R-Squared Energy Blog

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What I Learned This Decade

In this, my last posting of the decade, I thought I would write something profound. Then I realized I don’t really have anything profound to say today, so at the risk of violating Point 9 below, I thought I would summarize some of the things I have learned since starting this blog.

I am closing in on the 4th anniversary of R-Squared. This essay is my 895th. Based on recent trends, 2010 should bring the one millionth viewer here as well as the one thousandth essay.

I had no high hopes for the blog when I started it. As I told a friend at the time, I looked at it as more like a place to archive some of the research I was doing. My thinking was that there are a million blogs out there, and it would be hard to differentiate mine from the others.

On the other hand, there weren’t a lot of energy-themed blogs covering the specific issues I was looking at. I knew because I was trying to do research on some topics, and ran into a wall of misinformation. So, I would write the stories, mainly for my own reference, until I ran out of things to write about. But on the topic of energy, I would soon find that it is hard to run out of things to write about.

I remember in the beginning that I would get 1 or 2 viewers a day. That changed pretty quickly after Andrew Leonard at Salon linked to one of my ethanol essays. From then on, the number of viewers increased. Shortly after that, one of my essays ended up in the #1 slot on the first page of Reddit. That was only a few months in, and 5,000 viewers linked in from Reddit in a single day.

Of course I have learned a lot since starting the blog. My breadth of knowledge across the energy sector is much greater now than in the beginning. Even so, energy is a huge field, and if I tried to cover all of it the coverage would necessarily be superficial. This is one reason you don’t see more stories here on wind and solar; they are not my core area of expertise so they don’t get a great deal of coverage.

In no particular order, here are some of the other lessons I have learned since starting the blog.

1. Choose my words carefully

I remember this lesson well. The blog readership had grown quite a bit, but I did not really appreciate the diversity of the audience. At that time I was still prone to write blistering, no holds barred critiques of energy companies making outrageous claims. I had written a bit about Coskata, and I felt like their claims were dubious. But then I finally looked a bit deeper, and I wrote Coskata: Dead Man Walking.

Of course I was being flippant with the title, but hey, it’s only my blog. It’s not like I am writing a news story. People know it is my opinion, and thus I can say pretty much what I think. Right?

Then the floodgates opened. I got contacted by the media. I got contacted by investors. I got contacted by the DOE. I even got contacted by Coskata. With the exception of the last one, the others all wanted to know “Are their claims really invalid?” Of course Coskata wanted to let me know that their claims were valid.

But the episode was a turning point in the way I write. I can remember at the time doing a media interview on the story, thinking “Holy Cow! I have to be more careful with my phrasing in the future. That was unnecessarily antagonistic and there are apparently a lot of people reading this stuff.”

Since then, I have tried to exercise more caution. I still maintain that there is no way that Coskata can make ethanol for $1/gallon, but I have to keep in mind that if I write an overly critical story of a company it could influence some investors which could influence the fortunes of the company. (A long shot, but something I have to keep in mind). Thus, I am potentially impacting people’s livelihood with what I write, and as such I have a duty to be very sure about my statements before I make them. No more flippancy or unnecessary antagonism.

2. Don’t make it personal

A friend once said that it is OK to disagree, but you don’t have to be disagreeable. I try to keep this in mind as I debate and engage people. Check the personal stuff and the ad homs at the door. Let’s debate the data, and if the data dictate that my position should move, then it shall move.

3. Not everyone cares about the data

I have learned a lot about how people behave. I have learned that not everyone is interested in objectivity; some are only interested in a very specific viewpoint. In these cases, inconvenient data are either to be rejected outright (That’s absurd!) or discredited (the guy who did the research has a cousin who works for ExxonMobil; thus the study is no good).

Dealing with people like this is never a fair fight, because I am interested in looking at their data. They are only interested in looking at mine if it supports their point of view. Otherwise, they go into the mode of defense attorney attempting to exonerate their client.

4. I love to write

That should be obvious, given that for the past 4 years I have averaged 4.5 essays per week. People often ask “Where do you find the time?” I find the time the same place people find the time to watch TV or play video games (and I do some of that as well, but not so much TV). The fact is that I can type out what’s in my head very quickly. My routine is that I wake up early, read through the latest energy headlines, and write if I see something that I want to comment on. I spend less than an hour on the average essay, so it is not a major time commitment each week. Answering e-mails is a different story, which is why my e-mail address disappeared from the front page.

5. I don’t write well to deadlines

I am prolific when the subject is wide open and there is no schedule involved. When I am writing an article for a website or a publisher, and there is a specific deadline involved, I find that it is much harder to get motivated. There is a different dynamic involved in waking up, seeing a story of interest, and making a post on it than there is if the subject is defined and I have a week to fill in the details.

I have been asked twice about my interest in writing a book, but it would take me 10 times as long to do a book as it would to do enough essays to fill a book. So right now I do a book chapter now and then (I have three that are either published or in process, with another two due next year) and in the back of my mind I hope eventually to pull those chapters together as the basis of a book. But to just sit down and start writing a book? Not at this point in my life.

6. Trying to predict which essays will get a lot of hits is futile

I found out early on that I could spend 3 hours on an essay, pepper it with references and links, and yet another that I spent 10 minutes on may get 5 times as many hits. The essay that ended up on the front page of Reddit was a puzzle to me. I had under 20 essays under my belt at that time, and in fact it was well after I published it that it claimed the top spot on Reddit. But I thought I had written essays that would have been much more deserving. To this day I am puzzled as to why that one made it to the top, and not some others that I think are much better. Here it is: Fuel Efficiency and Lessons from Europe. (Another one claimed the top spot a year or so later, but I don’t even remember which one it was).

In fact, probably the most read essay in the history of this blog is one that I wrote just a couple of months ago. I buried it on the 2nd page of my blog and locked the comments on it. It was off-topic and I didn’t want regular readers to be distracted by it, but I wanted to document something. It was again picked up by Reddit and a number of media outlets, and was read almost 20,000 times in under two weeks. It hasn’t fallen out of the Top 10 since I published it. For the curious, here is that one: Exposing a Two-Bit Scammer. I must warn you that it has zero to do with energy, and should only be read if you are bored and have nothing else to do.

7. Keep an open mind

I pride myself on my objectivity. I consider it a critical aspect of my job and my writing. But I have to constantly guard against slipping into a bunker with a particular ideology, defending against all outsiders. I recognized early on in my blog that most of my essays were anti-ethanol, and that I was starting to come across as an ethanol foe. But that is not a universal truth. I am against aspects of our ethanol policy, and in speaking out against those I sometimes appear to be anti-ethanol without qualification.

But that certainly isn’t the case. I see ethanol as I see other fuels. There are trade-offs. There are vested interests. Some will gain and others will lose. But with this, as with any position, the question I try to keep in mind is “What would cause you to shift your viewpoint?” If the answer to that is “Nothing” then you are truly in the realm of dogma and there is no point discussing data. As I stated earlier, it wouldn’t be a fair debate. But I try to always have an answer to that question in mind. For ethanol, I attempted to answer that question very early on: Improving the Prospects for Grain Ethanol

8. Sometimes you are going to make enemies

I don’t like to make enemies, but when you are speaking out against vested interests you are going to make them. Reasonable people sometimes disagree, but vested interests aren’t necessarily reasonable and their disagreements can quickly become personal. A corn farmer in Iowa isn’t necessarily interested in data that argues against more corn production. (In fact, I got a death ‘wish’ from a corn farmer once; one of maybe half a dozen threats/wishes I have received).

So if you have convictions, even if they are data-based, you are going to make some enemies if you speak out on them. This is especially true when dealing with vested interests. It is simply impossible to please everyone.

9. Don’t force content

While I have written a lot of essays over the past four years, I have had some periods of time in which I didn’t really have anything topical to put out there for a week or more. That has led me at times to post guest essays or 3rd party content that really weren’t up to the standards I have set for this blog. Worse, I have been occasionally guilty of that myself by quickly throwing something together and publishing it. I can avoid this by refusing to listen to the inner voice that says “It’s been a week. You really need to publish something.” If I maintain discipline, then I will only post when there is something worth posting, even if that means I don’t put anything up for a month.

10. The spam bots are getting much better

It won’t be long before I have to start locking comments on the essays that scroll off of the first page. The spam bots – those that write something like “Great blog” with a link to some off-topic business – have gotten much better at breaking through the word verification than they were even a year ago. I get an e-mail of every single comment posted, so I am able to catch and delete all spam, but it is taking more of my time every day.

11. I learn a lot from the comments

The blog would not have continued had it not been for so much good feedback that I received. I find myself learning an awful lot from reading comments. Often, it is through the comments that I first learn of a new development or a new research paper.  The comments also frequently force me to reevaluate my positions, which is something I value greatly.

12. Self-link to my previous essays

Some people may have noticed that I almost always link each essay back to a previous essay. That isn’t so much about self-promotion as it is about maintaining a connection when others pick up and republish an essay. I have given permission to many other websites to republish content as long as there is a note that indicates the origin of the essay. Still, some websites will grab essays and republish content as their own. By putting links in, readers can be linked back here, and since I have a StatCounter that indicates where visitors came from, I can spot the websites that are republishing content as their own.

13. There is no money in this

If I was trying to make a living at this, I would have to move to one of those countries where you can live on $2 a day. Of course I am not doing this for money, nor have I ever tried to write in a way that would maximize ad revenue.  If I was trying to write for a living, I would have picked a different topic, like Hollywood Gossip. Of course then I would have to start watching TV, and who has time for that?

On the other hand, there have been a lot of opportunities that have arisen as a result of the blog. I have had numerous job offers/inquiries since I started this, I have been asked to write for books and magazines, and I have given media interviews and made presentations. This increases the audience that I can reach.

14. People’s interest in energy goes up and down with the price of oil

It is really hard to get people engaged on energy unless prices are climbing. To this day, the query that most frequently brings readers in for the first time is “Why are oil/gas prices rising?” If prices aren’t rising, people don’t care and there isn’t much interest in energy policy. But we have lived through interesting times since I started the blog; prices steadily climbing for the most part. When they level off, the number of readers falls.

So that’s a bit of what I have learned, and hopefully those lessons have improved the quality of the essays over the past four years. May we continue to live during interesting times, so there will be lots of new stories to report on.

Happy New Year to everyone.

December 31, 2009 Posted by | Coskata, gas prices, oil prices | Comments Off on What I Learned This Decade

What Happened to a Buck a Gallon?

Coskata will produce ethanol for under US $1.00 a gallon anywhere in the world, from almost any input material.Coskata Vision Statement

A bit more than a year ago, I read a number of claims from ethanol start-up Coskata stating that they would be able to produce ethanol from cellulose for less than $1.00 a gallon. One thing that is very important to me as an engineer is that you deliver what you say you will deliver – or more. If you deliver less, you lose credibility. If it becomes a habit, you lose all credibility.

I am not a fan of hype, and I don’t like my tax dollars funding hype. So when I think someone is overly guilty, I will often report on it. I did:

Coskata: Dead Man Walking

A couple of comments I made in that essay:

The fact that they don’t even have an operating pilot plant should tell even the most optimistic supporter that they have little basis for their claims of producing ethanol for less than $1/gal.

