R-Squared Energy Blog

Pure Energy

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?

Electric Vehicle Update

In 2009 and 2010 we should see a lot of hybrids and fully electric cars hitting the roads. I spent a little time this weekend reviewing the potential offerings. Here is where some of the more frequently-mentioned offerings stand.

1. The Aptera 2e

The Aptera 2e

This is probably the most unusual offering. I first mentioned the Aptera in a story last year, and the roll-out is still on target for Q4 of this year. It is a 3-wheeled vehicle, made of light-weight composites. The shape is very aerodynamic to minimize wind resistance. The batteries recharge in 8 hours, and the car reportedly has a range of 100 miles. The cost is going to be in the range of $30,000, and the company reports that they already have deposits down for 4,000 vehicles.

The company has put together a veteran team, and by all appearances they are building an impressive car. Road and Track recently got an exclusive look:

Exclusive: Aptera 2e

Some excerpts:

The business model looks sound; nearly 4000 deposits have been placed (Robin Williams among the clientele), enthusiastic investors are locked in, and co-founders Steve Fambro and Chris Anthony have assembled a team that balances Detroit low-volume niche-production experience with California “anything is possible” attitude. Chief engineer Tom Reichenbach was formerly vehicle engineering manager for both Ford GT and Shelby GT500 programs; and CEO Paul Wilbur has a storied history at Ford, Chrysler and ASC. And Fambro, a biotech engineer and private pilot intrigued by his aircraft’s composite construction, and Anthony, a composites specialist with a background in boat design and fluid dynamics, seemed predestined for this partnership.

There’s a large hooded digital speedometer and bar-graph battery state-of-charge indicator, along with a central infotainment screen that offers mind-boggling possibilities. Leg- and head room were surprisingly generous for even my 6-foot-3 frame. And safety is preeminent in the Aptera’s design — the final version will have both frontal and side airbags. And if there was any doubt about the strength of the composite construction, it was quelled as eight Aptera employees stood on the roof of a development shell. And that was after the shell had gone through government roof-crush testing!

The car will initially be available only in California, but I will be watching closely to see how well it sells. Will it be accepted by the public? I have given thought to how I would feel about driving one around. I think the police would pull you over a lot, thinking the car isn’t street legal. Regardless, I am certainly rooting for it to be a success.

2. The Ford Fusion

The big news over the past week is that the Ford Fusion has been put to the test, and three major publications concluded that it was the best hybrid yet built. Yes, better than the Toyota Prius, which has been the most popular hybrid for many years. USA Today writes:

The 2010 Ford Fusion hybrid is the best gasoline-electric hybrid yet. What makes it best is a top-drawer blend of an already very good midsize sedan with the industry’s smoothest, best-integrated gas-electric power system. It’s so well-done that you have to look to the $107,000 Lexus LS 600h hybrid to come close.

U.S. News and World Reports says:

If you’re in the market for an ultra fuel-efficient hybrid that makes a convincing family sedan, your best choice has always been a Toyota — until now. Toyota’s Camry Hybrid and Prius have been the only realistic alternatives for many. Most American-built hybrids simply haven’t matched their fuel economy, and the Nissan Altima Hybrid remains rare and hard to find.

The Fusion Hybrid qualifies for a federal tax credit of $3,400 until the end of March, but few of the cars will reach dealerships by then – if you’re in the market, you might want to consider ordering yours before the credit disappears. If any Ford product has your eye, you should be aware that Ford is offering some of the deepest discounts we’ve seen in years this month.

Finally, Car and Driver had this to say:

Ford has pulled off a game changer with this 2010 model, creating a high-mpg family hauler that’s fun to drive. That achievement has two components: First, the machinery is unexpectedly refined—call it Toyota slickness expressed with car-guy soul. Second, the electronic instrument cluster involves the driver, invites you into the hybrid game, and gives you the feedback needed to keep increasing your personal-best mpg number.

I have to say this is quite an exciting development. I am now in my 12th month without a car, but it may be time to go ahead and purchase one. Given that I could get the tax credit if I order by the end of March, I may go ahead and pull the trigger.

3. The Chevy Volt

GM’s Chevy Volt

First announced in 2007, the Chevy Volt looks to finally make an appearance in late 2010 (although 2011 won’t be a surprise). Per GM’s website:

The Extended-Range Electric Vehicle that is redefining the automotive world is no longer just a rumor. In fact, its propulsion system is so revolutionary, it’s unlike any other vehicle or electric car that’s ever been introduced. And we’re making this remarkable vision a reality, so that one day you’ll have the freedom to drive gas-free.

