Project Better Place: a bad omen

Project Better Place launched today to a lot of press and fanfare. This company is developing an infrastructure for electric cars. The model is purportedly similar to the cell phone model – PBP builds a charging infrastructure around town and you pay a service to utilize this infrastructure. CEO Shai Aggassi (former SAP hotshot here in the valley), was able to raise $200 Million (from a CNBC interview) for this venture in just a few weeks.

Listen to the launch presentation.

But maybe I’m crazy, but I find all of this attention troublesome.

Claims not as exciting as claimed
The claims that Aggassi makes in his presentation are the standard-issue ones posed by electric-car enthusiasts. But the reality is, they’re very narrow-minded. He asserts that transmitting electrons is more affective than moving gasoline molecules. But this really isn’t true for two reasons. First, no battery can hold as much energy as fuel in a given amount of volume (and there are thermodynamic reasons why this will always be true). Second, electricity production and transmission is horribly inefficient – again for thermodynamic reasons having to do with using copper wires. Imagine losing 9 gallons of gas to every 1 that you pull out of the ground – that’s electricity production. And there’s still the notion that we don’t really make that much clean electricity in this country – so the notion of it being a “clean-tech” idea is only tangential. So while his points are true, they’re not compelling.

Batteries aren’t easy
The company’s battery leasing strategy sounds fine (provided an electric-car industry can be developed).

Aggassi points out that the business they’re proposing is similar to the cell phone model. That’s an interesting analogy. I don’t recall people being particularly happy using a battery with their cell phones. Battery life is the biggest issue in all of technology – and this company is proposing we use a battery with one of the most important technology in our lives (our cars). That sounds ludicrous.

Short-sighted
With all the press that PHEVs and electric cars, are getting, none of these silicon valley developers have ever sold a car. I mean, get on a lot and convince some 35 yr old mom that she should buy your car. This is one of the hardest sales in business. I think these companies are very short-sighted in their assumption of what can sell a car.

Cost, Fuel efficiency, and “green-ness” is not at the top of everyone’s list. While hybrids are the fastest growing car segment, cars aren’t really growing that fast to begin with. So while fuel efficiency is certainly a good feature, people aren’t really changing their behavior for it – not enough to really make a dent in fuel demand anyways.

A Honda Accord with 30 MPG is still pretty economical on fuel consumption. And an expensive Cadillac Escalade or a BMW 5-series still gets you chicks. While I’m sure hybrid sales are growing faster than the Ford F150, they’re not selling nearly as many units (i.e. it’s a distortion of the law of large numbers). So it’s speculative at best to think that consumers will really embrace an electric car on these grounds. That could really be a problem for this type of a venture.

Fundraising is very unsettling
$200 Million in 3 months? For a company that claims that it has no proprietary technology-platform? That is ridiculous. But understandable if you’ve been around Silicon Valley long enough.

Silicon Valley is just as fake as Los Angeles. Being a VC in this town is like being a Producer down south. A hot CEO is like a hot actor. The dirty little secret here is that most VC funds don’t make money (only a few noteworthy ones have). And many hot-shot CEOs are more lucky than visionary. There are only a few core people who are really quality around here. But none of this necessarily translates into success.

Vinod Khosla (as part of KPCB) was a lead investor in Zaplet, a horrible internet failure from the bubble era. This company raised more than $90 Million in VC funding. Benchmark Capital invested in eBay (after it was already profitable)…but it also invested in WebVan – a horrible mess of an internet failure (actually they made money off that deal – everyone else go hosed). So a big VC fundraising round doesn’t necessarily mean that it’s a good idea so much as it has captivated a particular investor.

But this is understandable. VCs have raised a LOT of money in the last several years. And they need to get rid of it. If you have $1Billion and you need big investments to back. Which means big ideas with big assets tied to them. The internet used to serve this need (servers and storage were expensive; unfortunately so were customers). The clean-tech industry fits this need well. This company is a big asset roll-out. So it makes sense that they would be able to raise this kind of money. But it’s also a sign that they don’t have anything better to invest in.

So good luck to Shai and his team. He’ll need it.

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Nice CNN piece on GM’s Project Driveway

CNN has a nice piece on GM’s Project Driveway. It gives more detail on the Chevy Equinox and some of their fuel cell technologies.

A quick excerpt:

Hydrogen fuel cell supporters counter that fuel cells are much more efficient than internal combustion engines, so less hydrogen is needed than an equivalent amount of gasoline. Also, electrical generators are much more efficient, so getting power from electricity – whether its by plugging into an outlet or separating hydrogen – is a big improvement over internal combustion.

