Hybrid value analysis: which hybrids worth the price tag?

I've been a little luke warm on hybrids. I think it's my defense mechanism against anything remotely "hippie" (I have the same reaction towards organic foods and vegetarianism). I really shouldn't have some responses and should give new things a chance. So I wanted to answer some questions about hybrids. In particular, are they really worth the money? The landscape isn't just Prius' anymore either. So which of the hybrid options are the best value? I did a back-of-the-napkin analysis and came up with some interesting insights.

Method
This wasn't a terribly scientific analysis. I got most of the data from Yahoo!Autos. I only considered the lowest entry model MSRP of any car (so no premium packages considered). I also took the EPA-rated mileage which has its own issues associated with it. The only item that has updated data are the mileage ratings on the Prius (EPA: 60/51, I used the 48/45 re-rating).

Models
I took several 2007 models of hybrids and their counterpart standard ICE vehicles:

Saturn Aura	2008 Chevy Tahoe*
Toyota Corolla	Saturn Vue
Toyota Camry	Lexus RX350
Honda Accord	Toyota Highlander
Honda Civic	Ford Escape
Nissan Altima	Toyota Prius

The one item to note is that I compared the 2007 Prius with the 2007 Toyota Corolla. This is because I think the Corolla is the best comparison for size and weight to the Prius.

I also did some some thought exercises with the 2008 Hybrid Tahoe. We'll look at that a little later.

Analysis
Mostly, I gathered the MSRP and a combined EPA mileage data and divided them. The combined value is a weighted average of the city and highway MPGs (60% HWY, 40% City). This "mileage value index" (MVI) gives some an indication of value on the purchase price. A lower number indicates some combination of a low price tag and/or a high MPG.

I didn't include lifetime gas consumption because each individual uses the vehicles in different ways. I wanted to look at the intrinsic value that each model gives on this one variable. Having a low MVI isn't indicative of the overall value of the car. This is just a quick look at which hybrid gives the most value for the price versus itself and maybe against other models included in this analysis. It's not terribly rigorous. But most people aren't terribly rigorous in their purchasing methods. But I wanted to show an easy to use metric for evaluating performance.


Model Comparisons
Question: Which model's hybrid is a good value over its standard competitor?
Look at the data tables below. A "good" value is a short bar. Generally speaking, models that have close hybrid and standard numbers. A great situation is would be where the hybrid MVI is shorter than the standard model showing a real observable value is delivered to consumers.

Sedans:

SUVs & Crossovers:

Observations:
For sedans, the Saturn Aura Hybrid shows that it has the best value position against its Standard model. I wasn't expecting that. The Aura Hybrid is considered a "mild hybrid" and gives a strong, but not as significant boost in MPG. The real value is delivered by only a $1700 price premium to get 6 MPG better.

The Toyota Prius compares very well against the Corolla and shows why it is the most successful hybrid. However, the Honda Civic Standard and Hybrid have better MVIs then the Prius.

For SUVs/Crossovers, the Lexus 400h also has a a value advantage over the standard RX350. But also remember, while SUV hybrids in general save a lot of gas over their lifetime (around 100 gallons/yr), the amount of gas $ saved isn't that high with respect to the higher purchase price. So the value of hybrid gas savings doesn't work out for saving money. So this performance by the 400h is a great showing.

The Honda Accord Hybrid has horrible numbers. It's MVI is significantly higher than its standard model. It has a much higher price and doesn't give much improvement in MPG. It's not surprising, then, that Honda has discontinued it.

Moreover, other than the Accord, all of the Hybrids perform well with respect to their standard counter parts. This, I think, leaves the door open for hybrids to compete head-to-head on overall value on other points. That's a great place to be for this technology.

The Chevy Tahoe Hybrid Experiment:
Question: At what price point would the Tahoe Hybrid "break even" with its standard counterpart? Refer to the 2008 Tahoe values above.

I couldn't find any data on the pricing for the 2008 Tahoe Hybrid. I only found speculation on its MPG (19 and 25 hwy I believe). But I did find data for the standard 08 Tahoe.

So knowing at least speculative data on the Tahoe, I wanted to know what price point I should look for to to see if it has improved value over the Standard version. A goal-seek analysis shows that an entry price point of $44,288 (or $6000 above the standard Tahoe). This is a bit expensive for an entry-level Tahoe, but the value is still delivered at that price. Anything cheaper is probably a good deal. But the price mustn't be more than 1 or 2% difference.

Best Value
Question: In a battle royal, which of these models would win against each other based only on their MVI values?

This data is interesting as it clearly shows a value segmentation between models. I see the strong performers being the Civic, Prius, Camry, Corolla. The mid-tier is a mixture of sedans (Aura, Accord Standard, Altima) and the Crossovers (Escape, Vue). And lastly, the high end crossovers (Lexus RX, Highlander). We'll ignore the Accord Hybrid altogether.

This spread is a little expected, I think. The smaller cars have the best performance. And the high-end hybrids make sense as well (they have higher price tags with respect to their mileage improvement). But the interesting element to this is that the Vue and Escape (hybrid and standard) are competing well against their heavier sedans. Of course, the hybrids tend to be at the higher-end of this tier. But they're all in the mix and I think that gives them a strong competitive placement in the marketplace.

Eastman to build gasification facility

Eastman is going to build a new $1.6 Billion gasification facility in Beaumont, Texas.

Press Release
GreenCarCongress Post

The facility will use petroleum coke as a feedstock - presumingly provided by the many refineries in and around Beaumont. Here's a quick excerpt:

The gasification facility will produce hydrogen, methanol and ammonia, chemical industry feedstocks that are usually derived from oil or natural gas. These feedstocks frequently serve as the base material for everyday products ranging from plastics, paints, photographic film, and pharmaceuticals.

This is obviously a great opportunity for Eastman and for the people in Beaumont. It will create a lot of jobs and economic opportunities.

But I'm a bit concerned about the number of gasification facilities that are going up. Well, not really concerned, but a bit surprised. Not because of the potential applications and benefits (I'm a proponent of those). But we haven't really got a lot of experience doing underground CO2 sequestration. It's good for Eastman to be on the fore-front of that (can't let the big oil guys have all the fun). But this is still a new technology that still needs to develop a lot of tools and techniques involved with it. It's also very location-specific. Each location is unique and needs to be carefully evaluated for it suitability. The other potential for this facility is to use the CO2 produced for well injection.

So this is clearly a good move for Eastman, but it also should spark a debate on the state of CO2 sequestration technology and practices. For all its benefits, this process must be done properly to ensure its long-term viability. And while I like the hustle on getting it up-and-running, I don't think the environmental benefit (not necessarily the economic benefit) could be lost if it's done wrong the first time.

Good job Eastman.

Southern states are lagging on RPS

This is an interesting AP article on the resistance of southern lawmakers in passing legislation that curtails pollution.

Here's an interesting excerpt:

The utilities — among the largest political donors in Washington — vehemently oppose federal mandates. They argue that "one size fits all" standards would drive up Southern utility bills and urge that new technologies be phased in gradually.

Southern Co., which reported profits of $1.6 billion in 2006, questions the existence of global warming even as other utilities acknowledge it must be addressed.

"If we are irrational about it and we cripple our economy or cripple our industry and we realize carbon dioxide wasn't the source of the problem, then we'll be real regretful," said Chris Hobson, senior vice president for research and environmental affairs at Southern Co., which owns Alabama Power Co., Georgia Power Co. and other subsidiaries.

While I try not to talk about politics on this blog, this excerpt provides an interesting case study on the flaw in the debate against global warming. Here's 7 thoughts:

1) Higher utility bills would increase their profits. In fact, the utilities are looking for any way possible to increase their power prices. So why would they balk at needing to make investments. They would normally pass off the additional costs (plus a little extra) to consumers. If people get mad, blame the government that the utilities paid to elect.

2) The government follows the will of the people even if it is misguided. The utilities need to keep in mind that if the people of this nation want them to not pollute, then you aren't going to pollute. If you'll recall, our legal system is also overburdened with lawsuits against companies that are mistreating its citizens (think PG&E and Erin Brockovich). They don't have enough money to buy off everyone in the south.

3) What's the case for crippling the economy? Southern Co. made $1.6 Billion in profits. It doesn't have a couple million to put in clean-air equipment? I mean there's no price tag that big for any environmental protection equipment. They don't have to buy the gold-plated scrubbers - the regular kind work too.

4) How come Illinois can come up with clean coal solutions but Southern Co. can't?

