mostly convenient truths

1
mostly convenient truths
from a technology optimist
Vinod Khosla Khosla Ventures Nov 2007
2

• In my view for the United States, it is the
  greatest economic opportunity we've had since we
  mobilized for World War Two. If we do it right,
  it will produce job gains and income gains
  substantially greater than the 1990s.
• Bill Clinton on the green economy

Reference Speech at U.S Conference of Mayors
Climate Protection Summit
3
Good News Assertions

• Technical solutions exist
• Oil Replacement
• Laser Focus Scaling Economics
• Feedstock scale
• Proof for capital markets
• Policy not Technology Problem

4
Un-Conventional Wisdom

• Oil Replaceable with cheaper alternatives
• Lower Cost, More Jobs, More Googles
• Better traditional agriculture

5

• First they ignore you, then they laugh at you,
  then they fight you, then you win.
• Mahatma Gandhi

We are here
6
Scale of Resistance

• Saudi Arabia 1 trillion for each 4bbl
• Exxon, Chevron, Shell, BP

7
Which Gamble?

• . higher startup costs, lower eventual costs?
• . competition for energy or safe oil monopoly?
• . planet insurance or catastropic relocations?
• . terrorism avoidance or military expenses?
• . energy insurance or Mideast dependence?
• . more jobs, more Googles or more of the same?

8
How? or Why Not?

• . Land use minor constraints of current lands
• . Water appropriate agronomy process
  technology
• . Food vs. Fuel
• or
• . oil, wars, flooding, fires, drought,
  dislocations, glacier melts, water

9
Cardinal Rules

• Land efficiency!
• Cost (plug-ins, hydrogen)
• Regulation permanent Subsidies transient
• Economics Capital Formation Business

10
Biofuels Think Outside the Barrel
11
Implausible Assertions (2005)?

• We dont need oil for cars light trucks
• We definitely dont need hydrogen!
• We dont need new car/engine designs/distribution
• Rapid changeover of automobiles is possible!
• Little cost to consumers, automakers, government

12
The Myths About Ethanol

• 1 Negative energy balance false!
• 2 Lower energy contentlower mileage in which
  engine?
• 3 Heavily subsidized not when compared to
  oil!
• 4 The Food v. Fuel dilemma a false
  proposition!
• 5 Dubious environmental benefits hardly!
• 6 Existing infrastructure for E85 or
  additive? Some or all pumps?

13
NRDC Report - Ethanol Energy Well Spent
Dont let the perfect be the enemy of the good

• corn ethanol is providing important fossil fuel
  savings and greenhouse gas reductions
• very little petroleum is used in the production
  of ethanol ..shift from gasoline to ethanol will
  reduce our oil dependence
• cellulosic ethanol simply delivers profoundly
  more renewable energy than corn ethanol

14
Engines Optimized for Ethanol Will Meet or Beat
Gasoline Mileage!

• Ethanol has an octane rating of 113
  significantly higher than gasoline
• Today, ethanol runs in gasoline optimized engines
  at a compression ratio of 9
• Engines designed for ethanol-first at compression
  ratios of 16 will get significantly higher
  mileage!

15
Subsidies Oil or Ethanol?

• Ethanol receives
• 0.51 per gal. blenders credit 3b
  subsidy(2006)
• 6b reduction in corn subsidies net benefit to
  treasury!

Oil subsidies dwarf those of ethanol!

• Oil receives
• Excess of Percentage over cost depletion- 82
  billion subsidy
• Expensing of exploration development - 42
  billion subsidy
• Add on alternative fuel production credit (tar
  sands, oil shales)
• Oil and gas exception from passive loss
  limitation
• Credit for enhanced oil recovery costs
• Expensing of tertiary injectants
• 7 billion in Katrina relief!
• Below market royalty rates 60b ?