My prediction? I predict that Coskata’s suggestions that they will produce ethanol for less than $1/gal will look ridiculous in hindsight.

There were two reasons that I took exception to their claim of “under $1/gal.” First, they had no pilot facility upon which to base that claim. Making such a claim on the basis of lab tests is pretty reckless, as you are staking credibility on the line with little to back it up.

Second, the claim was incredibly misleading because there was no capital recovery in the number. If you don’t understand what that means, consider this. Let’s say I claim to be able to make gasoline for a nickel a gallon. But to do that, I have to build a plant that costs a trillion dollars. Do you really think then that I can make ethanol for a nickel a gallon? If I specified that my operating expenses amounted to a nickel a gallon, then that may be a true statement – which would then lead to questions about capital costs. In the case of Coskata, these capital costs are not trivial, and thus “$1/gal” immediately goes way up because capital isn’t free.

Well, that was a bit over a year ago, and two things have happened. First, they now reportedly have an operating pilot plant:

Coskata leaks word that demo plant is up and running

Ethanol developer’s CEO tells the Cleantech Group at the Boston Forum that its pilot facility, capable of producing 50,000 gallons a year, has been operating for nine weeks.

Warrenville, Ill.-based ethanol developer Coskata has been planning to announce the opening of its demonstration plant in October. But CEO William Roe leaked the news a little early.

Let me congratulate them on that accomplishment, and sincerely wish them the best. They will gain important operating knowledge from this plant – and I believe they will learn that their earlier cost claims weren’t credible.

The second thing happened at this week’s gasification conference. Coskata’s gasification provider – AlterNRG – made a presentation. Apparently they did not get the memo from Coskata, because they had on their slide that “Coskata expects overall operating costs to be less than $1.25/gallon.” That may not seem like much, but that’s a potential upward creep of 25%, and their pilot plant is barely warm. Further, they specified that this was just for operating costs; something Coskata’s early claims did not specify.

Another thing that AlterNRG said specific to their gasifier is that it really needs tipping fees for the economics to work. I expect long term, there will be more competition for biomass, and tipping fees will start to decline. So a company that is dependent on tipping fees is making a pretty risky bet in my opinion. In my first ever essay on Coskata almost two years ago – Coskata Hype – I wrote about the potential need for tipping fees:

My guess is that unless they found someone to pay a steep tipping fee to get them to take biomass, there is nowhere in the world that they will be able to make ethanol via gasification for under $1/gal.

Coskata would not be the only company back-pedaling on their cost claims. Last year Mascoma claimed “The cost of fuel from the process is similar to Coskata’s at about $1-1.50 a gallon.” (Like Coskata, Mascoma is a Vinod Khosla-backed venture).

Now they have changed their tune:

“Governments need to help with the financing for the first plants, once you have those the private sector will start to come in,” said Jim Flatt from research and development at U.S. biofuels firm Mascoma, speaking at a conference in Amsterdam.

“Oil needs to trade at a sustainable level of $100 or above to make this competitive,” said Flatt.

Both of these companies have quietly increased their projected costs (although Coskata still has the <$1/gal claim on their website). Bear in mind that neither company has anything that would be considered much of a demonstration plant. Coskata's recently completely pilot plant has a nameplate capacity of 3 barrels a day. So reality about cellulosic ethanol appears to be setting in for everyone. Everyone except for General Wesley Clark, who just went on record with this whopper: U.S. seen unlikely to meet ethanol fuel-content goal

Retired U.S. General Wesley Clark, co-chairman of the Growth Energy group, said the 100 million gallon level could be reached in time if the cap on the permitted level of ethanol in regular gasoline is increased to 15 percent from 10 percent.

“There is cellulosic capacity standing by … but the later than policy decision is (taken), the less likely we are to meet that 2010 mandate of 100 million gallons,” he told reporters during a trip to Ottawa.

The auto industry says gasoline containing 15 percent ethanol could damage engines and fuel lines in some older cars, and has urged regulators not to approve the higher blend.

“There are a lot of people who see it our way — namely, that this is good for the environment, it’s good for jobs, it’s good for national security. It doesn’t hurt automobiles,” said Clark.

That’s right, just lift the 10% cap, and the cellulosic ethanol will start to flow. Plus, it will be under a buck a gallon, it will create jobs, and it will bring us one step closer to energy independence.

I don’t meant to downplay the issue of the 10% cap, but there is room to put a lot more ethanol out there in the form of E85 even with the 10% cap – if it could be made in a cost-competitive manner. But that won’t open up the cellulosic taps. We actually had a pair of those until about 1920, at which time they were shut down because they weren’t economical.

October 8, 2009 Posted by | cellulosic ethanol, Coskata, Mascoma, Vinod Khosla | 14 Comments

Biofuel Contenders

Introduction

I got quite a few interesting e-mails and comments following my previous essay: Biofuel Pretenders. I probably should have mentioned – but I thought it went without saying – that pretenders usually don’t think they are pretenders and will therefore protest mightily at the characterization. A number of people who e-mailed assured me that they have really cracked the code to affordable biofuels, and that we would be hearing more about them soon. Another person who wrote to me about algae said that he has been following algae since 1973, and he wrote “In spite of all the hype and non-stop press releases, no one to my knowledge is producing algae on a commercial basis for biofuel production.” Ultimately, I would be happy to be proven wrong on this, but I am just calling it as I see it.

On the other hand, there are some renewable fuel options that have either proven themselves as solid contenders, or have not yet demonstrated fatal flaws that would disqualify them at this point. In this essay I will cover some of those. First, I will cover a pair of first generation biofuels that have proven that they can compete with oil on a cost basis, and then a pair of next generation biofuels that I believe will be competitive.

The First Generation Contenders

Sugarcane Ethanol

Sugarcane ethanol, especially from tropical regions like Brazil, has some unique attributes that have enabled it to compete on a head to head basis with gasoline pricing. Specifically, during the production of sugar, the bagasse (sugarcane residue) is pulverized and washed many times. Many soluble inorganic constituents that may normally pose an ash problem for a boiler are washed out in the process. What remains after processing is a pretty clean biomass feed for the boilers. The normally vexing logistical issues aren’t there because the biomass is already at the plant as a result of the sugarcane processing. So they essentially have free boiler fuel, which minimizes the fossil fuel inputs into the process. That enables ethanol production that is relatively cheap, and that is largely decoupled from the impact of volatile fossil fuel prices.

There are several reasons we don’t do sugarcane ethanol in the United States. Last year I made a visit to the largest sugar producer in Louisiana, and they explained to me that the economics of their by-product molasses generally favor putting it into animal feed. If they had a year-round growing season as they do in the tropics, it is more likely that the animal feed market would start to become saturated, and conversion into ethanol might be more attractive. Further, a bagasse boiler is a major capital expense, so there needs to be a high level of confidence that in the future ethanol will be a more economical outlet than animal feed. For Brazil, this is certainly the case.

The ultimate downside of sugarcane ethanol will come about if the U.S. and Europe begin to rely heavily on tropical countries for their fuel needs – thus encouraging a massive scale-up. First, ethanol imports don’t do much for domestic energy security. More importantly, it may encourage irresponsible usage of the land in an effort to feed our insatiable appetite for fuel. I think the ideal situation is to produce the sugarcane ethanol and use it locally, rather than try to scale it up and supply the world. In this way, sugarcane ethanol could be a long-term contender for providing fuel for the tropics, but not a long-term contender for major fossil fuel displacement outside of the tropics.

Palm Oil

The other major first generation contender is palm oil – which also comes with a lot of environmental risk. Palm oil is derived from the African Oil Palm. The oil palm is a prolific producer of oil, which can be used as fuel (and food). This is also a plant that thrives in the tropics, and is capable of annually producing upwards of 500 gallons of oil per acre. To my knowledge there is no other oil crop that consistently demonstrates these sorts of yields (acknowledging that algae could theoretically produce more).

The price of palm oil over the past 5 years or so has traded in a range comparable to that of crude oil; $50-$75 a barrel for the most part (although like petroleum, prices shot up to around $150/bbl in mid-2008). Palm oil can be used unmodified in a diesel engine, although some precautions are in order (and I don’t recommend it). It can also be processed to biodiesel, or hydrocracked to green diesel. The extra processing will generally make the final product somewhat more expensive than petroleum, but demand has still been strong due to biofuel mandates.

The risks with palm oil are significant, though. Palm oil presents an excellent case illustrating both the promise and the peril of biofuels. Driven by demand from the U.S. and the European Union (EU) due to mandated biofuel requirements, palm oil has provided a valuable cash crop for farmers in tropical regions like Malaysia, Indonesia, and Thailand. The high productivity of palm oil has led to a dramatic expansion in most tropical countries around the equator. This has the potential for alleviating poverty in these regions.

But in certain locations, expansion of palm oil cultivation has resulted in serious environmental damage as rain forest has been cleared and peat bogs drained to make room for new palm oil plantations. Deforestation in some countries has been severe, which negatively impacts sustainability criteria, because these tropical forests absorb carbon dioxide and help mitigate greenhouse gas emissions. Destruction of peat land in Indonesia for palm oil plantations has reportedly caused the country to become the world’s third highest emitter of greenhouse gases.

Because palm oil is capable of competing on price, it was originally viewed as a very attractive source of biofuels. In recent years, countries have begun to rethink their policies as the environmental implications of scaling up palm oil production began to unfold. As is so often the case, the seemingly good idea of biofuel mandates has had some pretty serious unintended consequences.

Next Generation Biofuel Contenders

Here is how I would define a next generation Biofuel Contender: A technology that is capable of supplying 20% of our present liquid fossil fuel consumption on a net energy basis.

Yes, 20% is rather arbitrary, but it weeds out a lot arguments over many potential small contributors. I will focus in this essay on the United States, because I am most familiar with our energy usage and biomass availability, but these arguments should be applicable in many places around the world.

Consider for a moment the amount of energy locked up inside the 1.3 billion tons of dry biomass that the Department of Energy suggests can be sustainably produced each year. Woody biomass and crop residues – the kind of biomass covered in the 1.3 billion ton study – contains an energy content of approximately 7,000 BTUs per pound (bone dry basis). The energy content of a barrel of oil is approximately 5.8 million BTUs. Thus the raw energy contained in 1.3 billion tons of dry biomass is equivalent to the energy content of 3.1 billion barrels of oil, which is equal to 42% of the 7.32 billion barrels the United States consumed in 2008.

This calculation tells you a couple of things. First, the 42% represents an upper limit on the amount of oil that could be displaced by 1.3 billion tons of biomass. The true number would be much lower because energy is required to get the biomass to the biorefinery and then to process it. So replacing oil with biomass isn’t going to be a trivial task, and a process must be capable of turning a respectable percentage of those biomass BTUs into liquid fuel if it is to be a contender.