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CNBC Interview with US BioEnergy CEO

BioEnergy CEO

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Good Technology

Metal/Polymer Hybrid; Lightweight and Strong
DuPont and Morph Technologies have formed an alliance to commercialize a metal-polymer hybrid material. This material will have the strength and stiffness of a metal and the flexibility and light weight of thermoplastics. This sounds like a really innovative product that could have great applications in underweighting vehicles or other products (like my big television).

DOE’s Entrepreneur-In-Residence Program
The Entrepreneur in Residence (EIR) Program will bring venture capital sponsored entrepreneurs into three of DOE’s National Laboratories to develop plans to commercialize new clean energy technologies. The entrepreneurs in residence will identify technologies that, when commercialized in private sector companies, will contribute to DOE’s mission to promote America’s energy security through reliable, clean, and affordable energy.

This sounds like a great opportunity to commercialize a new technology. But it also sounds like deal flow for VCs. I’m not certain that this will be managed equitably.

Power from Space?
The National Security Space Office is soliciting technical experts to devise a means of generating (and presumably transporting) electricity from space-based collectors. This is really out there type of thinking. But then again, that’s what gets our juices going. This could certainly address the collection efficiency issue, but the transference back to earth would be the real difficulty. But it’s possible, I think. There are a couple of different methods that could be utilized and it might be a great opportunity if feasible.

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CIBC promotes propaganda…

GreenCarCongress noted a CIBC report with some harsh words about the ethanol industry. As I’ve noted before in previous blogs, most of their claims are either not significant or consistent with the broader political agenda. The strange thing, though, is that CIBC claims to be a credible source of information for investors. But this report is just crap – not rigorous and makes claims without any context to their real significance.

Let’s take a look:

“Not Energy Efficient”

The key reason is the huge amount of energy that is required in first growing and harvesting the corn, transporting it to the distiller, distilling the ground cornmeal into ethanol and then transporting it by truck and train to users across the country. These more costly transportation methods are required because ethanol cannot be transported in conventional pipelines.

I’ve already argued against this point in previous posts. But I’ll just re-iterate. If this data point is true, then the market should force these companies out of business. If the transportation costs were really that high, you couldn’t run these businesses profitably. If you look at their financial statements, many of them are profitable, even net of government subsidies (and if the government wants to give subsidies to these companies so be it; the people run the government, not financial markets). If this company really believes in the market forces winning out over time, then this point wouldn’t apply. Which gives the impression that there’ s another agenda behind this press release.

Energy efficiency doesn’t matter. This argument could be used for, say, Sony Playstations or iPhones. Again, if the high price of energy was significant, these companies wouldn’t be profitable (and wouldn’t survive).

What this point is really saying is that ethanol is a carrier for natural gas and the small amount of diesel needed to transport it to blending locations. So instead of using foreign gasoline, we’re using domestic natural gas. I’m fine with that.

Gasoline with a small % of ethanol can go in pipelines; so their transportation impact points aren’t reflective of the overall transportation network. It’s not as expensive or difficult as they’re insinuating.

And lastly, we don’t make much ethanol in this company – only enough to be a replacement for MTBE. So their “the sky is falling” message seems foolish. There isn’t enough ethanol being produced for it to be a real problem for our markets. The real concern is managing how it will grow and change in the future. And I don’t think the finance guys can think 4th dimensionally (meaning what we do now is not what we will do in the future; the market is very aware of this reality and is planning accordingly).

Corn prices hurt food prices?

“In the last two years corn prices have jumped by 60 per cent. Soaring corn prices not only pass directly into animal feed costs and corn-based food prices like tortillas, but they are spilling over to other grain prices as farmers scramble to expand corn production at the expense of other crops. Grain prices are the strongest they have been in memory while global inventories continue to shrink to record lows.”

This is true, but not importance. Or in other words, it’s fear-mongering.

Last time I checked, high tortilla costs aren’t going to bring down the U.S. economy. And the cost of corn flakes, even at sky-high corn prices, aren’t nearly as expensive as the plastic bag or the printing on the box. So the point is true, but moot.

Hurts Poor People?

He notes that while accounting for less than 15 per cent of the consumer price index, food represents one of the least substitutable areas of consumer demand. For low income Americans, food costs represent nearly 40 per cent of monthly budgets.

Food doesn’t cost more than gas or rent in most areas. So if their math is right, poor people very modest transportation, energy, or housing expenses. The only way that math works out is if people are too poor to afford transportation or decent housing (let alone home ownership). These are *real* social problems – not noticably higher prices for tortilla and corn flakes.

