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By Robert Rapier on Nov 30, 2011 with 5 responses

R-Squared Energy TV: Episode 3 – Joule Unlimited, Due Diligence, Politicians on Energy

This week’s episode of R-Squared Energy TV considers the following viewer questions:

  • What do you think about the company Joule Unlimited?
  • Who are the best politicians on energy policy?
  • Who are the worst?

In this episode I explain the single-most important question to ask when conducting due diligence on a renewable energy company. I will also discuss why Republicans and Democrats each only get half of the picture right when it comes to energy policy.

Two notes on the video. I did make a misstatement at about the 4:25 mark when I said “the importance of getting off energy.” I meant to say “oil” and not energy. Also, when I was mentioning politicians who are knowledgeable about our energy predicament, I said “Al Bartlett” of Maryland. Al Bartlett is of course Professor Emeritus from UC Boulder who famously said “The greatest shortcoming of the human race is our inability to understand the exponential function.” That should have been Congressman Roscoe Bartlett of Maryland, who has given talks on the House floor about peak oil. Apologies to both gentlemen, and thanks to the viewer that flagged this.

Next week’s episode will discuss the books in that pile behind me. One sharp-eyed viewer asked about one of the titles in that stack, as well as for other reading recommendations.

Readers who have specific questions can send them to ask [at] consumerenergyreport [dot] com or leave the question after this post (at the original source). Consider subscribing to our YouTube channel where you’ll be able to view past and future videos.

Link to Original Article: R-Squared Energy TV: Episode 3 – Joule Unlimited, Due Diligence, Politicians on Energy

By Robert Rapier

  1. By Walt on December 1, 2011 at 7:45 am

     

    The example RR gives on the company who said they have 5 plants operating in a specific area during a public presentation, and then later while being interviewed privately admits they have only planned for 5 plants is an “extreme example” not likely to be seen often.  Most companies would never make such a claim publicly in my experience, unless they are just outright frauds.  However, I do understand RR’s point that the best way to find out what the company is doing is to pick up the phone and call them.  I agree with this form of due diligence as the best way to learn about a technology, the strengths and weaknesses of the company and the way to debunk rumors that could be floating around the internet about the company or its technology.

     

    One thing I would advise against is PRIMARILY reading analyst reports on a company or technology.  I learned this first hand when contacted by an analyst who wanted to do an independent evaluation of our technology for their paying clients.  They could not disclose who were the specific clients that wanted the report, but it would be sold to their entire subscriber base.  I later learned it could be paid for by a competitor or VC group who intentionly wants to get something on record that discredits the company. 

    The process involves the analyst doing a swat type of interview during 30 to 60 minutes.  They take notes and then write a Q&A briefing document.  The analyst then assigns ratings to the company and technology.  In the end, the brief answers and analyst comments justify the rating and it is then published.  They usually allow the company to try to factually review the report, but will not allow the company to overturn the “opinions” of the analyst no matter how negative or out of context the comments are discrediting the company/technology.  Therefore, I would encourage those doing due diligence not rely SOLELY on bloggers or analysts as the “best” source of information in due diligence.  One can offend the blogger or analyst unnecessarily and the information forthcoming could negatively impact the company publicly.  In our case, we will never go through this process again no matter how “independent” the analyst and company claims.  We prefer to be included in studies where we know what company is funding it and that they truly want the most independent evaluation so as to select the best technology solution.

     

    Otherwise, pick up the phone and call…then check references and spend money to jump on a plane to meet face-to-face.  The best form of due diligence is to get in the field or scratch below the surface with the principals.  NEVER judge new technologies based upon traditional means of who is sitting on the board, who are the VC investors, how much money have their raised and how many government grants did the company receive.  I have never looked much at Joule Unlimited, but after seeing their management, board and advisors, my first impression is these guys are who’s who in the world of advanced fuels.  I don’t think I’ve ever seen a management structure so impressive and heavily supported.  The awards they are winning clearly gives them credibility and the ability to attract brand names in finance.  Incredible story.