Imagine a process that only captures 25% of the starting BTUs as liquid fuel. The liquid fuel production of 1.3 billion tons would then be 10.5% of our oil usage instead of 42% – and that’s before we consider the energy requirements from the logistical operations (like getting that wood to the biorefinery). This is the realm of the pretenders; they waste a lot of BTUs during the production of their liquid fuel. What we really need is a process that can capture >50% of the BTUs as liquid fuels. That’s what it will take to be a contender, and quite frankly I don’t believe cellulosic ethanol has a chance of pulling this off on a large scale.

However, there are at least two technologies that can achieve net liquid fuel yields in excess of 50% of the BTU value of dry biomass. These technologies are flash pyrolysis and gasification. I will talk about each below.

Flash Pyrolysis

Flash pyrolysis involves rapidly heating up biomass to around 500°C. The reaction takes place in about 2 seconds, and the products are pyrolysis oil (also called bio-oil) and char. The process can handle a wide variety of feedstocks, the oil yield is approximately 70% by weight, and the energy content per pound of oil is similar to the starting material. Thus, approximately 70% of the initial BTUs are captured in the oil before we have to start subtracting out energy inputs.

Char is frequently mentioned as a great soil amendment (as terra preta, for instance), but I don’t really know if there is a market for it. As someone recently said to me, it may be like biodiesel and glycerin. In theory there are all kinds of uses for glycerin, but the market was quickly saturated as biodiesel production ramped up. Glycerin suddenly became a disposal problem. Terra preta does in fact appear to be a great soil amendment, but people are going to have to show that they will buy it. It seems to me that the ideal solution would be to use the char to help heat the biomass, unless the ash properties are problematic for the process.

There are definite downsides to flash pyrolysis. Heating up to 500°C will subtract from the net energy production, and while heat integration is possible, it would be more difficult to achieve in a hypothetical mobile unit (which I think could finally provide an outlet for the millions of acres of trees destroyed by the Mountain pine beetle). The properties of the raw oil are such that it isn’t suitable for transport fuel as produced. It is not a hydrocarbon and is very acidic. Without upgrading, it can’t be blended with conventional diesel. There are various issues around reproducibility and stability, especially if the biomass quality varies. The oil is suitable for power generation or gasification, and can be upgraded to transportation fuel, albeit at greater expense and lower overall energy efficiency.

With those caveats, it is still a contender. It could be knocked out of contention as a viable transportation fuel if the upgrading process is too expensive or energy intensive, but at present no fatal flaw has emerged. There are a number of companies involved in pyrolysis research. Dynamotive Energy Systems has been working on this for a while (I first wrote about them in 2007). UOP – a company that specializes in product upgrading for refineries – has teamed with Ensyn to form a joint venture called Envergent Technologies. The company intends to make pyrolysis oils from biomass for power generation, heat, and transport fuel (this is where UOP’s skills will come into play).

Gasification: Biomass to Liquids

The following example is just one reason I think gasification is going to play a big part in our future. During World War II, the Germans were cut off from liquid fuel supplies. In order to keep the war machine running, they turned to coal to liquids, or CTL (coal gasification followed by Fischer-Tropsch to liquids) for their liquid fuel needs. At peak production, the Germans were producing over five million gallons of synthetic fuel a day. To put matters into perspective, five million gallons probably exceeds the historical sum of all the cellulosic ethanol or synthetic algal biofuel ever produced. Without a doubt, one week’s production from Germany’s WWII CTL plants dwarfs the combined historical output of two technologies upon which the U.S. government and many venture capitalists are placing very large bets.

South Africa during Apartheid had a similar experience. With sanctions restricting their petroleum supplies, they turned to their large coal reserves and once again used CTL. Sasol (South African Coal, Oil and Gas Corporation) – out of necessity – has been a pioneer in gasification technology. Today, they have a number of gasification facilities, including the 160,000 bbl/day Secunda CTL facility, which has been highly profitable for the company (but very expensive relative to oil prices when constructed). In total, Sasol today synthetically produces about 40% of South Africa’s liquid fuel.

While we can speculate on the source of future fuel supplies in a petroleum constrained world, we do know that two countries that already found themselves in that position turned to gasification as a solution. The technology has a track record and is scalable. The same can’t be said for many of the technologies upon which we are pinning our hopes (and taxpayer dollars). We hope these other technologies scale and that technical breakthroughs allow them to compete. But gasification has already proven itself as a viable go-to option. There are presently a number of operating CTL and GTL plants around the world. Shell has been running their Bintulu GTL plant for 15 years, and is currently building the world’s largest GTL plant with a capacity of 140,000 barrels/day.

The biomass to liquid fuel efficiency for gasification is around 70% (See Section 1.2.2: Second-Generation Biofuels), a number cellulosic ethanol will never approach. In short, no other technology to my knowledge can convert a higher percentage of the embedded energy in biomass into liquid fuels.

Of course there’s always a catch. Despite large reserves of coal, the United States has not turned to gasification as a solution. Why? High capital costs. At the end of the day the desire to keep fuel prices low consistently overrides our desire for energy security. (There is also environmental pressure over using coal gasification which should not be an issue for waste biomass gasification).

But biomass is more difficult to handle, so there are added costs above those of coal gasification. So you are talking about a process that is more capital intensive than a conventional oil refinery, or even a cellulosic ethanol plant. But what you save on the cellulosic ethanol plant ultimately costs a lot in overall energy efficiency. Until someone actually scales up and runs a cellulosic ethanol plant, we can only speculate as to whether the process is truly a net energy producer at scale.

Interestingly, one of the “cellulosic ethanol” hopefuls that we often hear so much about – Range Fuels – is actually a gasification plant. (Ditto Coskata). The front end of their process is intended to produce syngas in a process very similar to that of World War II Germany. For their back end they intend to produce ethanol, which in my opinion is an odd choice that was driven purely by ethanol subsidies. But this is definitely not the optimal end product of a gasification process. They are going to lose a lot of efficiency to byproducts like methanol (which is actually a good end product for a gasification plant) – and that’s assuming they get their gasification process right. They are then going to expend some of their net energy trying to purify the ethanol from the mixed alcohols their process will produce.

The question for me is not whether BTL can displace 20% of our petroleum usage. It absolutely can. The question is whether we are prepared to accept domestic fuel that will cost more to produce. In the long run – if oil prices continue to rise – then BTL plants that are built today will become profitable. The risk is that a sustained period of oil prices in the $50-$70 range will retard BTL development. But I don’t expect that to happen.

Conclusions

In my opinion, the question of which next generation biofuels can compete comes down to fossil fuel prices. If oil prices are at $50 for the next 10 years, it will be difficult for renewable fuels to compete. Despite the many promises of technologies that will deliver fuel for $1 a gallon, I think that target is likely to be reached only on paper. My view on which technologies will be competitive is based on 1). An expectation of an average oil price over the next 10 years that exceeds $100/bbl; 2). An expectation that we will need to efficiently convert the available biomass. I expect biomass prices to rise as well, and inefficient technologies that may be competitive if the biomass is free and fossil fuel inputs like natural gas are low-priced will not survive as the prices of both rise.

I am certainly interested in helping develop promising next generation technologies, so if you think I have missed some really promising ones then feel free to add your thoughts. It is possible that a company like LS9 or KiOR will ultimately be successful, but they are going to require some technical breakthroughs. Given the great number of renewable energy start-ups, it won’t be surprising if one or more of them eventually makes a contribution, but the odds are against most of them. I selected pyrolysis and gasification as strong contenders because they don’t require technical breakthroughs in order to produce large amounts of fuel. The technical aspects of gasification at large scale are well-known. This is not the case with most companies seeking to compete in the next generation arena.

Personal Note on Technology Development

On a personal note, since I have long believed in the promise of gasification as a future solution to our liquid fuel problem, it will come as no surprise that my new role in Hawaii has connections into this area. While a few have figured out what I am doing (and quite a few others know because of various meetings I have attended), I still don’t have the green light to explicitly discuss it. We still have some pieces to put in place, and then I will explain why I believe we are building a platform that is unique in the world. I can say that my new role is as Chief Technology Officer of what we are building, and that it involves quite a few pieces.

One of the things I am very interested in is developing conversion technologies for woody biomass and crop wastes. I have a number of technologies on my plate right now, but I am searching for other pieces that improve the economics (scalability is important).

For example, in the earlier example of the beetle-infested forests, the logistical challenge of getting the biomass to a processing facility – without consuming a large fraction of the BTU value of the tree – is significant. Biomass has a low energy density relative to fossil fuels, and cost-effective technologies are needed for improving that equation. I am speaking to a number of people with promising technologies around this area, but am always open to speaking to others who have ideas, prototypes, or pilot plants demonstrating their technology. You can find my contact e-mail hidden away from the spambots in my resume.

September 3, 2009 Posted by | biomass gasification, Coskata, Germany, pyrolysis oil, range fuels, Sasol, South Africa | 124 Comments

Answering Reader Questions 2009: Part 1

Before I took a recent trip to Canada, I opened up the floor for questions. Getting them answered has taken longer than I intended. Fortunately, other readers answered a lot of them in the comments of that thread. So I have sifted through the list, trying to find questions that were still open, or those I wanted to make an additional comment on. Thanks to those who submitted questions, as well as to those who answered them. A special thanks to Kit P., who wrote some extensive answers to some of the questions around electricity and saved me a good deal of work.

This is going to take at least three installments. But I have put this off long enough, so here are my answers to the first five questions. This installment covers plasma gasification, natural gas projections, free energy, promising alternative energy technologies, and GTL.

I have a total of about 25 to answer, and I will get to them in the coming week.

The Questions

Russ wrote: I read about plasma gasification of garbage. Naturally the people promoting it say how great it is. Your comments please. Answer

Bob S. asked: What will natural gas production in the US be 5, 10 and 15 years from now? Should I convert my 310 delivery trucks (I operate in an east coast city) from diesel to natural gas? Answer

bc asked: The inline ad for this article claims “Never pay for electricity again”, something called Magniwork. I recommend NOT clicking the click, as it does dodgy things with your browser. Does Magniwork really work? Is there such a thing as “free energy”? How do I stop these scammers’ ads appearing on my screen? Answer

C asked: Which alternative energy technologies do think will have the greatest impact in the US? Answer

Benny wrote: A friend of a friend of mine is working on a process to convert natural gas to gasoline, through some sort of heat and pressure. My friend did consulting on pressure and flow inside of a tube. That is all I know. Is there any hope for such a scheme? Any hope of commercial viability (obviously, we have abundant NG in North America)? Answer

The Answers

Answer

Gasification technologies in general have a lot of idiosyncrasies that can make them difficult to get right. I have seen this first hand in a gasifier that failed to perform. The issue in that particular case was the refractory which protects the metal from the very high temperatures of the gasifier. If the refractory has a problem, you can get hot spots on the shell of the gasifier and weaken the metal.

That’s just an example of one of the things you have to get right. Plasma gasification is a special case within gasification technologies. It uses electricity and very high temperatures (thousands of degrees) to gasify the feed. Because of the electricity demands, the external energy inputs into plasma gasification can be high relative to other gasification technologies. Further, if you are using the synthesis gas produced to further produce a liquid fuel, there are a couple of other considerations. Plasma gasification occurs at low pressures. Many of those downstream reactions (like Fischer Tropsch) are carried out at high pressure, requiring a further energy intensive compression step. This means that plasma gasification has been looked at very little for the production of liquid fuels. Coskata is looking at it for their system, but this was one of the criticisms I had of them. The technology at scale and in that application is an unknown. That puts increased risk on Coskata’s technology.

