The cleantech myth bashing

Vinod Khosla at his buzzkill best. He is beginning to like “black swan solutions” that cause technology shock as he believes that many of the current concepts of cleantech investing are just "greenwashing" and not a solution to the climate issues. He’ll find a lot of backers from among the puritan VCs.

He finds photovoltaic panels in the booming $20 billion PV market are not scalable and not sustainable without subsidies. The Prius Hybrid cars? Not a solution to the energy or the climate problem nor did they meet the Chindia test - since they don’t seem to compete with the $2,500 Tata Nano. He calls hybrids "an inefficient carbon solution". Biodiesel, Clean Coal and Zero Emission Buildings are not the solutions either. Carbon capture and sequestration also do not serve the purpose as they are not economical. Solar PV, wind and biofuels are “little markets”.

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Now wait a minute.... Can they deal with the financial crisis and reduce emissions at the same time? Take the Big Three automakers in Detroit (or its users). Who will expect them to invest in fuel efficient engines as they fast slide into insolvency? Isn’t gas available at $2 a gallon now?

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Makes no sense.How about the VCs that have sunk some real big money? Poor fellas’ they get killed often by the publicity they give themselves. They had better learn to swallow some wily pride. At least it’s non fattening!

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Wanted : Exchange for carbon credits

Now to the latest grouse.

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India, a leading seller of carbon credits under the clean development mechanism (CDM) of the Kyoto protocol on climate change, does not have an internationally-linked domestic exchange for undertaking spot and futures trading in carbon credits. This, as can be imagined, is costing the Indian clean technology-based projects dearly. They are denied full financial benefits from this multi-billion dollar global business that is expanding rather briskly despite being viewed by some as not the ideal way to combat global warming.

In such a plan, a central authority (usually a government agency) sets a limit or cap on the amount of a pollutant that can be emitted. Companies or other groups that emit are required to hold an equivalent number of credits or allowances which represent the right to emit a specific amount. The total amount of credits cannot exceed the cap, limiting total emissions to that level. Companies that need to increase their emissions must buy credits from those who pollute less. The transfer of allowances is referred to as a trade. In effect, the buyer is being fined for polluting, while the seller is being rewarded for having reduced emissions. Thus, in theory, those that can easily reduce emissions most cheaply will do so, achieving the pollution reduction at the lowest possible cost to society.

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Vinod Khosla bets on with clean fuel tech

I had earlier affirmed in my post here how clean fuel technologies are becoming a rage with VCs. That was about VC Vinod Khosla’s investment as a part of $60 m VC round in Celunol, a cellulosic ethanol technology venture based out of Cambridge, Mass and his exit later when Celunol was acquired by biotech company Diversa for $ 182 m.

Now Larry Fisher of NYT reports that Vinod is backing yet another ethanol venture LanzaTech, based in Auckland, Newzealand – that produces ethanol from an untapped source – carbon monoxide gas.

As per report, LanzaTech had developed a fermentation process in which bacteria consume carbon monoxide and produce ethanol. Ethanol can be used as an alternative fuel or an octane-boosting, pollution-reducing additive to gasoline.

Sean Simpson, LanzaTech’s co-founder and chief scientific officer, is reported to have said the company would use the $3.5 million investment from the venture firm, Khosla Ventures, to establish a pilot plant and perform the engineering work to prepare for commercial-scale ethanol production.

Vinod Khosla, a co-founder of Sun Microsystems who formed Khosla Ventures in 2004, has invested in more than a dozen start-ups involved in “clean fuel” technologies. It seems LanzaTech stood out from the scores of proposals he sees each day for both its ability to scale up to industrial proportions and the credibility of the company’s founding scientists.

Regardless of how it is made or what it is made from, ethanol as a fuel has its detractors. Some plastics and rubber materials commonly used in fuel lines are degraded by ethanol, and depending on the blend of ethanol and gasoline, ethanol may raise levels of nitrogen oxides produced. Ethanol also contains less energy than an equivalent amount of gasoline, so mileage may be reduced.

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But then for Vinod Khosla, it's still a weapon to use in the all out war on oil.

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Getting into Forbes Midas List of VCs

Remember Vinod Khosla, co-founder of Sun Microsystems, ( now a Forbes Midas VC focusing on clean energy ventures thro Khosla Ventures ) amongst others ? The Silicon Valley venture capitalist who hit it big during the telecom boom in the 1990s, turned two years ago to embrace green technoloy. Everyone thought his outlandish bets on untested technologies such as celulosic ethanol - which most experts caution will be only be commercially viable in two years, at the earliest — would take some time to show results.

Vinod paid no heed to that advice and went straight ahead with his investments in the space and got rewarded handsomely. He knew it was an opportunity when he saw one in in Cambridge, Mass.-based Celunol last year as part of a $60 million venture capital round. Biotech company Diversa announced Monday it will acquire Celunol in a deal worth roughly $182.45 million. Cellulosic ethanol is a process that uses non-food plants and other waste to make ethanol, and it is much more efficient, and thus better for the environment, than regular corn-based ethanol.

Normal refrain of all VCs is that they are interested in funding Ventures where they have a clear domain expertise. Point taken. I had always argued that what separates a great VC from a good one is the level of their prescience in seizing an early opportunity and their deftness in moving along the vetting and mentoring processes including roadmap for execution to deliver a multi-bagger. With the first few hits and misses, the great one gets the picture right. Then it’s only a question of taking an early intelligent bet than having a direct domain expertise. They assess the strength of the idea, the management team and help the founders reinforce that team with outside talent drawn from wherever. That’s how they get into Midas list.

Vinod has done just that. He’s not been much on clean energy to begin with but has done his home work well before he took the plunge. Clearly the stuff VC legends are made of.

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Do you think other VCs can take a leaf out of this and make a difference ?