16
Is There a Food vs. Fuel Issue?

• The Mexican Tortilla Story .
• Nearly all Mexican tortillas are made of
  home-grown white maize, rather than the yellow
  variety that is more common in the United States.
  The growing popularity of subsidised ethanol
  across the border has prompted the price of
  yellow corn, quoted in Chicago, to rise by over
  50 since October. So industrial users of
  imported yellow corn in Mexico (for animal feed
  and syrup) started buying white maize instead.
  The government was slow to react. The tariff on
  imported maize is not due to disappear under the
  North American Free Trade Agreement until next
  year. But the government could have blunted the
  price rise by waiving the tariff or moving
  quickly to expand the tariff-free quota, says
  Luis de la Calle, a former trade official. Mr
  Calderón did raise import quotas on January 18th,
  and agreed a voluntary price-cap with the biggest
  tortilla makers. But the political damage had
  already been done, and the price cap does not
  cover the small-scale tortilla makers patronised
  by many poorer Mexicans. A previous government
  withdrew the subsidy on tortillas because it was
  indiscriminate. Officials point out that the
  higher price is good news for the rural poor, who
  grow maize. Mexico's Federal Competition
  Commission is investigating the import and
  distribution of maize. But Eduardo Pérez Motta,
  the commission's president, says he thinks that
  import quotas rather than monopolies are to blame
  for the price spike. In other words, contrary to
  Mr López Obrador's claims, Mexicans would benefit
  from free trade in maize.
• Economist, 2007

real issue or oil industry PR campaign? why
have developing countries been pushing for lower
farm subsides?
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Oil vs. Corn in Food Prices?

• A study by economist John Urbanchuk notes that A
  33 percent increase in crude oil prices which
  translates into a 1.00 per gallon increase in
  the price of conventional regular gasoline
  results in a 0.6 percent to 0.9 percent increase
  in the CPI for food while an equivalent (33 )
  increase in corn prices (1.00 per bushel) would
  cause the CPI for food to increase only 0.3
  percent. Increases in energy prices hurt the
  consumer almost twice as much as increases in
  corn prices.

the cost of oil is a significant factor in food
prices!
18
Environmental Benefits Not Your Fathers Ethanol
Different corn ethanol production methods have
different emissions
Typical corn ethanol production reduces carbon
emissions 20
Cellulosic ethanol can achieve dramatic
greenhouse gas reductions even negative emissions
Source NRDC
19
My Dream the Possible!June 2006, Aberdeen ,
South Dakota
Imagine 1.99 ethanol at every Walmart in America
20
Whats Possible - Detail
21
Whats Possible - Summary
Replace most of our imported oil in twenty years!
22
pragmentalists vs idealists
23
or .the lesser evil
Which Risk oil ?
24
Issues Land use Water use

• Annuals vs Perennials
• Monoculture vs. Polyculture/Polycultivation
• Crop Rotation
• Soil restoration
• Energy crop development
• High yield sorghum
• Miscanthus/Switchgrass
• Winter-over crops
• Trees Polonia, Popular,
• Waste Forestry, Agriculture, Sewage, Industrial

25
Cellulosic Biofuels
critical question biomass yields economics
26
Biomass Yields?

• Miscanthus averaged 16.5 dry tons
• Sugarcane 25 dry tons
• High yield sorghum (in 35 US States) 25 dry tons
• Polonia tree 28 dry tons
• Anagenesis 1 acre of trees 48x ethanol
  production of 1 acre corn
• DOE est. existing biomass could generate 1.3
  billion tons
• Ceres est 75 million acres of US crop and
  pasture land to energy crops without impacting
  domestic food production
• Sources
• Miscanthus U of Illinois Study
• Sguatcane Lee Lynd
• High Yield Sorghum Mark Holtzapple, Texas AM
• Polonia Tree Megaflora Corp.

we could meet US gasoline demand on about 50m
acres
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Energy Crops Miscanthus
1 years growth without replanting!
Little water, little fertilizer, no tillage, lots
of biomass, .energy crops make it possible
20 tons/acre? (www.bical.net) 10-30 tons/acre
(www.aces.uiuc.edu/DSI/MASGC.pdf)
28
Innovation Ecosystem

• Professors at Texas AM predict they will boost
  the average yield for biomass sorghum to 15 to 17
  tons per acre in three to four years, and 20-plus
  tons within a decade
• . new freakishly tall sorghum plants that
  reach heights of nearly 20 feet and yielding
  double the amount of crop per acre. They use
  little water, and have been bred to prevent
  flowering and can be grown on marginal crop
  lands
• Source http//ethanolproducer.com/article.jsp?art
  icle_id3424
• http//www.grainnet.com/articles/Gulf_Ethanol_Corp
  __Advances_Production_Plans_for_Texas_A_M_Sorghum_
  Ethanol_Plant_-46989.html

Advances are happening every day!
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Energy Crops Sorghum
25 tons/acre (Prof. Holtzapple- Texas AM)
30
The perennial advantage
perennial biomass polyculture crops can produce
more than their annual counterparts, while
requiring less human/energy inputs on a
sustainable basis!