If the purpose is merely to destroy the garbage and produce a bit of syngas in the process, then that might be a more workable option. I think it just depends on how the costs compare to digestion or to producing power from incinerating the waste. But if the intent is to turn that garbage into liquid fuels, plasma gasification may not be the best choice.

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Answer

Bob, the projections from the EIA (admittedly taken with a grain of salt) are that natural gas production will be relatively flat because prices are expected to be relatively flat. Because of all of the shale gas that starts to become economical in the $6-$8/MMBTU range, I think it is going to be hard for natural gas prices to break through those levels for a good while. Therefore, if I was planning for fleet purposes, I might take the upper end as a worst case and see what that would do to my business. Then, I think whether to convert depends entirely on how many miles per year your fleet travels and the availability of fueling stations in your area.

I believe that if the savings would pay back the conversion costs in 3 years at a presumed natural gas cost over that time of – say $5 – then I would do it. For that matter, you can hedge your natural gas price. If I look out 5 years, the price I can lock natural gas in for is still in the $6-$7 range in 2014, and in 10 years is only in the $7-$8 range. You just have to make the call on whether you are going to be financially OK if prices do get up into that range, knowing you have a substantial upside if they stay in the $3-$5 range.

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Answer

No, I don’t believe any of these free energy systems work. The ones I am familiar with all violate laws of thermodynamics (e.g., Steorn). So I certainly don’t endorse any of them, and the appearance of their ads here is because someone paid Google to place their ads on topical websites (presumably with certain energy-related keywords). I don’t know how to stop them from appearing, except I do have some ability to block them when I see them. I have done this in the past for highly non-topical ads.

My other option is of course to take the ads down altogether. The income from them is pretty trivial. However, I have always liked the idea that my writing is helping to pay my grocery bill. Best thing I would suggest is just not to click on ads that seem too good to be true.

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Answer

I am going to tip-toe around this one. As some others pointed out, there are options that are making a contribution right now, albeit I think you probably mean in the long run. To be clear, I think we will have corn ethanol for a long time. But I also think it will necessarily be subsidized for the next 30 years as it has been for the past 30. I don’t believe it will be able to make a big impact insofar as displacing large amounts of fossil fuels simply because a lot of fossil fuels tend to be consumed in the process of producing the ethanol.

However, I do think there are technologies that have a lot of promise – especially in specific niches – but that haven’t gotten a lot of attention. But in my new role, I will be working on developing some of these technologies and trying to bring them to commercialization. Some of them are very specialized and relatively unknown, and therefore I don’t want to write about them until our relationships are more secure.

But without totally dodging the question, I will provide some hints. There is a guy who posts here sometimes called Al Fin (see his website here). I was reading through a blog posting on cellulosic ethanol a few days ago, and I ran across a comment that Al made. His first paragraph here hits specifically upon some of the things that I think show a lot of promise – and in fact that first paragraph hits very close to the mark on several things I am looking at. I will at some point start writing more about some of them.

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Answer

Benny, that’s the basis for gas-to-liquids (GTL). Natural gas can be turned into synthesis gas, and then you can send that gas through a Fischer-Tropsch reactor to make longer chain hydrocarbons. From this process, you get wax which has to be cleaned up, and as part of the clean-up you can make gasoline blending components. The problem is that it is a capital intensive process due to all of the downstream clean-up equipment required, and thus is expensive. This is why – despite lots of natural gas reserves – we don’t have GTL plants popping up all over the place.

Now if your friend is working on a process to directly make gasoline from natural gas, I am unaware of such a process. Natural gas isn’t too keen on reacting with other natural gas molecules to form longer chain hydrocarbons without first converting it into an intermediary like syngas. One could perhaps envision a catalyst that could build up the chains directly from natural gas into something longer.

There is a reaction called methane coupling (which I have some experience with) in which the methane (C1, because it has one carbon) in natural gas is converted into C2. In order to get up into the gasoline range, you need to grow that chain to something like the C5 to C8 range. In other words, you have to grow the single carbon atom in methane into a string of 5 to 8 carbon atoms joined together. The methane coupling reaction, for instance, has low yields and low selectivity, demonstrating the challenge of growing these chains. If you can only get 10% of the methane to form C2, and the reaction is capable of going to C3, then your yields beyond C2 are going to be trivial. Still, it isn’t pseudoscience.

OK, that’s all for now. The next installment will start with the story about the UT Arlington researchers making oil from lignite.

August 1, 2009 Posted by | coal, Coskata, fischer tropsch, free energy, gtl, methane coupling, natural gas, plasma gasification | 24 Comments

Vinod Khosla at Milken Institute: Part I

Thanks to a reader for bringing this to my attention. Vinod Khosla (VK) just did a lengthy interview at the Milken Institute 2009 Global Conference. The interview was conducted by Elizabeth Corcoran (EC) of Forbes. You can see the video of the interview here:

Milken: Khosla on the Shift to Renewable Energy

I am going to listen to the interview, transcribe it, and comment on interesting/controversial exchanges. (If a transcript of this interview exists already, I haven’t seen it). I will strive to be as accurate as possible, but may paraphrase lengthy questions and answers. I will also try to provide links to all of the companies VK mentions. Any comments I make will be preceded by “RR” and will be in italics. I will also note the time into the video of each question so you can listen for yourself if you like.

In this first installment, VK discusses the role of government money, argues that these businesses need not be capital intensive if you make someone else will pay the capital (he explains his low-capital strategy, in which he has managed to outsmart everyone else in the energy business), and then discusses some of his solar investments.

First question from Elizabeth Corcoran (1:40 into the video): (RR: She first mentions that VK “hates the Prius” and promises to get into that later). The essence of this green revolution is built around a very interesting tension of private and government money. Whose money is really going to transform energy and transform this industry?

VK: I don’t think it’s built on government money. The only thing it can be built on is private money. The scale of the energy problem is so large that we cannot solve it with government money; there is not enough government money available. The only way we solve the energy problem and the climate problem is with technologies that achieve unsubsidized market competitiveness. There is not enough money in the world to subsidize oil replacement or coal replacement, or replacing automobiles. Besides, most of the most interesting markets in the world, the fast growing markets – India and China – don’t have these subsidies. The fact that we have government money maybe compensates for the fact that its competitors, fossil fuels, have had lots of subsidies too – and maybe continue to get larger subsidies than renewables get today. But it doesn’t matter. All those things will go away; will disappear at scale. So I challenge your premise to begin with.

EC (3:45): At the same time, let’s talk about how much money you have put into these technologies, and how much money they still need to achieve any kind of viable production scale. You have invested in quite a number of companies, and some of them are doing well; some of them are not doing so well. How much money does it take at this point to even conceive of having a production level cellulosic ethanol plant?

VK: I love these questions, because I can challenge her every single time. I disagree with the basic premise that it takes lots of money. If you look across our portfolio, 80% of our portfolio doesn’t need any more money that the typical venture start-up. (EC: Which is how much?) Somewhere between $30 million and $100 million to get going, whether it’s a chip start-up, semiconductor start-up, enterprise software start-up, a computer systems start-up – it’s about that range. These are very typical. Most of them are not as expensive as biotechnology which end up needing a billion dollars. And it’s not as cheap as a Web 2.0 start-up where two 23-year olds start something. But they are right smack in the middle of what venture capital has been doing. Among the remaining 20%, at least 15 of the 20 have strategies that make it very capital efficient; that means they don’t need much capital to build a plant; to be in the fuels business. And I can explain how. Then there’s a few that are very venture capital intensive. So yes, there’s a few, but that’s also true in the traditional venture business. So I don’t think there’s a difference, and this is a very common misperception.

EC (5:40): Just to cite one; perhaps one of the few, but I couldn’t help it – you have the CEO of Coskata saying it is going to take $400 million to get that plant up to production level.

VK: The question is, does Coskata need to build their own plants. (EC: They want to). They may want to – and they will – if the capital is available. If not, what do they do? They are using a Westinghouse gasifier. They let Westinghouse build the gasifier. They will just build the fermentation tank. All I am saying is strategies exist for people who are doing that kind of thing to have relatively low-capital outcomes.

(RR: I don’t understand this answer at all. Just because Westinghouse is building the gasifier doesn’t mean Coskata isn’t paying for it. It is a part of the capital cost of building their plant).

EC (6:40): These companies have said that unless they are producing on the order of 10 million gallons of fuel a year they aren’t really viable.

VK: Sure. And what do you think they will say when they ask for government money at low interest rates? Tell them “No, we don’t need the capital; we have a low cost strategy?” Look, to build demonstration plants you absolutely need money. What I am saying is most of these companies have strategies where – if the markets are great they absolutely can supercharge their growth with high amounts of capital – or they can take a lower capital strategy. You have seen that in biotechnology too. Biotech companies license some drugs and keep others for themselves. Exactly the same strategy is possible here.

(RR: Presumes you have something that has value for a licensee. A very heavy capital intensive venture with a marginal energy return isn’t going to be any more attractive to build for a licensee than for the company trying to license the technology).

EC (7:40): One more question on the capital side. The rumor in Silicon Valley is that you have been out pounding the doors looking for a billion dollar fund. Are you doing that?

VK: Actually, I can’t comment on that.

EC (7:53): And the rumor has been that you are not going to get there, because investors are scared. They are worried that they are not going to make a return when you have got companies that are doing a Series B round that is plus $100 million.

VK: Well, we will see what we want to do and where we get to. (EC: That’s hardly an answer). Let me put it this way. I don’t think I have attempted something that I have been unable to do in the past, and I don’t expect it to be different in the future. (RR: Big grin toward the audience).

(RR: I do expect it to be different, because I think VK has vastly underestimated the level of difficulty here. He believes his experience from the computer industry is applicable to technologies which in some cases have already been around for almost 100 years. But this isn’t the computer business and Moore’s Law is not in effect. As Geoffrey Styles argued in his latest column “If there is a Moore’s Law for energy, it has yet to be discerned, let alone quantified. In the early phases of any new technology, “experience curve” effects can emulate Moore’s Law-style improvements for a while. Then, as cumulative output grows the rate of change slows dramatically.”)

EC (8:25): Let’s go back to some of the specific technologies. You have made this teasing comment now that there are companies out there that are smaller – modest sized investments – that presumably you believe will have a big impact. Let’s talk about a couple of those. What are the ones that to your eye look the most promising, starting at the small level and going back up to the big guys.

VK: Let’s pick a company. We have a little company in our portfolio called PVT. (RR: See VK’s portfolio here). They can sit behind Sunpower solar panels or First Solar solar panels and triple the energy efficiency of the panel – without changing the panel – by utilizing the waste heat from the panel. My bet is that they will look more like a Web 2.0 start-up. For $15 million they will be a profitable company. That’s pretty rare in the venture business.

