Vinod Khosla Prognosticates
Vinod Khosla is once more offering up his prognostications on the future of the energy business:
Given the likely continued dominance of the internal combustion engine, cellulosic and sugar-derived fuels offer one of the lowest risk advances to quickly and affordably achieve low-carbon transportation.
I predict that long before 2022, half a dozen technologies within and outside our portfolio will be market competitive and will blow away the cost structure of corn ethanol.
In the same article, he offers his view on those he deems energy Luddites:
The old fashioned bias among traditionalists, mostly Luddites unfamiliar with the vibrant new research especially in startups, is that Fischer-Tropsch synthesis (FT) of liquid hydrocarbons from gasified coal and biomass is the only path to producing enough fuel to replace conventional crude oil. Frankly, this is nonsense. Many also assert that biofuels cannot scale to the quantity needed without impacting food availability, but the data suggest otherwise and I briefly discuss this below.
In a separate article that announced a new round of loan guarantees for renewable energy companies — including $250 million for Coskata — Khosla predicts that catalytic technologies will need to switch to fermentation technologies:
USDA, DOE announce $646M in advanced biofuels loan guarantees
7. Where is Range Fuels in all this, which received a loan guarantee from the USDA but has been reportedly in various kinds of distress.
Secretary Vilsack yesterday said that “we are hopeful that Range will work through its technology problem which are at the heart of the concerns”. The problems appear to center, to an extent, on the company’s gasifier technology. According to one Digest source, “before it was ever built, it was known by many that it would have performance issues given the past failures of the technology in small scale with low hydrocarbon loaded fuels.”
Vinod Khosla, a lead investor in Range, commented: “Technologies like Range that started with chemical catalysis will need to switch over to newer fermentation technologies.”
Enerkem, Coskata and INEOS are all deploying variations on gasification technologies. So that’s something to watch. The good news – there are a lot of alternatives in the gasification area, with Coskata among other companies looking at the ClearFuels technology, for example.
In a nutshell, I view this as hogwash for reasons I detail below. But I am certainly not the only one. The just-issued RAND report Alternative Fuels for Military Applications (the subject of an upcoming essay) had this to say: “Fischer-Tropsch fuels are the most promising near-term options for meeting the Department of Defense’s needs cleanly and affordably.”
Someone is terribly wrong in their projections.
Vinod Khosla’s Prognostication Record
Let me state that I firmly disagree with Khosla’s statement that catalytic processes will have to switch to fermentation technologies. (In fact, he is backing KiOR, which is a catalytic process). But any time someone is making predictions, I like to know how they have fared on previous predictions. So let’s have a look at Khosla’s track record on predicting energy trends.
In a 2006 article that Khosla wrote for Wired magazine — My Big Biofuels Bet — Khosla made a number of comments that are worth examining. The article begins:
IT MAY SURPRISE YOU TO learn that the most promising solution to our nation’s energy crisis begins in the bowels of a waste trough, under the slotted concrete floor of a giant pen that holds 28,000 Angus, Hereford, and Charolais beef cattle. But for some time now, I’ve been searching for a renewable fuel that could realistically replace the 140 billion gallons of gasoline consumed in the US each year. And now I believe the key to producing this fuel starts with cow manure – because this waste powers a facility that turns corn into ethanol.
The company that Khosla is referring to here was called E3 Biofuels. And this — according to Khosla — was the most promising solution to our nation’s energy crisis. He made a number of specific claims around E3, devoting about a quarter of the essay to them. Among other things, he wrote:
A company called E3 Biofuels is about to fire up the most energy-efficient corn ethanol facility in the country: a $75 million state-of the-art biorefinery and feedlot capable of producing 25 million gallons of ethanol a year. What’s more, it will run on methane gas produced from cow manure. The super-efficient operation capitalizes on a closed loop of resources available here on the prairie – cattle (fed on corn), manure (from the cows), and corn (fed into the ethanol distiller). The output: a potential gusher of renewable, energy-efficient transportation fuel.
The ethanol made here is not only clean but also cheap – this is perhaps the first ethanol plant to achieve both. More important, it is an early demonstration of the great potential of biohols – liquid fuels derived from biomass for internal combustion engines. The facility is the first data point in what I call the biohol trajectory. (See “March of the Biohols,” page 143.) Like Moore’s law, this trajectory tracks a steady increase in performance, affordability, and, importantly, yield per acre of farmland.
