Renewable Energy:Maintech, not Cleantech

Vinod KhoslaKhosla VenturesFeb 2009

“all progress depends on the unreasonable man”

George Bernard Shaw

“A crisis is a terrible thing to waste.”

““The ‘telephone’ has too The ‘telephone’ has too many shortcomings to be many shortcomings to be seriously considered a means seriously considered a means of communication”of communication”

-Western Union Internal Memo, -Western Union Internal Memo, 18761876

Prob

lem

: Misu

nder

stan

ding

Tech

nolo

gy

““There is no reason for any There is no reason for any individuals to have a computer individuals to have a computer in their home”in their home”

-Ken Olsen, President, Chairman and -Ken Olsen, President, Chairman and Founder of DEC, 1977Founder of DEC, 1977

Excu

se: M

issin

g

Applic

atio

ns

““Heavier-than-air flying Heavier-than-air flying machines are impossible”machines are impossible”

-Lord Kelvin, President, Royal Society 1895-Lord Kelvin, President, Royal Society 1895

Prob

lem

: Und

erst

andi

ng o

f

Phys

ics

"Everything that can be "Everything that can be invented has been invented."invented has been invented."

-Charles H. Duell, Commissioner, U.S. -Charles H. Duell, Commissioner, U.S. Office of Patents, 1899Office of Patents, 1899

Prob

lem

:

Under

estim

atin

g pe

ople

8

“It is the mark of an educated person to look for precision only

as far as the nature of the subject allows.”

Aristotle

99

oil price forecasts (1985-2005)

15

20

25

30

35

40

45

50

19851990

19952000

Data/Source: World Oil Prices (current $ / Barrel)- EIA Office of Integration Analysis and Forecasting

Forecast

Forecast

Forecast

Forecast

Forecast

Forecast

Forecast

Actual

Actual

Actual Actual

Actual

Actual

Actual

10-yr Forecast

Error

5-yr Forecast

Error

1010

gas price forecasts (1985-2005)

1

2

3

4

5

6

7

8

19851990

19952000

Data/Source: Natural Gas Wellhead Prices (current $ /1000cf) - EIA Office of Integration Analysis and Forecasting

Forecast

Forecast

Forecast

Forecast

Forecast

Forecast

Forecast

ActualActual

Actual Actual

ActualActual

Actual

10-yr Forecast

Error

5-yr Forecast

Error

1111

coal price forecasts (1985-2005)

1

1.5

2

2.5

3

19851990

19952000

Data/Source: Coal Prices to Elec. Generating Plants (current $ /million btu) - EIA Office of Integration Analysis and Forecasting

Actual

Actual

Actual

Actual

ActualActual

Actual

Forecast

Forecast

Forecast

Forecast Forecast

Forecast

Forecast

10-yr Forecast

Error

5-yr Forecast

Error

12

the US market for mobile subscribers

› Fortune (1984 => 1989)

› McKinsey for AT&T (1980 => 2000)

› Herschel Shosteck (1994 => 2004)

Source Actual

› 3.5M

› 109M

› 182M

The same mistakes are

repeated again and again!

Forecasts

› 1M

› 0.9M

› 60-90M

Source: American Heritage Magazine - http://www.americanheritage.com/articles/magazine/it/2007/3/2007_3_8.shtml

13

yesterday’s technology, tomorrow’s forecast

› 1980’s phone › The actual market

14

quantitative modeling flaws

› Models with given inputs are precise but inaccurate

› low “standard deviation”, but with high “standard error”

› input the measurable, ignore the immeasurable Black Swan’s

› obscured embedded assumptions

› Food price controversy

› World Bank study 75% of price rise due to biofuels

› USDA notes only 3% of total price change

1515

“extrapolation of the past”

vs.