A lighting company – somebody like Soraa (RR: I can’t find a website for them) – LED lighting, massive market. Probably could be in the market for relatively small amounts of money. Pick a number – $25 million or less. So let me challenge you and tell you; in Cleantech, the phenomenon is, for most opportunities, the capital investment is the same as traditional venture capital, but the markets are 10 times larger and we have half the competition. Now, wouldn’t you prefer those markets? (RR: Sounds like an advertisement for the billion dollar fund he couldn’t talk about earlier).

(RR: VK smiles and looks at the audience, EC starts to ask another question, and then VK starts in again). How many markets do you see in the chip business, in the semiconductor business, or enterprise software, where the smaller end of the market is $5-$10 billion like in lighting? (EC: Not too many). Very few. Most enterprise software companies, or wifi companies – are going after markets that are hundreds of millions, maybe a billion dollars. Yet they need the same amount of capital. Guess which one is the better market to pick?

(RR: Depends on the margins, doesn’t it? Refining is a >$100 billion business in the U.S., but the margins are often very poor. This is partially what’s got so many ethanol producers in a bind. The energy markets are cyclical, and can suffer poor margins for extended periods. It doesn’t really matter how big the market is if margins in that market tend to be poor. Likewise, if the market is large but the barriers to entry are low – also a problem for the corn ethanol industry – then it will be hard to keep margins high before competitors show up in force.)

EC (10:33): Let’s talk about solar for a minute. You have a couple of solar investments. PVT you mentioned; Ausra.

VK: Yes. We have three solar companies. PVT is one I mentioned. Stion is another great example because everyone thinks photovoltaics are very capital-intensive. Yes and no. If you do it the dumb way, they are capital intensive. If you start manufacturing and redesigning your manufacturing line equipment, it will be. We chose to do two things differently. One, we are not touching the manufacturing process, so we can use other people’s equipment. For $6 million we were able to set up a pilot line because we bought 15-year-old equipment. We only innovated in the materials. This dramatically reduces the capital-intensity.

(RR: Seems to me that the potential flaw in the thinking that they will force others to do the capital-intensive stuff is the presumption that they will actually do it. If some of these technologies are so capital-intensive that VK won’t touch them, why would anyone else sink lots of money into them over the long-term?)

The second thing we did is said: There’s plenty of people in Nanosolar, MiaSolé and Konarka going after First Solar. Among the photovolaic market is Sunpower; high efficiency and high cost; First Solar; low efficiency and low cost; all of the start-ups competing with First Solar. Nobody wants to be high cost, low efficiency. So there is another quadrant, which is high efficiency, low cost. We decided to go after that. (RR: Wow, why didn’t someone else think of that. Instead of paying high cost for high efficiency, pay low cost for high efficiency. It has the sheer genius of 7-minute abs). And frankly, for $25 million dollars we have a pilot line running. We have very little risk, with very little capital. That gives us lots of options. Now you can say that photovoltaics are expensive, but you can pick the right strategy if you are knowledgeable about the trade-out you are making; if you make a change in manufacturing equipment you are going to have an expensive start-up.

Solar thermal is our 3rd start-up. Here is another great example of capital efficiency. They make these solar panels; these big mirrors that take concentrated light and turn it into steam. Building a power plant is $600 million, very capital intensive. That is an option for them. Last fall we decided the market wasn’t going to be good for project financing. They can sell $10-$15 million worth of gear, add two lines of solar to an existing coal plant, make it a little more green. And that’s what they are doing. They are doing equipment sales in $10-$15 million chunks to add to existing industrial processes where they don’t need power; or to existing power plants; whether they are coal-fired plants or natural gas plants. In small chunks, this becomes much lower capital-intensive. Looks just like Sun Microsystems manufacturing.

EC (13:40): (RR: Will pick up here in the next installment).

April 30, 2009 Posted by | Ausra, cellulosic ethanol, Coskata, Forbes, Konarka, MiaSolé, Nanosolar, PVT Solar, Soraa, Sunpower, Vinod Khosla | 37 Comments

Vinod Khosla at Milken Institute: Part I

Thanks to a reader for bringing this to my attention. Vinod Khosla (VK) just did a lengthy interview at the Milken Institute 2009 Global Conference. The interview was conducted by Elizabeth Corcoran (EC) of Forbes. You can see the video of the interview here:

Milken: Khosla on the Shift to Renewable Energy

I am going to listen to the interview, transcribe it, and comment on interesting/controversial exchanges. (If a transcript of this interview exists already, I haven’t seen it). I will strive to be as accurate as possible, but may paraphrase lengthy questions and answers. I will also try to provide links to all of the companies VK mentions. Any comments I make will be preceded by “RR” and will be in italics. I will also note the time into the video of each question so you can listen for yourself if you like.

In this first installment, VK discusses the role of government money, argues that these businesses need not be capital intensive if you make someone else will pay the capital (he explains his low-capital strategy, in which he has managed to outsmart everyone else in the energy business), and then discusses some of his solar investments.

First question from Elizabeth Corcoran (1:40 into the video): (RR: She first mentions that VK “hates the Prius” and promises to get into that later). The essence of this green revolution is built around a very interesting tension of private and government money. Whose money is really going to transform energy and transform this industry?

VK: I don’t think it’s built on government money. The only thing it can be built on is private money. The scale of the energy problem is so large that we cannot solve it with government money; there is not enough government money available. The only way we solve the energy problem and the climate problem is with technologies that achieve unsubsidized market competitiveness. There is not enough money in the world to subsidize oil replacement or coal replacement, or replacing automobiles. Besides, most of the most interesting markets in the world, the fast growing markets – India and China – don’t have these subsidies. The fact that we have government money maybe compensates for the fact that its competitors, fossil fuels, have had lots of subsidies too – and maybe continue to get larger subsidies than renewables get today. But it doesn’t matter. All those things will go away; will disappear at scale. So I challenge your premise to begin with.

EC (3:45): At the same time, let’s talk about how much money you have put into these technologies, and how much money they still need to achieve any kind of viable production scale. You have invested in quite a number of companies, and some of them are doing well; some of them are not doing so well. How much money does it take at this point to even conceive of having a production level cellulosic ethanol plant?

VK: I love these questions, because I can challenge her every single time. I disagree with the basic premise that it takes lots of money. If you look across our portfolio, 80% of our portfolio doesn’t need any more money that the typical venture start-up. (EC: Which is how much?) Somewhere between $30 million and $100 million to get going, whether it’s a chip start-up, semiconductor start-up, enterprise software start-up, a computer systems start-up – it’s about that range. These are very typical. Most of them are not as expensive as biotechnology which end up needing a billion dollars. And it’s not as cheap as a Web 2.0 start-up where two 23-year olds start something. But they are right smack in the middle of what venture capital has been doing. Among the remaining 20%, at least 15 of the 20 have strategies that make it very capital efficient; that means they don’t need much capital to build a plant; to be in the fuels business. And I can explain how. Then there’s a few that are very venture capital intensive. So yes, there’s a few, but that’s also true in the traditional venture business. So I don’t think there’s a difference, and this is a very common misperception.

EC (5:40): Just to cite one; perhaps one of the few, but I couldn’t help it – you have the CEO of Coskata saying it is going to take $400 million to get that plant up to production level.

VK: The question is, does Coskata need to build their own plants. (EC: They want to). They may want to – and they will – if the capital is available. If not, what do they do? They are using a Westinghouse gasifier. They let Westinghouse build the gasifier. They will just build the fermentation tank. All I am saying is strategies exist for people who are doing that kind of thing to have relatively low-capital outcomes.

(RR: I don’t understand this answer at all. Just because Westinghouse is building the gasifier doesn’t mean Coskata isn’t paying for it. It is a part of the capital cost of building their plant).

EC (6:40): These companies have said that unless they are producing on the order of 10 million gallons of fuel a year they aren’t really viable.

VK: Sure. And what do you think they will say when they ask for government money at low interest rates? Tell them “No, we don’t need the capital; we have a low cost strategy?” Look, to build demonstration plants you absolutely need money. What I am saying is most of these companies have strategies where – if the markets are great they absolutely can supercharge their growth with high amounts of capital – or they can take a lower capital strategy. You have seen that in biotechnology too. Biotech companies license some drugs and keep others for themselves. Exactly the same strategy is possible here.

(RR: Presumes you have something that has value for a licensee. A very heavy capital intensive venture with a marginal energy return isn’t going to be any more attractive to build for a licensee than for the company trying to license the technology).

EC (7:40): One more question on the capital side. The rumor in Silicon Valley is that you have been out pounding the doors looking for a billion dollar fund. Are you doing that?

VK: Actually, I can’t comment on that.

EC (7:53): And the rumor has been that you are not going to get there, because investors are scared. They are worried that they are not going to make a return when you have got companies that are doing a Series B round that is plus $100 million.

VK: Well, we will see what we want to do and where we get to. (EC: That’s hardly an answer). Let me put it this way. I don’t think I have attempted something that I have been unable to do in the past, and I don’t expect it to be different in the future. (RR: Big grin toward the audience).

(RR: I do expect it to be different, because I think VK has vastly underestimated the level of difficulty here. He believes his experience from the computer industry is applicable to technologies which in some cases have already been around for almost 100 years. But this isn’t the computer business and Moore’s Law is not in effect. As Geoffrey Styles argued in his latest column “If there is a Moore’s Law for energy, it has yet to be discerned, let alone quantified. In the early phases of any new technology, “experience curve” effects can emulate Moore’s Law-style improvements for a while. Then, as cumulative output grows the rate of change slows dramatically.”)

EC (8:25): Let’s go back to some of the specific technologies. You have made this teasing comment now that there are companies out there that are smaller – modest sized investments – that presumably you believe will have a big impact. Let’s talk about a couple of those. What are the ones that to your eye look the most promising, starting at the small level and going back up to the big guys.

VK: Let’s pick a company. We have a little company in our portfolio called PVT. (RR: See VK’s portfolio here). They can sit behind Sunpower solar panels or First Solar solar panels and triple the energy efficiency of the panel – without changing the panel – by utilizing the waste heat from the panel. My bet is that they will look more like a Web 2.0 start-up. For $15 million they will be a profitable company. That’s pretty rare in the venture business.

A lighting company – somebody like Soraa (RR: I can’t find a website for them) – LED lighting, massive market. Probably could be in the market for relatively small amounts of money. Pick a number – $25 million or less. So let me challenge you and tell you; in Cleantech, the phenomenon is, for most opportunities, the capital investment is the same as traditional venture capital, but the markets are 10 times larger and we have half the competition. Now, wouldn’t you prefer those markets? (RR: Sounds like an advertisement for the billion dollar fund he couldn’t talk about earlier).

(RR: VK smiles and looks at the audience, EC starts to ask another question, and then VK starts in again). How many markets do you see in the chip business, in the semiconductor business, or enterprise software, where the smaller end of the market is $5-$10 billion like in lighting? (EC: Not too many). Very few. Most enterprise software companies, or wifi companies – are going after markets that are hundreds of millions, maybe a billion dollars. Yet they need the same amount of capital. Guess which one is the better market to pick?