Chevy Volt is designed to move more than 75 percent of America’s daily commuters without a single drop of gas.(2) That means for someone who drives less than 40 miles a day, Chevy Volt will use zero gasoline and produce zero emissions.(1)

Unlike traditional electric cars, Chevy Volt has a revolutionary propulsion system that takes you beyond the power of the battery. It will use a lithium-ion battery with a gasoline-powered, range-extending engine that drives a generator to provide electric power when you drive beyond the 40-mile battery range.

So it isn’t a purely electric car, but does have a pretty good battery range for a full-sized car. Plus, there are apparently provisions in the auto bailout that make the Volt eligible for a $7,500 tax credit. But there are certainly skeptics that the Volt will ever live up to the hype.

4. The Tesla Roadster

Speaking of hype, the all-electric Tesla Roadster reminds me of some of the more exotic and overhyped biofuels. We have heard about it forever, but the costs keep going up and the roll-out date for mass production keeps getting pushed out. The price is now up to $109,000, and even though performance reports of the handful that have been built are very impressive, there are serious questions as to whether this experiment will ultimately be successful.

Based on a Lotus platform, and assembled at the Lotus factory in Hethel, England, the Tesla has been mired in controversy throughout its short history. The latest setback was that Tesla lost a legal ruling to up and coming competitor Fisker Automotive, themselves creating a worthy competitor to the Roadster in the Fisker Karma. The Karma is an extended range hybrid that can go 50 miles before the gasoline engine has to kick in. (The Karma is expected to hit the road in 2010).

By all accounts Tesla is building a car with impressive specifications, and they plan to follow the Roadster up with the Tesla Model S that will be quite a bit cheaper than the Roadster. But Tesla has had cash flow problems and has been forced to lay off people. From the various accounts I have read, I don’t expect the Tesla to be in the race in the long run. One website got so tired of the hype that they turned their ‘Tesla birth watch’ into a ‘Tesla death watch.’ Still, I think the company is to be commended for their innovation, and I hope they get the problems worked out. (On an amusing personal note, former CEO Martin Eberhard has reportedly read this blog, and got a kick out of my tangles with Vinod Khosla).

5. Plug-in Toyota Prius

I wanted to limit this list to 5 cars, and there were a number of contenders worth a mention. But I would be remiss not to include the next generation Prius among the list of offerings. While at least one private company has already been modifying the Prius to be a plug-in hybrid, Toyota is working furiously to be the first to put large numbers of plug-in hybrids on U.S. roads. Initially announced for 2010, Toyota has moved up the schedule for the plug-in Prius and plans to have the first 500 on the road by the end of 2009 (150 in the U.S.). The downside is that the first prototypes can only go about 7 miles on battery power alone, which is well-short of the average person’s commute. So you can expect the plug-in Prius to run on gasoline most of the time.

Other Contenders

There are a number of other electric offerings worth a mention. Nissan has announced plans to put electric cars on U.S. roads by 2010. BMW has begun producing all-electric versions of their popular Mini Cooper, and so far can’t keep up with demand. ZAP is putting a sporty 3-wheeled electric car out (the Alias), along with offerings such as an electric truck and sedan. The Alias can reportedly go 100 miles on a charge.

Finally, Toronto-based Zenn Motor Company says they will put an electric car on the roads in 2009. This one is particularly noteworthy because of their intention to use EEStor’s ultracapacitor to power the vehicle. EEStor claims that their ultracapacitor is 1/10th the weight and volume of conventional battery technology. While potentially a game-changer, many feel that EEStor is a classic case of vaporware, and many capacitor experts say that it will never see the light of day. In response, Zenn says that their electric vehicles are not contingent upon the success of the ultracapacitor. And in fact, according to their website I can buy an all-electric Zenn vehicle here in the Dallas area right now. There are two dealers to choose from in the Dallas-Fort Worth area, and one of the dealers claims a 260 mile range on a single charge. I think I will try to make a trip down to see if they really have something in stock.