“inventing the future”

16

…”relevant scale” solutions for

… oil

… coal

… materials

… (efficiency of oil & coal use)

1990: Chindia ≈ 13% of CO2 emissions

2005: Chindia ≈ 23% of CO2 emissions

2030: Chindia ≈ 34% of CO2 emissions

EIA

“China and India together account for 79 percent of the

projected increase in world coal consumption from 2005 to

2030”

EIA

…”relevant cost” …”relevant scale” …”relevant adoption”

…the chindia testonly scalable if competitive unsubsidized

…the scaling modelbrute force or exponential, distributed…

…the adoption riskfinancial, consumer acceptance, market entry

But how do we evaluate solutions…?

key criteria

› Trajectory: “What is” or “What Can Be”

› Scalability Trajectory

› Cost Trajectory

› Adoption Risk

› Capital Formation

› Optionality

› Carbon Reduction Capacity

…cost and carbon trajectory

Cost trajectory:

Undesirable (hydrogen fuel cell?)

Subsidy/Support Needed

Cost

Fossil Fuel Cost

Fossil + Carbon Cost

Time

cost: driving down the cost curve

Source: “The Carbon Productivity Challenge”, McKinsey – Original from UC Berkely Energy Resource Group, Navigant Consulting

2010 2015 2020 2025 2030 2035

Cost

(Nor

mal

ized

)

2010 2015 2020 2025 2030 2035

Cost

(Nor

mal

ized

)

2010 2015 2020 2025 2030 2035

Cost

(Nor

mal

ized

)cost: not all technology curves are the same

2010 2015 2020 2025 2030 2035

Cost

(Nor

mal

ized

)

Cheapest now does not mean Cheapest now does not mean cheapest later!cheapest later!

Trajectory Matters!Trajectory Matters!Solar PV

WindCoal

29

declining technology cost…

Crystalline Silicon

Amorphous Silicon

Thin-Film

Thin-Film Multi-Junction

Generations of Solar Photovoltaics…

but tech cost decline isn’t enough…

2010 2015 2020 2025 2030 2035 2040

Cost

(Nor

mal

ized

)

Construction CostInputs (Feedstock/Land)

Technology Cost

Total Cost

Total cost decline is based on relative Total cost decline is based on relative proportion of cost “types”…proportion of cost “types”…

Carbon trajectory:

Undesirable (natural gas?)

Carb

on E

mis

sion

s Tr

ajec

tory

Desired Goal(80% below fossil?)

Time

…the adoption riskfinancial, consumer acceptance, market entry

adoption risk - $2,500 nano

Internal combustion engineInternal combustion engine or or

Hydrogen / electric?Hydrogen / electric?

adoption risk: U.S. mill closures

…optionality

Pyrolisis

optionality: biofuels feedstocks & pathways …

Mixalco Process

GlycerinNatural Oils

BioDiesel (FAME or FAEE)

Methanol/Ethanol

Gasification

Syngas

Fermentation Ethanol/Butanol

BTL Diesel

Mixed Higher Alcohol

MethaneMicrobial cultures

Dimethylfuran

Gasoline, Diesel, Hydrocarbons

Ethanol, Butanol, Renewable Petroleum FermDiesel

Sugars/

Starch

Fermentation

Biogasoline

ETG via catalysis

Biomass

Cellulose/ Hemicellulo

se

Acid or Enzyme Hydrolysis

Saccharification

Ethanol

Algae

+ Sunlight – CO2

Cell Mass

Hydrocracking

Waste

Fischer-Tropspch catalysis

BioDiesel (FAME or FAEE)

Catalytic Conversion

ButanolDiese

l

Transesterification

Catalysis and Aqueous phase Reforming

Fermentation

Catalytic Conversion

Ethanol

Biocrude

optionality: hybrids or biofuels?

Time

% o

f p

ow

er

from

liq

uid

fu

el

% o

f p

ow

er

from

ele

ctr

ic s

ou

rces0%

0%

100%

100%

Fast (relative) battery tech development

Slow battery tech development

…capital formation

› Short Innovation Cycles (3-5 years)

› Short investor return cycles

› Mitigate technical & market risk cheaply

› Unsubsidized market competition

Private money will flow to Private money will flow to ventures that return investment ventures that return investment

in 3-5 year cycles!in 3-5 year cycles!

capital formation

…carbon reduction capacity

0

1

2

3

4

5

6

7

8

9

10

2005 2010 2015 2020 2025 2030 2035 2040 2045 2050

Inde

x (2

008

= 1)

Carbon Productivity Growth Required = 5.6%/yr

World GDP Growth = 3.1%/yr

Source: “The Carbon Productivity Challenge”, McKinsey – Original GDP projection from Global Insight through 2037

Less reduction now, but Less reduction now, but greater capacity to greater capacity to

respond in the future?respond in the future?

