Pamela Contag

The Challenge for Biofuels

Special Issue By: Pamela Contag Volume A Number 1

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Pamela Contag, Ph.D., is Chief Technology Officer of Cobalt Biofuels, Mountain View, Calif. She is the founder of Cobalt, a venture-backed company that develops technology for the production of biofuels, and widely published in the field of non-invasive molecular and cellular imaging.

Here are a few of the realities and a few of the myths of biofuels production. The most important reality for me is that water, energy and food are very much interrelated. And the demand for water, energy and food is growing faster than our conservation measures. Although biomass is renewable—€”it is made up of trees and plants and crops and algae and even microorganisms—€”it needs to be used in concert with our other conservation measures because, after all, it also has to be sustainable, which means you cannot outstrip natural processes by your rate of consumption.

Although as an entrepreneur I think my company should lead the way, in fact there is no single renewable energy technology. It is extremely important to think about how these technologies can be linked together. My challenge is to ask my colleagues around the table, "How do we consolidate to look something like a utility company?" I'll talk a little bit about how I believe that can happen.

First, let me get to the myths. I have heard investors say the price of oil is irrelevant to the way they think about investments in renewable technologies. I'd like that to be true, but the fact is the price of oil is relevant. In the 1980s with biobutanol production, we found that when the price of oil dropped, the funding dried up and we moved on to other things. We had a very short attention span.

Today, even though we have a good startup funding base, biofuel is essentially technology squeezed between two commodities: the biomass or the feedstock of the agriculture community and the oil industry. Although this represents an opportunity for a lot of people, it's a very unpredictable place to be, and it is very high risk. The price of oil determines how investors think about the adoption rate of biofuels. Technology development around biofuels resides in the hands of people with a relatively short-term view, because that's how the venture capital industry arose. They have a short-term view, they turn things around, they're involved in a very specific space and time.

So a question I have is how do we develop a long-term view when the people who fund my company are thinking, "Okay, where is the short-term exit? What is the market?" As a sector, we have to come to some sort of consensus or resolution on this issue.

Another myth is that capital is easy for the right project. The fact is these biofuel projects take huge amounts of capital to get to commercialization. With the economic downturn, it's a huge issue. After I build a pilot plant, I then have to build a demonstration-scale plant, which is midway between a pilot and a commercial plant. Then I still have another hurdle, because my first commercial-scale plant will be first in kind. It's very difficult to put a finance package around a first-in-kind technology.

When we think about where these plants will be sited, another myth arises: that water is not an issue. In fact, water is extremely critical to the production of biofuels. I will say that one of the things I love about New Mexico, and this is why a California company is standing here, is that this is the perfect place to start to develop this long-term view. You have less water. You have feedstock. You have the desire for alternatives. You have the leadership.

My final comments about myths are around feedstock. It is a global view that we can no longer use food as feedstock for biofuels. There's a myth that there is free feedstock available. But as soon as somebody finds it and uses it, there will be a value attached to it and we'll have to pay for it. So every biofuel company will be attached to a commodity if they use any kind of feedstock. One of the challenges today is to think about the logistics of our feedstock, and being able to fractionate feedstock—€”part of the crop will go for food, the other part will go for biofuels. None of those logistics are in place currently to address this at the federal level or at any state level.

So discovering and developing and commercializing an alternative energy source, as I said, is extremely expensive. As a group we realize the opportunity is large. But our courage and our bank accounts are currently low.

Another hurdle we face is we need to think about whether to build an infrastructure or utilize an existing infrastructure. Are we going to be able to get our friends and neighbors and ourselves to give up our current cars and adopt a new kind of car? Do we have to? Or can we use the existing infrastructure—€”try to integrate ourselves into, essentially, ethanol blending or the oil industry or the auto maker industry? Are there reasons why using the existing infrastructure would actually slow down what we're trying to accomplish?

I visited a couple of different auto makers. One of the things they told me is that if you're thinking of using a totally different fuel and you want them to develop an engine for it, we have to be able to give them spec fuel today in order to get that engine in 15 years. That's a long time horizon. That's one reason my preference has been to try to use the current fuel infrastructure. The problem is that British Petroleum and Exxon and Shell might not agree with me. We have to ask ourselves who owns the infrastructure, and can we cooperate with them with or without a government role?

So are there synergies with other power sources? When Kathy McCarthy talked about running a desalination plant off a nuclear power plant, I sat up in my chair, because the energy that we use to run these biorefineries is really critical. Most are run off coal. Some are moving to natural gas. That's still extremely, extremely expensive. If you look at other kinds of power-generation plants or utilities, including biomass, solar and wind, they generate steam or electric. Biorefineries can actually use steam and electric to run their plants.
What this means is that biofuels can be, essentially, a storage molecule for energy generated from solar and wind. In addition, power-generation plants have and require large sites and skilled workers, and that's also required for biorefineries. So this system calls for synergy with other power sources.

What I like about this is it looks like a utility company. Investors have had good luck with utilities. I believe that if you put these technologies together, so that one technology can actually be a booster rocket for another technology and for the total investment, that then represents a growth model for VCs, private equity, employment and new technology development.

What do I think is going to happen, and when? In five years I think we'll have designer biofuels that will fit into an infrastructure that's being built or is in the process of being built. We'll have innovative transportation fueling stations for flex-fuel engines. I believe there will be smaller footprints for both commercial and home building, which will reduce, especially, home heating energy requirements. We'll have local utilities integrating multiple technologies. Individuals will be selling more power to the grid in the U.S.

In 10 years, there will be more incentives on conservation—€”carbon caps and credits at the household and individual level. Better energy storage technologies, batteries and biofuels. New hydrogen and nuclear technologies. New plug-in hybrid, valve fuel and electric car fueling.

The other thing we're going to need is global collaboration on technology development and transfer. One of the ways to solve our climate change problem is to bring technology to those who don't have it, because it is a global problem.
We should think about a different intellectual property system. Intellectual property doesn't get you anywhere if you leave it in a closet. We're going to have to share, and how we do that is critical to the scientists and inventors and to the people who require the technology.

Finally, as a business person, I'm concerned about the model we use to scale up our distribution and how we decide what product to bring to the consumer. Right now we have many, many products out there we're trying to choose from and make decisions about. I'm not completely sure that the best technology will win out. Sometimes it's the best management team or the best marketing team. I think we have to be really careful about that.

As a person, I'm concerned that we act in concert globally. That's really critical. We have to join the global scene and understand the trials and tribulations of my colleagues in China and India. Together I think we can solve the pressing issues, which I see, again, as the interrelated issues of water, energy and food.