5) I don't think most people regret the fraud that Enron committed on customers in 2000/2001. I also don't think they'll regret your doing something for the environment.

6) On what grounds to you question global warming? This guy makes an economic argument against a scientific assertion. That's inappropriate. It's like showing up to a football game with a baseball uniform. Economics is not an end in itself. And science isn't wisdom , knowledge, or reflective of a choice - it's just repeatable results. So this argument against global warming is dismissable because it doesn't address the science. As for economics.... I'm not much of an economist. But I do know that if you can't make a dollar off of all of this, then you're a du.... not a good businessman. That's all I'm saying.

7) And lastly, this administration hasn't forced any utility to take any kind of "one-size-fits-all" strategy, and never has. Even "No Child Left Behind" has no federal mandates behind it. It begs the question as to weather their political donations are even really necessary. I mean, if they gave, say, 20% less, could they have gotten the same kind of foot-dragging on an energy bill; or dismember the EPA's influence any more? I guess maybe they think all that money was wasted. Maybe it was.

I'm not the smartest guy in the world. But I'll can't quite understand this type of stance on such an important issue. I'm reminded of another time in U.S. history where southern states vehemently resisted a broader social and political movement also based on the grounds of a moral imperative.... But history gets past people like this. It always have.

Chicago Area IGCC Project

This is a follow-up news report on a coal gasification project south of Chicago. The hope is to reinvigorate the Illinois coal market by using gasified coal to produce electricity with fewer emissions.



See another part of this series on CO2 sequestration.

Is there a cleantech bubble?

OK, let's cut to the chase. Is there a cleantech bubble?

There's been a lot of chatter on this subject (see this posting from Rob Day's rigorous post on this topic). I won't spend a lot of time on this topic other than to officially weigh in on it myself.

The answer is: maybe.

You have to take things in context of course. So let's look at a few elements:

Before we move forward, let's define cleantech as the following: biofuels, renewables (solar, wind), batteries, and smart management technologies.

Why Maybe?
The reason its a "maybe" on this question is a bit technical. The notion of a bubble means that there is a comparative over-investment with respect to the economic prospects of the investments themselves. Or another way of looking at it is as a situation where the valuations (expectation of future cash flows) are over stated with respect to the investments.

The question is valid - investors don't want to repeat the technology bubble of the late 90's early 00's. But the problem then was there weren't very many sustainable business models with real profitability prospects. Lots of money were put into businesses with false expectations of returns (the internet was supposed to provide an almost "free" cost of customer acquisition; the post-mordum showed this was plain wrong).

So it's "maybe" because it requires that we take a more specific look at the industry. And remember, not all of the companies from the Web 1.0/dot-com era failed (eBay, Yahoo, Google, NetFlix, even Napster).

But it's also maybe because many of these markets are highly dependent on government incentives for viability. So as there is risk in these incentives, there is risk in the related businesses.

Look at some Segments
I think it's prudent to segment the clean tech investment landscape between technology investments and capacity investments. I'm defining a capacity investment as businesses that focus on installing capital equipment for use - wind mills, solar cells, biofuels plants. Technology investments refer to small, technology-focused start-ups.

Venture:
From my own experience and perspective, the technology venture segment seems okay. While there are certainly some investments that seem a little more far-out than others, many seem based on sound science and have a clear scope of development. Some good examples appear to be Tesla Motors, Bloom Energy, Live Fuels, Green Fuels, Range Fuels, Nanosolar, etc. (Disclaimer: I don't purport to know anything more about these companies than what is publically available).

The concern with these investments are really measuring investment with technology milestones. These are all difficult businesses to bring to fruition - closer in nature to a biotech company. So the lifecycle of these ventures and hot it is managed may determine their success. But at the moment, there haven't been any real disasters.


Capacity Plays:
Capacity plays are a bit of a double-edged sword. Installing wind turbines and solar panels is low risk from the standpoint of actually producing electricity, but high risk from a financial standpoint. The reality is that the cash flow associated with producing power from these technologies is sufficiently low with respect to the up front capital required. The market is using government incentives to mitigate this difference. But therein lies a risk. Over time, as the technology improves - and hopefully this glut of production and economic activity will drive innovation - then the viability of associated businesses should improve. But in the mean time, this industry is comparable to being an Ice Road Trucker.

Biofuels are in the same situation. But the difference is that they can be upgraded in a (relatively) inexpensive fashion. Changing a corn ethanol plant over to a cellulosic ethanol plant is comparably easy to do. Getting plants built in strategic locations with permits, vendor relationships, and trained employees is a difficult and costly venture. So while the industry is pessimistic on corn ethanol, it should not view the massive build-out of plants as a bad strategic investment. The real test will be in seeing which companies can scale up a cellulosic process. How will existing cellulosic players Verenium, Mascoma, Iogen, and Range Fuels compete with big dawgs like POET, ADM, VeraSun, and Pacific Ethanol (if they can catch up to VeraSun). We've already looked at some of the "beta" version of start-up ethanol plants have a fairly high capital cost with respect to their installed capacity (or a measure of the inherent cash flow possible for a given capital investment - similar to what we look at for solar and wind installations). That's the seductive question. But I don't think the term "bubble" applies here - just plain old vanilla "risk".

The challenge comes in to the glut of private equity and hedge fund money that are not really looking to build a long-term business (the best play on this industry) could be a concern. Small, local ethanol co-ops may also not be capable of keeping up with the industry. So there is some "bubble-like symptoms" from these types of players. But, again, it's not clear that a negative outcome is certain. The demand for this industry to grow may provide for roll-ups to start taking place (AR Fuels and Virgin Fuels are preparing for this type of strategy).

* * *

So is there a cleantech bubble? I stand by my short answer of "maybe". It's prudent to look closely at this market's different dimensions. While there are clearly some risks out there, it doesn't appear to be any more significant than risk associated with any other developing market.

China orders Westinghouse Nuclear plants

China has ordered 4, AP1000 Nuclear plants from Westinghouse. Westinghouse concurrently announced its acquisition of Pebble Bed Modular Reactor Ltd, a South African Company.

Read the GreenCarCongress posting.

This is a very interesting event and should be looked at very closely. It shouldn't surprise anyone that the Chinese have a high interest in nuclear. The AP1000 model has some very interesting elements to it that, if successful, could be of interest to pro-nuclear elements in the U.S. (that's a different side of this equation that I won't get into at the moment).

The AP1000 reactor is a 1.1 GWe reactor boasts a few major advantages that address a few concerns about nuclear roll-outs:
1) Simple. It claims it uses fewer pumps, wiring, etc. that creates a huge reduction in price tag as well as a reduction in failure elements. Or in other words, the fewer parts, the fewer failure mode potentials.
2) Modular construction for speed - they claim 36 months from concrete to fuel loading.


The more interesting part of this release is the acquisition of PBMR. A Pebble Bed Reactor is a innovation on the design of a nuclear power plant. Here is a good presentation on it from MIT Professor Andrew Kadak that discusses its functions, pros, and cons. But simply put, the PBR is a smaller capacity plant, around 200MW, that uses billiard-ball sized coated uranium "pebbles". These pebbles are cycled and activated through the reactor constantly. They are replaced in small quantities (say 10-15% at a time) with fresh pebbles. This provides a more efficient consumption of the uranium meaning notably less waste. The resulting waste has a significantly reduced radiation boundry to it making it feasible to store the fuel on-site. Since the pebbles are managed in relatively small quantities, it reduces the risk of any theft for illicit uses (like trying to steal $1million in pennies - anything practical enough to carry is of little value). The design is also fail-safe. Any disturbance to the plant and the pebbles stop circulating eliminating the risk of any catastrophic failure.

It's quite an ingenious design. South Africa has a demonstration of this plant design that is providing some valuable data. If any political winds change in the U.S. (they already are in the rest of the world) this plant design could be a nice compromise to many concerns about nuclear.

Toyota to make PHEV

I'm officially a maverick. I've spent one or two blogs discussing the drawbacks of PHEVs. But in the last few weeks and months, several companies are building PHEVs or straight plug-in electric cars. Toyota announced today it will produce a plug-in electric hybrid vehicle for Japan (meaning they've probably already done it and are getting it ready for the U.S. market).

From the press release:

TMC plans to conduct public-road tests in Japan with eight units of the TOYOTA Plug-in HV to verify electric-motor-only cruising ranges and optimal battery capacity. While doing so, it plans to provide the government with data for formulating testing methods for emissions and fuel efficiency and to consider TMC's measures for promoting plug-in hybrids and the use of electricity. There are also plans to conduct public-road tests of the TOYOTA Plug-in HV in the United States and in Europe.