E3 Biofuels achieves what’s known as a positive energy balance. For every BTU of energy used to run the ethanol plant, five BTUs are produced. A typical corn ethanol plant produces 1.3 to 1.8 BTUs for every BTU of fossil fuel input, including the energy required to grow the corn. (Gasoline has half the efficiency of corn ethanol, producing 0.8 BTUs for every BTU input.)
So what became of this amazing company that was going to produce (Khosla wrote the essay as if they were already producing) 5 BTUs of ethanol for every BTU used to run the plant — and do so for 75 cents a gallon? Despite all the hype Khosla heaped on the company — considered by Khosla to be the most promising solution to the nation’s energy woes — one year after he wrote this article E3 Biofuels declared bankruptcy. Not exactly a ringing endorsement of Khosla’s prognostication skills in the energy sector.
But it gets better (or worse, depending on your perspective). Khosla also heaped enormous praise on a company called Kergy, later renamed Range Fuels:
IN THE CORNER of an unmarked warehouse tucked away in an industrial neighborhood north of Denver, a new company called Kergy has what is, to my knowledge, the first anaerobic thermal conversion machine (which explains why Khosla Ventures is a seed investor).
Khosla apparently had no idea that there were literally thousands of “anaerobic thermal conversion machines” (gasifiers) in operation around the world, so he invested in something that he thought was new and novel. So if a Luddite is someone who is unfamiliar with “vibrant new research especially in startups”, what are we to make of someone who is completely unfamiliar with existing technology and therefore doesn’t know when something is actually new and novel?
To me, this is Khosla’s problem in a nutshell. He disregards (or in this case, was ignorant of) technologies that came before he decided to become involved in the energy business, despite the fact that existing technologies provide (and will continue to provide) the vast majority of the world’s power. But he convinced people that should have known better, and went about reinventing the wheel on other people’s dimes. Further, most of what he considers “vibrant and new” has been worked on for many years at big companies around the world — but they generally don’t follow the “hype, hype, hype” model so you don’t hear about them. And in many cases, the research ended because the path led to “not commercially viable.”
Khosla went on to explain why the Kergy approach would be better than fermentation:
Kergy’s machine is special because it makes cellulosic ethanol through anaerobic thermal conversion rather than through fermentation or acid hydrolysis. It does not need organisms or enzymes to do its work. Biomass is heated in an oxygen-free environment to produce carbon monoxide and hydrogen. Once that happens, “the world is your oyster,” says Bud Klepper, the engineer who invented this device. The carbon monoxide and hydrogen are then reconstituted into various alcohols – like ethanol. Better still, fermentation and acid hydrolysis can take days to occur, but thermal conversion breaks down organic matter and converts it to ethanol in minutes.
And the inventor of the gasifier, Bud Klepper, was ominously quoted: “We (Kergy/Range Fuels) could double the ethanol output of the Mead facility.” The output of the Mead facility (the E3 Biofuels plant) is zero, so it turns out that Klepper may be a better prognosticator than Khosla. But I get ahead of myself. The hype continued:
In back of Kergy’s warehouse, workers are busy putting the finishing touches on a beautified and expanded version of his original thermal convertor. The new one is made out of lustrous red I-beams, shiny metal tanks and coils, bright blue metallic joints, and a porous metal-grating floor. The whole thing is 14 feet high, 40 feet long, and 25 feet wide and is capable of producing 15,000 gallons of ethanol a day. And the machine can be scaled for far more capacity.
And cost is a big advantage. “Our ethanol from biomass should be competitive in costs with corn ethanol,” says Kergy CEO Mitch Mandich, who gave up several CEO opportunities at large public companies to run Kergy. The technology is exciting enough that Arie Geertsema – director of the University of Kentucky’s Center for Applied Energy Research and formerly managing director of the corporate R&D Division of Sasol, the most experienced gasification company in the world – was excited enough by the technology to give up his position and join Kergy.