     

    Here is an article out of Europe that gives Silicon Valley a hard time (finally!).  This analyst looks at the entire track record of a broken model that continues to beg (and receive) for government money to support their investments…no matter how bad their track record so far…and does not really choose one company (unless it is bankrupt) to pick on. :)

    ————————

    http://www.europeanenergyrevie…..hp?id=3385

    Despite spending hundreds of billions of venture capital on developing
    “Green Energy”, Silicon Valley never produced any companies or
    technologies that managed to achieve a breakthrough in energy. That was
    left to the son of a Greek goat herder who worked in the dirty old
    fossil-fuel sector that attracted no interest from the likes of Bill
    Gates. Analyst Andrew McKillop explains why the Silicon Valley model
    does not work in the energy sector….

    Silicon Valley’s defenders continue pretending that an exclusively
    private venture capitalist risk-taking model in green energy can deliver
    clean, reasonable priced and secure energy. The storyline is “trust us –
    give us more money and time”. This investment model, exactly the same
    which has produced the most intense and dangerous global economic and
    financial crisis since 1945, is basically an elitist flight from
    reality, featuring a clique of influential and rich business players who
    “sincerely believe” they deserve huge government subsidies – while
    proclaiming their proud support of private venture capitalism. All too
    often, investor and government cash flowing to such ventures is
    frittered away on elitist pet themes, with little or no regulation,
    oversight or obligation to perform. As we know from the real history of
    Silicon Valley, the end result is monopoly market power and the huge
    personal cash piles of a few IT Barons of the Valley: their losses are
    externalized and their profits are privatized.

    [link]      
  2. By Edward Kerr on December 1, 2011 at 10:54 am

    Robert:
    I like video as a method to discuss ideas. Kudos. What you point out (political polarization and dis-ingeniousness) is one of the main stumbling blocks to our need to transition away from fossil oil and ESPECIALLY coal.
    Personally I would be looking at ways to displace coal ASAP. The burning of coal and the activities that are associated with coal burning (mountain top removal) are causing the most damage and the easiest to replace with existing technologies. I agree that it won’t be easy but the stakes are too high for us to dally on this issue. With the political climate being what it is I do my best to not become too despondent.
    Keep up the good work.
    Ed

    [link]      
  3. By rrapier on December 1, 2011 at 12:14 pm

    Walt said:

     

    The example RR gives on the company who said they have 5 plants operating in a specific area during a public presentation, and then later while being interviewed privately admits they have only planned for 5 plants is an “extreme example” not likely to be seen often. 


     

    That may be true, but it is very common for a company to make claims about their technology that have never been demonstrated simply on the basis that they believe they can do it. And they make no caveats that they are making projections. Every company saying they can produce fuel for $1 or $2 a gallon is doing that — and there are a lot of folks doing that.

    RR

    [link]      
  4. By Walt on December 2, 2011 at 7:29 am

     

    This challenge is very interesting for those of us that support methanol as a possible fuel or fuel blend feedstock.  There is no doubt that within the USA there is a very tiny movement restarted to consider methanol for fuels and not just a chemical feedstock or intermediate chemical to fuels.  I say this is tiny because it is very much a controlled market by a handful of methanol producers (importers) and traders that have some careful ground to walk on to compete with the ethanol lobby and its subsidies. 

    Although we are not privy to any settlement agreement between ADM and Methanex when Methanex sued the State Department under NAFTA due to alleged actions by ADM to destroy methanol advancements in California in favor of ethanol, I think there might be a change coming.  Although my email inbox is 95% foreign companies interested in Mini-GTL or small scale methanol production, I do think the article below is evidence that methanol is possible as a fuel blendstock.  I don’t think M100 is going to work as the test below described, but blended with gasoline like Lotus suggests and/or with ethanol (as is done today at 3% methanol, 10-15% ethanol) is possible as markets demonstrate daily.

