who needs renewables?  Interestingly, this view also poses increasing threats to coal interests as well.  On the flip side, of course, the concerns about the use of fracking techniques, and the implications on water supplies and quality, are constant fodder for headlines.  Clearly, shale and fracking will continue to be hot topics for 2012.
  3. Keystone XL.  The proposed pipeline to increase capacity for transporting oil from the Athabasca sands of Alberta to the U.S. is the current lightning rod for the American environmental community.  Never mind that denying the pipeline’s construction will do very little to inhibit the development of the oil sands resources — Canadian producers will assuredly build a planned pipeline across British Columbia to ship the stuff to Asia.  Never mind that blocking the pipeline will do nothing to reduce U.S. oil consumption — which is, after all, the source of the greenhouse gas emissions that opponents are so concerned about.  This has become an issue of principle for NRDC and other environmental advocates:  “we must start taking concrete steps to wean ourselves from fossil fuels.”  Nice idea in theory, but this action won’t actually do anything to accomplish the goal, and will only further paint the environmental community in a damaging manner as being anti-business and anti-economics.  In my view, we have to work on reducing demand, not on curtailing supply; if we reduce demand, less development of fossil fuels will follow; the other way around doesn’t work.  The Obama Administration has punted approval for the pipeline past the 2012 election, but Keystone XL — like Solyndra — will be a major framing element in the political debates.
  4. Fukushima.  The terrible earthquake/tsunami in Japan in March killed over 20,000 people — and sent the Fukushima powerplant into meltdown mode in the worst nuclear accident since Chernobyl in 1986.  As costly and devastating as Fukushima was to the local region, it pales compared to the damages caused by the natural disasters themselves.  Even so, the revival of the perceived possibility that radioactive clouds could spew from nuclear powerplants put a severe brake on the “nuclear renaissance” that many observers had been predicting.
  5. Chevy Volt.  Released after much anticipation in 2011, sales of the plug-in electric hybrid Volt have been well below expectations.  Furthermore, as I recently discussed here, a few well-publicized incidents of fires stemming from damaged batteries have been a huge PR blow to gaining widespread consumer acceptance of electric vehicles.  Clearly, Chevy and others in the EV space have their work cut out for them in the months and years ahead.
  6. Challenges for coal.  As I recently wrote about on this page, the EPA has been working on promulgating a whole host of tightened regulations about emissions from coal powerplants.  These continue to move back and forth through the agencies and the courts, and coal interests continue to wage their battles.  But, between this set of pressures and low natural gas prices (see #2 above), these are tough days for old King Coal.  Not that they couldn’t have seen these challenges coming for decades, mind you, and not that some of their advocacy organizations don’t continue to tell their pro-coal messages with some of the most heavy-handed and dubiously factual propaganda outside of the recently-deceased “Dear Leader” Kim Jong Il
  7. Light bulbs.  One of the most absurd and petty dramas of 2011 unfolded over the planned U.S. phase-out of incandescent light bulbs, as provided for in one of the provisions of the Energy Independence and Security Act of 2007Representative Joe Barton (R-TX) led a backlash against this ban, arguing that it was an example of too much government intrusion into consumer choice — and succeeded in having the ban lifted at least for a little while, tucked into one of the meager compromises achieved as part of the ongoing budgetary fights.  This was accomplished against the objections not of consumers, but the objections of light bulb manufacturers themselves, who had already committed themselves to transitioning to manufacturing capacity for the next-generation of light bulbs:  CFLs, LEDs and halogens.  Now, the proactive companies who invested in the future will be subject to being undercut by a possible influx of cheap imported incandescent bulbs.  Way to go, Congress!  No wonder your approval ratings are near 10%.  Is it possible for you guys to focus on the big important stuff rather than on small bad ideas? 
  8. PV market dynamics.  Solyndra (#1 above) failed in large part because the phovoltaics market has become much more intensely competitive over the past year.  Module prices have fallen dramatically — no doubt, in large part because the market is now saturated by supply from Chinese manufacturers, who are sometimes accused of “dumping” (i.e., subsidizing exports of) PV modules into the U.S. marketplace.  This is stressing the financials of many PV manufacturers, including some Chinese firms and other established players.  For instance, BP (NYSE: BP) announced a few weeks ago its exit from the solar business after 40 years.  However, the stresses are falling mainly on companies that employ PV technology that cannot be cost-competitive in a lower pricing regime, whereas some of the new PV entrants — not just Chinese players, but some U.S. venture-backed players like Stion (who just raised $130 million of new investment) — are aiming to be profitable at low price levels.  And, after all, the low prices are what is needed for solar energy to achieve grid-parity, which is what everyone is seeking for PV to be ubiquitous without subsidies. 
  9. Subsidies.  Ah, subsidies.  In an era of increasing fiscal tightness (see #10 below), pro-cleantech policies are under greater scrutiny.  In particular, renewable portfolio standards are being threatened by state legislators of a particular philosophy who are opposed to subsidies in all forms.  The philosophy is understandable, but the lack of understanding or hypocracy is less easy to defend:  the status quo is almost always subsidized too, especially during its early days of development and deployment — and often remains subsidized well after maturity and commercial profitability.  Fortunately, there’s an increasing body of high-quality work that assesses the energy subsidy landscape in a generally objective manner, such as this analysis released by DBL Investors in September.
  10. Europe.  Although not a cleantech issue per se, the vulnerability of the European economy, the European Union, and the Euro in the wake of the various debt crises unfolding across the Continent is a major negative factor for the cleantech sector.  Europe is the biggest cleantech market, and many of the leading cleantech investors and corporate acquirers are European, so a recession (or worse, depression)  in Europe will be a very big and very bad deal for cleantech companies.

