BioCycle September 2009, Vol. 50, No. 9, p. 29
Partner in a leading venture capital firm investing in clean technologies provides an overview for entrepreneurs and visionaries seeking to build great companies.
I AM an investor and entrepreneur with a passion for biomass in all its forms. As a partner with the venture capital firm Kleiner Perkins Caufield & Byers (KPCB), I am involved with three different biomass-related technology investments focused on extracting the energy value from organic waste such as food waste, yard trimmings, wood and municipal solid waste (MSW).
The venture capital industry began investing in biomass, in earnest, five years ago when hype around ethanol and other biobased fuels led to an unsustainable capacity expansion and strained feedstock supplies. This was followed by an era of numerous investments in “second generation” biofuels and chemicals, mostly focused on sugar and syngas platforms or algae. All of these involved some metabolic engineering or related breakthrough energy conversion.
These investments are interesting and worthwhile, but fundamentally challenged. First, in most cases, proprietary feedstock supply chains must be built around these innovations, i.e., thousands of tons of specially cultivated biomass (e.g., energy crops) need to be redirected to wherever the plant is. Second, technology hurdles in yield and selectivity must be overcome where organisms or catalysts are tasked with producing novel output and scaled up from liters to millions of gallons. Third, feedstocks must be pretreated so fickle organisms or unit operations downstream won’t be corrupted. Finally, downstream separations and unit operations like distillation often make the energy balance of these processes unsustainable.
This assessment is not to debate the merit of making these investments. But many very large opportunities, with less structural hurdles, have still gone unexploited and could be developed in parallel for a completely biobased future. The venture capital community should look for opportunities to manage technology risk quickly and deploy systems with limited capital outlay.
ELEMENTS OF COMPELLING TECHNOLOGY
So what does a favorable technology look like? What technology will be successful at getting investment dollars? Perhaps I can outline, for a venture capitalist, what might constitute a compelling biomass technology:
• Scales down and can operate in a distributed manner
• Produces a product that is supply chain compatible, e.g., a grid connection, pipeline access points
• Uses a feedstock that already has a supply chain
• Has a beneficial reuse and is free of harmful contaminants or odors
• Uses available feedstocks of low value and that require minimal pretreatment
• Costs less than $5 million to demonstrate at a semi-commercial scale
• Consumes minimal water and parasitic energy
• Has one step for its primary energy conversion, i.e., one primary unit operation, like an anaerobic digester
• Takes less than six months to build a commercial plant from “shovel in ground”
These constitute rules for a “gut check” on whether a technology is intriguing or not. However this says nothing of the most important factor – the quality and integrity of the management team. Not all technologies can fit into this box, but I think opportunities do exist, particularly with more dollars going towards research and development of biomass energy.
What are the trends and where are the opportunities in the biomass industry? I see three stages – immediate, short-term and long-term.
Immediate opportunities revolve around the organic fractions of MSW. Waste supply chains are compelling, and they exist. In the U.S., there are at least 140 million tons of organic MSW produced annually, not including agricultural residues, manure or primary biosolids. These supply chains are built.
The incumbent technology for the organic fraction in the waste sector is a landfill. A landfill is quite an intriguing technology because it uses the earth as its reactor to process organic fractions – likely the cheapest reactor one can use. However, there must be better and faster ways of extracting energy or compost value from organics.
Many factors could drive change in the waste sector, but the major transformation should be the relative value of carbon (and carbon credits) and renewable energy versus tipping fees. These macro trends combined with some government incentives, perhaps a landfill diversion directive like that enacted in Europe, could lead to an era of deployment of many organics recycling and waste to energy technologies that could transform a major share of the waste management market. The waste industry should be open to these changes because they could double the revenues of the industry when the energy and compost value is added to the tipping fees that drive revenues today.
What is perhaps most intriguing about these technology assets is that while they will start by processing organic wastes, it is clear that they could easily switch or expand capacity to processing highly productive energy crops in 5 to 10 years, once others have built supply chains for them. These supply chains may come from emerging sectors, such as cellulosic ethanol. What has happened in Europe – due to both government incentives and rising energy costs – illustrates the point. While this switch or expansion does depend on the technology used, it seems reasonable to presume that energy conversion processes that use organic waste today could conceivably use energy crops in the future.
I tell my partners at KPCB that biomass is fourth generation solar energy. Capturing solar energy in the form of biomass and using that resource in a distributed way to make energy should be cheaper than solar for many years to come. Even today, after the billions that have been spent, intermittent and unsubsidized solar power costs at least 25 to 30 cents/kilowatt hour. Yet I am aware of distributed biomass gasification systems that can utilize wood chips and make energy for a levelized cost, unsubsidized, of 12 to 13 cents/kilowatt hour with 90 percent availability. While you can’t put biomass gasifiers on your roof, you can certainly put them at industrial sites, landfills, compost plants and other locations. This is a technology that is in Kleiner Perkins investment portfolio.
Wood chips come in different shapes, sizes, levels of moisture and contamination and costs. Given the cost per BTU of wood chips as a feedstock (best guess is $2.50 per mmBTU), an efficient energy conversion process could transform them into useful heat or electricity at costs competitive with other distributed renewable energy systems. Technologies that require creating an enormous supply chain of wood chips in order to produce renewable fuel (e.g., cellulosic ethanol) or energy (e.g., large-scale biomass-fired power plants) aren’t the highest or most efficient use. All efficiencies will likely be used in managing the supply chain.
On the other hand, fitting an energy conversion system into an existing wood supply chain is appealing. It reduces the delivered cost of feedstock to the plant, and the levelized cost of the heat or electricity produced.
Long-term trends and opportunities in the biomass industry point to protein production and global agriculture.
I have seen research that estimates it takes 24MJ of energy and 200,000 liters of water per kilogram of produced beef! Why do we grow tomatoes in Mexico and ship them to New York? Confined animal feeding operations are not practical in an energy conversion sense. The energy input requirements for 1 Kcal of beef is 40 Kcal. Yes, 40 times as much. For pork it is 14 times, for lamb it is 57 times, for chicken it is 4 times and for plant proteins it is 2 times as much. Back when we used to hunt for food and there were less people on the planet, this was not an issue. Is there a better way to grow our protein? Perhaps we can’t all become vegetarians but, realistically, eating less meat is one of the best ways to make an impact on the environment.
There are other ways to make food supply chains more efficient. New hydroponic greenhouse technologies enable crop production in locations where you never thought you could. Energy, carbon dioxide and waste heat can be utilized right on site. More trucks could get off the road. I am a big fan of growing and buying local, using technology of course.
This is the greatest time in history for entrepreneurs in the biomass industry. Rising energy prices, public awareness, technology breakthroughs and carbon credits will make the next 10 years a great time to innovate. I believe that the waste industry is already starting a major transformation. Distributed biomass power technologies are available and should be deployed in the short-term. Over the long-term, we probably need to change the way we grow our food. These changes present opportunities for entrepreneurs willing to take the challenge to innovate and transform biomass in a more efficient way. I encourage everyone associated with these worthwhile pursuits, and hope you will give me a call when you have a great idea.
Amol Deshpande is a Partner with Kleiner Perkins Caufield & Byers in Menlo Park, California. He will expand on the opportunities in his Opening Plenary address at BioCycle’s 9th Annual Conference on Renewable Energy From Organics Recycling (www.biocycleenergy.com).
September 16, 2009 | General
Investing In The Biomass Industry
BioCycle September 2009, Vol. 50, No. 9, p. 29