• Perennial crops
• less land erosion
• Better water/ nutrient management
• Diversity protects against epidemics and diseases

Source Wes Jackson, Land Institute
31
The perennial advantage
Source Wes Jackson, Land Institute
32
Soil Carbon 100 years of annual cropping and hay
removal from native prairie meadows
Source Wes Jackson, Land Institute
33
Relative Global Warming Potential
Note All units are CO2 equivalents (g m-2
year1) based on IPCC conversion factors
Source Wes Jackson, Land Institute
34
Monoculture or Polyculture (Grass Cocktail) A
study from the University of Minnesota suggests

• that mixtures of native prairie plants grown on
  marginal land are a good source of biomass for
  biofuel and provide more energy per acre than
  corn ethanol or soybean biodiesel
• Mixed prairie plants. prevent soil erosion and
  remove carbon dioxide from the air dont
  require pesticides, herbicides, irrigation, while
  adding fertility to degraded lands
• Result utilization of grass cocktails can
  yield approximately 238 more bioenergy than
  monoculture plantings in poor soil!

sustainable and high yield strategies for low
impact polyculture biomass exists richer soils,
less land, more biodiversity
Source David Tilman - http//www.deseretnews.com/
dn/view/0,1249,660207597,00.html
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Farmers Economics
Per acre economics of dedicated biomass crops vs.
traditional row crops
Source Ceres Company Presentation/ Khosla
Ventures
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Miscanthus Farming vs. Corn/Soybean
Miscanthus is far more profitable than a corn/soy
rotation!
Source U of Illinois 1 - Discounted at 3
annually Corn and soybean costs and average
yields for Central Illinois after (Hoeft et all,
2000), and prices based of CBOT 2002 futures
37
Land Use Large Improvements Are Visible
Conservative Cellulosic (24tpy/108gpt)
Brazil Energy Cane
Sugar Cane Baggasse (11 tpy/102gpt)
Cellulosic (10tpy/100gpt)
Corn, Cellulose, Cane Today
Biodiesel
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Brazil sugar-cane/ethanol learning curve Liters
of ethanol produced per ha between 1975 to 2004
30,000??
39
Biomass Will Make a Difference
Turning South Dakota into a prairie
a member of OPEC?!
Today
Tomorrow
Thousand barrels/day
44 Million
Farm acres
44 Million
Saudi Arabia
9,400
Iran
3,900
Tons/acre
5
15
3,429
South Dakota
80
Gallons/ton
60
2,600
Kuwait
Thousand barrels/day
857
3,429
Venezuela
2,500
UAE
2,500
2,200
Nigeria
Iraq
1,700
Libya
1,650
1,380
Algeria
925
Indonesia
Qatar
800
Source Ceres Company Presentation
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Area to replace GASOLINE in USA
60m Acres replaces all our gasoline!

With CAFE
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Cellulosic Ethanol The Next Steps
42
Technology Progression
Synthetic Biorefinery
Thermochemical
Gasification
Bioengineering
Many companies, multiple solutions all improving
trajectory
?
Fuel Chemistry
Computational Modeling
Corn
Energy crops
Algae
Plant Breeding
Synthetic Biology
Cellulosic Bioethanol
Systems Biology
43
The War on Oil weapons from the innovation
ecosystem
44
DOE went looking for 3 cellulosic projects
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Biofuels Feedstocks Pathways
Glycerin
Natural Oils
Transesterification
BioDiesel (FAME or FAEE)
Methanol/Ethanol
Ethanol, Butanol, Renewable Petroleum FermDiesel
Fermentation
ETG via catalysis
Biogasoline
Sugars/ Starch
Dimethylfuran
Catalytic Conversion
Gasoline, Diesel, Hydrocarbons
Catalysis and Aqueous phase Reforming
Algae
Sunlight CO2
Cell Mass
BioDiesel (FAME or FAEE)
Hydrocracking
Ethanol
Butanol
Fermentation
Diesel
Cellulose/ Hemicellulose
Acid or Enzyme Hydrolysis
Saccharification
C6, C5 Sugars
Mixalco Process
Mixed Higher Alcohol
Biomass
Microbial cultures
Methane
Syngas Fermentation
Ethanol
Gasification
Syngas
Fischer-Tropspch catalysis
BTL Diesel
Waste
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Biodiesel
The Near Future
Glycerin
Natural Oils
Transesterification
Ethanol Sugar Fermentation
BioDiesel (FAME or FAEE)
Methanol/Ethanol
Ethanol, Butanol, Renewable Petroleum FermDiesel
Fermentation
Dimethylfuran Catalysis
ETG via catalysis
Biogasoline
Sugars/ Starch
Dimethylfuran
Catalytic Conversion
Gasoline/Diesel Aqueous Reforming
Gasoline, Diesel, Hydrocarbons
Catalysis and Aqueous phase Reforming
Biodiesel - Algae
Algae
Sunlight CO2
Cell Mass
BioDiesel (FAME or FAEE)
Hydrocracking
Ethanol Cellulose Hydrolysis Fermentation
Ethanol
Fermentation
Cellulose/ Hemicellulose
C6, C5 Sugars
Acid or Enzyme Hydrolysis
Saccharification
Fermdiesel, Butanol
Gevo
Mixalco Process
Mixed Higher Alcohol
Methane Microbial Cultures
Biomass
Syngas Fermentation
Ethanol
Microbial cultures
Methane
Feedstock Supply Volume
Ethanol Syngas Fermentation
Gasification
Syngas
Biodiesel, Ethanol FT and Catalysis
Fischer-Tropspch catalysis
BTL Diesel
Higher Alcohols Mixalco Process
Increasing Technological Difficulty
Waste
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Story Time or news from the frontlines
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Southeastern U.S. Potential