(RR: Depends on the margins, doesn’t it? Refining is a >$100 billion business in the U.S., but the margins are often very poor. This is partially what’s got so many ethanol producers in a bind. The energy markets are cyclical, and can suffer poor margins for extended periods. It doesn’t really matter how big the market is if margins in that market tend to be poor. Likewise, if the market is large but the barriers to entry are low – also a problem for the corn ethanol industry – then it will be hard to keep margins high before competitors show up in force.)

EC (10:33): Let’s talk about solar for a minute. You have a couple of solar investments. PVT you mentioned; Ausra.

VK: Yes. We have three solar companies. PVT is one I mentioned. Stion is another great example because everyone thinks photovoltaics are very capital-intensive. Yes and no. If you do it the dumb way, they are capital intensive. If you start manufacturing and redesigning your manufacturing line equipment, it will be. We chose to do two things differently. One, we are not touching the manufacturing process, so we can use other people’s equipment. For $6 million we were able to set up a pilot line because we bought 15-year-old equipment. We only innovated in the materials. This dramatically reduces the capital-intensity.

(RR: Seems to me that the potential flaw in the thinking that they will force others to do the capital-intensive stuff is the presumption that they will actually do it. If some of these technologies are so capital-intensive that VK won’t touch them, why would anyone else sink lots of money into them over the long-term?)

The second thing we did is said: There’s plenty of people in Nanosolar, MiaSolé and Konarka going after First Solar. Among the photovolaic market is Sunpower; high efficiency and high cost; First Solar; low efficiency and low cost; all of the start-ups competing with First Solar. Nobody wants to be high cost, low efficiency. So there is another quadrant, which is high efficiency, low cost. We decided to go after that. (RR: Wow, why didn’t someone else think of that. Instead of paying high cost for high efficiency, pay low cost for high efficiency. It has the sheer genius of 7-minute abs). And frankly, for $25 million dollars we have a pilot line running. We have very little risk, with very little capital. That gives us lots of options. Now you can say that photovoltaics are expensive, but you can pick the right strategy if you are knowledgeable about the trade-out you are making; if you make a change in manufacturing equipment you are going to have an expensive start-up.

Solar thermal is our 3rd start-up. Here is another great example of capital efficiency. They make these solar panels; these big mirrors that take concentrated light and turn it into steam. Building a power plant is $600 million, very capital intensive. That is an option for them. Last fall we decided the market wasn’t going to be good for project financing. They can sell $10-$15 million worth of gear, add two lines of solar to an existing coal plant, make it a little more green. And that’s what they are doing. They are doing equipment sales in $10-$15 million chunks to add to existing industrial processes where they don’t need power; or to existing power plants; whether they are coal-fired plants or natural gas plants. In small chunks, this becomes much lower capital-intensive. Looks just like Sun Microsystems manufacturing.

EC (13:40): (RR: Will pick up here in the next installment).

April 30, 2009 Posted by | Ausra, cellulosic ethanol, Coskata, Forbes, Konarka, MiaSolé, Nanosolar, PVT Solar, Soraa, Sunpower, Vinod Khosla | 23 Comments

Coskata on Life Support?

Remember my story Coskata: Dead Man Walking? As I wrote in that essay six months ago:

I predict that Coskata’s suggestions that they will produce ethanol for less than $1/gal will look ridiculous in hindsight. The next few years will see a record amount of back-pedaling from most of the companies trying to establish a foothold in this space – and overpromising on their technology to do so.

Well, at the Wall Street Journal ECO:nomics Conference last week, Coskata CEO Bill Roe indicated that the company is having (recession-induced) troubles. Marc Gunther has the story:

GM’s woes: Bad news for clean energy

Talk to a banker and “all you get is a smile and a pat on the head,” Roe says. “There is no project finance today.”

Interestingly, Coskata, which is based outside Chicago, raised money as recently as December, reportedly getting a $40 million infusion from the Blackstone Group, the big private equity firm.

But GM, teetering on the verge of bankruptcy, didn’t pony up any dough. GM had announced its original investment in Coskata back in January, 2008, with some fanfare. Roe said then that the financing coming in from the auto giant is enough to make Coskata “a speed-to-market play.”

Now he’s waiting for a loan from the U.S. Department of Energy.

“That’s my only alternative at this particular point in time,” Roe says. “Absent getting that loan, we are stalled.”

This is exactly why you don’t overhype your technology. If you overhype, the expectations are high – so there can’t be any excuses for not delivering. As I said last year after the investment by GM was announced “GM can’t be wrong, can they?” (Checking GM stock; now trading at $1.76 which is slightly off its 52-week high of $24.24). If Coskata could really produce ethanol for under $1/gallon from biomass – as they claimed – they would be printing money. Yet they have now raised at least $76 million, and still no prospects for a commercial plant. Here is what Vinod Khosla had to say when he announced his investment in Coskata:

“As a nation, we’ve been dependent on oil for so long, we continue to think we will be dependent on oil to meet our future energy needs,” said Vinod Khosla of Khosla Ventures. “Scientists, technologists and entrepreneurs like Coskata are here to prove it doesn’t have to be this way. With the development of an economically-viable ethanol solution, Coskata has the propensity to change the types of fuel consumers find at the pump – providing fuel derived from widely-available national resources, rather than foreign imports.”

Coskata had estimated that a 100 million gallon plant would cost them $300 million, and later updated that to $400 million. I say that if Vinod Khosla is so confident of success, have him pony up the rest of the money. That’s a pretty big bet, but he has made some pretty bold claims about next generation biofuels.

While all that hype might help you pull in some investor (and taxpayer) money, it is going to make it a lot tougher for the next guy – who might have a better technology. But so many investors are going to get burned on second generations biofuels that in a few years nobody will want to touch this sector. Except for us taxpayers, of course.

CNN just published a related story:


Ethanol: Not dead yet

It was thought these companies would transition from corn-based ethanol – which drew fire for being inefficient and driving up food prices – to “second-generation” ethanol made from cheaper non-food crops and trash. Now that seems dead in the water.

“I think they might not be around to see the second generation,” said Cristoph Berg, an ethanol analyst with commodity research firm F.O. Licht in Germany.

But for years the commercialization of these biofuels has been “just around the corner.” It appears it still is. While it is certainly possible to make second-generation ethanol today, it remains too costly to make it commercially viable.

“All the risk capital has disappeared,” said Nick Gogerty, a portfolio manager at the hedge fund Fertilemind Capital. According to Gogerty, people are no longer chasing risky projects hoping to make a lot of money, they’re looking to invest in projects where they hope their money will be safe. “If anything, we’re further away,” he said.

Is anyone surprised by any of this? When I point this out, some accuse me of being a naysayer, of lacking the vision of some of these second generation pioneers, or just not understanding the breakthroughs these companies are making. Maybe someday these people might figure out that I wasn’t so clueless about this after all.

March 12, 2009 Posted by | Coskata, ethanol production, General Motors, Vinod Khosla | 47 Comments

Coskata on Life Support?

Remember my story Coskata: Dead Man Walking? As I wrote in that essay six months ago:

I predict that Coskata’s suggestions that they will produce ethanol for less than $1/gal will look ridiculous in hindsight. The next few years will see a record amount of back-pedaling from most of the companies trying to establish a foothold in this space – and overpromising on their technology to do so.

Well, at the Wall Street Journal ECO:nomics Conference last week, Coskata CEO Bill Roe indicated that the company is having (recession-induced) troubles. Marc Gunther has the story:

GM’s woes: Bad news for clean energy

Talk to a banker and “all you get is a smile and a pat on the head,” Roe says. “There is no project finance today.”

Interestingly, Coskata, which is based outside Chicago, raised money as recently as December, reportedly getting a $40 million infusion from the Blackstone Group, the big private equity firm.

But GM, teetering on the verge of bankruptcy, didn’t pony up any dough. GM had announced its original investment in Coskata back in January, 2008, with some fanfare. Roe said then that the financing coming in from the auto giant is enough to make Coskata “a speed-to-market play.”

Now he’s waiting for a loan from the U.S. Department of Energy.

“That’s my only alternative at this particular point in time,” Roe says. “Absent getting that loan, we are stalled.”

This is exactly why you don’t overhype your technology. If you overhype, the expectations are high – so there can’t be any excuses for not delivering. As I said last year after the investment by GM was announced “GM can’t be wrong, can they?” (Checking GM stock; now trading at $1.76 which is slightly off its 52-week high of $24.24). If Coskata could really produce ethanol for under $1/gallon from biomass – as they claimed – they would be printing money. Yet they have now raised at least $76 million, and still no prospects for a commercial plant. Here is what Vinod Khosla had to say when he announced his investment in Coskata:

“As a nation, we’ve been dependent on oil for so long, we continue to think we will be dependent on oil to meet our future energy needs,” said Vinod Khosla of Khosla Ventures. “Scientists, technologists and entrepreneurs like Coskata are here to prove it doesn’t have to be this way. With the development of an economically-viable ethanol solution, Coskata has the propensity to change the types of fuel consumers find at the pump – providing fuel derived from widely-available national resources, rather than foreign imports.”

Coskata had estimated that a 100 million gallon plant would cost them $300 million, and later updated that to $400 million. I say that if Vinod Khosla is so confident of success, have him pony up the rest of the money. That’s a pretty big bet, but he has made some pretty bold claims about next generation biofuels.

While all that hype might help you pull in some investor (and taxpayer) money, it is going to make it a lot tougher for the next guy – who might have a better technology. But so many investors are going to get burned on second generations biofuels that in a few years nobody will want to touch this sector. Except for us taxpayers, of course.

March 12, 2009 Posted by | Coskata, ethanol production, General Motors, Vinod Khosla | Comments Off on Coskata on Life Support?

Tying Up Loose Ends on Coskata

While I am a skeptic by nature, I am a problem-solver as well. I always ask the people around me – and I try to practice this at all times – if you come across a problem, or envision that you will have a problem, try to envision a solution as well. Otherwise, you have simply created an obstacle. This is important in my current job, as we have commercialized a technology that had never been commercialized before. It’s sort of like chess: Envision where you are going, the potential problems as you make your journey, and how you will cope with that. The more contingencies you have planned for, the higher your chances of success. These are principles I live by. The reason I feel the need to point this out is that some read my skepticism in some quarters as a “can’t do” attitude.

With that preface, there are a couple of things that I left unresolved in my Coskata investigation. One was my questions on the energy balance. But I also wanted to do a mass balance – or at least a carbon balance – around the process to see if those claims of 100 gallons of ethanol per ton of woody biomass are realistic. I also want to look at the logistics to get a feel for the amount of biomass required to run a 100 million gallon a year plant.

Finally, I will offer some advice to someone thinking of investing into Coskata, or any energy startup. I am not going to offer up solutions to potential problems simply because I would require quite a bit more information to do so. But what I can do is flag various areas that a prospective investor should investigate.

