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Take the example of Agrovida, an MIT spinout. They have a conversion technology that genetically modifies the corn plant with an enzyme which gets switched on when you raise the temperature over about 120 degrees Celsius or so. The benefit: you can more easily digest the whole plant rather than having to harvest the corn separately. You get conversion efficiencies, a simpler conversion process. It's been proven at the lab scale, but in my view they've got to build a pilot plant to prove it works at industrial scale. Who's going to do that? A VC is not going to fund that.
I'm not a big fan of genetically modified crops myself, but you can't dispute that Agrovida's got smart science. The other caveats around GMOs aside, this could be a very good way of producing a more efficient way of getting to ethanol. But the reality is that it's very difficult to get breakthroughs like this out of the lab and into production.
If the VC community isn't naturally structured to be the right partner in building out biofuel plants, how are companies going to get their technologies out?
There are three ways this might happen. First, VCs should team with people who are willing to take project finance risk. There's a bit more of that going on in Europe than there is here in the U.S. Here, the project finance guys are very risk averse. They're used to playing in a different part of the risk equation.
Another way might be to involve some of the fuel majors who are actually willing to embrace ethanol wholeheartedly. Industrial corporates, chemical companies or other energy companies genuinely looking for alternatives might be willing to take on higher risk project financing.
Third, there's the role of government. This week, the Democrats are to begin trying to take a portion of oil subsidies and apply them to renewable energy. There's a lot of precedent for government-funded R&D in oil. That should happen here.
I had a good conversation with Dan Arvizu, director of the National Renewable Energy Laboratory (NREL) just before the holidays. NREL has done some outstanding science in solar and other areas, but Dan readily agreed that NREL could stand to make some big contributions and add a lot of value in process R&D, whether in solar or in the fuel area. He's got programs at NREL already looking at process evolution. And he's spending a lot of time on the hill looking for new money.
That should become a focus, I think, for governmental effort. For example, you could have multi-use plants available to startup entities to do process testing, with NREL specialists to observe and help evolve the process.
Investment in facilities appears to be hurting a lot of the small ethanol companies trying to come up with new patented ways to evolve conventional and cellulosic ethanol processes. The small ones seem hamstrung by having to invest in all this infrastructure.
It's hugely capital expensive. Ideally you want to do that only when you've got your process proven, not have to build a plant to prove it out.
These small companies should be asking, "who's got a plant that I could use?" rather than trying to build it themselves and taking on a severe level of economic risk.
Yes, there's a role for government to get involved in process research here, because it's possible to develop facilities that are highly flexible and reconfigurable that could be used for multiple technologies to be tried out. And large industrial partners, perhaps chemical corporates, should invest in pilot plant R&D labs for proving out cellulosic processes, biodiesel from algae and/or other new approaches.