• 13 Billion gpy Product Potential
• From unmerchantable timber timber harvesting
  residues only

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Potential of Synthetic Biology
Synthetic Biology
Fermentation Diesel
Synthetic Biology Fermentation DieselX
Anti-Malarial
Gene 3
Gene 1
Gene 4
Gene 2
Gene 1
Custom-Built Microbe
Source of genes
Artimisinin
Recombinant Small Molecule Bio-Synthetic Pathway
54
Hydrocarbon Biosynthesis Natures Energy Storage
Designer Hydrocarbons
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Butanol, the old fashioned way
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Biomass Hydrolysate
BUTANOL
CO2 ethanol
lactate acetone
formate hydrogen . . .
A recombinant strains containing a butanol
pathway produces butanol in addition to other
products.
57
Biomass Hydrolysate
X
X
X
X
X
X
X
X
BUTANOL
Classical and genetic techniques are used to
improve butanol tolerance.
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and this is just the beginning
Believe in the innovation ecosystem that
brought you free long distance!
imagine the map in 2017!
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Biomass, Geopolitics Poverty
Biomass Poverty Belt
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A Darwinian IQ Test?

• Feed mid-east terrorism or mid-west farmers?
• Import expensive gasoline or use cheaper ethanol?
• Create farm jobs or mid-east oil tycoons?
• Fossil fuels or green fuels?
• ANWR oil rigs or prairie grass fields?
• Gasoline cars or cars with fuel choices?

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or get to work
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biases

• hybrids good
• corn ethanol bad
• biodiesel good
• FFVs bad

63
Hybrids or Ethanol?
Ethanol is a far cheaper and more scalable
solution!
64
Hybrid or FFV?
FFVs offer a more-effective solution!
65
Biodiesel vs. Ethanol vs. Cellulosic Diesel
Trajectory Matters!
66
a renewable universe
67
Khoslas solutions Rules

• Attack manageable but material problems
• Technologies that can achieve unsubsidized market
  competitiveness in 5-7 years
• Technologies that scale - If it isnt cheaper it
  doesnt scale
• Technologies that have manageable startup costs
  and short innovation cycles
• Technologies that have declining cost with scale
  trajectory matters

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Khosla Ventures Renewable Portfolio
Stion Ausra Infinia
Nanostellar Codon Praj
Quos NanoH2o
Altarock Great Point Energy
Solar
Wind
Tools
Geothermal
Water
Natural Gas
Segetis Soladigm Calera
Coal
Kaai GIV Seeo
Plastics
Materials
Electrical Efficiency
Efficiency
Building Materials
Oil
Mechanical Efficiency
Corn/ Sugar Fuels
Future Fuels
Cellulosic
Altra Cilion Hawaii Bio Ethos
PAX Streamline Living Homes Transonic
Lanza Mascoma Verenium Range Coskata
LS9 Gevo Amyris Kior
69
Corn/Sugar Fuels

• Altra producing ethanol and biodiesel
• Cilion destination ethanol plants with greenest
  corn ethanol
• Hawaii Bio ethanol plants in Hawaii
• Ethos sugar cane biofuels in S. America