Mass Balance

Let’s take the mass balance first. Woody biomass contains around 50% carbon. I have that from personal conversations with Roger Rowell, one of the world’s foremost wood experts and my part-time room-mate in the Netherlands. But if that’s not good enough, here’s another source that indicates that 50% carbon is a reasonable estimate. Therefore, in a ton of dry, woody biomass there is a half ton of carbon. The atomic weight of carbon is 12, and there are 454 grams in a pound, so the number of moles of carbon (remember freshman chemistry?) is 1,000 pounds * 454 grams/(12 grams/mole) = 37,833 moles of carbon.

Each ethanol molecule has two carbons, so if you had 100% conversion of the woody biomass to syngas and then to ethanol (of course you won’t, but I want to get the maximum theoretical yield) you would have 37,833/2, or 18,917 moles of ethanol. The molecular weight of ethanol is 46, so if we convert the ethanol into pounds we get (18,917 moles * 46 grams/mole)/454 grams/pound = 1917 pounds of ethanol. That’s the absolute maximum theoretical yield based on carbon, and assumes that we have added enough oxygen to the mix (during the gasification step). The density of ethanol is about 6.6 pounds per gallon, so this leads to 1917 lb/(6.6 lb/gal) = 290 gallons of ethanol per ton of woody biomass. (Note that in reality, depending on the specific metabolic pathway, there may be CO2 produced whenever a molecule of ethanol is produced, lowering the theoretical yield).

Conclusion from that exercise? Some of the available carbon will go into microbe production, and some will end up as carbon dioxide. Some will be lost as tail gas in the process. But if 100 gallons is converted to ethanol, that means only 34% of the carbon in the starting biomass ended up as ethanol. Therefore, claims of 100 gallons (or more) per ton of woody biomass are consistent with the chemistry.

Energy Balance

This is where I feel like there is a problem. Let’s put all of the energy inputs and outputs out there and see.

Here is a reference for the BTU content of woody biomass. As you can see, the energy value varies quite a bit depending on moisture content and type of wood. The numbers are clustered around 12.5 million BTUs/ton, so I will use that as a standard. Coskata reports that a ton of woody biomass will produce 100 gallons of ethanol. As noted in the previous section, that is a believable statement. This much ethanol contains 8.4 million BTUs (based on the higher heating value, as was the case with woody biomass). The problem though with calculating an energy return is that there are energy inputs that go into producing the oxygen for the gasifier. And air separation units suck up a lot of energy (and capital).

But I can do a different exercise. If I have a solution that is 3.5% ethanol, as Wes told me their fermentation broth is, how much energy does it take to get it out? If I had access to a process simulator – and I don’t have one here in the U.S. (but I do in the Netherlands), then we could actually determine the break even point; that is the point at which the energy I put into the separation is equivalent to the energy of the ethanol I am separating.

But I can do a crude illustration. If I have a pound of fermentation broth, then there are 0.965 pounds of water and 0.035 pounds of ethanol. The amount of energy in that much ethanol is 0.035 lb * 1 gal/6.6 lb * 76,000 BTUs/gal = 403 BTUs. The heat of vaporization for water is 970 BTUs/lb, so if you were going to vaporize the mostly aqueous mixture (which you would do in a conventional distillation) it would take around 940 BTUs – more than twice what you could get back in the form of purified ethanol.

In a corn ethanol plant, the fermentation broth comes off at 16% ethanol or so. For our same exercise above, there are 1840 BTUs of ethanol in the mix, which is well more than enough to justify vaporizing the mixture. That should roughly illustrate the mountain that a 3.5% ethanol mixture has to climb.

Of course that implicitly assumes that the value of the BTUs that are being used to separate the ethanol are roughly equivalent in value to those in the ethanol. That may not be the case, and there may be times where there is an economic justification. For instance, let’s say you had a bunch of waste heat that you can use. It might make sense. But as always, I would ask the question whether boiling water is the most efficient usage of those BTUs.

Coskata says they have addressed the energy problem in the distillation by using membrane technology. The claim is that it takes half the energy of distillation. This is somewhat hard to believe, as I would expect ethanol plants across the country to rush to adopt the technology. And it isn’t brand new. Here is a 2001 article talking up the benefits: Pervaporation comes to age.

Yet there have been numerous ethanol plants built since 2001. Why aren’t they being built with membrane separation technology? Without going in and checking their claims, I can’t say for a fact whether that claim of lower energy usage is valid. But there are question marks all around it. (Note: I don’t dispute the technology, because I know that it works. I would just make sure – if I were about to invest in Coskata – that I had a very close look at their claims around this area.)

Finally, what of their claims that they get “up to 7.7 times more energy than what is used in making the ethanol.” In my conversation with Wes, I had asked if this was from Michael Wang. He said yes, which then put that claim into context for me. Michael Wang has created a model that has been widely misused. The number above – 7.7 – will refer not to the energy that is used in the process but rather to the overall fossil energy used. This is the same way Brazilian sugarcane can claim an 8/1 energy return, despite the energy intensive process step of separating ethanol from water. This is a valid metric as long as the context is clear. But the context isn’t usually made clear.

Here is an illustration of the potential problems with the metric. Let’s take an extreme example, as I think they are very useful in illustrating concepts. Let’s say that I have a million BTUs of biomass. But let’s say I have a conversion process that is terribly inefficient. I use that biomass in an inefficient process to produce a trifling amount of liquid fuel: 100 BTUs. In the process, 999,900 BTUs – 99.99% of what we started with – are lost in the process because they are used to drive the process.

But let’s say I have to input a small amount of fossil fuels; say in the form of electricity to run a pump. If I used 13 BTUs of fossil fuel to produce the 100 BTUs, then the energy return based on Wang’s metric is 100/13, or 7.7. So, I could claim to have a high energy return despite the fact that almost all of the available BTUs are wasted. This is the ‘opportunity cost‘ of those BTUs. Had we used the starting biomass to produce electricity, for instance, we would have had far more BTUs at the end of the process.

Now I am not for a moment suggesting that Coskata loses most of their BTUs in the process of making their ethanol. But without a real energy accounting – which the 7.7 number is not – it is difficult to determine whether this process makes better use of the available BTUs than a competing process. A proper energy accounting should take into account the overall BTUs consumed in the process, and not just the fossil fuel usage.

Logistics

David Henson, President of Choren USA (another company involved in biomass gasification), once commented to me “You know, most people just don’t understand that biomass isn’t very energy dense.” David was absolutely correct, but what does that mean? The lower the energy density of a substance, the closer it needs to be to the factory. Imagine hauling potatoes from New York to California in order to convert them into ethanol, and you get the picture. You would certainly burn more fuel transporting the potatoes than you could make from processing them into ethanol.

I believe this issue of low biomass density, which I have referred to as the logistics problem of cellulosic ethanol, is a killer for cellulosic ethanol. In fact, I recently calculated that to keep a medium-sized cellulosic ethanol plant running would consume the biomass equivalent of almost 900,000 mature Douglas firs every single year.

However, the Coskata process is not a cellulosic ethanol process. I don’t consider any gasification process to be cellulosic (I explained why here). The consequence is that a gasification process can have a higher yield because it converts lignin and hemicellulose in addition to cellulose. In Coskata’s case, they promise 100 gallons (+) per ton. How much biomass then to run a 100 million gallon per year facility? A million tons per year. How much biomass is this? If we return to the Douglas fir example, it is the biomass equivalent of around 1.2 million mature Douglas firs per year.

That’s still hard to wrap my head around, but I can put that in context from my current job. In our wood acetylation plant in the Netherlands, our nameplate capacity is 30,000 cubic meters of wood per year. A cubic meter weighs half a metric ton, so we run 15,000 metric tons per year through our plant (about 17,000 short tons). Coskata proposes to process about 60 times as much biomass through their 100 million gallon per year facility. That is the sort of logistical challenge that boggles my mind, when I try to scale up our process by a factor of 60.

To put in the context of rail cars, the coal cars lined up outside of a coal-fired power plant are a familiar site. According to this, each car carries about 100 tons of coal. For a million tons of coal a year, you would have to have 1 million/(100 tons per car) = 10,000 cars per year coming into and leaving the plant. That’s more than a car an hour, 24 hours a day, 365 days a year. And of course coal is quite a bit denser than biomass, so more cars would be required in the case of biomass.

I won’t say that’s impossible, but it is going to be a significant challenge. All I can say is Coskata better have hired some very good logistical experts. They are going to need them.

Conclusions

So what’s the bottom line? Let’s say you are an investor with a billion dollars burning a hole in your pocket. You contact me and ask if Coskata is for real. I want to see your billion dollars invested wisely, so here is what I would tell you.

The plasma gasification piece and the membrane separation piece both need a very good technical vetting from someone who has signed a secrecy agreement and has access to the experimental data. Whether a technology works in the lab is one thing. After all, if I can kill cancer cells in the lab, have I cured cancer?

You need to know to what extent it works in conditions close to what Coskata is proposing. Has it been tested under these conditions? For how long? What were the results? What were the key challenges? How accurately were the energy inputs measured? In fact, I would probably want to park myself in their labs for a few days, and spend a lot of time talking to technicians. I would want to know – outside of the tours – what’s really going on.

Second, I would really focus in on the logistics issue. I would want some serious details on how they are proposing to handle the logistics. How is the biomass going to come into the plant? Has a calculation been done on how far away something can be transported before it becomes break even on the energy? If it is waste biomass already coming into a point source, then it isn’t as big an issue. But then I would ask if there is any location in the U.S. that is handling a million tons of waste biomass at a point source (which the gasification plant would be). I would want to see actual examples of someone handling this much biomass.

Finally, I would go over that $400 million capital estimate with a fine-toothed comb. I would ask for an example of any technology that has been piloted in the lab, and then had an accurate capital estimate done at a scale of tens of thousands of times larger than the lab scale. As I have said before, you have different problems at a pilot scale than you had at the lab scale, and the problems become even bigger at commercial scale. The capital estimate is already $400 million for a 100 million gallon per year plant – $61,000 per daily barrel. That puts it at a disadvantage to GTL or corn ethanol. Why wouldn’t I expect that capital estimate to climb as they gain piloting experience? Why would I expect them to stick with biomass, when the logistics of gasifying (partially oxidizing) natural gas are trivial when contrasted with biomass logistics?

At least that’s what I would do. But then again, I am notoriously frugal with money, and perpetually skeptical on top of that. If you are a gambler, then you may want to adopt a different strategy.

Note: As always, if you spot an error, let me know and I will gladly correct it.

August 25, 2008 Posted by | Coskata | 24 Comments

Tying Up Loose Ends on Coskata

While I am a skeptic by nature, I am a problem-solver as well. I always ask the people around me – and I try to practice this at all times – if you come across a problem, or envision that you will have a problem, try to envision a solution as well. Otherwise, you have simply created an obstacle. This is important in my current job, as we have commercialized a technology that had never been commercialized before. It’s sort of like chess: Envision where you are going, the potential problems as you make your journey, and how you will cope with that. The more contingencies you have planned for, the higher your chances of success. These are principles I live by. The reason I feel the need to point this out is that some read my skepticism in some quarters as a “can’t do” attitude.

