Green Energy Big Issue for '08

Presidential candidates used to get away with little more than plugging ethanol in Iowa and the requisite pledge to clean the air and water for the next generation. Not in 2008. With oil prices nearing $100 a barrel and public concern over global warming rising faster than Al Gore's trophy pile, this year's campaign clich? is "energy independence." Along with health-care plans and strategies for Iraq, the candidates are churning out detailed proposals to slow climate change and wean the country from imported oil. (How green are you? Take our quiz and calculate your carbon footprint.)

Last week in Iowa, Hillary Clinton announced a plan to increase U.S. biofuel production. Two days later, she popped up in New Hampshire with home-improvement expert Bob Vila to trade tips on energy efficiency. This weekend in Los Angeles, she and John Edwards will attend the first-ever presidential candidates' debate on climate change. Not to be outgreened, Republican Sen. John McCain is pushing his bill to cap and trade greenhouse-gas emissions. New York City mayor (and potential independent challenger) Michael Bloomberg is calling for a carbon tax. Rudy Giuliani is pushing solar, wind and even nuclear power as "a matter of national security."

The pols, it seems, have figured out what venture capitalists and entrepreneurs have known for years: green is Topic A. "It's really smart to pull up renewable energy as a headline issue," says Silicon Valley venture capitalist Ray Lane, who now invests exclusively in "cleantech" ventures, even though, he cautions, "I have not become a tree-hugger—or a Democrat." Rather, it's because the $6 trillion world-energy market, dominated for the past century by fossil-fuel interests, is being swarmed by thousands of entrepreneurs peddling game-changing technologies in solar, wind, geothermal and bio-energy, batteries, electric "smart grids" and plain-old efficiency. The technologies are moving from the lab to the marketplace just as political pressure mounts to force companies to curb their greenhouse-gas emissions. "It's a perfect storm," says Lane.

Lane's firm, Kleiner-Perkins, now devotes one third of each new investment fund—about $200 million to $300 million every few years—to cleantech start-ups. Stars of the early computing era, including Sun Microsystems founder Vinod Khosla and Microsoft cofounder Paul Allen, have reinvented themselves as clean-energy investors. Nationwide, according to the Venture Capital Association, investments in cleantech nearly tripled from $497 million in 2005 to $1.45 billion in 2006.

Profit is not the only motive. For many renewable energy entrepreneurs, finding alternatives to oil, gas and coal is the biggest technological opportunity the world has seen since the birth of personal computing. "We are now where Bill Gates was before he left Harvard" in the 1970s, says Martin Tobias, a former Microsoft executive and digital-media pioneer, who launched Seattle-based Imperium Renewables, a biodiesel manufacturer in 2005. Imperium, which has filed papers to go public, last summer opened the country's largest biodiesel refinery, on the Puget Sound. (The fact that Tobias is a Republican didn't stop the state's Democratic pols from showing up for the ribbon-cutting.)

Like the dotcom era, the cleantech boom is sure to produce its share of flops—and an investment bubble or two. The science is tough, and oil isn't going away any time soon. None of that scares the entrepreneurs profiled below. NEWSWEEK has selected four privately held companies whose breakthroughs to replace fossil fuels seem especially promising.

Say "Solar," and most people think of the trendy photovoltaic panels popping up on the roofs of houses and office buildings around the country. But physicist David Mills knows that the power of the sun is best captured by gigantic fields of mirrors arrayed on the ground, which can generate enough electricity to run an entire power plant. Mills, a physicist, spent decades developing his technology—called a Compact Linear Fresnel Reflector—at the University of New South Wales in Australia. After his attempts to commercialize the process stalled, Mills, 61, thought about retiring. But two well-known Silicon Valley venture capitalists got to him first. Lane of Kleiner-Perkins and Vinod Khosla, the valley's leading renewable energy evangelist, offered Mills a $40 million investment and a top management team to get him to come to California and start over.

Last week, Ausra signed a 20-year contract with Pacific Gas and Electric to provide electricity from a $500 million, 177-megawatt solar-thermal plant under construction in California's Central Valley. The plant, which is set to go online in 2010, will be the world's largest solar installation. The blueprint is disarmingly simple. Rows of flat mirrors that follow the path of the sun are arranged in a one-square-mile grid. The mirrors reflect the sun's heat onto water-filled pipes above, creating steam that cranks a turbine in a nearby power plant. The electricity produced doesn't emit a molecule of greenhouse gas. "Big solar," as Ausra's concept is known, is especially attractive in California, where public utilities are required to get 20 percent of their power from renewable sources by 2015.

The bigger the plant, the cheaper each kilowatt-hour produced. "A field of mirrors 91 miles square could power the entire United States," Mills says. Though that field is unlikely to ever be built—strong-enough transmission lines don't exist—the emerging solar-thermal industry has sparked a land rush in the American desert. The conference table at Ausra's new offices in Palo Alto is littered with the maps of remote southwestern tracts and marginal farmland, bearing little flags where the company or its competitors have snapped up land to develop solar fields. "The hotter and nastier, the better," says Mills of Ausra's most desirable real estate.

Last year, solar-thermal sales tripled in the United States to $121 million, and demand is expected to soar as other states develop renewable power standards. With help from their venture-capital mentors, Ausra has a management team drawn from the normally change-resistant utility industry. "I don't own a pair of Birkenstocks," says CEO Bob Fishman, a former Navy engineer who spent decades in the natural-gas business before joining Ausra. "We are serious guys. And we are doing this because it's a viable business, not because it's a crusade." In other words, lots of mirrors, no smoke.