Conclusion

Based on the large number of electric offerings to be rolled out over the next two years, I would be surprised if some don’t stick around for the long run. A return to $4.00 gasoline should accelerate public acceptance of electric vehicles. The Aptera looks like a winner, provided buyers embrace the futuristic design. The Ford Fusion hybrid also looks like it is ready to make major inroads into the market share of the Toyota Prius. And don’t be surprised to see lots of electric Mini Coopers showing up on the roads soon. Now I just need to figure out if I am ready to be a part of the experiment and buy one of these vehicles.

February 16, 2009 Posted by | Aptera, Chevy Volt, Ford, General Motors, Nissan, Prius, Tesla Motors | 36 Comments

Electric Vehicle Update

In 2009 and 2010 we should see a lot of hybrids and fully electric cars hitting the roads. I spent a little time this weekend reviewing the potential offerings. Here is where some of the more frequently-mentioned offerings stand.

1. The Aptera 2e

The Aptera 2e

This is probably the most unusual offering. I first mentioned the Aptera in a story last year, and the roll-out is still on target for Q4 of this year. It is a 3-wheeled vehicle, made of light-weight composites. The shape is very aerodynamic to minimize wind resistance. The batteries recharge in 8 hours, and the car reportedly has a range of 100 miles. The cost is going to be in the range of $30,000, and the company reports that they already have deposits down for 4,000 vehicles.

The company has put together a veteran team, and by all appearances they are building an impressive car. Road and Track recently got an exclusive look:

Exclusive: Aptera 2e

Some excerpts:

The business model looks sound; nearly 4000 deposits have been placed (Robin Williams among the clientele), enthusiastic investors are locked in, and co-founders Steve Fambro and Chris Anthony have assembled a team that balances Detroit low-volume niche-production experience with California “anything is possible” attitude. Chief engineer Tom Reichenbach was formerly vehicle engineering manager for both Ford GT and Shelby GT500 programs; and CEO Paul Wilbur has a storied history at Ford, Chrysler and ASC. And Fambro, a biotech engineer and private pilot intrigued by his aircraft’s composite construction, and Anthony, a composites specialist with a background in boat design and fluid dynamics, seemed predestined for this partnership.

There’s a large hooded digital speedometer and bar-graph battery state-of-charge indicator, along with a central infotainment screen that offers mind-boggling possibilities. Leg- and head room were surprisingly generous for even my 6-foot-3 frame. And safety is preeminent in the Aptera’s design — the final version will have both frontal and side airbags. And if there was any doubt about the strength of the composite construction, it was quelled as eight Aptera employees stood on the roof of a development shell. And that was after the shell had gone through government roof-crush testing!

The car will initially be available only in California, but I will be watching closely to see how well it sells. Will it be accepted by the public? I have given thought to how I would feel about driving one around. I think the police would pull you over a lot, thinking the car isn’t street legal. Regardless, I am certainly rooting for it to be a success.

2. The Ford Fusion

The big news over the past week is that the Ford Fusion has been put to the test, and three major publications concluded that it was the best hybrid yet built. Yes, better than the Toyota Prius, which has been the most popular hybrid for many years. USA Today writes:

The 2010 Ford Fusion hybrid is the best gasoline-electric hybrid yet. What makes it best is a top-drawer blend of an already very good midsize sedan with the industry’s smoothest, best-integrated gas-electric power system. It’s so well-done that you have to look to the $107,000 Lexus LS 600h hybrid to come close.

U.S. News and World Reports says:

If you’re in the market for an ultra fuel-efficient hybrid that makes a convincing family sedan, your best choice has always been a Toyota — until now. Toyota’s Camry Hybrid and Prius have been the only realistic alternatives for many. Most American-built hybrids simply haven’t matched their fuel economy, and the Nissan Altima Hybrid remains rare and hard to find.

The Fusion Hybrid qualifies for a federal tax credit of $3,400 until the end of March, but few of the cars will reach dealerships by then – if you’re in the market, you might want to consider ordering yours before the credit disappears. If any Ford product has your eye, you should be aware that Ford is offering some of the deepest discounts we’ve seen in years this month.

Finally, Car and Driver had this to say:

Ford has pulled off a game changer with this 2010 model, creating a high-mpg family hauler that’s fun to drive. That achievement has two components: First, the machinery is unexpectedly refined—call it Toyota slickness expressed with car-guy soul. Second, the electronic instrument cluster involves the driver, invites you into the hybrid game, and gives you the feedback needed to keep increasing your personal-best mpg number.