Add this to Ford and GM's Volt announcements. I've got a lot of heat on my arguments. But I'll wait for the American public to speak to concede defeat.

So, I'll put it up here. I will concede defeat on this point if one million PHEVs can be sold in the first 5 years of launch (cumulative) between all of the auto companies in the U.S. In other words, 1 Million PHEVs on the road in the first four years after the first models are launched.

To date there haven't been that many hybrids sold in any single year and they're considered a "success" (which I would debate). So that's a tall order. If PHEVs are as good as people say they are, then they should sell quickly and broadly. If not, it's a niche for the rich like hybrids (which is also perfectly fine by the way).

Let's see if they have legs. It'll be worth the effort, I think, even if they don't pan out widely. In spite of my skepticism, I do think PHEVs have a distinct value proposition and can prove to be a good business opportunity. But we're in the fight for the planet here and need some big winners. I'm looking for points, not yards (or in soccer terms, we need goals, not shots-on-goal).

Verasun to buy 3 plants for $725 Million

Verasun announced today its intention to purchase three ethanol plant facilities currently owned by ASAlliances Biofuels for $725 Million (note it at around $2.20/gallon of installed capacity). None of the facilities are currently in operation and purportedly have a capacity of 110 Million gallons each. Here's some from the press release:

The facilities will provide VeraSun with immediate production capacity and revenue. The Linden facility will begin startup operations this month, followed by Albion in the fourth quarter and Bloomingburg by the end of first quarter 2008. The acquisition will increase VeraSun’s production capacity to approximately one billion gallons by the end of 2008.

“This is a unique opportunity to acquire immediate production and revenue at a cost similar to that of building new facilities,” said Don Endres, VeraSun Chairman and CEO. “The capacity gained through this acquisition underscores a commitment to our long-term growth strategy while maintaining our focus on being an efficient, low-cost ethanol producer.”

The deal is being funded by $200 Million in equity (I'm assuming this is a stock purchase), $250 Million in Cash and $275 Million in project financing (debt).

This is a big move by Verasun that needed to happen for them to remain a strong market player. Given the timing of this acquisition (right before the plants were ready to go online), I wonder if Verasun hadn't had some kind of deal with ASAlliances to build the plants for them with the prospect of purchasing them later (This is done in many industries and shouldn't be thought of as illicit - it would just be juicy info beforehand). It begs the question that if we look at what plants are being built right now who could end up purchasing them (i.e. get some insight into any company's capacity expansion plan.

Becoming a market player
This move is also a part of Verasun's goal of getting to 1 Billion gallons of installed capacity by 2008. That's a bold move to make them one of the top players of the fuel ethanol market (ADM and POET being the top two). This might give us another U.S. Big Three to talk about.

It's important to note here, that these investments still come with some strategic versatility. Fuel ethanol is continuing to take fire from critics (and rightly so). It's an inferior product that is only begrudgingly being supported by the big oil companies. Meanwhile, research is being conducted to produce alternative... alternative fuels. So why spend so much money on building out so much corn ethanol capacity?

The Real Long-term value
These facilities should be looked at as strategic investments in location and infrastructure. Making chemicals is relatively easy. From an asset standpoint, it's only tanks and pumps. All the magic happens with the chemicals and these aren't hard to come by. Getting cheap land with railcar access and environmental permits on-file is harder and has significant long-term value. That is what is of long-term value in developing a plant install base, not corn ethanol equipment. Switching to cellulosic ethanol could be done very easily if the enzymes, etc are available. Installing a new process requires buying "off the shelf" equipment and lots of coordination. Those are in ample supply these days.

The press release also states the following projected plant profile:

Operating Facilities
VeraSun Aurora (SD) – 120MMGY (2003 Startup)
VeraSun Fort Dodge (IA) – 110MMGY (2005 Startup)
VeraSun Charles City (IA) – 110MMGY (2007 Startup)
Current Operating Capacity – 340MMGY

Facilities Under Construction or Development
VeraSun Hartley (IA) – 110MMGY (Q1 2008 Startup)
VeraSun Welcome (MN) – 110MMGY (Q1 2008 Startup)
VeraSun Reynolds (IN) – 110MMGY (Q4 2008 Startup)
Capacity Under Construction and Development – 330MMGY

Facilities From Acquisition
Linden (IN) – 110MMGY (Q3 2007 Startup)
Albion (NE) – 110MMGY (Q4 2007 Startup)
Bloomingburg (OH) – 110MMGY (Q1 2008 Startup)
Capacity Under Acquisition – 330MMGY

Totals
5 Plants, 560MMGY by end of 2007
8 Plants, 890MMGY by end of Q1 2008
9 Plants, One Billion Gallons of Annual Production Capacity by end of 2008

Governors meet to set environmental standards

Governors from thirteen states met to solicit the EPA to set their own emissions standards in the absence of federal standards.

A note from the Detroit News article:

Led by California, the 13 states have applied to the Environmental Protection Agency for authority to set their own greenhouse-gas standards in the absence of federal rules. On Sunday, EPA Administrator Stephen Johnson told governors the agency will deliver a decision by year's end.

This begs the question as to why there are no Federal policies. There are a variety of reasons why - the most obvious being a republican white house. But it doesn't make sense that there aren't at least some guidelines for economic development from the Feds. "No Child Left Behind" serves as a federal guideline (weather its good or not is debatable). But there's been no guidance on the climate issue, even those that are focused on economic development. This could be costly during the upcoming election.

Good Technology / Cool Stuff

Latent energy generators
Technology Review has an article about tiny devices that can hardness ambient vibrations to be used to power wireless sensors. This is a pretty neat invention as it can have many applications for distributed devices. One could also think of a number of wearable products that could generate latent power from human movement. Or perhaps the lights on the highway signs powered by the vibrations from trucks going by. Most likely, however, they could be used to power very remote and ubiquitous sensors that collect real time data. Traffic data and environmental data might be good starts.

Technology Review Article

Quantum Wire
The quantum wire is a theoretical device that has improved electrical transmission qualities, but at a fraction of the weight. Over the last 15 years or so, engineers have been attempting to construct a wire of this sort out of carbon nanotubes. Experimentation has provided insights into the properties of a carbon nanotube wire finding the "arm chair" nanowires have 10X the conductivity of copper at 1/6 the weight. In 2005, NASA invested $11 Million at Rice University to develop a 1 Meter nanowire. Their interest in this device is to use on space missions to get improved performance at lower weight. However, such a device could mean a revolution in the power generation and electronics industry. Think of ultra efficient and low-heat generating microprocessors. Dr. Richard Smalley, founder of CNI Inc., had a vision of a distributed power generation scheme where each home could produce its own power and buy/sell it in an open market for electricity. The impacts are tremendous.

The difficult is actually making it. Carbon nanotubes are a deceptively difficult device to build. Research is being conducted to develop methods for making these devices reliably.

Wired Article in 2005


CNN U.S. Energy Production Map
CNN.com is featuring an interactive map of energy production in the U.S. Users can see how much energy is produced from a given source sortable by state.
CNN Feature.


Wave Power
Ocean Power Technologies is producing and testing a wave-power generation system. The system is in the form of a large buoy that utilizes the up and down motion of ocean waves to drive a lever arm that can generate electricity. These devices are being deployed in the Atlantic and Pacific Ocean and have great scalability implications.

Here's a Discovery Channel video of this project.


Follow-up to the Interactive data presentation
This is a follow-up to Hans Rosling's interactive, animated economic data presentation (see previous presentation). Note the portion on environmental data and the impacts it has in creating policies for developing nations. And wait for the surprising ending!

Energy Essay Part 1: The Current “Strategy”

The U.S. (and the world at-large as well) is addressing its energy needs from the context of four factors:

• Security – geopolitical impact
• Increased Demand – developing nations bidding for constrained supply
• Environmental Impact
• Future Supply – are we/we are running out

We are essentially attacking all of these elements all at once without any kind of cohesive, contemplated strategy.

Security

Without getting too political here (I may in another post), world politics from oil-rich companies, China, India, and the U.S. is engaged in a rather…tense interactions. The difficulty has become negotiating with these countries who have their own objectives and goals. Without getting too involved, these interactions have caused a lot of difficulties and disruptions from wars, attacks on refineries, and movement towards inflexible regimes is becoming more prevalent.

Since oil is directly related to geopolitics, nations are investing in biofuels to mitigate these risks. While this is prudent given our potentially decreasing supply of oil (see below), it is looked at through m any investors’ perspective as a security play.