In all, 2011 was not a great year for the cleantech sector, and I don’t see 2012 being much better.  But, that’s not to say that good things can’t happen, or won’t happen.  Indeed, there will always be rays of sunshine among the clouds…or, to use another metaphor, you’ll always be able to find a pony in there somewhere.

Happy New Year everyone!

Environmental Regulation of Coal Power: Train Wreck or No?

Over the past several months — well, years, really — there’s been a lot of to-and-fro about various new environmental requirements that may or may not face coal-fired powerplants.

Some observers have called it a regulatory “train wreck”, arguing that some of the requirements run at cross-purposes to others, or are planned to be sequenced in a manner that are difficult to manage, so that it will be incredibly costly for owners of coal powerplants to comply, and will drive the retirement of a large portion of the U.S. generating capacity.  For this view, see this report from the American Legislative Exchange Council.

In August, the Congressional Research Service released a report largely refuting this view.  As noted in the Executive Summary, “supporters of the regulations assert that it is decades of regulatory delays and court decisions that have led to this point, resulting in part from special consideration given electric utilities by Congress under several statutes.”  Or, put another way, the fix that coal powerplant owners are in is substantially of their own doing.

As Ezra Klein of the Washington Post asks, “Who’s right?” 

Maybe the more interesting take is from Ken Silverstein of EnergyBiz, whose article headline says it all:  “Coal’s Woes Run Deeper than EPA Regs”.  In particular, mining in Central Appalachia is experiencing significant declines due simply to depletion of the lowest-cost reserves there.  Coal production is not only shifting west to larger and cheaper reserves, but is being threatened by low-cost natural gas due in large part to the boom in shale gas production.

Coal is an industry in retreat and on the defensive, ornery — notwithstanding the sector’s efforts to portray itself to the public in a positive light, such as at America’s Power.  The promise of advancements in so-called “clean coal” technologies involving carbon sequestration has largely failed to bear fruit.  The economic supremacy of coal over other fuels is under seige.  Mining safety incidents and mountaintop removal practices continue to give the industry a black eye.

Yes, coal is abundant, and many of the premises about coal’s enduring place in the energy economy put forth by the seminal MIT study “The Future of Coal” no doubt remain true.  But, as tough as it’s been for the nuclear and renewables sectors, it’s also going to be a rough ride for players in the coal industry.  I wouldn’t want to ride that train, whether or not a train wreck ensues.

Clean Coal Technology Is Making Venture Investors Money

One of my friends, John Moore. the CEO of Acorn Energy (NASDAQ:ACFN), recently sold off their rapidly growing CoaLogix investment for a quick return. I caught up with John to get the story.

So John, who the hell is Acorn Energy anyways?

Acorn Energy (NASDAQ:ACFN) is the Sun Studios of the energy sector. We have created companies and categories like Demand Response (Comverge-(NASDAQ:COMV)) and the less well known SCR catalyst regeneration market through CoaLogix which we just sold to Energy Capital Partners for $101 million yesterday.

Why did you invest in this deal in the first place?

We look for companies that have created a new category in energy technology but have yet to be recognized. We look for specialty businesses that help the energy industry “get more out of what it’s already got”. Given that coal provides 48% of our electricity in the USA and 75% of China’s output we felt it was an area where we could make an impact. At ACFN we believe in the Power Law which states a small change in a big number is still a big number. In CoaLogix we found a proven technology where the regulations were in place, a great management team and a market near an inflection point. Acorn provided the capital and management really executed. We created the world’s largest catalyst regeneration business with 75% US share and 40% of the SCR capacity under long term contracts. We exited with a 43% IRR after three years and ten months.

Who does Coalogix compete with for these products, and what made you comfortable originally that they could take market share?

CoaLogix competes with new catalyst producers like Hitachi. The company’s value proposition was that we regenerate the catalyst at half the cost of new catalyst. The competition with the new catalyst producers was driven by the new functionality that they were adding to the new generations of catalyst. The key risk factor in the investment was whether we could keep up the net value proposition to the end users versus the new catalyst offering. Management changed the industry by forming an alliance with the largest US catalyst producer, Cormatech- a joint venture between Corning and Mitsubishi and we both prospered.

I thought “clean coal” was dead as an investment category?

There have been some notable flops in the clean coal business like coal benefication and coal gasification deals. What these failed investments have in common is unproven technology and business models that require massive investment to achieve commodity margins at scale. I would refer readers to your insightful blog post on Jane Capital’s rules on energy technology investing.

How did this exit come together?

China passed NOx regulations as part of their new five year plan. We visited China in September 2010 and discovered the new NOx regulations were going to require $6 Billion of catalyst to be installed and there was going to be a really big market for regeneration. We decided that CoaLogix’s epic opportunity was China and management needed a sponsor with a lot of resources and contacts to repeat the company’s success in China. We hired UBS to lead the process and they found the perfect partner, Energy Capital Partners which manages $7 Billion in capital. They did such thorough due diligence on the company that in the end I think they knew the company and the management team better than we did.

So this is Acorn’s second big hit after Comverge?

Yes. We exited most of our stake in Comverge after the Goldman Sachs led secondary at a $600 million valuation or $29 per share. The CoaLogix ransaction was our second successful transaction with EnerTech Capital. They have incredible domain knowledge and initially sourced the CoaLogix opportunity but were between funds. We invited them in after we acquired the company and they added a lot of value. I get by with a little help from my friends.

What are the metrics on this deal? How much was Acorn in it for and when? How much did the business grow during that time? And what was the exit multiple for Acorn?

Acorn bought CoaLogix for $9.6 million in November 2007. We invested an additional $8.6 million to build a new plant and our gross sale proceeds were $61.9 million for a 43% IRR or 3.4 times our investment.

