Venture capitalist predicts
While I’m turning over the microphone to Vinod Khosla, he also sent along his thoughts on the prospects for alternative fuels and clean tech in 2007. Lots of interesting and contestable stuff therein. It’s below the fold; have at it.
- Cellulosic plants are real — at least six in construction
- Tariffs on their way out — global market for ethanol
- Congress sets much more aggressive RFS for ethanol — all the 2008 presidential candidates adopt an ethanol friendly policy
- Next generation fuels (like butanol) and energy crops get attention
- Renewable power
- Photovoltaics and wind continue their march
- Solar thermal technology starts to dispel the myth that coal is the cheapest long term central “utility grade” power source
- Risks around coal based power generation
- Supply, costs, regulatory risks, carbon costs start to shake investor confidence in new coal power plants
- Calif. AB32 and similar state regulations start to stem the “coal rush”
- Carbon dioxide gets classified as a pollutant by the U.S. Supreme Court
- Venture capital in cleantech goes through the roof
- First cellulosic technology IPO set for 2008
- Private equity and hedge funds starts participating in biofuels
- First “high profile” startups in “efficiency”
- Green homes become visible as “real alternatives” at moderate cost
- Startups start in new renewable materials
Biggest trend in ’07?
There are a few major areas: biofuels to replace oil, replacement of coal with clean coal, wind and solar, new renewable materials, and efficiency. The pace of progress in each of these areas cannot be predicted a priori.
I suspect this will be the year of cellulosic ethanol. Biodiesel is a good product but fundamentally non-scalable unless it can be made form biomass instead of the seed product. Ethanol has had a good start and it will transition quickly to mostly cellulosic based production. But I suspect new fuels like butanol will come along, produced from the same biomass, brewed in the same fermenters, and running in the same flex-fuel engines. I would not be surprised to see bio-gasoline either, made initially from corn and later from biomass.
But 2007, we will see the emergence of cellulosic ethanol as a reality and biofuels moving from their role as an additive to gasoline to a primary fuel for automobiles. At the same time you will see critics, often funded by the petroleum interests, increase their attacks on biofuels through surreptitious PR campaigns, while publicly supporting these renewable fuels. We might even see oil prices manipulated down to thwart this transition which is essential for our planet, for our national security, and probably for increased global harmony. You will see the naïve campaigns of people with fancy names like the Earth Policy Institute which intentionally appear to use bad data or ridiculous assumptions but make good press headlines, move to attacking cellulosic ethanol.
We will soon see the end of tariffs and protectionism, global markets, and aggressive adoption of these new fuels. Why should we tariff biofuels when we don’t tariff oil? And despite popular belief, oil gets more subsidies than ethanol!
On the coal front, we will continue to see a push for “clean coal” as a way for a few of the traditional power generation firms to delay action. There are electric utilities like PG&E in California and Duke Energy that are proactively looking at real clean coal efforts as well as all other forms of clean power, especially wind and solar. We will see a serious division between these two types of utilities, one trying to start coal plants and hoping to use political lobbying to grandfather their carbon emission and count them as an “asset," while the more progressive firms will try and use the cleanest technologies and push for treating carbon emission as a liability. Clearly we want to support the Dukes and PG&Es of the world and not punish them just because they have been investing in cleaner power.
On the technology side, we will see a horse race between clean coal, solar thermal (not photovoltaic), and wind for central utility-grade power generation. I would personally handicap this in favor of solar thermal power because it can be stored easily as heat and is half the cost of solar photovoltaic and is dispatchable by the utility when it is needed, unlike wind power which must be used when the wind blows. Heat is much cheaper to store than electricity and that gives solar thermal technologies (often called CSP for concentrated solar power) a big leg up over wind and photovoltaic.
Contrary to popular belief, I suspect we will find that clean coal plants (often called IGCC plants with carbon capture and sequestration) will prove to be too unreliable and the cost of gasification of coal (the G in IGCC), the separation of carbon dioxide from the waste gases, and compression too high. Liquefaction, handling, and eventually underground storage in large reservoirs will be so expensive that it is likely that solar thermal technologies will win the cost race. The financial risk of building a fifty year lifetime coal plant will become much more visible in 2007, and utilities that are doing it will see their stock suffer as investors recognize this risk fully! You have got to be crazy to build a fifty year asset with the escalating risk of environmental regulations and the certainty of carbon pricing at some point which will triple the effective price of coal. It will be much like all the gas plants built in the last decade that are already uneconomic. Besides, all the renewable portfolio standards (RPS) will make it where you can’t produce coal-based electricity and sell it. Already California has a law requiring 33% of the power be renewable by 2020! The eastern states have their own renewable goals. The RPS standards are spreading like wildfire.
On materials and efficiency, I suspect in 2007 we will see new startups with great ambitions. I suspect that story will take a bit longer to become part of the mainstream discussions. I wish this would happen faster. We might see talk of “stored wind,” which is key to increasing its use. We will see higher efficiency, new style photovoltaics that don’t depend on silicon. They will need to get to mass produced technologies and 30% efficiency to really explode in the marketplace. That is entirely possible with thin film multi-junction approaches.
What will Congressional/presidential candidates will do before ’08 election?
The biggest leverage for biofuels will come from the relatively similar positions of all the presidential candidates for 2008. Most of the rumored candidates already support an aggressive biofuels policy, as does the Democratic majorities in the house and the Senate, and the Bush administration. The winds are in favor of major progress in the biofuels arena nationally and globally.
What kind of alternative-fuel vehicles will we see this year? What will be the biggest money makers, or areas of heaviest investment in venture capital this year, including in clean tech?
I suspect we will see rapid adoption of the flex-fuel model and initial plans for flex-fuel hybrid cars. That is the right strategy for automakers, consumers, and the country, as it gives consumers a fuel choice and leverages hybrid technology to improve efficiency. If we have a battery breakthrough in the next few years we will see this model get adopted quickly. If we don’t see a breakthrough — and we need a five fold improvement in price performance of batteries — hybrids will grow more slowly because of the increased cost of hybrids. They will in the near term cost $3000-$5000 more than their conventional cousins.
Green Home. Will it be brought to us by the Home Depot/Lowe’s of the world? What will it look like and who will profit — other than mother nature?
We have invested in Living Homes, which has built the first LEED Platinum high-end designer home, factory manufactured, and installed on site at mid-end cost. I suspect we will see many more similar efforts. Eventually these might come from Home Depot, but I suspect in the short run we will see new manufacturers and home builders dominate this exciting prefab space. Prefab will no longer be associated with low-end homes. Now most Americans can own a prefab Maya Lin home!