Increased Demand

With developing nations gaining more economic prosperity, so too has their energy consumption. In fact, energy consumption moves in lock-step with economic development. The problem, however, is that this slope is not declining (meaning every % of GDP growth comes at the same rate of energy usage).

The reality is that the world runs on oil. And at the moment, the world needs more of it. So the oil majors are doing everything that they can to get more of it. There are controversial attempts to drill in the arctic wilderness. Shell Oil has recently been told to halt is exploratory drilling in the arctic sea north of Alaska due to environmental impact concerns. China is looking for oil at all costs, including some intriguing relationships with Sudan and other African nations. We are looking for oil at all costs to supply the world’s prosperous lifestyle. And it is getting harder and harder.

Environmental Impact

There’s not much more to add to this than that our energy sources pollute. As nations grow and use more energy, they pollute more.

The difference now, however, is that we know this definitively. Farmers in Texas know first-hand the changes in the environment. While they don’t know about climate models and the like, they know their farms. And strange things have been happening. California has a notoriously fragile water supply. The changes in the environment may be threatening our current water supply – not something that is far off in the future. And every new decision to drill for oil or start a new power plant is done knowing this consequence. And that is becoming harder for citizens and governments to tolerate.

Renewables like Solar, wind, and geothermal are short-term solutions to this. But they are a bit too little to create a big splash at the moment. Many states are pushing forward with developing these technologies (California and New Jersey are big solar states). But we need big changes to address this issue.

Future Supply
We don’t really have a good idea of how much oil there is left. But the fact that there is speculation about the subject indicates that we don’t have a whole lot left. We debate over 20, 50, or 100 years worth. But nobody has send “indefinite”. So unless humans plan to move to another planet any time soon, our future energy supply is in jeopardy.

The bottom line is, we need more oil, fast. The question to policy makers around the globe is ‘how far are we willing to go for it?’

This seems like a scatter-shot approach to the problem. It’s not really a “strategy” as there is not methodical approach that everyone is adhering to. Rather the world-wide development of energy policies/technologies, etc is a response to current attitudes, opinions, fears, and opportunities. Different governments have different sets of incentives and priorities. While current developments are reasonable, I question weather or not it is the more efficient to address each of these factors.

If this were a consulting project to McKinsey or Bain, what solution would emerge?

We’ll look at that next time.

Shell shut down in Alaska

Shell was recently ordered by the 9th U.S. Circuit Court of Appeals to cease its drilling off the north coast of Alaska due to environmental concerns. The article notes:

Opponents contend that the Minerals Management Service approved Shell's plan without fully considering that a large spill would harm marine mammals, including bowhead and beluga whales. They say polar bears could also be harmed, and they question whether cleaning up a sizable spill would even be possible in the icy waters.

This is an interesting development because it shows that environmental concerns have real weight these days. Back in the 80's something like this would never have flown. But even with an oil-man in the white house, this type of environmental political action is actually taking place.

I don't blame Shell for exploring up there (the world still needs the oil). But adhering to environmental concerns is a reflection of our collective values as a nation. No amount of money or power from individual companies can overcome a nations' values (at least not in the long-term) if they are determined. This ruling is evident that it can be done.

Let's hope the long-term results remain positive.

Macoma Comes to Michigan

Mascoma announced its intention to build a cellulosic ethanol facility in the state of Michigan. MEDC and NextEnergy solicited Mascoma to build a facility in the State of Michigan. The company hopes to create partnership with Michigan State and Michigan Tech - both strong engineering and science programs.

Here's a quick note from the press release:

Unlike most current biofuel production operations, Mascoma’s Michigan cellulosic plant will make ethanol from mainly wood chips and other non-food agricultural crops. Most of the nation’s biofuel facilities now in production, or under construction, convert corn and other food crops into fuel. Because cellulosic ethanol production uses non-food agricultural feedstock, it is critical to producing ethanol on a scale that could substitute for imported oil.

Michigan's original industry was in timber. Settlers came to Michigan originally for the state's many forests. Most of the upper and lower peninsula were big timber industries that served the northeast using the Great Lakes as a shipping channel. So selecting Michigan for this effort makes sense.

Michigan, however, is a bit strange in its current state because it has not created many energy-development focused incentive plans. Governor Grandholm has claimed to be a supporter of energy development in the state (and I believe she is in all good faith). But when you research various energy-related incentives in the state, you find very little. They have yet to develop a Renewables Portfolio Standard (RPS) like several other states have. They haven't put up any real amount of money to entice energy investment (like California and New Jersey have). Their primary focus is jobs - as well it should be. The state and Detroit are struggling. But it doesn't seem that politically people are making a connection between industry-related incentives and industry investments in the area. Michigan could have a lot of development in ethanol production (there are actually a number of ethanol-production facilities in the state) and perhaps geothermal. Maybe wind too, but there aren't a lot of open planes in Michigan - just a lot of trees. And forget solar - it's only sunny half of the year.

This is a good start for Michigan, but more clearly needs to be done. A site for Mascoma's facility has yet to be identified (meaning this isn't a done-deal yet).

Impact of biofuels in China

Asia Times: Interesting article on China's interest in biofuels.

The most interesting point is the balking that China has done on ethanol given its concern over increased potential for famine.

China is a country where if the agricultural sector collapses, then the whole country collapses," said a foreign expert who works at the same Beijing research institute as the scholar cited above.

China experienced what many historians call the greatest famine in human history in the 1950s and 1960s. And while going through the Cold War, it felt more strongly the importance of food self-sufficiency, elevating it to the level of national security. To this day Beijing orders provincial governments to reserve a certain amount of arable land for agricultural cultivation.

But it also notes that China is behind its biofuels industry and is making some strong investments in its production:

For instance, since 2000 the government has been subsidizing the production of bio-ethanol at four plants in Henan, Anhui, Jilin and Heilongjiang provinces, with a combined annual capacity of 1 million tons, or about 0.5% of the projected corn and wheat outputs in 2007.

This is an important article in that it helps (me at least) shed some light on how China is managing its energy industry growth. While China has experienced spectacular growth, it is still a developing nation in many respects (including its basketball leagues apparently). So understanding what difficulties they are having, and what steps they're taking to solve them, will help inform other researchers around the world.

NPC Report confirms what everyone else already knew

The National Petroleum Council has issued a report entitled "Facing the Hard Truths About Energy". The report noted several recommendations including investing in alternatives to oil including coal and nuclear. The Financial Times notes:

The draft concludes: "The world is not running out of energy resources, but there are accumulating risks to continuing expansion of oil and natural gas production from the conventional sources relied upon historically." These risks, it says, "create significant challenges to meeting projected energy demand".

Among those risks are the difficulties faced by western companies in gaining access to oil and gas in resource-rich countries, and the problems presented by technically complex projects such as offshore production in deep water.

What's interesting is that this council was headed by Lee Raymond, the former CEO of ExxonMobil (a company that staunchly resists the CO2 as greenhouse gas claim). I have expected the report to say "everything's cool". But surprisingly, most of the claims seem rather level-headed in tone. Its message, however, is deceptive. Upon reading the document more carefully, one can see that it is really an anti-alternative energy document. Or as we say in California "garbage".

The report continues to tout coal, gas, and oil as "indispensable" to meeting growing energy demand. The problem is that continuing to use these sources would accelerate the impacts of these risks. It offers no accountability for this industry to fundamentally change how it consumes and "disposes" (and by dispose I mean pollute) hydrocarbons.

If you read between the lines of the report (the Exec Summary at least) is:

1) Gas, and coal are in high abundance in America and you should let the industry drill for them without regulatory barriers.
2) CO2 is a concern, not a global crisis that impedes the industry. It'll take decades to do anything meaningful to address it. It stops short of saying "leave us alone with all this CO2 garbage"). And in fact, carbon ought to be "addressed" and last if nothing else.

It mentions nothing about the prospect of requiring the industry to invest in alternative processing methods (such as BP and SoCal edison have done with hydrogen fired plants). It offers no advice to mandate such technologies in new developments - as TXU is doing with its new private equity owners and as the State of California has done.

This is a big disappointment, but not unexpected. But it doesn't matter. America serves the people. What the energy companies - especially Lee Raymond - haven't realized is that the people are seeing the impact of global warming in their everyday lives. It is affecting California's water supply and Texas' farmers. The hard reality is that the energy companies are causing the crisis that they only thing should be "managed" and the people of the U.S. won't stand for it. That will cost the energy industry dearly - TXU is learning that first hand. So is GM. BP got it long ago. And this Administration has already paid dearly for this type of rhetoric permeating its policies. So this report will be impactful, it will ultimately the proved moot.