Carb

on P

rodu

ctivi

ty =

GD

P / E

mis

sion

sW

orld

GD

P G

row

th

0

1

2

3

4

5

6

7

8

9

10

2005 2010 2015 2020 2025 2030 2035 2040 2045 2050

Inde

x (2

008

= 1)

Emission decrease to 20GT CO2e by 2050 = -2.4%/yr

carbon reduction capacity: 10X increase in carbon productivity!

0.3

0.5

0.7

0.9

1.1

1.3

1.5

1.7

1.9

2008 2013 2018 2023 2028

Inde

x (2

008

= 1)

Growth Offers the Greatest Carbon Reduction Opportunity!

carbon reduction capacity is key

Improvement of current stockReplacement of old stock

Growth stock

goal:cost, carbon reduction capacity, carbon & scaling trajectory, capital formation, low adoption risk, & optionality

But be vary of irrational ideas….

irrational ideas: toilet paper

I propose a limitation be put on how many sqares [sic] of toilet paper can be used in any one sitting.  Now, I don't want to rob any law-abiding American of his or her God-given rights, but I think we are an industrious enough people that we can make it work with only one square per restroom visit,  except, of course, on those pesky occasions where 2 to 3 could be required.

- Sheryl Crow

• Source - http://blogs.usatoday.com/ondeadline/2007/04/singer_turned_a.html

irrational ideas: “green bikinis”

• Source - http://www.alternativeconsumer.com/2008/07/29/eco-bikini-from-niksters/

irrational ideas: eat kangaroos, not cows!

Source – http://www.reuters.com/article/environmentNews/idUSSYD8867720080808

“SYDNEY (Reuters) - Farming kangaroos instead of sheep and cattle in Australia could cut by almost a quarter the greenhouse gases produced by grazing livestock, which account for 11 percent of the nation's annual emissions, said a new study.”

irrational ideas: “no flags, no footprint”

• Source - http://www.guardian.co.uk/world/2008/jun/10/germany.euro2008

“But a few days into the Euro 2008 football championships fans are being advised not to fly their flags - because they could damage the environment… Austria's automobile club, the OAMTC, says attaching two flags to a car leads to an increased petrol consumption of "up to half a litre a kilometre on motorways and rural stretches".”

- The Guardian

irrational ideas: Shell’s “sustainable” tar sands

Source – http://www.guardian.co.uk/environment/2008/aug/13/corporatesocialresponsibility.fossilfuels

• UK advertising authority: Shell mislead public by claiming tar sands as “sustainable” source!

irrational ideas: “how to green” books

• Source - http://www.amazon.com/Lazy-Environmentalist-Guide-Stylish-Living/dp/1584796022

51

irrational ideas: zero-emission buses?

3-year Oakland pilot : zero-emission hydrogen fuel cell buses

diesel @ $1.61/mile vs. hydrogen @ $51.66/mile!

Source: ABC News - http://abclocal.go.com/kgo/story?section=news/local&id=5984013

solutions must make solutions must make economic sense!economic sense!

irrational ideas: Zero Emission Buildings

... the new fashion?

…”lets face the facts”… Prius: vs. painting 1000 sq-ft of roof white

… Wind & PV: unscalable solutions without storage!

… “Classic” Biodiesel: a technological dead-end!

… CCS Coal: “FutureGen” or “Nevergen”?

… Hydrogen powered cars: a bridge to nonsense?

5454

“no change bigotry” vs.

“environmental everything” vs.

pragmentalists

irrational ideas: the “Exxon view”?

Source – NY Times

• Discipline, Patience, Vision ≠ Green!