I have to say this is quite an exciting development. I am now in my 12th month without a car, but it may be time to go ahead and purchase one. Given that I could get the tax credit if I order by the end of March, I may go ahead and pull the trigger.

3. The Chevy Volt

GM’s Chevy Volt

First announced in 2007, the Chevy Volt looks to finally make an appearance in late 2010 (although 2011 won’t be a surprise). Per GM’s website:

The Extended-Range Electric Vehicle that is redefining the automotive world is no longer just a rumor. In fact, its propulsion system is so revolutionary, it’s unlike any other vehicle or electric car that’s ever been introduced. And we’re making this remarkable vision a reality, so that one day you’ll have the freedom to drive gas-free.

Chevy Volt is designed to move more than 75 percent of America’s daily commuters without a single drop of gas.(2) That means for someone who drives less than 40 miles a day, Chevy Volt will use zero gasoline and produce zero emissions.(1)

Unlike traditional electric cars, Chevy Volt has a revolutionary propulsion system that takes you beyond the power of the battery. It will use a lithium-ion battery with a gasoline-powered, range-extending engine that drives a generator to provide electric power when you drive beyond the 40-mile battery range.

So it isn’t a purely electric car, but does have a pretty good battery range for a full-sized car. Plus, there are apparently provisions in the auto bailout that make the Volt eligible for a $7,500 tax credit. But there are certainly skeptics that the Volt will ever live up to the hype.

4. The Tesla Roadster

Speaking of hype, the all-electric Tesla Roadster reminds me of some of the more exotic and overhyped biofuels. We have heard about it forever, but the costs keep going up and the roll-out date for mass production keeps getting pushed out. The price is now up to $109,000, and even though performance reports of the handful that have been built are very impressive, there are serious questions as to whether this experiment will ultimately be successful.

Based on a Lotus platform, and assembled at the Lotus factory in Hethel, England, the Tesla has been mired in controversy throughout its short history. The latest setback was that Tesla lost a legal ruling to up and coming competitor Fisker Automotive, themselves creating a worthy competitor to the Roadster in the Fisker Karma. The Karma is an extended range hybrid that can go 50 miles before the gasoline engine has to kick in. (The Karma is expected to hit the road in 2010).

By all accounts Tesla is building a car with impressive specifications, and they plan to follow the Roadster up with the Tesla Model S that will be quite a bit cheaper than the Roadster. But Tesla has had cash flow problems and has been forced to lay off people. From the various accounts I have read, I don’t expect the Tesla to be in the race in the long run. One website got so tired of the hype that they turned their ‘Tesla birth watch’ into a ‘Tesla death watch.’ Still, I think the company is to be commended for their innovation, and I hope they get the problems worked out. (On an amusing personal note, former CEO Martin Eberhard has reportedly read this blog, and got a kick out of my tangles with Vinod Khosla).

5. Plug-in Toyota Prius

I wanted to limit this list to 5 cars, and there were a number of contenders worth a mention. But I would be remiss not to include the next generation Prius among the list of offerings. While at least one private company has already been modifying the Prius to be a plug-in hybrid, Toyota is working furiously to be the first to put large numbers of plug-in hybrids on U.S. roads. Initially announced for 2010, Toyota has moved up the schedule for the plug-in Prius and plans to have the first 500 on the road by the end of 2009 (150 in the U.S.). The downside is that the first prototypes can only go about 7 miles on battery power alone, which is well-short of the average person’s commute. So you can expect the plug-in Prius to run on gasoline most of the time.

Other Contenders

There are a number of other electric offerings worth a mention. Nissan has announced plans to put electric cars on U.S. roads by 2010. BMW has begun producing all-electric versions of their popular Mini Cooper, and so far can’t keep up with demand. ZAP is putting a sporty 3-wheeled electric car out (the Alias), along with offerings such as an electric truck and sedan. The Alias can reportedly go 100 miles on a charge.

Finally, Toronto-based Zenn Motor Company says they will put an electric car on the roads in 2009. This one is particularly noteworthy because of their intention to use EEStor’s ultracapacitor to power the vehicle. EEStor claims that their ultracapacitor is 1/10th the weight and volume of conventional battery technology. While potentially a game-changer, many feel that EEStor is a classic case of vaporware, and many capacitor experts say that it will never see the light of day. In response, Zenn says that their electric vehicles are not contingent upon the success of the ultracapacitor. And in fact, according to their website I can buy an all-electric Zenn vehicle here in the Dallas area right now. There are two dealers to choose from in the Dallas-Fort Worth area, and one of the dealers claims a 260 mile range on a single charge. I think I will try to make a trip down to see if they really have something in stock.

