Jim Heathcote says his company can one day make crude oil irrelevant. Britain-based ITM Power, of which Heathcote serves as chief executive, is promoting a low-cost way of splitting water molecules, leaving hydrogen as a cheap fuel. "Our scientists agree that it's the greatest scientific advancement since the beginning of the Industrial Revolution," he says, without a trace of irony or bluster.
As the U.S. looks to reduce crude oil imports, kick its oil "addiction," and trim carbon emissions, there's a wild scramble for green fuels. Given the general turmoil in the Middle East and ongoing volatility in oil prices, "energy independence" has become a buzz phrase in Washington. The Bush Administration is placing its faith in technology to tackle the problem, and fortunately, there's no shortage of big thinking when it comes to how to fuel the economy without Big Oil.
The financial community has taken an interest in this call for a greener future, and energy conferences have been springing up around the country to give startups an opportunity to mingle with investors. Hyperbole, scientific snake oil, and revolutionary advances abound for money managers trying to sort through a dizzying array of alternative energy approaches. In this emerging field, separating the junk science from the quality can be the trickiest task.
Sorting Out the Winners
On Feb. 21, the coffee and Red Bull were flowing at one such event, the Opportunities in Alternative Energy Symposium, hosted by investment bank and securities firm Piper Jaffray (PJC). At the conference, more than 45 alternative energy companies presented, hoping to garner support from one or more of the hundreds of hedge fund, mutual fund, and private equity managers in attendance.
From thinner solar film to cheaper fuel cells to biofuels made from hog fat, investors had plenty to choose from. The array of solar, "clean" tech, and biofuels companies unfolding their wares—and the complex science behind them—boggled many a mind. As most are publicly traded companies, investors have easy access to their financial condition. But sorting out which technology will prove revolutionary is the potentially billion-dollar question.
As it stands, few new technologies can compete with fossil fuels in the marketplace. While they don't burn clean, oil and coal are efficient energy sources, and most of the world's infrastructure is built around them. By contrast, fuels like ethanol and solar power aren't as energy-efficient and lack the manufacturing and distribution channels that are well established for fossil fuels. But each of the startups is doing its best to show prospective investors they hold a valuable key to unlocking a better, cheaper, greener future.
The End of Fossil Fuels?
In one of the biggest leaps ahead, ITM Power sees a world without gasoline. With its gray marketing materials and soft-spoken CEO Heathcote, the British outfit didn't attract much of a crowd at the symposium. But ITM made perhaps the boldest claim of the day—that its technology can replace gasoline and eventually end the burning of fossil fuels entirely.
The company, based near Cambridge, England, says its claim to greatness is an "electrolyzer home refueling system," which creates hydrogen fuel virtually anywhere. The unit, which is about 18 inches square and stored in a refrigerator-sized tank, uses electricity to split water into oxygen and hydrogen—freeing up the hydrogen to fuel anything from an oven to a car. Hydrogen has long been considered a potential alternative to fossil fuels, but costly materials like platinum needed for traditional electrolyzers and a lack of infrastructure for distribution have made it prohibitively expensive. Heathcote says ITM's electrolyzer solves both problems because it uses cheaper materials and can distribute the fuel itself. It will cost $164 per kilowatt, versus $2,000 to $5,000 per kilowatt for traditional electrolyzers. And that, ITM says, prices its hydrogen fuel competitively with gasoline.
"We've solved the cost problem for hydrogen, and in a totally nonpolluting way," says Heathcote. The company, which now has about $60 million on its balance sheet, is building a factory in Britain and will unveil a prototype of the device and a bi-fuel car in June.