So you guys do both minority and controlling investments?

We have done both but we only make minority investments with an eye to buying a majority stake if we like management. One of the lessons I have learned is management must have a really large economic opportunity and that means ACFN owning 85% and management around 15%. We provide a balance sheet, some big picture guidance and contacts and stay out of the way and let management execute.

You’re essentially an evergreen fund, so what are you going to do with the proceeds?

We plan to reinvest in our three operating businesses; DSIT the leading underwater security company, GridSense a very promising smart grid distribution optimization provider and US Seismic a pioneer in the emerging field of 4D seismic for the oil and gas industry. We feel that each of these three businesses have huge potential and are capital light so we can stick with them longer than CoaLogix or Comverge. Of course, we always have our eyes open for new opportunities that benefit from “economies of connection” amd solve a major energy industry pain point.

One more thing John, your comment “We look for specialty businesses that help the energy industry “get more out of what it’s already got”. This is very articulate thesis that certainly isn’t typical for venture investors, can you expound a bit on what you mean by that?

Great entrepreneurs look for a fulcrum from which to leverage their ideas to market. The number one use of energy is the extraction, refining and distribution of energy. The existing energy systems waste and scale is the fulcrum. The entrepreneur’s new technology or system is the lever. I have been astonished by how many cleantech entrepreneurs want to try to reinvent our huge scaled energy systems from scratch missing the opportunity to use the fulcrum. Even the biggest venture funds don’t have the activation energy necessary to radically change our energy supply. The smartest play available is to make the existing infrastructure smarter. Last year I wrote a short book “The Hidden Cleantech Revolution” to investigate the really important changes that were happening to the “other 97%” of our energy supply that nobody was talking about. I would invite your readers to e-mail my assistant at for a free copy.

Blogroll Review: P-Power, B-Buy, C-Can


Pee power. Scientists may have found a way to extract hydrogen from urea, one of the main major components in ordinary pee. That compounds is way for the body to get rid of toxic ammonia that comes out at the end of various metabolic processes.

In many rural areas, urea would be the ideal source of nitrogen for fertilizing plants but it may also be a source of power one day.

Hank Greek at EcoGeek says:

Gerardine Botte at Ohio University has figured out an easy and efficient way to break the bonds in urea to produce hydrogen. The process consumes roughly one quarter of the energy needed to electrolyze water. And, yes, the world has a fairly plentiful (and renewable) supply of urea. Maybe not enough to power all our cars, but it’s a start.

And all this time, I was only interested in the nitrogen. :)


Best Buy! This next story is about the role of national retailers in transforming the economy to greenness. Joel Makower gives us Best Buy as an example. He sums it up really nice as to the role of these big companies:

While cutting-edge innovation will likely come from countless start-ups, it will be up to the mass merchandisers to accelerate market uptake beyond the green devotees and early adopters.


Canadians can! The country up north is one of my favorite countries. I’ve also wondering what the government was doing to encourage corporate sustainability. Our friend Tyler Hamilton at Cleanbreak has a summary.

In other news, Robert Rapier reminds us that thermodynamics wins.

Celcias reports that the 100th coal plant has been defeated. I’m sure Lester Brown would be proud!

Finally, is the big battle between Google and Microsoft? Earth2Tech suggests otherwise.

Carbon Capture and Storage: To Be or Not To Be? Or, To Partially Be?

by Richard T. Stuebi

One of the more contentious questions in the cleantech community is the role of coal in the energy sector of the future. There’s a lot of coal in the world — many decades of supply left — including here in the U.S. It’s pretty darned cheap to mine. So, it would be great to figure out a way to use it in non-harmful ways.

And there’s the rub: it’s a pretty nasty fuel. Putting aside the issue of how to mine coal in an environmentally-acceptable manner, coal is one of the most highly carbonaceous of hydrocarbons, meaning that it generates a lot of carbon dioxide per unit of energy released when burned — much more so than oil or natural gas. As a result, the worldwide use of coal — primarily for power generation — is the largest component of global carbon dioxide emissions, which in turn is the most important of the greenhouse gas emissions contributing to climate change.

In the arena of climate change, coal is therefore the main culprit. Not the only culprit, to be sure, but the main one.

For coal advocates, the first line of defense is to dismiss the climate change issue outright. That tactic is still used, but is becoming increasingly untenable under the Obama Administration, which appears to be remaining steadfast in pushing for climate change legislation.

That leaves the coal industry in the position of promoting new approaches for coal utilization wherein the carbon dioxide produced from combustion is somehow prevented from being released into the atmosphere. The most well-known of these approaches is termed carbon capture and storage, or CCS.

The idea behind CCS is intellectually appealing, if a bit fantastic: extract the carbon dioxide from the exhaust stream of a powerplant, and inject the carbon dioxide underground in such a way that it stays entrained in the earth. The technological concepts are pretty well-understood.

Alas, as this article in the March 7 issue of The Economist shows, the main challenge associated with CCS is the cost. CCS has never been undertaken at a large-scale at any powerplant, much less attempted for a fleet of powerplants, because the capital and operating costs of a CCS system are seen to be so high as to be daunting.

As with many things in life, a half a loaf is better than none, and so may be the case with CCS. As indicated in this article in the March/April issue of Technology Review, perhaps the economic challenges can be tackled by biting off something less than 100% carbon capture and storage.

Many environmental advocates can’t stand the concept of coal utilization in any guise, and decry the use of the phrase “clean coal” as an oxymoron. I don’t think we can afford idealistic dogma, but neither do I think we can afford the environmental cost of unlimited conventional coal use. There’s got to be a middle-ground somewhere.

