Fill 'er up with biomass
The CEO of a Wisconsin startup claims to have a better formula for converting crops to gasoline.
NEW YORK (Fortune) -- One of the many jobs that Lee Edwards took on during his 25-year career at BP, formerly known as British Petroleum, was leading the energy giant's effort to re-brand itself. Today as the CEO of Virent Energy Systems, a seven-year-old biofuel startup in Madison, Wis., he is truly trying to move beyond petroleum. With a proprietary process it calls "BioForming," Virent says it can turn plant sugars from corn, switchgrass, and other crops into gasoline that has a higher energy density than ethanol.
So far, the company has raised $70 million and boasts investors, including Honda (HMC) and Cargill. It also has a collaborative partnership deal with oil giant Shell (RDSA). Edwards, who started at Virent in January, took a break from fundraising to answer a few questions from Fortune on the state of the renewable fuel industry.
How is the renewable energy industry surviving the Great Recession? Is money flowing right now?
I'd say it's flowing. Mostly from Wall Street and private equity. Venture capital is flowing. It's just selective. Most investors are looking for deployment of proven technology -- wind projects, solar projects, some gas-fired activities. They are really risk-averse. For instance, the wind guys talk about wanting no merchant risk: "If you want to build a 300-megawatt project, that's great. But don't tell me your turbine supplier is an unknown company with whiz-bang technology that's never been proven." So risk is creeping back into the equation in a positive way, but it's still a long way from what it used to be.
How does the Virent's "BioForming" technology work?
Sugar water goes in and goes through a series of fixed-bed catalytic reactors, which break down the molecules of sugar and react them over the catalyst so that they recombine. It's a self-sustaining, continuous reaction -- gasoline from sugar water with a catalytic reaction process that is really unique chemistry. The catalytic reaction of breaking the bonds of the sugar and then recombining them actually creates more energy than you need for the process to be sustainable. That's very different from ethanol, where you need a huge amount of energy to do the final separation of taking the water out.
Looking to 2020, what percentage of the hydrocarbon market do you think the biofuels industry as a whole could capture?
I won't predict. Hopefully we'll prove the skeptics wrong. I think a lot of people are hoping we can get to the range of 15% or 20%, but there are going to be certain limitations depending on the nature of the biofuels themselves. If we are an ethanol-only economy, we're not going to be able to get there.
A few months ago, Exxon Mobil CEO Rex Tillerson said that in 2050 we'll still be getting 80% of our energy from fossil fuels. Why is he wrong?
I think there are a number of drivers. One is that the emerging technologies to convert biomass to fuel will prove price competitive with crude oil. I think the world is going to demand renewable alternatives to the true carbon impact of crude oil. And I also believe that there's going to be a rebalancing of energy security and job creation that will favor more distributed feedstock.
And I think all of those factors mean that ultimately we're going to have better technologies and that they will be price competitive with hydrocarbons. There will be a true value in the marketplace in that timeframe for carbon itself, which will rebalance the playing field. And from a policy standpoint, people want to have more control of their energy destiny -- and I think biomass is one of the contributing ways to make that happen.
What are the obstacles to speeding up the adoption of renewable fuels?
Some of the most promising technologies are still in pilot scale or earlier. They still need to be proven with scale and cost competitiveness. Then you need to work on the whole upstream part of the value chain. With upstream oil, you drill a hole, you pump the oil, you process the oil, and you take the oil on tankers to refineries. There's a whole new value chain that needs to mature in the logistics around biomass. It's happening now, but it will continue to improve. For all those reasons, I can see a world with different variables playing out that will definitely make [Tillerson] wrong.
Why aren't the big oil companies pursuing alternative energy programs more aggressively?
They're all doing some things. But what I see is that those companies are really driven by cash-flow management and capital-investment portfolio theory. If they have the cash, they get interested in next generation [technologies]. They're in it one day and they're out the next, and then they're trying to get back in it. And that volatility of cash-flow management, given that they're investing billions every year in upstream [oil and gas] projects, I don't think is the best way to get technology to commercialization.
The price of oil has been highly volatile over the past year. How does that affect your strategic planning?
I guess the easiest answer is to say it's a lot easier for a biofuel company to raise money when crude is $140 per barrel than when it drops down to $40. What we're really trying to do as an industry is to say, You know, we want to disconnect from a commodity called crude oil and establish a new commodity called energy from biomass. If crude oil stays at $40 forever all these technologies will only work with a significant amount of policy support that will be driven by job-creation, energy security, and I think to a lesser extent environmental concerns. There needs to be some understanding that we're really trying to make this shift from a crude oil-driven economy to a biomass-driven economy.