This argument really pisses me off. I grew in and around poor neighborhoods. And last time I checked, there were no CIBC checks showing up in people’s mailboxes trying to help make ends me. So the notion of using “it hurts poor people” is a abhorrent and inexcusable. It’s garbage and CIBC should be publically admonished for making such a claim.

So the tone of this press release is very strange. It’s all innuendo and hearsay. There’s no real rigorousness or context behind its claims. It seems to reiterate the bad press that ethanol gets (all from people who I’m sure never passed high school chemistry, let alone be competent enough to evaluate the energy industry). It’s a big disappointment and reflects negatively on their company.

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Updated RFS bill proposed

Senators Obama (D-IL) and Harkin (D-IA) have introduced a bill to increase the renewable fuels standards. The bill would “require the production of 18 billion gallons of renewable fuels by 2016 including 3 billion gallons of advanced biofuels, such as cellulosic ethanol”.

From the Press Release:

Despite a boom in production of ethanol by small plants across the country, most consumers around the country have been unable to fill up their cars and trucks with E85 gasoline because of problems in the distribution of ethanol and obstacles to greater ethanol distribution by oil companies. The average spot market price for ethanol has dropped 30 percent over the past six months. With ethanol prices dropping this severely, according to the New York Times, “there is likely to be a sweeping consolidation of the industry, and some small companies could go out of business.”

It’s hard to figure out where this is coming from. Obviously, Obama is trying to win votes in Iowa. Appealing to the small ethanol producer is admirable – but these producers won’t be able to stay in business much longer regardless given the cost advantages the larger players bring. That not withstanding, this doesn’t seem very significant legislation. I say this because there are a few dynamics that this legislation suggests that are contrary to what the reality is (at least, the ‘reality’ according to me).

First, industry is driving the adoption of ethanol. At current production volumes (pushing 7Billion gallons/yr), we are only looking at ethanol as an additive for gasoline – not a real alternative fuel. E85 hasn’t taken off because there isn’t enough ethanol to produce enough E85 in a reasonable fashion. If we used all the ethanol we produce now for E85, then it would only be 8.2 Billion gallons of E85 for sale. That’s barely enough fuel for a small state, let alone broad market availability. So the notion that E85 hasn’t been adopted because of distribution is a farce. It’s simply a supply issue. All the industry-points seem very unrelated – so I don’t see how they should illustrate the context for pushing for this amendment.

Second, the real test of the ethanol industry isn’t legislation, but rather will there be enough ethanol to supply. At some point around the 15 Billion gallon/yr stage we will be topping out of our ethanol production possibility using our current methods (ethanol from corn via starch fermentation). Further, 3 Billion gallons of cellulosic ethanol by 2016 is a bit of wishful thinking at the moment – there’s a lot of engineering that needs to be done to prove current methodologies appropriate. This being the presumed situation, there’s nothing saying that industry will want to put more than 10% ethanol into the fuel supply. If industry is going to keep pushing for ethanol or other alternative fuels, then the only real barrier is weather or not the oil companies – the ones with all the gas stations and refinery blending capacity – will want to market ethanol-heavy products or not.

So the only real reason to have legislation is to force the hand of the oil companies. Ok. This legislation doesn’t have language in it that suggests that is the need. But it also doesn’t seem to go far enough if that’s its objectives. The industry can get to 18 Billion gallons by 2016 on its own if necessary. More realistically would be 2020 just to get through all the industry-related logistical bumps (i.e. making sure there are enough trucks and trains to transport 2X the ethanol we have today, etc.).

So it begs the question why suggest this legislation at all. As opposed to something way more far reaching than the current RFS standards are suggesting.

Very strange.

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Kansas may bleed again over carbon

CNN is reporting that a Kansas administrator has rejected permits for two coal plants.

Read CNN Article.

The Thursday decision by Rod Bremby, secretary of health and environment, prevents Sunflower Electric Power Corp. from starting construction on a $3.6 billion project outside Holcomb. The utility is expected to challenge the ruling.

and goes on to say:

Bremby noted that in April, the U.S. Supreme Court ruled that carbon dioxide was a pollutant regulated by the federal Clean Air Act.

He called his decision a step toward addressing carbon dioxide and promised that the Department of Health and Environment will work with officials in different industries to develop goals for reducing CO2 emissions.