In the energy and environmental realm, I have consistently found in my 23 years of experience that there is rarely a perfect solution to any situation, and everything involves tradeoffs. Partial CCS might yield an outcome in which neither the green community nor the coal/power industry get all of what they want, but produces a far better result than the “worst-case” scenario each side fears.

Richard T. Stuebi is the Fellow for Energy and Environmental Advancement at The Cleveland Foundation, and is also the Founder and President of NextWave Energy, Inc. Later in 2009, he will also become a Managing Director at Early Stage Partners.

Renewables That Even Coal-Based Utilities Can Love

by Richard T. Stuebi

Generalizations are always tricky, but it’s safe to say that many employees of many electric utilities whose generation plants are mainly coal-fired have a hard time feeling very enthusiastic about renewable energy. You can imagine the rants: renewables are tiny and negligible, renewables aren’t baseload, renewables are for wimps.

So, it’s interesting to me when coal-based utilities can find something nice to say about renewables. Last week, the Electric Power Research Institute (EPRI) — the U.S. R&D organization funded by companies in the electricity industry — announced its efforts to test the addition of solar thermal collectors to fossil-fueled powerplants, in an effort to reduce the amount of fuel that these plants need to burn for generating electricity.

The test project involves powerplants operated by Progress Energy (NYSE: PGN) and Tri-State Generation & Transmission Association, and is co-sponsored by The Southern Company (NYSE: SO) — all sizable coal-based utilities.

Of course, these utilities are motivated by practical considerations more than they are by being viewed as “green”. For them, the important green is money: the use of solar thermal can reduce per-kilowatt-hour variable costs, which can increase plant profitability in wholesale power markets. And, the use of solar thermal will reduce the per-kilowatt-hour emission rates of fossil powerplants, which will reduce compliance costs under a likely future cap-and-trade program for carbon emissions.

Not to mention, the installation of solar thermal at existing fossil powerplants may qualify for compliance with renewable portfolio standards that now exist in many states — and that may come into law nationally under the Obama Administration.

It may not be as sexy as photovoltaics or wind turbines, but the economics of solar/fossil hybrid power generation should be pretty compelling. If so, solar thermal augmentation at fossil powerplants may become very widespread, perhaps unseen and out-of-mind, but nonetheless making sizable dents in the energy industry’s emissions footprint.

Thanks to Keith Johnson of the Wall Street Journal for making me aware of this EPRI study, and for quoting me in his post to the WSJ‘s Environmental Capital blog last Friday.

Richard T. Stuebi is the BP Fellow for Energy and Environmental Advancement at The Cleveland Foundation, and is also the Founder and President of NextWave Energy, Inc. Later in 2009, he will also become a Managing Director of Early Stage Partners.

The Status of Carbon Sequestration

by Richard T. Stuebi

At a recent symposium on climate change solutions at Oberlin College, I heard a presentation by David Ball, who leads the Midwest Regional Carbon Sequestration Partnership (MRCSP) at Battelle Memorial Institute in Columbus.

His presentation was a fascinating collage of facts and observations about the status and prospects for in-situ sequestration of carbon emissions from coal powerplants and other large point sources. To wit:

CO2 must be sequestered deep underground to avoid cross-contamination with water aquifers, and also to find the low-density “spongy” strata underneath the impermeable “caprock” strata. This tends to be on the order of several thousand feet below the surface. In order to keep the CO2 underground at these depths, given the high hydrostatic pressures that pertain so far below the surface, the CO2 must be compressed to approximately 100 atmospheres before injection. No wonder the energy/capacity penalty associated with carbon capture/sequestration is so significant!

The average coal powerplant emits about 24,000 tons per day of CO2. Meanwhile, the largest pilot project attempted to date in the U.S. for carbon sequestration has only dealt with a volume of 10,000 tons per day. In the North Sea off of Norway, the carbon sequestration effort led by StatoilHydro (NYSE: STO) at Sleipner has been sequestering about 2800 tonnes per day since 1996. In other words, carbon sequestration has not yet been performed in anywhere near the volumes associated with powerplant emissions.

Notwithstanding the significant volumes of CO2 emitted in the upper Midwest from our fleet of coal generation and large industrial facilities, there is enough regional underground sequestration capacity to hold “hundreds of years’” worth of CO2 emissions. This was news to me: I had heard concerns that the carrying capacity of the deep underground reservoirs suitable for sequestration would be small relative to our current emissions.

As with many of the cleantech challenges, carbon sequestration is not a question of if something can be technically done. Rather, it’s a question if it can be done at an out-of-pocket cost that will be acceptable to politicians and their constituents.

Recent conversations I’ve had with a Norwegian company named Sargas, which is developing a 95% carbon capture technology applicable to pressurized fluidized bed boiler combined cycle power generation facilities, indicates all-in costs (including capital recovery and returns) of under 10 cents/kwh, perhaps to as low as 7-8 cents/kwh. This isn’t too bad, but I suspect that the costs will have to proven at lower levels (or energy prices are otherwise going to have to rise much further) before many in the U.S. are assured that the potential economic impact of climate legislation won’t be severe.

And, of course, sequestration doesn’t address any of the concerns associated with mining the coal to begin with. For some ardent environmentalists, that makes coal unacceptable, even with cost-effective carbon sequestration. That said, practically speaking for voters and officials alike, it’s hard to overlook such an inexpensive and domestically abundant fuel.

Richard T. Stuebi is the BP Fellow for Energy and Environmental Advancement at The Cleveland Foundation, and is also the Founder and President of NextWave Energy, Inc.

Coal on the Offensive

by Richard T. Stuebi

In the wake of setbacks to new coal powerplant construction in the face of likely carbon legislation, the coal industry has mounted a serious PR blitz, led by a group called Americans for Balanced Energy Choices (ABEC).

