Cobalt CEO Rick Wilson: On butanol, and the case for successful biofuels

Despite decades of development, no one has succeeded in the biofuels business. Cobalt Technologies CEO Rick Wilson says he wants to be the first.

Can biofuels make a comeback?

To be sure, biofuels have been around a long time -- almost a century. (At the 1900 World Exhibition in Paris, a clever engineer named Rudolf Diesel demonstrated his namesake engine with peanut oil. The rest, they say, is history.)

But in the age of cheap petroleum, biofuels could never really overtake gasoline as the fuel of choice. And now, the popularity of solar and wind power suggest that the entire discussion is moot.

Rick Wilson begs to differ. The CEO of Silicon Valley startup Cobalt Technologies says ethanol fuel has given biofuels a bad rap -- and biobutanol is really the way to go.

I spoke to Wilson last month from his office in Mountain View, Calif.

SmartPlanet: How did Cobalt get started?

Rick Wilson: There's a lot of money on the West Coast to do new things. Seven out of 10 companies these [entrepreneur] guys start never succeed. We are emerging to be one of the successes.

The original concept was that we really need a better biofuel than ethanol. It's corrosive. If you put a lot of it in a car, you need to retrofit your vehicle [to handle it].

One dirty little secret? The EPA waiver. Gasoline has a special vapor pressure specification for volatility for fumes. They end up back in the atmosphere. It's essentially a license to pollute.

It's all about versatility. Ethanol can only be made into gasoline. Butanol, the kind we use, can be converted into diesel fuel and also into jet fuel. It has essentially no impurities and is essentially indistinguishable from normal diesel and jet fuels. We can make it from a variety of feedstock.

We can make butanol from corn, but we've decided to avoid that route. Corn is expensive, so it's hard to make money. A second reason: corn is used for food. So we're using cellulosic biomass waste streams -- corn cobs, treetops and limbs, dead pine trees from pine beetles.

We cannot convert municipal solid waste. That's a bit of too much of a challenge right now.

A tree is actually sugar. You need to do a bit of chemistry to get the sugar out. Mother Nature has five types of sugars -- we can use two types, six-carbon and five-carbon sugars found in nature.

SmartPlanet: Cobalt has seen investment from VantagePoint, Pinnacle, LSP and Harris & Harris, among others. How did you convince them that biofuels could be done?

RW: You put a slide pack together and go to [popular private equity center] Sand Hill Road. There are a lot of incentives out there. Once you're successful there are incentives, but our technology doesn't need incentives to make money.

We need money to keep this company going until we can build a profitable plan.

The "Valley of Death" -- it's just hype in the beginning. Once you build technology, you have to demonstrate it. (Editor's note: The cleantech "Valley of Death" refers to the difficult time period that comes between the proof-of-concept stage and large-scale deployment.)

The further you get into this, the more money it takes. That's really the challenge with all these fuel and chemical technologies, they have to cross the Valley of Death.

SmartPlanet: You're keen on biofuels; that much is clear. What's the potential market?

RW: It's huge. The first thing we want to do is sell butanol into the chemical market. That's a $7 billion dollar market. We want to do that because prices are higher than they are in fuels and the key to getting the technology really, really, really cheap, which we all want, is to climb down the learning curve: you build one [plant], you build another better, then next one better, and so forth. The key is to climb down the learning curve as fast as you can.

We're going to start out there, at $7 a gallon, and not try to sell into the gasoline market at $2 a gallon.

If you're building cellulosic ethanol, the second, third and fourth [facilities] won't make any money.

Our company right now is designing a demonstration facility, which will produce 1.5 million gallons per year. That arguably may put us in the lead in the space.

SmartPlanet: And the hurdles? How will you meet your goals?

RW: To be successful in this space, there's no on-the-job learning. You can't afford to make one mistake. One thing that becomes very clear when you've been at BP -- there, I was responsible for purchasing oil and selling crude products -- is: how do you make money in this business? You need to have cheap crude oil -- i.e. waste materials -- [and] you don't want to be in competition for feedstocks, or you're squeezing your margins. And you need to have good products.

A lot of my competitors fall in love with the product and forget that.

I focused the company on the feedstock. I actually ran clean fuels research for Amoco at the time, which actually involved cleaning up gasoline, so I know what it takes to bring technology from test-tube scale to production.

When you're running a small company like this, you need to pull all these pieces together. As a CEO, you can't do everything, but you need to know what a good hire looks like. What is the real skill set that your management team needs? It's very difficult to attract the right talent people to a startup, because there's no guarantees.

SmartPlanet: You mentioned several sources for your feedstock. What's your focus? Will you co-locate?

RW: The emerging trends are corn cobs -- that's what DuPont, Denisco and Verenium are using. Corn cobs are easy to break down into sugar. But that's not a solution to the cellulosic fuel problem. I think you're going to see those show up, though -- every form of agricultural waste will show up.

I don't know that we're ever going to go into a forest unless the trees are dead already. The one place you might see wood harvesting is in the southeast U.S. because wood is cheap there. Our facility is going to be colocated with a pulp mill.  There are over 500 pulp mills in this country and they're on their back.

We're focusing on three areas: pulp mills and ethanol plants in the Southeast, Northeast and Northwest, where we're not using forest trimmings.

It's a learning process. It's one thing to take wood chips in a lab and put them in my test tube, but it's another to handle tree limbs, tops and logs and doing that conversion. You start small and do it bigger.

The way we're going to cross [the Valley of Death] is co-locate with a pulp mill. Our first demonstration facility will turn a profit when you sell into the chemical market, and we should have our facility completed by the end of 2011. We expect multiple facilities in 2012.

SmartPlanet: Is the pressure to prove yourself taking a toll?

RW: I wake up with adrenaline and fear every morning. Mostly, raising money is the hard part. I have no doubt in the technology in this stage. This is not the best environment to be raising money in. It's a hard economic time.

DOE [Dept. of Energy] grants can support research and development, a pilot plant, a demonstration facility. Those programs have been out there, and I wouldn't be surprised to see Cobalt benefiting from those programs. The job the DOE has is sifting through applications. I do think in their first round that they made a few mistakes, but they're learning from their lessons.

Hopefully, there's a lot of national will to do these things. You may not want to believe in global warming, but you have to realize that [with the BP-Transocean oil spill] we just poisoned half the food chain down there in the Gulf of Mexico.

Knowing BP, it's not a surprise. It's a broken culture.

The winners can come from anywhere in the last minute. I have a lot of respect for anybody who tries to do this, because if it were easy, everybody would do it. Nobody's been successful in the biofuels business, because it's really hard.

From a volume perspective, the fuels market is much better than the chemicals market. The chemicals market is pretty exciting -- the revenues are the same. Trillion-plus-dollar markets.

The real key to winning is to get out there and build a lot of these things and be first. The first guys out there will be the companies that get all the resources. Government can be like a fire hose.

That's how I'm trying to position Cobalt. From a consumer perspective, it's actually an exciting time.
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