Conclusion

Based on the large number of electric offerings to be rolled out over the next two years, I would be surprised if some don’t stick around for the long run. A return to $4.00 gasoline should accelerate public acceptance of electric vehicles. The Aptera looks like a winner, provided buyers embrace the futuristic design. The Ford Fusion hybrid also looks like it is ready to make major inroads into the market share of the Toyota Prius. And don’t be surprised to see lots of electric Mini Coopers showing up on the roads soon. Now I just need to figure out if I am ready to be a part of the experiment and buy one of these vehicles.

February 16, 2009 Posted by | Aptera, Chevy Volt, Ford, General Motors, Nissan, Prius, Tesla Motors | 36 Comments

Nobody Wants Small Cars

I reported on it last week in How Quickly We Forget, but the Houston Chronicle yesterday reiterated the point the people are reverting to bad habits:

GM exec complains ‘nobody wants’ small cars now

General Motors Corp. Vice Chairman Robert Lutz said lower fuel prices are discouraging U.S. sales of small cars and gasoline-electric hybrid vehicles.

Gasoline prices “are completely messing it up,” Lutz said today in a Bloomberg interview, referring to demand for small vehicles. “Nobody wants them.”

Lutz endorses the same fix that I have proposed:

Lutz drew parallels to government cigarette taxes that pushed the price of a carton to more than $20.

“That’s the way the market mechanisms work,” he said. “Guess what, cigarettes are so expensive that people weaned themselves off.”

While I of course strongly agree that price is the mechanism that moves people to action (or inaction), there is a bit of irony in that statement, given that the market mechanism currently has Lutz and his fellow automakers asking the government for a big bailout.

January 14, 2009 Posted by | gas tax, General Motors | 60 Comments

Coskata: Dead Man Walking

Since the Coskata announcement that they were going to be able to produce ethanol for “under US $1.00 a gallon anywhere in the world” – documented here – I have gotten a number of requests for comments on the technology. After all, GM is on board! GM can’t be wrong, can they? Vinod Khosla’s enthusiasm couldn’t be misplaced either, could it? After crunching the numbers, my conclusion is that not only is this not the ‘slam dunk’ that is being projected, you probably have a better chance of hitting a blindfolded shot from mid-court than Coskata has of producing cost-competitive ethanol.

What leads me to this conclusion? Earlier today I provided some extensive analysis for someone, so I thought I would share it. I am naturally skeptical any time a company comes on the scene and claims – with no operating experience – they can do what Coskata claims (which is also something nobody else has been able to demonstrate). But I also believe in analyzing claims to the greatest extent possible to see if there is anything there. Sometimes this analysis involves reading through patents. Sometimes it involves crunching publicly available information. That’s what I will do in this case.

The source of the numbers is the following article, but is also available elsewhere:

Coskata Picks Pennsylvania for Pilot Plant

There are several pieces of data that are important to note:

Earlier this month, the company told Greentech Media that it already had begun building the 40,000-gallon-per-year plant…

Coskata said the project will cost $25 million, and will be located at the site of a pilot-plant gasifier owned and operated by Westinghouse Plasma Corp., a wholly owned subsidiary of Alter Nrg Corp.

They are building a 40,000 gallon per year pilot plant, which is about 2.6 barrels of ethanol a day. (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).

Note that the site already has a gasifier, which is one of the most expensive pieces of kit in a gasification plant. Yet the cost is still $25 million – for something that will produce less than 3 barrels a day. Now, take a good look at the graphic below:

Capital Costs of Fuel Facilities
Source: EIA Annual Energy Outlook 2006

Note that the capital costs for a corn ethanol plant are around $25,000 per daily barrel of production. (Caveats are that the graphic is for full-sized plants, and the numbers are a couple of years old). How does this compare to the Coskata announcement? If we look at the 2.6 barrels a day they are planning to produce – and the $25 million price tag – we find that the capital cost per daily barrel is $9.6 million per daily barrel. That is almost 400 times the cost of a corn ethanol plant, and 150 times the per daily barrel cost of a recently announced Neste biodiesel plant.