ABEC is a national non-profit organization with a claimed membership of 150,000, whose acknowledged primary funding source is “America’s coal-based electricity providers” — including such big-boys as American Electric Power (NYSE: AEP), Duke Energy (NYSE: DUK), First Energy (NYSE: FE) and Southern Company (NYSE: SO). Not to mention large coal companies such as Arch Coal (NYSE: ACI) and CONSOL (NYSE: CNX), and railroads such as Burlington Northern Sante Fe (NYSE: BNI) and CSX (NYSE: CSX).

Quite aptly, Sourcewatch refers to ABEC amusingly as an “astroturf” support organization: “apparently grassroots-based citizen groups or coalitions that are primarily conceived, created and/or funded by corporations, industry trade associations, political interests or public relations firms.” Given the corporate interests listed on the ABEC website, it is hard to call ABEC a true grassroots organization.

Here in Ohio, ABEC has launched a series of billboards and newspaper advertisements promoting coal, implicitly at the expense of other energy alternatives. Particularly objectionable to me is the ad that illustrates (as if algebraically) “Coal = Ohio Jobs”, suggesting not-so-subtly that a shift to other non-coal forms of energy will cause a loss of jobs. I was compelled to write a counter-response, which appeared last week as an editorial in The Plain-Dealer.

In tandem with the Ohio media program, ABEC released a white paper written by “energy economist” Eugene Trisko — identified on the white paper as “Attorney at Law” but otherwise silent on his representation of the United Mine Workers of America (did someone say “coal”?) for over 20 years — entitled “The Rising Burden of Energy Costs on Ohio Families”. Mr. Trisko points out correctly that Ohio’s manufacturing-based economy has suffered mightily in recent years, and argues that “developing an energy supply strategy that maximizes the use of Ohio’s local [low-cost coal] resource could help to reduce the impact of future energy supply and price shocks.” In other words, Mr. Trisko stresses that Ohio should use more coal, because it’s so cheap — that is, as long as carbon emissions aren’t taxed or stringent carbon controls aren’t required.

Further, Mr. Trisko neglects to mention that almost 90% of Ohio’s electricity generation comes from coal — and yet that hasn’t prevented dramatic economic deterioration in the state. Is it possible that the same mentality that led Ohio to put virtually all its energy eggs in the coal basket is the same type of thinking that has led to the pervasive economic stagnation in Ohio? Is more of the same — stay the course, keep betting on coal — the way to go for Ohio’s economic future? Hmmmmmm.

Richard T. Stuebi is the BP Fellow for Energy and Environmental Advancement at The Cleveland Foundation, and is also the Founder and President of NextWave Energy, Inc.

FutureGen Stalled?

FutureGen is the major US Department of Energy backed effort to pilot a technological solution to prove that carbon capture and sequestration from coal fired power plants is possible. At a slated price tag of $1.5 Billion ($1 Bil estimated originally, now estimated at $1.8 Billion), it is one heck of a science project – but one that sorely needs to be done.

Now that project appears to have hit a snag. While the site the consortium picked to build the project was selected in December as Mattoon, Illinois, after a short delay in responding, the DOE is now hesitating to give formal approval – their Record of Decision.

The CEO of the FutureGen Alliance, Michael Mudd, seems confused as to why, though cost overruns, disagreements about the scope and technological objectives, and objections to moving to fast for good practice have been suggested.

After thinking about it this morning, I had a few initial reflections:

  1. We are a nation of massive coal reserves and 50% of our power comes from coal generation. Investing in clean coal technology should definitely be a prime DOE objective. let’s keep our comparative advantage in energy.
  2. While CCS is likely to be an expensive way to abate greenhouse gases, if we are going to solve the global warming problem, we are going to need help from everything and the kitchen sink. Pilots exactly like this need to be tried.
  3. At the kind of price tag and scale up risk we are talking about with CCS, government research support and funding is vital.
  4. On a practical level, the Department of Energy is 74% of this project. I really do not understand why there should be any miscommunication. He who writes the checks makes the call. If they have real concerns over cost overruns, technology, or management, make the changes and get going.

There, I said it. Now let’s just get it done, people.

Neal Dikeman is a founding partner at Jane Capital Partners LLC, a boutique merchant bank advising strategic investors and startups in cleantech. He is founding contributor of Cleantech Blog, a Contributing Editor to Alt Energy Stocks, Chairs, and a blogger for the CNET Cleantech Blog.

2007 Roundup

by Richard T. Stuebi

As has become my custom, with the year drawing to a close, I now look in the rear-view mirror and try to distill what I see. In no particular order, here are my top ten reflections on 2007:

1. Popping of the ethanol bubble. Not long ago, it seemed like anyone could get an ethanol plant financed. Now, no-one will touch them. Why? Corn prices have roughly doubled, and producers can’t make money selling ethanol into the fuel markets when having to pay so much for feedstock. Along with the increasing realization that public policies so far to build ethanol markets has largely been for the financial benefit of big agri-businesses such as Arthur Daniels Midland (NYSE: ADM), ethanol has now become a dirty word to many. Progress on cellulosic ethanol technologies may not happen fast enough to redeem seriously diminished public perceptions about ethanol generally.

2. Continuing photovoltaics bubble. For illustration of this phenomenon, let’s take a look at First Solar (NASDAQ: FSLR). Nothing whatsoever against the company; indeed, they make a very fine product. It’s just that their share price has increased by a factor of 10 — from $27 to nearly $280 — in one year. At current levels, the company’s market cap is $20 billion, at a P/E ratio of over 200. I know the solar market is hot, but geez, c’mon. A 10x return in one year on a publicly-traded stock is simply not supposed to happen.