…technology expands the “Art of the Possible”

…today’s “unimaginable” or tomorrow’s “conventional wisdom”

…the power of ideas driven by entrepreneurial energy

“Black Swans” and forecasting

“black swan” solutions ?

Technology shocks are classic “Black Swans”!

Strategy: More “at bats”; “shots on goal”

Source: Nassim Nicholas Taleb, author of “The Black Swan”

“rarity, extreme impact, and retrospective

(though not prospective) predictability”

“what if…”

› “more coal plants meant cleaner air”

› “more driving meant less carbon”

› “cement was carbon negative & free”

› “a million year crude production cycle reduced to hours?”

› “engines were twice as efficient cutting world oil

consumption in half”

We are working on these & imagining the future!

60

› Cement that sequesters CO2, instead of emitting it!

Calera

61

Biocrude

Crude oil Refinery

Kior: “biocrude” replaces crude

Millions of Years

62

Kior: Millions of years Minutes!

0

5

10

15

20

25

30

35

40

45

50

0,0 10,0 20,0 30,0 40,0 50,0 60,0 70,0 80,0 90,0

TAN (mgKOH/g)

Oxy

gen

(wt

%)

Biomass

Thermal Cracking (Pyrolysis- seconds)

Geo Thermal Conversion

(Million of years)

Catalytic Cracking (BCC in minutes)

636363

Transonic

› Gasoline engines at high compression ratios › New injector technology is multi-fuel capable › Precision ignition timing › 50-100% mileage improvement

› Near term goal: 100mpg diesel “Prius”

64

Soraa/Kaai/Lumenz: lasers and lighting

6565

…prefabricated, environmentally friendly, cheaper, LEEDS homes

Living Homes

“what if…”

› fusion happened at low temperatures”

› “nuclear plants produced no waste”

› “batteries were 10-100X better”

› “plant chlorophyll solar cells produced electricity or fuels”

› “algae could excrete its oil production”

Others have proposed these!

not your niche markets anymore!

• Corn Ethanol

• Biodiesel

• Solar PV

• Wind

• Geothermal

The Markets You Think OfThe New Green

• Engines ($200B)

• Lighting ($80B - US)

• Appliances ($10’sB+)

• Batteries + Flow Cells ($50B+)

• Gasoline ($500B+)

• Diesel ($500B+)

• Jet Fuel ($100B+)

• Cement ($100B+)

• Water ($500B+)

• Glass ($40B)

• Home Building (!!!)

• BioPlastics ($10’sB+)