Download the report from npc.org.

Wal-Mart improving its truck fleet

Wal-mart has been pushing very strongly to improve the fuel efficiency of its truck fleet. According to this article from the San Jose Mercury News, they are well on their way. What's notable, however, is that even staunch anti-Wal-Mart activists have taken notice. Here's a snippet:

Nearing the two-year mark, Wal-Mart Stores Inc. is still compiling a major report on how far it has come with the program overall, including reducing waste, using more renewable energy and stocking more green products. But one division says it is already well under way to meet its goals. Wal-Mart's fleet of about 7,200 semitractor-trailer trucks is already about 15 percent more fuel efficient and the company knows what changes it needs to make to meet a target of 25 percent by late next year.and goes on to say:

Industry experts and environmentalists say Wal-Mart is ahead of other trucking operations. The Sierra Club, an ally of Wal-Mart's union-backed critics, says the retailer's demand for vehicles could prompt truck makers to bring more efficient models to market faster.

"They are pushing beyond what the trucking industry has already decided to do. Because of their size, I think they will create economies of scale for more efficient trucks," said Daniel Becker, director of the Sierra Club's global warming program.

How tough is that one for the Sierra Club? This situation raises a strange dynamic in the current U.S. social movement environment. It's hard to simply choose sides anymore. While Wal-mart has been vilified for its work practices, they are also having a very strong impact on adopting efficiency and green technology into its company. Its size has created very strong market opportunities needed to create incentives for new research.

Amory Lovins spoke of his relationship with Wal-Mart's truck fleet noting that they were extremely interested in improving fuel economy. The notion of going from 6 MPG to 18 MPG are huge. As it stands, truck drivers who own their own trucks are getting their wages squeezed due to the high cost of diesel. Wal-mart's influence on truck manufacturers to improve efficiency could make this a viable business for these independent drivers again. Or in other words, Wal-Mart is actually helping out the little guy. The article notes some of this:

Yatsko says the biggest piece of the solution will come from future hybrid diesel-electric engines. Wal-Mart is pitching in $2 million a year for research and development by two teams of national truck manufactures - International Truck with ArvinMeritor Inc. and Peterbilt with Eaton - and has agreed to buy the prototypes.

New hybrid engines will deliver about a 50 percent efficiency increase on top of the 25 percent set for next year, Yatsko said.

So while companies like Wal-Mart may be vilified, they must also be seen as opportunities for change. They have a huge reach as well as a huge financial incentive to adopt efficiency changes. Perhaps the Sierra Club can use them as an opportunity - rather than a punching bag. It seems that they owe Wal-Mart employees the same amount of creativity that Wal-Mart itself has shown in creating solutions to these problems. I wonder if the Sierra Club is up for that.

Ethanol Stock watch

Ethanol stocks have made some interesting moves in the last three weeks.





When I first posted this list of public ethanol production companies, the field had been in pretty bad condition. But since the June 23 close, it's been a bit of a mixed bag. You'd be up 5% if you bought a share of each at the June 23 price. But it's interesting to note the winners and losers on this list.

Verenium is getting a good response from the market. It's gone up 40% in 3 weeks. It's intriguing to think of what is driving this increase. The company hasn't had any really big breakthroughs or commissioned a big plant. But they're really the first vertically integrated cellulosic ethanol play. As corn ethanol is getting negative press lately, the hopes for cellulosic ethanol have been rising. Verenium is getting the benefit of this interest and could reap a big economic benefit. Then again, it could just be hype. You have to be careful.

The rest of the field have had rather paltry results. Pacific Ethanol's 14% rise comes with generally good performance. Biofuel Energy is down, but 4% for a new IPO seems a bit strange. Think of that as a sale, not a vote against the company.

What is important to note about this field of stocks is that it could be showing a shifting of the market's opinion on this sector (in kind of a crystal ball kind-of-a-way). What it could mean is that the market is wising up on the future prospects of this sector and will make it more difficult for new entrants (Amaizing, Imperium) to get a blessing. This chart may also be saying that the market rewards good performance.

BP's getting it done through partnerships

BP, the "green" big oil company has been making some rather big moves in really going after developing new business models around green energy. What is most notable, however, is that they are accomplishing this through partnerships. This is a bit of a rarity for big, bureaucratic corporations and should be highlighted. I've noted a few in previous posts, but here are some more


Hydrogen Energy Intl Ltd: JV with Rio Tinto
BP is partnering with Rio Tinto to create hydrogen-fired power generation plants. BP as a power plant company? That's a very strange business for them, but this JV actually makes sense. This partnership is developing three projects: Carson (California), Peterhead (Scotland), and Kwinana (Australia). BPs Carson refinery is the site for a demonstration facility to generate hydrogen gas from petroleum coke (a nice approximation for coal). This coke is a by-product of normal refinery operations. This coke is put through a gas shift process that (ultimately) produces a stream of CO2 and Hydrogen. This hydrogen is then used as a fuel to produce 500MW of electricity. That's enough to provide power for most of the surrounding residences and businesses. The CO2 will be sequestered underground permanently. This will be one of the first of BP's efforts for carbon sequestration in the world; its success will have a big impact on future projects.

The other two facilities utilize a similar process, but with different feedstocks. Peterhead will use natural gas as a feedstock and utilize the CO2 to inject a nearby offshore oil rig to improve oil extraction. Kwinana will use bituminous coal and the CO2 will be sequestered in an underwater saline deposit (with very promising CO2 sequestering properties). Each of these projects will also produce 400-500 MW of power for their communities with a (as reported by BP) 90% reduction in CO2 emissions.



D1 Fuels
D1 Fuels is a leading biodiesel producer and Jatropha feedstock grower. BP has formed a partnership with D1 to research this impact that Jatropha-based biodiesel could have on the world passenger car fuel market. From the press release:

Under the terms of the agreement, BP and D1 Oils intend to invest around $160 million over the next five years. D1 Oils will contribute into the joint venture their 172,000 hectares of existing plantations in India, Southern Africa and South East Asia and the joint venture will have exclusive access to the elite jatropha seedlings produced through D1 Oils’ plant science programme.

Presumably, BP will market this feedstock and serve as a buyer for D1's biodiesel. There has been a growing interest of Jatropha in recent years and its popularity is growing. India has been the most active in developing this feedstock (as have some African nations). But it hasn't quite made it to mainstream businesses. This partnership represents the first big-business anointing of this feedstock.

What's really interesting is that this plant is best grown in arid areas of the world. Looking at the globe, these tend to be closer to the equator and tend to be in poorer nations. This could be an interesting opportunity for these countries including parts of Latin America and central Africa. Improving these areas of the world could go a long way towards improving living conditions and healthcare for those people, not to mention opening up additional consumer markets.

BP / DuPont
BP and DuPont are currently co-developing biobutanol as a next generation alternative fuel. Presumably, their research is focusing on catalytic pathways (using catalytic industrial processes) and enzymatic processes using cellulosic feedstocks and fermentation.

This partnership also reported at the SAE conference in Detroit in April that biobutanol performs on-par with gasoline. The benefit being that biobutanol can be used in current cars and can be transported via pipeline. This report brings some real numbers to the promise of biobutanol making it a more viable biofuel to ethanol closer to reality.

LLNL Gasification
A project focused on developing underground gasification processes.

Synthetic Genomics
BP made an investment in Synthetic Genomics to aid in the development of microbe-based processes for improved oil recovery processes (and perhaps any other interesting energy-impacting discoveries).

* * *

All of these partnerships amount to a lot of new science and engineering in hopes of finding some new means of making money without polluting the environment. It's also important to note that these investments also leverage their current carbon-based assets. The difference is that they are attempting to find ways to better managing the carbon cycle. Instead of emitting to the atmosphere, they are re-depositing CO2 underground. Or, alternatively, they're trying to use the carbon that's already in the atmospheric carbon cycle.

These are long-term investments to be sure. But BP is one of only a few big companies (GE, Boeing are others that come to mind) that are really putting their money where their mouths are in creating new business opportunities while addressing this world crisis. For all of their other issues, they should get credit for this.

GM gets serious on Diesel

GM has announced its purchase of a 50% stake in Penske-owned Italian diesel engine maker VM Motori. The announcement notes a diesel version of the Cadillac CTS that will be marketed in Europe. Here's a note:

GM announced at the Geneva Motor Show that it will jointly develop a new 2.9-liter V-6 turbo diesel engine with VM Motori that is scheduled to launch in the Cadillac CTS in Europe in 2009. GM Powertrain Europe will focus on the development of the first industry application of a clean combustion process called closed-loop combustion control, electronic engine control and exhaust-gas aftertreatment, as well as calibration and integration into GM vehicles. VM Motori plans to build the new unit at its plant in Cento, Italy, and is responsible for the mechanical aspects of the engine’s design, development and testing.