3. Increasing costs for wind energy. For many years, wind energy has become more competitive, as the industry matured and production efficiencies were tained. However, with increasing prices for virtually all commodities (e.g., steel, copper, plastics) and a weakening dollar against the Euro (note that most turbines are made in Europe), the economics of wind are unfortunately moving in the wrong direction right now.

4. Gore as rock star. First, an Oscar for An Inconvenient Truth. Then, the Nobel Peace Prize. To top it off, becoming a partner at top-notch venture capital firm Kleiner Perkins. What next for the what-could-have-been 43rd President? Whatever it is, at least the cleantech sector now has its iconic poster-child.

5. Cheers to Google. Google (NASDAQ: GOOG) has gotten into the cleantech game in a big way by creating an initiative with the mission to develop and launch renewable energy technologies that produce electricity more cheaply than coal. Once that aim is achieved, renewable energy will rapidly become ubiquitous, and we really will start getting on a path of serious carbon emission reductions.

6. Death of the incandescent lightbulb. Early in 2007, Australia led the way to ban incandescents, to force a shift to more energy efficient lighting technologies (fluorescents for now, perhaps eventually LEDs). Amazingly quickly, the U.S. followed suit, passing an energy bill by year-end that effectively phases out incandescents by 2014. This should have a major energy efficiency impact, and yield a big cut in greenhouse gas emissions, in a relatively short amount of time.

7. Tightening CAFE — finally! After decades without change, the U.S. Congress finally acted to impose more stringent corporate average fuel economy (CAFE) standards for auto/truck manufacturers. The main milestone is a 35 mpg combined car/light-truck standard by 2020. For the first time, trucks are now part of the CAFE equation, closing the loophole that helped propel SUVs to prominence. Strengthening CAFE is probably the most important thing that American politicians could do to actually make a meaningful dent in reducing dependence on Middle Eastern oil.

8. Uncertain future for coal. On the one hand, MIT released a major study entitled “The Future of Coal” that compels a radical R&D push to commercialize technologies for carbon capture and sequestration (CCS), underscoring the reality that coal-fired electricity generation is going to be a major factor for a long time. On the other hand, I don’t see any such coal R&D push actually happening, nor even that much progress on CCS. A recent statement by the U.S. Department of Energy concerning its oft-touted FutureGen program for piloting CCS technology indicates a possible retrenchment. Meanwhile, Pacificorp — which is owned by Warren Buffett’s legendary holding company Berkshire Hathaway (NYSE: BRKA and BRKB) — recently cancelled a coal CCS project in Wyoming, with a spokesman quoted as saying that “coal projects are no longer viable.” Ouch.

9. Oil at $100/barrel. Starting the year at about $60/barrel and then promptly falling to near $50, oil prices increased steadily from February to November, reaching the high-90’s. I suspect we’ll see $100/barrel sometime in 2008; I don’t suspect we’ll see oil below $40/barrel very much anymore. Even at prices not long ago considered absolutely stratospheric, it appears that there’s been very little customer/political backlash so far: the world doesn’t seem to be ending for most Americans.

10. Serious dollars betting on energy technology. There’s been a lot written about the big surge in venture capital invested in new energy deals. I find even more intriguing the increasing amount of corporate and public sector investment in new energy R&D. As perhaps the most prominent example, in the U.K., the government has pledged up to $1 billion over the next 10 years in matching support to private investments in the Energy Technologies Institute, which includes the participation of such leading corporate lights as BP (NYSE: BP), Shell (NYSE: RDS.A and RDS.B), Caterpillar (NYSE: CAT), Electricite de France (Euronext: EDF), E.ON (Frankfurt: E.ON), and Rolls-Royce (London: RR.L). That’s a lot of money and corporate weight in the mix. I can’t imagine that such an initiative will produce nothing of use.

Best wishes to you and yours for 2008. Let’s hope it’s a good year, even better than the one wrapping up.

Richard T. Stuebi is the BP Fellow for Energy and Environmental Advancement at The Cleveland Foundation, and is also the Founder and President of NextWave Energy, Inc.

Hydrogen Energy

by Richard T. Stuebi

Whenever someone mentions “hydrogen” to me, I immediately think of fuel cells. So, when someone mentioned to me in passing the other day something about BP (NYSE: BP) and hydrogen in Southern California, I was really confused: I didn’t think that BP was doing much with fuel cells these days.

Now I understand. In May, BP announced (press release) that it has partnered with mining-giant Rio Tinto (NYSE: RTP) to form a joint venture, named Hydrogen Energy, that has licensed integrated gasification combined cycle (IGCC) technology from GE (NYSE: GE) and will develop IGCC projects involving carbon sequestration — and one of its first projects will be a 500 megawatt facility located adjacent to BP’s refinery in Carson, California. (project description)

Hydrogen Energy’s efforts therefore have nothing to do with fuel cells. Hydrogen is simply the main constituent of the syn-gas produced from the gasification of the input fossil fuel (in Carson’s case, petroleum coke), which will be combusted in a conventional combined cycle for power generation.

A few observations occur to me from this development:

1. The selection of the L.A. Basin of California for one of the first projects is extraordinary. It’s hard enough to permit a new office building in Southern California, much less a 500 megawatt powerplant that is more akin to a refinery. Then too, with California’s climate initiatives, placing any new industrial infrastructure in-state has to be massively challenging. I would have guessed someplace like Texas for one of the early IGCC plants — easy to get things done there. The Carson IGCC project is only possible because the gasification step produces relatively pure streams of by-products that can relatively easily be diverted from being emitted into the air — including CO2, which will be pumped underground. So, the Carson location for an early project is great PR not only for all the corporate parties (“We’re producing clean domestic energy for California”), but for the state of California too (“See — we’re not anti-energy, we support energy businesses and new energy projects.”).