Generation - $250B - US

• Solar Thermal

• EGS

• Clean Coal

• New Nukes

…our renewable portfolio

CellulosicEthanol

Sugar Feedstocks

Starch Feedstocks

ToolsSolar

NaturalGas

MechanicalEfficiency

ElectricalEfficiency

CellulosicFuture Fuels

Plastics

Water

Materials

Sequestration

ToolsEPC

Waste Water

Water Desalination

PVC Plasticizers

PolyurethanePolyethylene

GlassCement

Dis

trib

ute

d S

ola

r

Uti

lity

Sca

le S

ola

r

Coal

EfficiencyOil

HomesEngines

AppliancesPumps

LightingBatteriesMotors

Engineere

d

Geotherm

al

Win

d Sto

rage

Synth

etic N

atura

l Gas

Corn/Sugar Fuels

Wind

BuildingMaterials

Geothermal

ButanolCellul. Diesel

Cellul. GasolineCellul. Jet Fuel

Khosla Ventures Renewable Portfolio

MascomaRange

CoskataLanza

Cilion

ToolsSolar

NaturalGas

MechanicalEfficiency

ElectricalEfficiency

CellulosicFuture Fuels

Plastics

Water

Materials

NanostellarCodon

NanoH2O

DrathsSegetis

SoladigmCalera

StionAusraInfiniaPVT

Coal

EfficiencyOil

PAX StreamlineEcoMotorsTransonic

TulaHybradrive

Seeo Kaai

Soraa LumenzTopanga

GIVGridshift

AltaRock

Great

Poin

t Ener

gy

Corn/Sugar Fuels

Wind

BuildingMaterials

Geothermal

Amyris LS9

GevoKiOR

Khosla Ventures Renewable Portfolio

Sakti3FireflyRamu

71

Together, our products will improve the way all people live

72

Calera Corporation

Built on carbon negative cement

73

Living Homes

And prefabricated, environmentally friendly, cheaper, LEEDS homes

74

Soladigm

Using electrochromatic windows

75

Amyris

LS9

Gevo

Kior

Mascoma

Range Fuels

Coskata

LanzaTech

Fueled from renewable sources

76

Ramu

EcoMotors

Transonic

Firefly

Seeo

Sakti3

Nanostellar

Tula Technologies

With reduced fuel consumption and CO2 emissions

Hybradrive

77

Topanga

Lit by high intensity, low power discharge lighting

78

Ausra

Altarock

Infinia

Stion

PVT Solar

Using renewable electricity

79

Great Point Energy

Cooking with natural gas from clean coal & biomass

80

Group IV

Lumenz

Reading with LED lighting

Soraa

81

Kaai

Watching HD laser TV

82

NanoH2O

Drinking desalinated water

83

Segetis

Safely using biobased plastics and chemicals

84

Draths

Biobased materials for your home

85

Pax Streamline

Staying comfortable with more efficient air conditioning

86

Change every aspect of daily living

to predict the future, invent it!

Forecast 2015: New “cheaper than fossil” technologies proven

Forecast 2030 : How will oil compete?

…or get to work

vk@khoslaventures.comkhoslaventures.com/resources.html

Biofuels Case Study

the biofuels Rationale: trajectory

› “What is” or “What Can Be”

› “Chindia” solutions

› Multiple improvement pathways

› Rapid innovation cycles

› Avoid “dead-end” (vegetable biodiesel, natural gas)

91

› We propose› Facility-level individual certification

› “LEEDS” like goodness rating

› Tradable CLAW certificates

› C – CARBON relative to gasoline

› L –net LAND use impact

› A – AIR quality impact

› W – WATER use relative to gasoline

CLAW: doing biofuels right

92

US land: Little land use next 10 years

› Reality of Land Use› Economics means lowest cost sources used first (waste)

› Source: DOE 1.3B dry tons with “modest changes in land use”

› Source: Winter cover crops: no marginal land usage

› Sources: GMO, better worldwide yields, marginal or unused lands…

› Propagating the ILUC Myth: › ignore range of crops, practices, economic signals, value of optionality

› The “best science” is not good enough to use

› Lack of zero ILUC model: absence of proof is not proof of absence

Land use will be immaterial Land use will be immaterial through the current RFS standard!through the current RFS standard!

• Short rotation: winter cover crops

• Long rotation: 10x10 year energy/row crops

• Polyculture, perennial long rotation (Jackson, Tillman)

• 2.5b hectares of rainfed agriculture suitable land

• Underutilized pasture land

• Improved agricultural land

• Multicrop forestry

• Africa: low input agriculture?

• ….. future inventions, optimizations, discoveries

…better agronomic practices?

energy crops: Sorghum

25 tons/acre (Prof. Holtzapple- Texas A&M)

the perennial advantage

PreviouslySwitchgrass

Previously Fallow

Where Will Biomass Come From?

Demand - 2030

1,363M tons

- 150 billion gallons at 110 gal/acre

Waste

136M tons equiv.

- 15 billion gallons of production

Winter Cover Crops

735M tons

- (158.5M acres at 4.6 tons/acre)

Forest Excess Waste

158M tons

Dedicated Crop Land

334M tons

- 13.6M acres at 24 t/acre- 27.3M acres at 12 t/acre

=

Scenario 1:

• 2030 Assumptions (Production):– 50% of annual crop land for winter cover crops and 70% of forest excess waste used– Yields of 110 gallons per acre– No recovery of degraded land is modeled; note 15.5M acres (or 70%) of land used for corn

ethanol will be reclaimed in this scenario

• 2030 Assumptions (Demand):– 2030 AOE projections for US reduced by 20% to reflect CAFE / Energy Bill– Ethanol mileage discount of 15% – 90% of fleet is FFV