This acquisition comes after the media pounced on Bob Lutz' comments that diesel isn't a particularly good solution. Here's the video of Bob's comments:


To put it a little more bluntly, Bob is saying that diesels are not a technology that will meet California air quality regulations, federal CAFE standards, AND European regulations. Further, the technology itself comes at a price premium making these vehicles harder to sell.

While it's understandable that the press will jump all over these comments (the press acts like 6th graders sometimes - any little piece of gossip gets overblown), it's also important to note that his comments reflect the complexity of the global auto market. In this video alone, he speaks about California, Europe, and Federal CAFE standards. It underscores that the issue isn't just the technological opportunity, but that the technological improvements must come at a price point appropriate for the market the cars are to serve. That's a tough challenge.

Please also note the heavy diesel pipeline that Bob noted in his video comments as well.

This acquisition of VM Motori, then, makes strategic sense. GM can move forward with their heavy marketing efforts as well as develop some intellectual capital around this technology. Perhaps in a few years they will make a meaningful discovery that will make diesels more affordable and cleaner.

GM Fast Lane Blog with Bob Lutz

Florida's getting serious about climate change

Florida governor Charlie Crist signs several executive orders to reduce the states' green house gas emissions. The signing took place at the Serve to Preserve Florida Summit on Global Climate Change held last week. This is a more aggressive energy policy than what Florida has had before.

State government will first measure greenhouse gas emissions and develop a Governmental Carbon Scorecard. State government will then work to reduce emissions 10 percent by 2012, 25 percent by 2017, and 40 percent by 2025. To achieve that goal, state buildings constructed in the future will be energy efficient and include solar panels whenever possible. Office space leased in the future must be in energy-efficient buildings as well. Any purchased state vehicles should be fuel efficient and use ethanol and biodiesel fuels when available. State government will also seek to partner with an energy-efficient rental-car company for the 2009 contract.

The press release also notes that agreements have been made with the UK and Germany to discuss initiatives in expanding the Kyoto protocol.

But I have one question: where's the beef?

This press release speaks of initiatives and changes in the state buildings. While these are good things for the government to do, the real growth will come when real incentives are put in place to grow the industries needed to make these impacts the norm. California is the only state that has done this in a big way in passing their $3.3 Billion. The reality about alternative energy is, given the state of the art today, it requires a go-big-or-go-home strategy. This is the real leadership that Florida needs to make a reality. I hope these executive orders serve as a basis for new thought leadership to emerge in that state.

Is GreenFuels really green?

After reading up on all of the upheaval at GreenFuels, I got to wondering how 'green' the really are. GreenFuel uses an algae-based technology where stack gases are used to feed an algae colony. The algae consume the CO2 in the stack gas and digest it to grow and to produce natural oils. Part of GreenFuels' strategy is to harvest these oils and convert them into biodiesel for use in diesel vehicles.

This is a great use of stack gas that is currently polluting our atmosphere. However, the question arises on weather or not this eliminates pollution or makes more productive use of it before we put it in the atmosphere for good. This technology, when taken to its furthest use, would allow us to power our cars using electrical plant waste instead of having to drill for oil. This would, again if taken to its Nth degree, would supplant all of the pollution from automobiles. The reality is only some partial crossover.

The stumbles that the company is experiencing is that it is more expensive to manage than initially anticipated (which is completely normal). One of the deficiencies of their current technology is that it doesn't scale very well (you need a lot of algae stacks over a wide area to capture an entire plants' pollution.

This supplanting effect would not be able to significantly draw down on the amount of electrical plant pollution which is our biggest emitter (more so than auto emissions). Further, as automobile use grows, so too would the demand for electrical plant stack gas. This could further complicate our demand for fossil fuels in our societies (there are many other complexities to this equation such as the supply logistics, costs, etc. that I won't deal with here - we'll keep it high level). There could be benefits to this though - electrical plants have to be somewhat local, but biofuels could be shipped theoretically shipped internationally making the global fuel market more equitable. This scenario would ultimately, however, further tie human existance to the emission of fossil fuels. The innovation needed to make this scenario more viable would be in the a sustainable feedstock for the stack gas (and the subsequent electricity). But it would also implicate a need for a bare minimum amount fossil fuel plant production. That's a strange thought.

So is GreenFuel really green? I guess the answer is "it's complicated".

BP to study underground gasification

Lawrence Livermore is reporting a new partnership with BP to study in-situ coal gasification. This is a novel idea. Here's a diagram from the LLNL site:



The two year project has three goals:
1) feasibility for underground CO2 storage
2) environmental risk assessment
3) numerical modeling of the underground processing techniques

This is a novel research idea in that could yield some important information on some new ways of capturing as yet uncapturable coal and sequestering carbon. This is the first I've ever heard of doing an industrial process such as this underground. Its development could mean opening up a new niche of carbon product processes that can be done without exposing our atmosphere to it. One could imagine what this could mean in a more evolved sense - could we produce electricity underground indefinitely where we would never have to expose our processing needs to our atmosphere?

Our fundamental problem with greenhouse gas emissions is that we are depositing our naturally sequestered carbon (coal, oil, natural gas) into our atmosphere via our coal electrical plants and cars/trucks. The earth doesn't re digest this carbon in a meaningful time period (it stays in the atmosphere for a long time). Biofuels represent an option of producing fuels with carbon that cycles through our atmosphere: from the atmosphere to biomass plants through our cars as fuel and back into the atmosphere as car emissions (otherwise known as pollution). It's still not a pretty option, but it would provide a more stable carbon cycle. But what about coal? This process perhaps represents (if I dream a little bit) an option for using sequestered carbon (coal) within its own cycle: extract coal, covert it to syngas underground, burn the syngas in a turbine (above ground?) and re-sequester it back underground. This would make coal into a "technical nutrient" to use a "Cradle-to-Cradle" definition. It could really give some real options for engineers to continue to utilize coal, etc in a more sustainable way.

This research could be the first step.

Ethanol water separation technology

Green Car Congress is reporting a technology developed by Mitsui that uses a zeolite-based membrane to separate water and ethanol. This is an important technology as it provides a low-energy way of separating water from ethanol in bioethanol manufacturing facilities. The device works by taking in a water/ethanol mixture. One exit is covered by the zeolite membrane and filters the smaller water molecules. The ethanol is released on the other side of the membrane chamber. Below is a diagram:




Simply put, this is a dialysis machine with a new membrane in it. It's one of those applications that make you say "why didn't I think of that?" The good thing is that this is a standard process that utilizes a novel membrane technology. It's an easy technology to commercialize and deploy and means it could have an immediate impact on the industry.

GreenFuel gets dirty

The internet is abuzz with news of GreenFuel Technologies' CEO ouster (Boston Globe, EnergyBlog, Rob Day's Blog). Robert Metcalf, a founder of 3Com, has taken over as interim CEO for previous CEO Cary Bullock.

GreenFuel is another technology developed out of MIT. The first I had ever heard of them was on an appearance with Alan Alda on Scientific American Frontiers a few years ago. The technology, developed by Isaac Berzin, essentially uses algae to absorb CO2 emissions from stack gases. Algae is one of the few natural processes (albeit a biological process) that consumes CO2. They have had success with the technology on a small scale, but apparently have been having problems scaling up (from the Boston Globe Article):

The process has worked well on a small scale, but to become profitable, GreenFuel needs to produce algae in industrial quantities. It's trying to do so at a pilot plant in Arizona. But the plant has been shut down because it produced algae faster than it could be harvested. "Their unexpected density limited light and nutrient supply, which caused them to start dying," Metcalfe said in a memo to GreenFuel employees and investors. In addition, the process has proven more costly than expected. So Metcalfe plans to move quickly to a new generation of technology that costs less and allows for easier harvesting.

This Arizona plant was featured in a History Channel program called "Modern Marvels: Environmental Tech". It's actually rather impressive. But apparently its "buggy" and costs more than they had anticipated. Further, they have had to cut staff from 43 to 28 (which might explain why they didn't respond to my job applications).