With that preface, there are a couple of things that I left unresolved in my Coskata investigation. One was my questions on the energy balance. But I also wanted to do a mass balance – or at least a carbon balance – around the process to see if those claims of 100 gallons of ethanol per ton of woody biomass are realistic. I also want to look at the logistics to get a feel for the amount of biomass required to run a 100 million gallon a year plant.

Finally, I will offer some advice to someone thinking of investing into Coskata, or any energy startup. I am not going to offer up solutions to potential problems simply because I would require quite a bit more information to do so. But what I can do is flag various areas that a prospective investor should investigate.

Mass Balance

Let’s take the mass balance first. Woody biomass contains around 50% carbon. I have that from personal conversations with Roger Rowell, one of the world’s foremost wood experts and my part-time room-mate in the Netherlands. But if that’s not good enough, here’s another source that indicates that 50% carbon is a reasonable estimate. Therefore, in a ton of dry, woody biomass there is a half ton of carbon. The atomic weight of carbon is 12, and there are 454 grams in a pound, so the number of moles of carbon (remember freshman chemistry?) is 1,000 pounds * 454 grams/(12 grams/mole) = 37,833 moles of carbon.

Each ethanol molecule has two carbons, so if you had 100% conversion of the woody biomass to syngas and then to ethanol (of course you won’t, but I want to get the maximum theoretical yield) you would have 37,833/2, or 18,917 moles of ethanol. The molecular weight of ethanol is 46, so if we convert the ethanol into pounds we get (18,917 moles * 46 grams/mole)/454 grams/pound = 1917 pounds of ethanol. That’s the absolute maximum theoretical yield based on carbon, and assumes that we have added enough oxygen to the mix (during the gasification step). The density of ethanol is about 6.6 pounds per gallon, so this leads to 1917 lb/(6.6 lb/gal) = 290 gallons of ethanol per ton of woody biomass. (Note that in reality, depending on the specific metabolic pathway, there may be CO2 produced whenever a molecule of ethanol is produced, lowering the theoretical yield).

Conclusion from that exercise? Some of the available carbon will go into microbe production, and some will end up as carbon dioxide. Some will be lost as tail gas in the process. But if 100 gallons is converted to ethanol, that means only 34% of the carbon in the starting biomass ended up as ethanol. Therefore, claims of 100 gallons (or more) per ton of woody biomass are consistent with the chemistry.

Energy Balance

This is where I feel like there is a problem. Let’s put all of the energy inputs and outputs out there and see.

Here is a reference for the BTU content of woody biomass. As you can see, the energy value varies quite a bit depending on moisture content and type of wood. The numbers are clustered around 12.5 million BTUs/ton, so I will use that as a standard. Coskata reports that a ton of woody biomass will produce 100 gallons of ethanol. As noted in the previous section, that is a believable statement. This much ethanol contains 8.4 million BTUs (based on the higher heating value, as was the case with woody biomass). The problem though with calculating an energy return is that there are energy inputs that go into producing the oxygen for the gasifier. And air separation units suck up a lot of energy (and capital).

But I can do a different exercise. If I have a solution that is 3.5% ethanol, as Wes told me their fermentation broth is, how much energy does it take to get it out? If I had access to a process simulator – and I don’t have one here in the U.S. (but I do in the Netherlands), then we could actually determine the break even point; that is the point at which the energy I put into the separation is equivalent to the energy of the ethanol I am separating.

But I can do a crude illustration. If I have a pound of fermentation broth, then there are 0.965 pounds of water and 0.035 pounds of ethanol. The amount of energy in that much ethanol is 0.035 lb * 1 gal/6.6 lb * 76,000 BTUs/gal = 403 BTUs. The heat of vaporization for water is 970 BTUs/lb, so if you were going to vaporize the mostly aqueous mixture (which you would do in a conventional distillation) it would take around 940 BTUs – more than twice what you could get back in the form of purified ethanol.

In a corn ethanol plant, the fermentation broth comes off at 16% ethanol or so. For our same exercise above, there are 1840 BTUs of ethanol in the mix, which is well more than enough to justify vaporizing the mixture. That should roughly illustrate the mountain that a 3.5% ethanol mixture has to climb.

Of course that implicitly assumes that the value of the BTUs that are being used to separate the ethanol are roughly equivalent in value to those in the ethanol. That may not be the case, and there may be times where there is an economic justification. For instance, let’s say you had a bunch of waste heat that you can use. It might make sense. But as always, I would ask the question whether boiling water is the most efficient usage of those BTUs.

Coskata says they have addressed the energy problem in the distillation by using membrane technology. The claim is that it takes half the energy of distillation. This is somewhat hard to believe, as I would expect ethanol plants across the country to rush to adopt the technology. And it isn’t brand new. Here is a 2001 article talking up the benefits: Pervaporation comes to age.

Yet there have been numerous ethanol plants built since 2001. Why aren’t they being built with membrane separation technology? Without going in and checking their claims, I can’t say for a fact whether that claim of lower energy usage is valid. But there are question marks all around it. (Note: I don’t dispute the technology, because I know that it works. I would just make sure – if I were about to invest in Coskata – that I had a very close look at their claims around this area.)

Finally, what of their claims that they get “up to 7.7 times more energy than what is used in making the ethanol.” In my conversation with Wes, I had asked if this was from Michael Wang. He said yes, which then put that claim into context for me. Michael Wang has created a model that has been widely misused. The number above – 7.7 – will refer not to the energy that is used in the process but rather to the overall fossil energy used. This is the same way Brazilian sugarcane can claim an 8/1 energy return, despite the energy intensive process step of separating ethanol from water. This is a valid metric as long as the context is clear. But the context isn’t usually made clear.

Here is an illustration of the potential problems with the metric. Let’s take an extreme example, as I think they are very useful in illustrating concepts. Let’s say that I have a million BTUs of biomass. But let’s say I have a conversion process that is terribly inefficient. I use that biomass in an inefficient process to produce a trifling amount of liquid fuel: 100 BTUs. In the process, 999,900 BTUs – 99.99% of what we started with – are lost in the process because they are used to drive the process.

But let’s say I have to input a small amount of fossil fuels; say in the form of electricity to run a pump. If I used 13 BTUs of fossil fuel to produce the 100 BTUs, then the energy return based on Wang’s metric is 100/13, or 7.7. So, I could claim to have a high energy return despite the fact that almost all of the available BTUs are wasted. This is the ‘opportunity cost‘ of those BTUs. Had we used the starting biomass to produce electricity, for instance, we would have had far more BTUs at the end of the process.

Now I am not for a moment suggesting that Coskata loses most of their BTUs in the process of making their ethanol. But without a real energy accounting – which the 7.7 number is not – it is difficult to determine whether this process makes better use of the available BTUs than a competing process. A proper energy accounting should take into account the overall BTUs consumed in the process, and not just the fossil fuel usage.

Logistics

David Henson, President of Choren USA (another company involved in biomass gasification), once commented to me “You know, most people just don’t understand that biomass isn’t very energy dense.” David was absolutely correct, but what does that mean? The lower the energy density of a substance, the closer it needs to be to the factory. Imagine hauling potatoes from New York to California in order to convert them into ethanol, and you get the picture. You would certainly burn more fuel transporting the potatoes than you could make from processing them into ethanol.

I believe this issue of low biomass density, which I have referred to as the logistics problem of cellulosic ethanol, is a killer for cellulosic ethanol. In fact, I recently calculated that to keep a medium-sized cellulosic ethanol plant running would consume the biomass equivalent of almost 900,000 mature Douglas firs every single year.

However, the Coskata process is not a cellulosic ethanol process. I don’t consider any gasification process to be cellulosic (I explained why here). The consequence is that a gasification process can have a higher yield because it converts lignin and hemicellulose in addition to cellulose. In Coskata’s case, they promise 100 gallons (+) per ton. How much biomass then to run a 100 million gallon per year facility? A million tons per year. How much biomass is this? If we return to the Douglas fir example, it is the biomass equivalent of around 1.2 million mature Douglas firs per year.

That’s still hard to wrap my head around, but I can put that in context from my current job. In our wood acetylation plant in the Netherlands, our nameplate capacity is 30,000 cubic meters of wood per year. A cubic meter weighs half a metric ton, so we run 15,000 metric tons per year through our plant (about 17,000 short tons). Coskata proposes to process about 60 times as much biomass through their 100 million gallon per year facility. That is the sort of logistical challenge that boggles my mind, when I try to scale up our process by a factor of 60.

To put in the context of rail cars, the coal cars lined up outside of a coal-fired power plant are a familiar site. According to this, each car carries about 100 tons of coal. For a million tons of coal a year, you would have to have 1 million/(100 tons per car) = 10,000 cars per year coming into and leaving the plant. That’s more than a car an hour, 24 hours a day, 365 days a year. And of course coal is quite a bit denser than biomass, so more cars would be required in the case of biomass.

I won’t say that’s impossible, but it is going to be a significant challenge. All I can say is Coskata better have hired some very good logistical experts. They are going to need them.

Conclusions

So what’s the bottom line? Let’s say you are an investor with a billion dollars burning a hole in your pocket. You contact me and ask if Coskata is for real. I want to see your billion dollars invested wisely, so here is what I would tell you.

The plasma gasification piece and the membrane separation piece both need a very good technical vetting from someone who has signed a secrecy agreement and has access to the experimental data. Whether a technology works in the lab is one thing. After all, if I can kill cancer cells in the lab, have I cured cancer?

You need to know to what extent it works in conditions close to what Coskata is proposing. Has it been tested under these conditions? For how long? What were the results? What were the key challenges? How accurately were the energy inputs measured? In fact, I would probably want to park myself in their labs for a few days, and spend a lot of time talking to technicians. I would want to know – outside of the tours – what’s really going on.

Second, I would really focus in on the logistics issue. I would want some serious details on how they are proposing to handle the logistics. How is the biomass going to come into the plant? Has a calculation been done on how far away something can be transported before it becomes break even on the energy? If it is waste biomass already coming into a point source, then it isn’t as big an issue. But then I would ask if there is any location in the U.S. that is handling a million tons of waste biomass at a point source (which the gasification plant would be). I would want to see actual examples of someone handling this much biomass.

Finally, I would go over that $400 million capital estimate with a fine-toothed comb. I would ask for an example of any technology that has been piloted in the lab, and then had an accurate capital estimate done at a scale of tens of thousands of times larger than the lab scale. As I have said before, you have different problems at a pilot scale than you had at the lab scale, and the problems become even bigger at commercial scale. The capital estimate is already $400 million for a 100 million gallon per year plant – $61,000 per daily barrel. That puts it at a disadvantage to GTL or corn ethanol. Why wouldn’t I expect that capital estimate to climb as they gain piloting experience? Why would I expect them to stick with biomass, when the logistics of gasifying (partially oxidizing) natural gas are trivial when contrasted with biomass logistics?

At least that’s what I would do. But then again, I am notoriously frugal with money, and perpetually skeptical on top of that. If you are a gambler, then you may want to adopt a different strategy.

Note: As always, if you spot an error, let me know and I will gladly correct it.

August 25, 2008 Posted by | Coskata | 116 Comments