This is a significant act by Kansas and should escalate a debate across the region about the impact of carbon emissions. The state of California has taken some preliminary steps to de-carbon its electricity. But this is the first real line-in-the-sand that any large government has made in saying ‘no’ to carbon emissions.

Of course, the politicians are up in arms about it.

Supporters of the plant including House Speaker Melvin Neufeld and Senate President Steve Morris, saw the project as vital economic development for rural Kansas. Some Republicans accused Bremby, an appointee, of knuckling under to political pressure from his boss, Democratic Gov. Kathleen Sebelius, and exceeding his authority.

“The Legislature will clearly have to look into how a cabinet officer can exceed his authority with impunity,” said GOP Sen. Jay Emler, chairman of the Senate Utilities Committee.

Finney County Democratic Party chairman Lon Wartman resigned in disgust, calling the state party’s leaders “despicable” in an e-mail to reporters.

But they should note that farmers are seeing the affects of global warming first hand. This could be one of the most significant moral and economic events that the state of Kansas has made since the 1954 Kansas-Nebraska Act and the violence that followed.

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Interesting audio podcast from PodTech.

Interesting podcast on GM’s Project Driveway. It features a ride and drive with a fuel cell Chevy Equinox.

Your browser does not support JavaScript. This media can be viewed at http://www.podtech.net/home/4406/ride-drive-chevys-equinox-fuel-cell-vehicle

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Half of NatureWorks gets bought by Japanese

Japanese Teijin to purchase 50% stake in Cargill’s Natureworks subsidiary.

Press Release.

“Teijin’s downstream application knowledge in fibers, films and plastic compounds will be of immeasurable value as we grow production at our Blair, Nebraska facility and consider additional expansion in the fast-growing global marketplace,” said Cargill Vice Chairman Guillaume Bastiaens. “NatureWorks will greatly benefit from Teijin’s expertise in technology and end-use application development. Teaming up with Teijin will allow more brand owners, retailers and converters to address their global interest in sustainable solutions using NatureWorks biopolymer.”

and goes on to say…

“We are very impressed with Cargill’s long-term commitment to NatureWorks PLA polymers and other biobased products,” said Toru Nagashima, president and CEO of Teijin. “NatureWorks LLC is a perfect fit with our strategy of pursuing strategic investments to take our environmental management technologies global. We look forward to growing our global PLA polymer business through this partnership.”

Hmm….

This doesn’t make sense to me. While NatureWorks is clearly a success, Cargill, of all companies, doesn’t need to partner with anybody to develop the technology, capacity, or global reach for any of its product lines. It’s one of the largest companies on the planet and has interests all over the globe. So what’s with selling half the house?

It’s hard to evaluate from this – it’s not a bad deal regardless of my skepticism. But 50%?! Of a great, growing business? But it doesn’t make sense given the reputations of both firms and the size of NatureWorks (it’s not a big company by most measures). So it seems that there is more going on with this relationship that is being let on.

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Hydrive embarks on big beta test

HyDrive Technologies announced a testing program to install its hydrogen production systems on 100 big rigs.

Read Press Release.

Under the program, each unit installed will be equipped with a PeopleNet(TM) system. This system is capable of tracking mileage to the tenth of a gallon and controlling the data for variables such as excess idle times, truck speed, and elevated RPM’s. Monitored results will provide the Company with a significant level of statistically verifiable field data on HGS performance and will complement other ongoing lab testing work as part of the previously announced overall product review. This should allow the Company to validate HGS product performance on various engine types, thus setting the stage for a larger product rollout strategy.

Hydrive Technologies is developing an on-board hydrogen production system to make the internal combustion engines on big trucks more efficient and cleaner. According to its website, the system creates hydrogen on-demand – no gases are stored on board. Apparently it stores only 1.8 L of water, but lasts for 4500 miles.

Apparently, it works fairly incrementally to improve efficiency:

When the HGS is connected, small amounts of injected hydrogen gas mix with the diesel charge. As hydrogen burns 10 times faster than diesel it has the effect of speeding up the combustion process. This allows the fuel to be burnt more efficiently at the top of the stroke, resulting in increased combustion efficiency, lower emissions and improved economy.

I’m not sure if this is a good idea or not. While if this process improves efficiency only a few percent, then it still might be a good investment for truck drivers (they’ll take any help they can get). But only a technology that makes a big improvement – say 30% – will really become a big hitter. Getting a 30% reduction in fuel economy from a box filled with water would be one of the biggest things to hit the trucking industry since…rubber tires. But these tests should show the real value of this device (if HyDrive’s money can hold out).

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