Of course this is pilot scale, but the capital costs would have to go down by a factor of 100 before they could even start to get competitive – and remember they haven’t even charged the gasifier to the project! To put this all into perspective ConocoPhillips built a 400 barrel per day GTL pilot plant (Coskata is also GTL, but the “L” is going to be ethanol instead of diesel) for $75 million. The cost of that facility was $188,000 per daily barrel – and those economics weren’t good enough to justify scaling up to commercial size.

One final thing I would point out is that the selectivity of these processes generally favors methanol over ethanol. They may be able to push the selectivity toward ethanol, but they will almost certainly end up producing mixed alcohols that will have to undergo purification to ethanol.

The technology will either need a drastic redirection or this is a dead end. Even with a drastic redirection, the present cost that is two orders of magnitude too high to be competitive says that over-hyped Coskata is quite a long-shot to make it to commercial production. Of course with large enough subsidies almost anything is possible.

My prediction? 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. There will be the normal litany of excuses – such as ‘the oil companies are suppressing the technology’ – but in the end the chemistry, physics, and most importantly the capital costs and logistical challenges will catch up with them. Yes, excuses will be made, but those who know a little about the technology will know what really happened. It’s going to be TDP all over again.

August 17, 2008 Posted by | Coskata, ethanol production, General Motors, Vinod Khosla | 95 Comments

Coskata: Dead Man Walking

Since the Coskata announcement that they were going to be able to produce ethanol for “under US $1.00 a gallon anywhere in the world” – documented here – I have gotten a number of requests for comments on the technology. After all, GM is on board! GM can’t be wrong, can they? Vinod Khosla’s enthusiasm couldn’t be misplaced either, could it? After crunching the numbers, my conclusion is that not only is this not the ‘slam dunk’ that is being projected, you probably have a better chance of hitting a blindfolded shot from mid-court than Coskata has of producing cost-competitive ethanol.

What leads me to this conclusion? Earlier today I provided some extensive analysis for someone, so I thought I would share it. I am naturally skeptical any time a company comes on the scene and claims – with no operating experience – they can do what Coskata claims (which is also something nobody else has been able to demonstrate). But I also believe in analyzing claims to the greatest extent possible to see if there is anything there. Sometimes this analysis involves reading through patents. Sometimes it involves crunching publicly available information. That’s what I will do in this case.

The source of the numbers is the following article, but is also available elsewhere:

Coskata Picks Pennsylvania for Pilot Plant

There are several pieces of data that are important to note:

Earlier this month, the company told Greentech Media that it already had begun building the 40,000-gallon-per-year plant…

Coskata said the project will cost $25 million, and will be located at the site of a pilot-plant gasifier owned and operated by Westinghouse Plasma Corp., a wholly owned subsidiary of Alter Nrg Corp.

They are building a 40,000 gallon per year pilot plant, which is about 2.6 barrels of ethanol a day. (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).

Note that the site already has a gasifier, which is one of the most expensive pieces of kit in a gasification plant. Yet the cost is still $25 million – for something that will produce less than 3 barrels a day. Now, take a good look at the graphic below:

Capital Costs of Fuel Facilities
Source: EIA Annual Energy Outlook 2006

Note that the capital costs for a corn ethanol plant are around $25,000 per daily barrel of production. (Caveats are that the graphic is for full-sized plants, and the numbers are a couple of years old). How does this compare to the Coskata announcement? If we look at the 2.6 barrels a day they are planning to produce – and the $25 million price tag – we find that the capital cost per daily barrel is $9.6 million per daily barrel. That is almost 400 times the cost of a corn ethanol plant, and 150 times the per daily barrel cost of a recently announced Neste biodiesel plant.

Of course this is pilot scale, but the capital costs would have to go down by a factor of 100 before they could even start to get competitive – and remember they haven’t even charged the gasifier to the project! To put this all into perspective ConocoPhillips built a 400 barrel per day GTL pilot plant (Coskata is also GTL, but the “L” is going to be ethanol instead of diesel) for $75 million. The cost of that facility was $188,000 per daily barrel – and those economics weren’t good enough to justify scaling up to commercial size.

One final thing I would point out is that the selectivity of these processes generally favors methanol over ethanol. They may be able to push the selectivity toward ethanol, but they will almost certainly end up producing mixed alcohols that will have to undergo purification to ethanol.