2. The sequestration of the CO2 will occur in the Southern California oil/gas fields, which are very mature and can thus benefit from enhanced oil recovery (EOR) techniques to pressurize the underground reservoirs and thereby improve yields. The increase in oil/gas production, worth a lot at current energy prices, helps offset the costs of CO2 capture and pumping. As more carbon sequestration projects occur, I expect to see many of them in areas with old producing fields that can benefit from EOR, such as Pennsylvania, Ohio, West Virginia, Kentucky, Illinois and so on. Oh, coincidentally, these states have lots of coal to burn in the IGCCs.

3. According to the press release BP partnered with Rio Tinto in order to obtain access to Rio’s
coal mining/extraction expertise. In this context, the selection of Rio makes sense: like BP, it too is a global colossus of a company, and gargantuan corporations tend to work best with partners of similar size. If other big oil companies want to follow in BP’s footsteps to pursue IGCC with a coal company as partner, there will be few players in the coal industry of similar heft. Indeed, I wonder if one way to view this partnership as BP moving more into coal — and if other oil majors will increase their coal activities?

4. The naming of the partnership as “Hydrogen Energy” is an interesting choice. I used to think that the “hydrogen economy” hype of a few years ago had produced a semantic burden to be avoided rather than embraced. But, here come BP and Rio Tinto — no dummies — deliberately positioning their venture not as “carbon-free” or “zero emission” or “clean coal”, but rather as “hydrogen”. This has significant branding implications. If Hydrogen Energy becomes a success, hydrogen as an energy source (or, more properly, an energy storage approach, or energy “carrier”) may therefore become more validated in the eyes of those who are currently skeptics.

5. In turn, if Hydrogen Energy really takes off, and hydrogen’s reputation is burnished, fuel cells may ultimately benefit substantially. If many IGCC plants become installed across the continent, it becomes more plausible to envision hydrogen transport and distribution on a mass-scale to support fuel cells — initially in selected stationary power applications, perhaps ultimately for vehicles too.

Of course, it will take years for us to see if Hydrogen Energy becomes a big deal, or is yet another example of a highly-touted joint venture between two mega-corporations that ultimately comes to very little.

Richard T. Stuebi is the BP Fellow for Energy and Environmental Advancement at The Cleveland Foundation, and is also the Founder and President of NextWave Energy, Inc. (Note: Mr. Stuebi has no affiliation whatsoever with BP.)

Fuel Tech – Driving Profits by Cleaning up Coal

Fuel Tech (Nasdaq: FTEK) is one of the fast growing public greentech / cleantech companies focused on cleaning up dirty coal.

I have known John Norris, the CEO of Fuel Tech, and his family for years, and have had the pleasure of following his career for some time. He’s one of the many former nuclear engineers that grew up in the electric utility industry. He has held utility executive positions including CEO of Duke Engineering & Services, SVP and CEO of Duke Energy Global Asset Development, and Senior Vice President, Operations and Technical Services, at American Electric Power (AEP).

He took the reins at Fuel Tech early last (the stock promptly started climbing), and when I ran into him at a recent conference, filled me in on the goings on at this cleantech company that I not previously followed. I had a chance to chat with John for the record on Cleantech Blog about Fuel Tech in specific, and his thoughts on emissions technologies, carbon and greenhouse gases, and cleaning up electric utilities. I hope you enjoy.

You are relatively new to Fuel Tech, what compelled you to join the company?

I started with Fuel Tech as an Executive Consultant in April of 2005 to try to open doors with utility execs. When the Board approached me late that year about becoming the CEO, I thought about what I had seen over that last 8 months and really liked the prospects for growth. I have had the opportunity in the past to build high growth, highly profitable enterprises including one the most fun periods in my life in leading Duke Engineering & Services. This reminded me a lot of that experience, although I think Fuel Tech has even better prospects than DE&S had when I first got there.

What are the key drivers an investor should understand for the recent and continuing growth of the business?

There are several. On the Air Pollution Control (capital projects) side, investors should watch for market penetration of Ultra systems in the China/Pacific Rim market as well as a broader acceptance our all our NOx reduction technologies in the US market. They will be able to track this by watching for our announcements regarding contract wins. On the Fuel Chem (specialty chemical) side, the key driver is market acceptance by utility coal units. Again they can track this through our announcements.

And in short – what did cause the recent revenue growth?

I tend to credit the good looks of the CEO, but others do not necessarily support that conclusion. [Note to readers: John’s picture is on their website, so you can judge his conclusions for yourself!] — I think the real reason is that we have better defined our products and services and have recognized a much broader market for those services. We have a more focused R&D effort to bring solutions to client problems quickly. And it doesn’t hurt that customers are looking more earnestly for ways to reduce pollution and increase efficiency. All of these have come together for us in sort of a “perfect storm”. Still, we have to deliver results for our customers and for our investors.

Do you view Fuel Tech as part of the emerging cleantech investment theme?

Very much so, but also maybe with an important difference. Too often the greentech sector has, in my opinion, over-promised and under-delivered for clients and for investors. We aim to be a different breed in those regards.

If I understand correctly, Fuel Tech has long been a leader in post combustion pollutant reduction systems, and pre-combustion technologies are a newer business for you. Is this correct? What does the future hold? Where is the industry going?

Fuel Tech has long been a leader in post-combustion NOx control as you mention. Our Fuel Chem product line is really a combustion/post-combustion technology that helps reduce slag problems, dramatically reduce SO3 emissions (both in the boiler and across an SCR), and improve plant efficiency thus reducing CO2 emissions in the process. These latter two items have only recently (in the last few years) become important to customers. I think in the future clients will much more strongly focus on all these and other environmental and operational issues, both domestically and internationally.