It's not quite clear what is driving the change at the top. Technologies like these take time (and money) to get right. This difficulty seems completely within reason. Bullock will take the VP of Biz Dev role and still be on the board. Which seems to indicate that there was no real beef with her being CEO. So it begs what's driving the change at the top? This is a biotechnology company and Metcalf is no expert in biotechnology. He claims to want to focus on raising money and finding a full-time CEO. All this is perfectly fine. But it also doesn't really spell a crisis in leadership (at least from the outside). So it makes us wonder what is causing all this shuffling around.

Swiss army solar....

Two Canadian companies have teamed up to develop the Power-Spar solar utility. This device is a solar concentrator (electricity), thermal heater device that can be placed in any type of location.

This is an interesting device (not interesting that it looks like stadium bleachers). But its the first that we've seen that is a combination of technologies. It's not clear, however, that this device really provides any additional value over other devices. I don't know that I would see these devices on the roof of a Wal-Mart anytime soon (but don't hold me to that). But these seem like they would be best suited for more remote locations. Like, say...in Canada. Northern Canada.

On a broader note, let's see how effective the solar concentrator device is. That will probably determine its overall value.

Ford and SoCal Edison partnership

I guess I spoke too soon. Ford and SoCal Edison are partnering to develop plug-in hybrid technologies. While I am still not a fan of PHEVs, as noted by my blog entry yesterday, this is exactly what this initiative needs to see if it really has any legs. While there is a lot of speculation on both sides as to weather or not plug-ins are environmentally friendly (more so than burning fossil fuels), battery technology is effective enough, or that people really want this technology.

What is certain, however, is that selling cars is difficult. Cars have to meet a laundry list of needs for every consumer. This partnership will spell out the first time that two major players with something powerful to say in this debate will get some actual engineering behind it.

The debate has, so far, focused on California (or perhaps given that I live in California my information sources are biased). CalCars, Google.org, and Tesla Motors are all California-grown thought-leaders. But as I have argued before, these organizations do not really understand how real people live - California is a unique place. In particular, one without snow or a lot of rain. While they tout this technology as a 'solution' it appears to me that it can only exist as a niche application at best. This is still something to be upbeat about - a niche car business is still a good business. It's just not a solution to the energy debate; it's only a diversion in my own opinion. Ford represents a global manufacturer who has to take into a broad perspective of the marketplace. Given their current financial situation, if they can't sell a million of them, they probably won't make the investment. That'll prove weather or not PHEVs are worth it (at least in a broad sense).

Let's see where this goes. But fair warning, I've never lost an engineering bet before.

LA Times Article

Brazilian Cosan to file for IPO

Brazil's largest ethanol producer will file a $2 Billion (this number sounds a bit strange) IPO. They have reportedly retained Credit Suisse, Morgan Stanely, and Goldman Sachs to underwrite the transaction. This comes shortly after U.S. ethanol giant, Archer Daniels Midland, reported an interest in purchasing this company.

Well played Cosan.

This is a bit of a strange situation. An ADM buyout would have actually been a good value creator for Cosan as it may have given them access to cheaper sources of cash in the U.S., have a big international trading partner, get access to intellectual capital for manufacturing other feedstocks (corn), and have faster access to U.S.-driven research on cellulosic production.

On the other hand, the U.S. market may give them a higher valuation, not to mention all the fruits of going public. Being sucked into a big U.S. multinational isn't particularly sexy. Further Cosan is mostly controlled by one person - Rubens Ometto Silveira Mello. I doubt he would be willing to play ball with ADMs executives after being independent for all this time. I just hope he remembers that the SEC isn't necessarily a better bedfellow.

This is a better IPO than current U.S.-based ethanol IPOs. Unlike other U.S. producers going public, Cosan has a well-established position within its own market. It is planning to use the IPO money to improve its overall valuation and finance strengthening its own position.
This is a significantly better story than other ethanol IPOs now-days and could prove to be a better investment.

Problem with Plug-ins

I read a lot about plug-in electric hybrid vehicles (PHEVs) being an answer to America's problems. But it seems like a farce to me. The advocates of this technology is that they are zero emissions and that the electricity consumed isn't as polluting as gasoline engines.

While I actually disagree with the latter, it's mostly a non-issue at the moment (there are hardly any PHEVs out there to really put the test to it). But there are some fundamental questions here in evaluating if PHEVs are really a viable solution.

1) Is storing energy in batteries better than storing it in chemical bonds?
While it is true that you *can* get a car to work on batteries, you really can't compare it to the needs of many Americans. Many Americans drive on really crappy roads at sub-zero temperatures. An electric car (its its current iteration) would only be "sufficient". But I'll be damned if I have to drive around Cleveland in the middle of winter in one of those. Or a better litmus test would be ask if you want to drive a Plug-in Prius or a 4WD GMC Acadia. Chemical bonds provide an easy and energy-rich solution to easily storing and transporting energy in our cars. Batteries can do it, but - at the moment - they're just not as good or as cost effective. Batteries are comparably expensive (even compared to biofuels for that matter) and high demand for them would only increase their cost (as metal prices would increase). Could we become a world battling over foreign metals rather than oil in this type of scenario? That's a bit far fetched, but it begs the question about how to manage these materials just as we have to manage our gasoline.

The innovation that could change that would be batteries made of very low-grade commodities, but performed at much higher operating ranges at lighter weights and higher power outputs. And must be able to charge in their entirety in 5 minutes (like gas tanks can be refilled). That's a tall order. But the hardest part of this equation would be:

2) Can we make enough electricity for them?
I don't think people really understand how many cars are out there on the road these days. There are hundreds of millions of them just in the U.S. alone. If you think we have an energy crisis now, PHEVs would pose a strict increase in demand (and price) of electricity. Advocates tout clean energy being a valuable resource in this equation. It would be. Except the scales seem completely off-the-charts! It's hard to do the math on this (which is scary because people say they've done it - I'm sure they have but I'm also sure it's not realistic as even a slight order of magnitude would represent billions of dollars). It's hard to really evaluate how much electricity the masses of people would consume vs the electrical demand. However, given that we struggle to meet electricity demand as it is, I'm sure having, say, 100million PHEVs on the road would be too much to handle. We would need new plants - nuclear? Coal? That's a hot topic at the moment and it seems that PHEVs would be a detraction from this debate as we struggle over conservation. PHEVs would be the anti-conservation.

Also keep in mind - electricity consumed is only a small fraction (say 1/10) of the electricity that needs to be produced to supply that amount. So whatever we would need to consume, our demand would need to be an order of magnitude higher. Those numbers are adding up fast.

3) Do people want it?
The Automakers are derided for their lack of movement on developing PHEV. But the reason for this is because there's no data showing that people actually *want* to plug-in their car. It's kind of a stupid idea actually. I don't even like plugging in my cell-phone or laptop. Why would I want to depend on plugging in my car from day-to-day. People are generally way too irresponsible for that. I think that's what really killed the electric car - not GM.

* * *

What is missing in the debate about PHEVs is exactly the part that is most important. Seemingly, the advocates for PHEVs are rather idealistic, relatively wealthy people. The reality is that the majority of the world (even in the U.S.) is suffering or otherwise struggling in their daily lives. Most people in the world don't have electricity; many others can't really afford electricity (for contrast, Apple has only sold 100Million iPods world wide including multiple buyers; that's not a lot of people in the big pictures). PHEV advocates appear not to understand that in order to serve the people, you must really understand their needs. At the end of the day, this argument is about how people solve problems to help benefit society. PHEV advocates are exactly the wrong people to be engaged in this debate as their needs are both uncommon and unreflective of people's experience.

The argument for PHEVs is currently a one-sided debate that appears to only serve this small group of people. So my endorsement of PHEVs would only extend to this group of people. They're fine - but only to a limited few. Chemicals, at the moment, are still better.

Article on Biorefineries

Interesting article form MarketWatch on Big Oils' investments in bio-refinery technologies. In particular, it describes some of the relationships of big companies with smaller bio-development companies like Codexis and Abengoa.

Here's a snippet:

As Alan Shaw, CEO of enzyme developer Codexis quipped, if the earth had created enzymes that could easily break down cellulose, "Our forests would all be lakes of goo."

The role of industrial biotech companies in the quest for cellulosic ethanol is to grab the evolutionary torch from Mother Nature and create micro-organisms that can produce the living enzymes necessary to break down cellulose into sugars, which are then fermented into alcohol. The ethanol is then mixed, up to 10% of volume, with gasoline.

Mostly though, the underlying tone of this article is that bio-products will not be economically viable until cellulosic process technologies (enzymes mostly) are really perfected and brought to market.