The technology will either need a drastic redirection or this is a dead end. Even with a drastic redirection, the present cost that is two orders of magnitude too high to be competitive says that over-hyped Coskata is quite a long-shot to make it to commercial production. Of course with large enough subsidies almost anything is possible.

My prediction? 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. There will be the normal litany of excuses – such as ‘the oil companies are suppressing the technology’ – but in the end the chemistry, physics, and most importantly the capital costs and logistical challenges will catch up with them. Yes, excuses will be made, but those who know a little about the technology will know what really happened. It’s going to be TDP all over again.

August 17, 2008 Posted by | Coskata, ethanol production, General Motors, Vinod Khosla | 19 Comments

SUV for Sale: Cheap!

Some of the consequences of very high oil prices are pretty predictable. Homes way out in the suburbs are likely to lose value. Prices will rise across the board for goods and services. Airlines will struggle. And gas guzzlers will be much less attractive:

Gas costs deflate prices on used SUVs

High fuel prices are causing the value of used SUVs to plummet, often below what’s listed in the buying guides many shoppers use to negotiate with dealers. “The dealer is going to offer a price, and the customer is going to be ticked off,” says Tom Webb, chief economist for Manheim, operators of auctions where car dealers buy their used-vehicle inventories. “The guidebooks have not caught up to the market,” he says.

Webb’s figures show wholesale prices on big SUVs such as Chevrolet Tahoes, Ford Expeditions and Toyota Sequoias are down 17% from a year ago. Full-size pickups have fallen as much as 15%, Webb says.

Even though plunging values should make used SUVs bargains for buyers less concerned about fuel prices, that doesn’t seem to be happening. Used SUVs languished unsold an average 66.4 days last month, up from 48.6 days the year before, says CNW Marketing Research. “There are far more truck-based SUVs being traded in than customers to buy them,” says Mike Jackson, CEO of AutoNation, the largest new-car dealer chain.

Your Prius or Jetta TDI on the other hand? I may start buying up some of those as speculative investments. If people are trading in their SUVs, there is going to be a run on more fuel efficient cars – and they should hold their value, if not trade at a premium.

People have asked me for several years what I thought was going to happen with gas prices. I always tell them that the long-term trend is much higher, and you should plan accordingly. I have warned friends and family to embrace fuel efficiency, and I have tried to preach that message here. Now that gas prices are really hitting people in the pocketbook, looks like they are finally getting the message. But like many caught in the housing bubble, they waited a little too long and lost a lot of money. The lesson here? Pay attention to what I am telling you. Do you hear that, Mom? 🙂

May 10, 2008 Posted by | auto industry, Ford, fuel efficiency, General Motors, Prius | 14 Comments

Toyota Promises Plug-in Hybrid

Move over, Chevy Volt. You have some very serious competition:

Toyota Will Offer a Plug-In Hybrid by 2010

DETROIT — The Toyota Motor Corporation, which leads the world’s automakers in sales of hybrid-electric vehicles, announced Sunday night that it would build its first plug-in hybrid by 2010.

The move puts Toyota in direct competition with General Motors, which has announced plans to sell its own plug-in hybrid vehicle, the Chevrolet Volt, sometime around 2010.

Katsuaki Watanabe, the president of Toyota, announced the company’s plans at the Detroit auto show as part of a series of environmental steps.

Mr. Watanabe said Toyota, best known for its Prius hybrid car, would develop a fleet of plug-in hybrids that run on lithium-ion batteries, instead of the nickel-metal hydride batteries that power the Prius and other Toyota models.

Given Toyota’s experience, my money is on them to deliver before GM has the Volt ready for the mass market.

Despite its decision to step up its plug-in hybrid development, Toyota is not sure how much more consumers will want to pay for it, Mr. Lentz said. The Prius starts at $21,100. Some after-market companies are charging nearly that much to convert Prius models into plug-ins, he said.

Given that, it is more likely that Toyota would offer plug-in technology as an option on the Prius, at least in the short term, rather than switch all of its hybrids to plug-in models.

Ultimately, Toyota must determine “do people want to plug in their car?” Ms. Chitwood said.

Yes, I want the plug in my car! Sign me up. And as long as gas prices continue to stay high – which I think they will – a lot of others will sign up as well.