70
Cellulosic Fuels

• Range Fuels cellulosic ethanol using biomass
  conversion to syngas using proprietary catalysts
• Mascoma biochemical conversion of cellulosic
  biomass to ethanol, drastically reducing the need
  for external enzymes.
• Coskata a fermentation technology for the
  production of fuel-grade ethanol from syngas.
• Verenium cellulosic ethanol from biomass and
  specialty enzyme products
• Lanzatech fermentation technology to convert
  industrial flue gas from steel mills to produce
  ethanol

71
Future Fuels

• LS9 petroleum replacements using fermentation
• Gevo bacterial production of bio-butanol
• Amyris fermentation diesel and higher alcohols
  
• Kior Biomass Catalytic Cracking (BCC) to
  convert biomass into a bio-oil usable as crude oil

72
Mechanical Efficiency

• Transonic fuel injectors to improve engine
  performance
• Pax Streamline using fluid dynamics modeled on
  natural systems to improve efficiency
• Living Homes prefab, low cost, LEEDS homes

73
Electrical Efficiency

• Group IV an experiment in solid state
  lighting
• Seeo an early stage company is developing
  polymers for batteries with high energy density
  and high cyclability
• Kaai Lasers and LED lighting

74
Electrical Power

• Ausra Concentrating Solar Power (CSP) power
  stations, which uses the heat of the sun to drive
  steam turbine
• Altarock enhanced geothermal technology (EGS)
  for producing clean, renewable baseload power
• Stion a 4th generation photovoltaic company
  developing high-efficiency, low cost thin-film
  modules
• Great Point Energy converting coal and biomass
  into high value clean, pipeline quality natural
  gas
• Infinia proprietary stirling-engine technology
  for concentrated solar power and other
  applications

75
Tools

• Nanostellar Rational Catalyst Design methodology
  unites two disciplines computational
  nano-science and advanced synthetic chemistry
  to speed the pace of development for nanoscaled
  catalytic materials for diesel emissions control.
• Codon Devices enabling applications of synthetic
  biology
• Praj PRAJ, a public company based in India, has
  built over 300 ethanol plants in 30 countries and
  has global execution capability

76
Water

• Quos a proprietary process for water
  desalinization
• NanoH20 proprietary membranes for existing
  reverse osmosis desalination plants which
  increase flow and reduce energy usage

77
Materials

• Soladigm switchable electrochromic glass
  technology that will be utilized for highly
  energy efficient windows
• Calera environmentally-friendlier cement for
  use in construction
• Segetis bio-based plastics using renewable
  feedstocks

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Generic Approach

• take a big problem (challenge)
• add the best minds
• the power of ideas
• the fuel of entrepreneurial energy
• and a dash of greed

81
the chindia test only scalable if competitive
unsubsidized
82
the scaling model brute force or exponential,
distributed
83
investments or climate solutions?
biodiesel hybrids
84
relevant scale solutions for

• oil

85
pragmentalists vs idealists
86
or the lesser evil
Which Risk for oil?
87
or Solutions (they exist)
Denial to Despair?
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Societal Cost of Hydrocarbons

• US Related Data
• Air, water, and soil pollution from electric
  generation cost 14.8-90.3 billion each year!
• 1 gallon of spilled oil can contaminate 1 million
  gallons of water!
• Oil pollution from automobiles causes 4.6
  billion in damages to crops, rivers, forests,
  lakes etc

Source Coghill Capital Management
90
Societal Cost of Hydrocarbons (Continued)

• Military Costs
• Strategic Military Bases (49bn)
• Oil and Gas supply route security (20bn)
• Strategic Petroleum Reserves (30bn)
• Iraq (1 trillion! or 275mn per day!)

Source Coghill Capital Management
91
Societal Cost of Hydrocarbons (Continued)

• Health Costs
• 760,000 Chinese die each year due to air and
  water pollution (99bn)!
• Lung disease and asthma caused by pollution
  (16.1bn)!
• Lead, Mercury, and Arsenic poisoning from coal
  plants is linked to mental retardation, learning
  disabilities, premature mortality, and to some
  autism cases (88-640bn)

Source Coghill Capital Management
92
What Are Fossil Fuels Externalities?
Source Coghill Capital Management
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What Are Fossil Fuels Externalities? (continued)

• Mid-Range societal cost increases (generation
  costs only no distribution or retail included)
• Coal fired electric generation goes from
  0.026/kWh to 0.0714/kWh
• Natural gas electric generation goes from
  0.0615/kWh to 0.0851kWh
• Regular gallon of unleaded gasoline goes from
  3.46 to 5.01 per gallon

Source Coghill Capital Management