The choice for microbiologist Jack Newman came down to making strawberry fragrance or changing the world. Sitting around a conference table last year at Amyris Biotechnologies in Emeryville, Calif., Newman and his colleagues were trying to figure out what to do following the success of their project to produce inexpensive anti-malarial drugs. (The project was a collaboration between the Institute for OneWorld Health, Amyris Biotechnologies and U.C. Berkeley, and was funded by the Bill and Melinda Gates Foundation.) The genetically engineered microbes responsible for their breakthrough showed tremendous promise in other areas. "We talked about flavors or fragrances or vitamins that would make a couple of million bucks," says Newman. "Then we said, 'Wait a second. A lot of people came [to the company] to change the world, so why not tackle a really big problem?"

The scientists, who met as postdoctoral fellows at U.C. Berkeley, decided to apply the knowledge they used to create their low-cost drug to develop a line of "no-compromise" biofuels. Competitive in price and performance with conventional fossil fuels, Newman says the Amyris products will cut greenhouse-gas emissions by 85 to 95 percent, making them far cleaner than ethanol. And unlike ethanol, the biofuels can be transported in existing pipelines, and can be engineered to work in gasoline, diesel or jet engines.

Amyris recently hired former BP executive John Melo, a native of Brazil, the world's largest sugar-cane producer, as CEO, and the company is reportedly talking with Virgin's Richard Branson about a future distribution network. Amyris will start test production next year and plans to mass-produce its first biodiesel by 2011. They got their start by doing good, but don't be surprised if the scientists from Amyris end up doing extremely well in the energy market of the future.

Impressed by the 50 or so miles per gallon of the average Toyota Prius? Pop a suitcase-size battery pack from A123 Systems into the trunk and watch your newly converted plug-in hybrid shoot to 174mpg. "You fill your tank three times a year," says CEO David Vieau. The Watertown, Mass., Company has won raves in technology and investment circles by figuring out how to overcome one of the biggest hurdles in the development of the electric car: huge, unreliable, expensive—and flammable—batteries. While current lithium-ion batteries work well enough for laptops and cell phones, scientists at A123 have replaced chemical components with extremely thin layers of nanophosphate, a conductive material that makes the new batteries smaller and quicker to charge than their predecessors.

Starting next year, A123 will sell its battery to hybrid owners who want to convert their cars to plug-ins—models that you recharge in the garage overnight. The estimated price tag of $10,000 for the conversion will be too steep for most individuals, so company executives expect their main customers will be government or corporate hybrid fleets. The next step will be factory-installed battery packs in a new generation of hybrid and electric vehicles, like the Saturn Vue and the Chevy Volt, scheduled to hit the U.S. market in 2009. The company has raised $132 million in capital from leading venture firms such as Sequoia Capital, as well as from GE, Proctor and Gamble, and Qualcomm, companies eager to apply the new batteries in their products.

A123 has drawn attention from politicians as well. Last week, U.S. Energy Secretary Samuel Bodman dropped by. Earlier this year, Vieau was invited to the White House, where an admiring George W. Bush took a peek at one of the company's plug-in hybrids. "He said he had been waiting for the day that a car could go 40 miles on electricity and not be a golf cart," says Vieau.

Shai Agassi was cruising along in his software career, until, he says, he was asked an "annoying" question at last year's World Economic Forum, the annual meeting of global elites: "What would you do to make the world a better place?"

What came pouring out was a 21-page manifesto on the end of oil—and a business plan to remake the world's transportation infrastructure. Earlier this year, Agassi left his position as a top executive at the software giant SAP and launched "Project Better PLC" (Better Place), his company to build a network of battery-charging stations for electric vehicles. Owners of battery-operated cars will pull into a Better Place station and switch an empty battery for a charged one, eliminating one of the chief obstacles to electric-vehicle transportation: the limited travel range.

The "smart grid" Agassi envisions will also allow plug-in hybrid owners to sell their car's energy back to the grid at peak hours. This "vehicle to grid" (V2G) concept is also being studied by utility companies, including Pacific Gas & Electric and Tesla, the electric-car manufacturer. PG&E chairman Peter Darbee envisions a day when customers will become suppliers. "After you drove to your office and parked at the appropriate receptacle, you could put in a sell order like you do today with stocks, so that if the price gets to say, 14 cents per kilowatt hour, your sell order goes through and we draw power on your car."

While the development of a mass-market electric car has been slowed by battery problems, Agassi says it makes sense to start building the grid now, just as cell-phone carriers built transmission towers before everyone owned a cell phone. He plans to start testing cars next year. "If you build the network, they will come," he says. Agassi has raised $200 million in venture capital so far, and while he is so far coy about where "Better" will build its first recharging stations, he has hinted that his native Israel, where gas costs around $6.50 a gallon and government policy promotes electric-vehicle transportation, would make a logical test market. Other "transportation islands" where exorbitant gas prices and favorable government policies make the cost of battery-operated cars more competitive include Singapore, Iceland, Denmark and Japan. No matter the language, Agassi is betting on a new way to say "fill 'er up."

CORRECTION (posted Nov. 15, 2007): An earlier version of this story suggested that Amyris's work on anti-malarial drugs was funded directly by the Bill & Melinda Gates Foundation. The Gates grant actually went to the Institute for OneWorld Health, which worked with Amyris and U.C. Berkeley on the project.

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