January 14, 2008 Posted by | auto industry, Chevy Volt, General Motors, phev, Toyota | 33 Comments

GM Drops the V8; WSJ on $100 Oil

GM Drops the V8

This is pretty significant in my opinion:

GM Drops V-8 Engine on Rising Fuel Prices, Regulation

Jan. 3 (Bloomberg) — General Motors Corp., the world’s largest automaker, canceled a $300 million program to build an advanced V-8 engine for luxury vehicles, citing rising oil prices and tighter U.S. fuel economy restrictions.

“We have seen a declining demand for V-8 engines as fuel prices have risen,” GM spokeswoman Sharon Basel said today. New requirements for carmakers to boost average mileage 40 percent by 2020 also figured in the decision, she said.

GM is trying to shed its reputation for gas-guzzling vehicles as it loses sales to Toyota Motor Corp. and its fuel- sipping Prius, a gasoline-electric hybrid. Eight-cylinder engines, used mainly for high-performance sedans, large pickup trucks and sport-utility vehicles, get lower mileage than conventional four- and six-cylinder engines.

“That’s maybe the first volley in what’s starting to look like this brave new world,” said Jack Nerad, executive industry analyst for Irvine, California-based Kelley Blue Book, in an interview today. “Perhaps they looked at the implications of the new energy bill that just passed and saw the writing on the wall.”

So, something positive has already come out of the new CAFE regulations. Definitely a step in the right direction.

WSJ on $100 Oil

One of the things that is often unmentioned when we discuss current oil prices is the giant transfer of wealth from the U.S. to a lot of countries that dislike the U.S. The Wall Street Journal reported on this today:

Oil Hits $100, Jolting Markets

The surging price of oil, from just over $10 a barrel a decade ago to $100 yesterday, is altering the wealth and influence of nations and industries around the world.

The long oil-price boom is posing wrenching challenges for the world’s poorest nations, while enriching and emboldening producers in the Middle East, Russia and Venezuela. Their increasing muscle has a flip side: a decline of U.S. clout in many parts of the world.

The article is pretty long, but one section is devoted to this transfer of wealth:

Oil’s run-up is bringing the most startling changes of all to the Middle East. Big producers like Saudi Arabia and the United Arab Emirates are using their billions in profits to build their economies with roads, schools, airports and entire new cities. The value of hydrocarbon exports from the Middle East and Central Asia is expected to approach $750 billion this year, almost four times the level in 2001, according to the International Monetary Fund.

Underscoring the region’s new global financial heft, Abu Dhabi recently swooped to the rescue of Citigroup Inc. with a $7.5 billion cash infusion as it struggled with write-downs from this year’s credit crisis.

Even before that deal, Bahrain, Kuwait, Oman, Saudi Arabia, Qatar and the United Arab Emirates, which includes Abu Dhabi, spent about $124.3 billion in the past three years buying up foreign companies, real estate and other assets, according to London-based Dealogic. One transaction underscores the region’s financial-markets ambitions. Dubai, also part of the UAE, agreed to a complex deal with Nasdaq Stock Market Inc. that essentially gives Dubai major stakes in Nasdaq, the London Stock Exchange and Nordic exchange OMX AB.

This wave of oil wealth is blunting America’s influence. Oil money has galvanized the might of Russia under President Vladimir Putin. He has overseen a dramatic consolidation of power and rollback of democracy in Moscow, while sticking a thumb in the West’s eye on issues ranging from independence for Kosovo to the U.S. bid to build an anti-Iran missile-defense system in Europe.

Surging oil prices have also weakened the Bush administration’s efforts to use financial pressure to get Iran to back off its nuclear program. China, eager to secure all possible access to energy, increasingly is turning to Iran as a trading partner, with oil going east and Chinese technology heading the other way. High oil revenue, meanwhile, has kept the otherwise rickety Iranian economy humming and Iran’s current government firmly in power.

In closing, the size of ExxonMobil is put into perspective:

More than from their bank accounts, national oil companies’ strength stems from their control of resources. Exxon Mobil, with a market capitalization of around $500 billion, is one of the largest and most successful publicly traded companies ever. But there are 12 state-controlled oil companies, such as Saudi Aramco and PetroChina Co., that control more oil reserves.

The article is a good read. I have quoted less than 20% of it. Our political leaders need to sit up and take notice.

January 4, 2008 Posted by | General Motors, wall street journal | 26 Comments