CARB emissions ratings

The California Air Resources Board is a regulatory body that serves a variety of functions related to the air quality of the state of California. Among many of their services, they give ratings to automakers for the emissions quality of their cars. This is significant because California regulations are forcing the hand of the automakers to comply.

An example is when I personally asked Carlos Ghosn, CEO of Nissan and Renault, if they were developing alternative propulsion technology. His response was "yes" - a hybrid altima being their offering - but primarily for the California market. The Toyota Prius mostly sells in California (particularly Northern California) for a variety of reasons. The Prius, however, doesn't sell very well in the rest of the U.S. (yet Toyota enjoys the benefit of a "green" image regardless of their investments in large trucks like the Tundra). CARB is a big player in these vehicles' success in this state and it makes sense to look at what these CARB ratings are.



Definitions:

TLEV: Transitional Low Emission Vehicle
This is the least stringent emissions standard in California. TLEVs are phased out as of 2004.

LEV: Low Emission Vehicle
All new cars sold in California starting in 2004 will have at least a LEV or better emissions rating.

ULEV: Ultra Low Emission Vehicles
ULEVs are 50% cleaner than the average new model year car.

SULEV: Super Ultra Low Emission Vehicle
SULEVs are 90% cleaner than the average new model year car.

PZEV: Partial Zero Emission Vehicle
PZEVs meet SULEV tailpipe emission standards, have zero evaporative emissions and a 15 year / 150,000 mile warranty. No evaporative emissions means that they have fewer emissions while being driven than a typical gasoline car has while just sitting.

AT PZEV: Advanced Technology PZEVs
AT PZEVs meet the PZEV requirements and have additional "ZEV-like" characteristics. A dedicated compressed natural gas vehicle, or a hybrid vehicle with engine emissions that meet the PZEV standards would be an AT PZEV.

ZEV - Zero Emission Vehicles
ZEVs have zero tailpipe emissions are 98% cleaner than the average new model year vehicle. These include battery electric vehicles and hydrogen fuel cell vehicles.

Some popular vehicles ratings:

Car Model	Model Year	CARB Rating	MPG City	MPG HW	Entry Price
Honda Accord Hybrid	2007	AT-PZEV	28	35	31090
Honda Civic Hybrid	2007	AT-PZEV	49	51	22600
Toyota Prius	2007	AT-PZEV	60	51	22175
Chevy Cobalt	2007	PZEV	24	32	13790
Honda Accord	2007	PZEV	26	34	18625
Ford Focus	2007	PZEV	27	37	13,715
Toyota Highlander Hybrid	2007	SULEV	32	27	34610
Ford Escape	2007	SULEV	36	31	25,075
Toyota Yaris - Sedan	2007	ULEV-2	34	39	12025
Honda Civic	2007	ULEV-2	30	40	15010

This is an interesting list as it shows that although Toyota and Honda are at the top of the list, the American companies, Ford and GM have some models in the higher positions as well. Also note that there's not necessarily a correlation between mileage and emissions.

Biofuels, etc around the world

I found some good news about biofuels, etc. from around the world:

Europe
GM Europe is pushing forward with its "ecoFLEX" initiative by unveiling a several short-term projects aimed at reducing fuel consumption and efficiency. ecoFLEX is an umbrella initiative for all of its efficiency initiatives (E-Flex, E85, ultra efficiency, etc). It also plans to unveil a several alternative fuel vehicles.

Canada
Canadian Prime Minister Stephen Harper announced a CAN$1.5Billion investment program for biofuels production. Cananda recently announced a new 5% renewables gasoline content regulation to be in effect 2010. This will require around 3 Billion Liters of renewable fuels to be produced (or perhaps imported from the U.S. provided NAFTA works the other way too).
Read the Press Release.

US
VeraSun, GM, and Enterprise announce the opening of the first E85 pump in Washington DC. Enterprise Rent-A-Car announced it is designated its rental location in DC as an "official" Flexfuel branch. The station is located at the Georgetown Chevron at 2450 Wisconsin Ave, N.W., Washington D.C.

Barak Obama speach at Conserv Fuel in Los Angeles

Speech given at Conserv Fuel in Brentwood, CA.





Conserv Fuel is a fueling station that offers E85 and biodiesel.

Shell forms partnership with Virent

Biomass magazine is reporting a partnership between Wisconsin-based Virent and Shell Hydrogen to develop a hydrogen production process. Virent is a start-up company that has developed an industrial catalyst-driven process (not a biological fermentation or thermoprocess) to convert biomass into a variety of end products including biofuels, plastics, and hydrogen. The article notes:

"One of the main challenges to introducing the environmental benefits of the hydrogen economy is reducing the CO2 emissions associated with hydrogen production," said Duncan Macloed, vice president of Shell Hydrogen. "This agreement further emphasizes Shell Hydrogen's commitment to collaboration and working with the world's most innovative companies to overcome the challenges associated with realizing the hydrogen economy."

This is a pertinent goal for this partnership (it also addresses this article in Technology Review that I will address in another post).

Shell, like many of the big oil companies, do not make many developmental partnerships (given the number of companies out there doing development work). So this is an important partnership to watch. The Virent web site doesn't give much information about their process (just an alluring picture - above - of an ultra efficient reactor of some sort). They only offer a basic thesis:

The patented BioForming process is the first commercial application of Aqueous Phase Reforming, a unique and innovative pathway to biofuel and bioproduct production co-invented by Virent’s founder. This catalytic route is superior to high temperature thermochemical or fermentation pathways. It is simple, thermally efficient, and entirely scalable for small distributed or large centralized production. Unlike time-consuming fermentation, this robust and fast process does not depend on living microbes or enzymes.

So after reading this and looking at their micro reactor, one could dream of plant consisting of batteries of these microreactors that process a variety of feedstocks into a variety of products (a necessity for operating this type of business in my opinion).

It's not clear that this is any more than a research collaboration on this technology. But given previous Shell investments (Iogen, Choren), they have a good track record of partnering with good companies that have been successful in bringing their products into fruition.

Texas Desalinates

Texas is starting to desalinate water. Water desalination is an expensive venture due to the high costs involved. Mainly, reverse osmosis requires large pumps to push salt water through salt-filtering membranes. This is extremely energy intensive, but necessary to keep up with the growing shortage of potable water sources.

An excerpt:

Desalting sea water is expensive,Macro running ....... mostly because of the energy required. Current cost estimates run at about $650 per acre foot (326,000 gallons), as opposed to $200 for purifying the same amount of fresh water.

However, it is a growing field around the world as governments and private investors ante up where water drinkable needs are crucial.

About two-thirds of the world's desalinated water is produced in Saudi Arabia, Kuwait, and North Africa. Perth, Australia, is looking to meet a third of its fresh water demand by removing salt from sea water.

In March, Israel showed off its plant at the Mediterranean port of Ashkelon that can process 87 million gallons of water a day. Singapore opened a sea water desalination plant in 2005 hoping it will meet at least 10 percent of its water needs. Two months ago, General Electric Co. announced a $220 million contract to build a plant in South Africa.

It's a bit of a surprise that Texas is not "beginning" to desalinate (or at least, that the AP is starting to report about it). This is a sleepy industry at the moment which will gain in importance in the next few years. In fact, I would assert that we are in just as big a water crisis as energy crisis and new developments will be needed to address this issue as well.

California's coast is dotted with a few water desalination plants. They're big and ugly (there's on in Redondo Beach that's horribly ugly and hidden behind large murals of whales and dolphins). But this is an important program for California is it struggles to maintain its water supply given its growing population.

I've looked at water purification for quite a while in fact. I used to manufacture a lot of industrial water treatment chemicals in my first job out of college. I've also done a lot of research in how to purify water in poor, rural environment. The punchline is that there's no real easy way to clean water - at least not cheap enough to provide it for (nearly) free to everyone. We've done a good job at what we have in the U.S., on the municipal level. But by and large, it's hard and energy intensive.

What really pisses me off is that most diseases in the world occur due to the unavailabiliy of cheap, clean, (disease-free) water. It's not a technology issue - it can be done to the level of not killing people from basic water-born diseases. These people are getting sick and dying because ultimately their governments fail them. That's unacceptable on all fronts.

Municipalities do not innovate on their processes to improve their economics. This will need to change (as the electrical utilities have had to change) in order to really push for the innovation needed. Bringing the rural developing world online will require different techniques in water management that are perhaps different than what are available now. Desalination is a good start to this.

Panel Discussion on China's Energy

This is an interesting panel discussion on China's developing energy infrastructure. Moderated by Tom Friedman, the panel includes executives from AES, Suntech Power. Posted below is the first part of 7 total.