OK, enough documentation about the hype. There are lots more stories and articles out there proclaiming that Range Fuels would be the answers to the country’s energy problems — fueled by hype from Vinod Khosla and Mitch Mandich. We all know how this has turned out. After years of delays, cost overruns, and capacity projections that were continually reduced, Range Fuels recently announced that they can’t go on. Further, once they do close the doors, they will have only reportedly produced one batch of ethanol:
Range Fuels Closing Georgia Cellulosic Ethanol Plant
Cellulosic ethanol company Range Fuels is closing its Soperton, Georgia facility after completing it first batch of ethanol, according to story posted by Georgia Public Broadcasting.
The firm, which has received more than $300 million dollars in state, federal and private funding, will lay off the majority of its workers and shutter operations, while it attempts to raise more money and address technical issues.
Range Fuel technical advisor Bud Klepper–who founded the company under the name Kergy–said the first ethanol run completes a demonstration agreement made with the federal government.
“This run campaign is to demonstrate that facet of the technology and when we’re done doing that then we’ll shut down,” he told GPB.
In 2007, the company received $76 million from the Department of Energy, which was followed by an $80 million loan guarantee from the Department of Agriculture in 2010. Range Fuels is also backed by Khosla Ventures, Passport Capital, BlueMountain, Leaf Clean Energy Company and Pacific Capital Group.
So what’s my point? My point is that Khosla has influenced the direction of our energy policy, and despite his failed prognostications he is still attempting to drive dollars in a specific direction. He is lobbying for money to be spent in certain areas, just as he did for Range Fuels five years ago. The question I would ask is “Why should anyone listen to him?” Political leaders listened to him in 2006. Why? He had done very well in the computer sector — co-founding Sun Microsystems — so he had credibility there. But why should we expect someone to have competence in one sector just because they have competence in an unrelated sector? An example I sometimes use is that my dentist is a competent person as far as dentistry goes, but I wouldn’t go see him if I was having a heart attack. His competence is based on his education and experience in a specific field. Khosla’s proven track record is not in the energy business, yet policymakers gave him what he wanted with respect to Range Fuels, and the result has been the evaporation of hundreds of millions of dollars in public and private funds.
Here we are in 2011, and Khosla is once again telling us what the future holds. He tells us that gasification/catalysis isn’t the future, that fermentation is the future. He tells us that those who think otherwise are Luddites. Here is what I would say to Mr. Khosla. He once hoped that Range Fuels could produce 15,000 gallons per day, and because they failed to deliver he has written off gasification/catalysis. But Shell’s Bintulu facility that I recently visited has produced 15,000 barrels per day (1 barrel = 42 gallons) for many years via the gasification/catalysis process that Khosla believes isn’t viable. Sasol, at their Secunda facility, produces 160,000 barrels per day of synthetic fuels via the gasification/catalysis process that Khosla disregards. Those are not pie-in-the-sky or overhyped examples of what could be; those are real, operating facilities that are producing liquid fuels today at scales beyond Khosla’s imagination.
So I believe Khosla is dead wrong. The fermentation technologies are still very much an open question, for reasons I have covered many times. Water soluble fuels such as ethanol are very energy intensive to extract from a fermentation process, particularly ones like cellulosic ethanol that result in a very dilute beer. Imagine taking a bottle of Bud Light and extracting the ethanol for use as fuel, and you have an idea of the challenge that cellulosic ethanol faces. Biological processes can also only access a fraction of the biomass (cellulose and sometimes the hemicellulose), whereas gasification can process all of the organic material (including lignin).
There are no assurances that unproven routes will ever be commercially viable, and if the man who hyped E3 Biofuels and Range Fuels claims otherwise why should I believe him? He may be a super nice guy and a genius in the field where he made his fortune, but he is still a novice in the energy field. His track record to date on energy prognostication speaks for itself, and thus his predictions are not necessarily reliable. He has placed a lot of bets on things that he thinks might pan out (and I sincerely hope some of them do), but we have already seen the wreckage of his initial bets. If he treats his own money as venture capital, that’s his business. But I don’t want to see tax dollars treated in this way, as was the case with Range Fuels.
However, I should make it clear that I am very much in favor of funding research across the energy spectrum, and that includes fermentation processes. Where Khosla and I part ways is with his insistence that commercially unproven technologies are the future while we ignore processes that are commercially proven today. After all, we have heard that story once before, and we — taxpayers and private investors — are hundreds of millions of dollars poorer for having listened to it. Our energy policy is too important to be based on hype, and we have to make sure that credibility has been earned before allowing someone to unduly influence the spending of tax dollars.