Can you give us some color on the overall direction and key issues in the regulatory environment for these pollutants?

For all air pollutants the direction is towards dramatic reduction. You can sense that the whole world is looking to clean up the environment and they are not so much focused on CO2 but rather all the more serious pollutants (SOx, NOx and Hg especially).

You reported all time high international sales for 2006. How much of the business do you expect to be from overseas in the next 2 to 3 years? What has happened on that front? Has the growth been because it is a newer area of focus for the company, or because the overseas markets are growing? And how does China play into the company plan?

Our dramatic international revenue growth in 2006 really came from our projects in China. I expect China and the Pacific Rim to become a much larger part of our business going forward. China consumes more coal today than we do in the US and within a decade they will be using about 3 times the coal we use. The Chinese have now recognized the pollution issues of smog and acid-rain (from NOx and SOx emissions) and are working hard to do something about that. The upcoming Olympic games has heightened the sense of urgency to clean up the air and water. We have worked hard for a number of years to establish our credibility there and to demonstrate our technologies. In 2005 we won two major contracts to demonstrate our NOxOut SNCR and eventually our NOXOUT Cascade technologies and then earlier this year we won two major contracts to install our NOxOUT ULTRA urea to ammonia system on new plants who have the catalyst NOx control technology installed (SCR). Those wins position us well to really make this a major and growing part of our business going forward.

What about C02? In a Kyoto world, is Fuel Tech looking at C02 reduction, sequestration, or capture technologies? If so, what can you share about that?

Our Fuel Chem targeted injections can typically reduce CO2 emissions by 1 to 1.5% for coal utility plants, while dramatically reducing slag and SO3 operational issues and emissions. That may not sound like much but it very hard to make any significant CO2 reductions in plants and our reductions can be achieved while actually REDUCING plant costs. A 1.5% CO2 reduction for a 500 MW plant would be a reduction of about 8 tons/hr or about 65,000 tons per year of CO2 emissions. That is not insignificant and there is much interest in this in China and India especially where we can sell the emission reduction credits on the European Kyoto market (if done thru our Italian subsidiary).

A large portion of your business has been focused on cleaning up NOx or other pollutants at coal fired power plants. With low-carbon power likely to be a larger and larger portion of the global generation mix, what does this mean for the coal-fired pollution control sector?

While I strongly support the push for more renewable energy sources and a renewed push for nuclear power (I am a nuclear engineer as you know), the reality is that for our lifetimes and beyond fossil fuels will supply most of our energy needs. I think our company has a long and exciting future in making those energy sources cleaner and more efficient and thus making this planet a better place.

You announced not to long ago a series of company firsts, among others:

– Installation of a NOx Out Cascade System on a Coal fired boiler

– Commercial SNCR/RRI project

– SNCR lignite fired application

What does this actually mean for company?

We are looking with great haste and much effort for ways we can provide a much broader array of solutions for clients in pollution control, efficiency gains, and operations and maintenance cost reductions. We have a dedicated R&D team of our best and brightest folks focused on this effort and their work has paid off. One technology that you did not mention is our Targeted Corrosion Inhibition Program was introduced in 2006 and which is aimed at helping municipal solid waste plants dramatically reduce the corrosion rates in their boilers. Our patent in this area was but one of 7 patents applied for or granted here in the US and another 12 internationally. We are on the leading edge of technologies in these areas and we intend to stay on that leading edge.

Revenues are obviously up, and you’ve said you expect revenues to increase 20-27% in 2007, with growth from both technology segments. What about 2008, 2009 and beyond, what markets and which products do you expect to deliver the longer term growth?

We do intend to grow but have provided no guidance beyond 2007.

In 2006 compared to 2005, the gross margins were down in the NOx Reduction business, but up in the Fuel Treatment business. Net income for the 4th quarter was down year over year, even though 2006 vs 2005 was up significantly. Can you talk a little about this, as well as tell us what the long term margin objectives are for the company?

First, our revenue for 2006 was up 42% over 2005 and our pre-tax income in 2006 was up 64% vs 2005. (These results were above our guidance.) The net income (after tax) blip you mentioned is that in 2005 we recorded $4.3 million in non-cash tax benefits related to the anticipated utilization of new operating loss and tax credit carryforwards. So we believe our performance in 2006 was considerably better than 2005 and has positioned us to do even better in 2007.

You keep a healthy amount of cash and no debt on your balance sheet. What is your view on the company’s capital structure?

I love our capital structure—lots of cash, no debt, unsecured borrowing ability and a business model that is delivering rapid growth in revenues, profits and cash.

And I know you’ve had to discuss this a lot lately, but the stock price has doubled in the last year, and P/E and valuation metrics are looking rich. What is your view on how the capital markets should look at the stock and valuation?

Personally I think this is a great buying opportunity (and I just recently did so in my personal accounts). If you believe that we can and will execute our business plan and grow this company rapidly and profitably then today’s stock price is not over-valued at all. If you don’t believe that we can and will execute and achieve the results, then the stock price is already too high. It all depends on what you believe about the Fuel Tech team.

And if I was an investor interested in the company, what should I be looking for over the next 6 to 12 months?

You should be watching for contract announcements to see if we are winning in the market-place. The first quarter will be the hardest for us from a results point of view but the orders need to come over the next 6 months if we are going to deliver this year’s revenue and profit results. We are working hard to make that happen, but until the contracts are in hand it is just talk.

Neal Dikeman is a founding partner at Jane Capital Partners LLC, a boutique merchant bank advising strategic investors and startups in cleantech. He is founding contributor of Cleantech Blog and a Contributing Editor to Alt Energy Stocks.