Paper or plastic? Many people feel a pang of guilt as they pile plastic containers into the trash after a meal. But Cambridge, (Mass.)-based Metabolix (MBLX) says it has the technology to erase that guilt with a nonpetroleum-based, totally biodegradable plastic that it's beginning to commercialize. Metabolix, which had its initial public offering in November, has partnered with agribusiness giant Archer Daniels Midland (ADM) to develop and commercialize its Natural Plastic product, which it will sell at a premium to companies with eco-obsessed customers, says a company spokesperson. The product will be made in a new Clinton (Iowa) plant the companies will open in 2008. Applications include a broad mix of consumer products like razors, toothbrushes, bags, and cups. CEO Jim Barber says customers will pay a premium for the product, which will cost $2 per pound or more.
Natural Plastic won't be the only nonpetroleum-based biodegradable plastic on the market, as companies like Cargill and Novamont have also managed to create eco-friendly plastics from different materials. But Metabolix says its product is higher-performing and more versatile than others on the market. Barber also announced another breakthrough: the ability to produce plastic from switchgrass—potentially producing both plastic and ethanol from one plant. A Metabolix spokesperson says the company has no plans to produce ethanol itself, but there are possibilities to partner with ADM on cellulosic ethanol production in the future.
Others are looking skyward. Remember the great promise about that burning orb of gas sitting 93 million miles away? Solar power may be chic energy, but it has failed for decades to reach a critical mass because it's so expensive to produce on a commercial scale. At the symposium, a host of companies claimed they can capture the sun's powerful rays more efficiently, which could usher in a panel-fueled future more quickly than previously imagined.
Affordable Solar Power
Many companies touted their ability to cut the cost of silicon, an abundant element that's a basic material for solar power. Ian MacLellan, CEO of ARISE Technologies (APV), claims his Ontario (Canada)-based company can cut the cost of silicon by using metallurgical silicon, which is cheaper to produce.
MacLellan drew a sample of the material, which resembles a metal drumstick, from his jacket pocket to show investors at the cocktail reception. Efficiency-wise, California-based Sunpower (SPWR) seemed the player to beat as CEO Tom Werner discussed his company's solar cell. It is 22% efficient at converting sunlight into electricity, which is the highest nonconcentrated version available. Werner also said his company is looking to cut installation costs by nearly one-third, in part with solar panels that can replace traditional building materials such as roofing tiles.
There's also a potential power future in fats. President Bush has called for a five-fold increase in biofuels by 2017, but the U.S. can grow only so much corn. Houston-based Nova Biosource Fuels (NVBF), says it can make low-cost biofuels from both animal and oil seed sources without generating toxins or hazardous byproducts. Nova CEO J. D. McGraw says that means his company can reduce fuel production costs by as much as 20% from standard industry practices. McGraw points out that feedstock represents up to 80% of biodiesel's production costs, so using waste materials to make it is dramatically cheaper than using expensive crops like corn, whose price has shot up in the last year. Nova's technology uses 25 different feedstocks such as vegetable oils, animal fats, and "reclaimed" greases. DuPont (DD) also presented its advances in making biobutanol (in partnership with BP (BP)), a fuel made from crops like sugar beets that are higher-performing than ethanol.
And then there's good old coal, the primitive fossil fuel most identified with smokestacks belching black clouds into the atmosphere. But these days, all the rage in coal is in how to make it cleaner.
Peter Baldwin, the CEO of privately held Ramgen, says his Bellevue (Wash.) company can rival the alt-fuel enterprises with its carbon dioxide compressor. Baldwin says it enables carbon capture and long-term storage beneath the earth's surface, effectively cleaning up the mess combustion engines make as they burn coal.
Baldwin says coal is "unavoidable for energy independence," since the U.S. has ample domestic supply. And that, Ramgen contends, makes carbon capture and storage a crucial part of the whole energy proposition. Baldwin says Ramgen makes a cost-effective carbon dioxide compressor that will drastically lower the investment hurdle for this technology—effectively helping make coal a greener energy source. So far Ramgen has not raised much capital, but it has landed an $11 million grant from the Energy Dept. Baldwin expects to sell his first compressor, which will be sold to integrated oil companies and oil production companies for about $1.5 million, in 2009. More powerful converters will cost up to $10 million.