9898

Companies

99

100100

pilot plant

101

› Ethanol for under $1.00 a gallon

Coskata

Modular Design of Large RO Membrane Plants

• Ashkelon SWRO Plant, Israel– 40,000 membrane modules

• Perth SWRO Plant, Australia– 18,000 membrane modules

• Fiber glass composite• Operated at >1000 psi• Up to 8 modules (40” long

each) per vessel• Multiple suppliers worldwide

Pressure Vessels

Membrane Banks

Membrane Plant

Membrane Modules

Biomass to SyngasSeparation and recovery

of Ethanol

Biofermentation of syngas to ethanol

102102

Steel mill waste gas

Biomass syngas

Ethanol & Butanol fuelsOR +

LanzaTech Process

waste gas to fuel

Carbon monoxide gas

+

103

separation

Milling

Enzymes

Nutrients

Fermentation

Gasoline Blend stock

Chemical Precursor

Feed Products

FeedstockGevo

Biocatalyst

DieselChemical Products

Materials

Retrofit of ethanol plants

Proprietary Bio-processing

Future: Any bio-based sugar

source

Create market options

Start with

JetFuel

Iso-Octane

Proprietary Chemical processing

Diesel Blend stock

gevogevoAdvancing the New Era of Renewables Regional Fuel and Chemical Biorefinery

104104104

Synthetic Biology

Recombinant Small Molecule Bio-Synthetic Pathway

Gene 4Gene 2Gene 1

Gene 3Gene 1

Artimisinin

Source of genes Custom-Built Microbe

Fermentation DieselSynthetic Biology = Fermentation DieselXAnti-Malarial

105105

Metabolic modeling+

Synthetic biology

Renewable Feedstock

LS9 Designer Biofuels & Chemicals

X

X

X

X

X

X

X

X

>90% Energetic Yield From Feedstock

Hydrocarbons

Hydrocarbon BiosynthesisNature’s Energy Storage

106

Biocrude

Crude oil Refinery

Kior: “biocrude” replaces crude

Millions of Years

107

Kior: Millions of years Minutes!

0

5

10

15

20

25

30

35

40

45

50

0,0 10,0 20,0 30,0 40,0 50,0 60,0 70,0 80,0 90,0

TAN (mgKOH/g)

Oxy

gen

(wt

%)

Biomass

Thermal Cracking (Pyrolysis- seconds)

Geo Thermal Conversion

(Million of years)

Catalytic Cracking (BCC in minutes)

biomass, geopolitics, and poverty

Biomass & Biomass & Poverty BeltPoverty Belt

109

the “salve” for Africa?

› Carbon Price ($100’s billion per year?)

› Biomass based Energy ($500 billion a year?)

› Opportunities for “resource poor” (Solar & Biomass?)

› vs. Aid, Debt Forgiveness, Trade Treaties …

…or get to work

vk@khoslaventures.comkhoslaventures.com/resources.html

111

are biofuels root cause of deforestation?

• Source: Brazilian deforestation from Mongabay – citing Brazilian national Institute of Space Research

What is the real, marginal What is the real, marginal impact of biofuels? impact of biofuels?

a pound of steak or a gallon of ethanol?

• Source: Mongabay.com

113113

livestock – the numbers

Source: “The Climate Healers”, Saliesh Rao

What is the real culprit in land use What is the real culprit in land use increase?increase?

trajectory: biodiesel vs. ethanol vs. cellulosic Diesel

“Classic” Biodiesel

Carbon reduction - 2008

80%

Carbon reduction – 2012

80%

Scalability (2030Gallons/acre)

600-900

Sustainability (2030) Poor

Unsubsidized 10 yr market

competitiveness

Poor (@ $45 oil price)

Ethanol

20-30%

80%

2500 (cellulosic)

High

Good (@ $45 oil price)

Cellulosic Diesel

Not Available

80%

2500 (cellulosic)

High

Good (@ $45 oil price)