    I recognize that some do not believe methanol can be produced for less than $1.00 per gallon except at jumbo scales, but I firmly believe that it can and it depends on feedstock costs almost entirely.  Feedstock costs can make up 60+% of the opex at small scales, and at today’s market prices for natural gas not only is it possible to get down to $1.00 per gallon, it is possible to go lower depending on many variables in CAPEX and project finance structures.  It is not possible to load up a project with lots of expensive loans and debt (guaranteed by the government) and make cheap fuels.  The main money maker are the bankers and the scraps from the table can be used to keep the company afloat until a market correction and then the bankers pick up the scraps to repackage and sell over again.

     

    ——————————-

    Methanol Wins An Open Wager

    Posted: 01 Dec 2011 12:42 PM PST

    By Dr. Robert Zubrin (originally published in the National Review Online here).

    2007 Chevy Cobalt

    On August 2, I published an open wager
    on National Review Online. I offered to bet up to ten people $10,000
    each that I could take my 2007 Chevy Cobalt, which is not a flex-fuel
    car, and, running it on 100 percent methanol,
    get at least 24 miles per gallon on the highway. Since methanol
    averages less than half the price of gasoline — and can readily be made
    from coal, natural gas, or any kind of biomass without exception — this
    would demonstrate superior transportation economy from a non-petroleum
    fuel that is producible from plentiful American resources.

    Unfortunately, no one took the bet. That fact alone says a lot. Of the 7
    billion people on this planet, there are about a million or so who know
    a great deal about cars. Clearly, not one of them was sufficiently
    doubtful that it could be done to put his money on the line. Although it
    left me short a nice chunk of easy cash, the refusal of anyone to
    accept my challenge should have settled the matter. But some people,
    while refusing to take the bet, still demanded that I conduct the test
    anyway. I did, and here are the results.

    First, I ran the car on 100 percent methanol. This required replacing
    the fuel-pump seal made of Viton, which is not methanol compatible, with
    one made of Buna-N, which is. The new part cost 41 cents, retail. In
    order to take proper advantage of methanol’s very high octane rating
    (about 109), I advanced the timing appropriately. This dramatically
    improved the motor efficiency and allowed the ordinarily sedate sedan to
    perform with a significantly more sporty spirit. As measured on the
    dyno, horsepower increased 10 percent. With these modifications
    complete, I took my Cobalt out for a road test. The result: 24.6 miles
    per gallon.

    [link]      
  5. By Walt on December 2, 2011 at 9:25 am

     

    With the deal announced by Amyris and Total yesterday both Kleiner and Khosla, who have large investments in Amyris, shows there is light is at the end of the tunnel.  The revenues Amyris is showing already from two pilot plants in operation are substantial and it does appear that the cost of renewable fuels/jet fuel, etc. are dependant on the following quote from their S-1:

     

    “we plan to enter into arrangements with Brazilian sugar and ethanol producers to produce our products, and if we are not able to
    complete these arrangements in a timely manner and on terms favorable to us, our business will be adversely affected;”

     

    The Total release gives the deal the network they need for fuels distribution:

     

    ———————–

    Paris, France and Emeryville, Calif. - Total and Amyris announced today
    the signing of agreements to expand their current R&D partnership
    and form a joint venture to develop, produce and commercialize a range
    of renewable fuels and products.

    Total and Amyris have agreed to expand their ongoing research and
    development collaboration to accelerate the deployment of Biofene(r) and
    develop renewable diesel based on this molecule produced from plant
    sugars. The ambitious R&D program, launched in 2010 and managed
    jointly by researchers from both companies, aims to develop the
    necessary stages to bring the next generation renewable fuels to market
    at commercial scale. Total has committed to contribute $105 million in
    funding for an existing $180 million program.

    In addition, Total and Amyris have agreed to form a 50-50 joint venture
    company that will have exclusive rights to produce and market renewable
    diesel and jet fuel worldwide, as well as non-exclusive rights to other
    renewable products such as drilling fluids, solvents, polymers and
    specific biolubricants. The venture aims to begin operations in the
    first quarter of 2012.

    Read more: http://www.globalenergywatch.c…..z1fO1nmCht
    ———————–
    Even though they have no profits the amount of cash and paid in capital is really amazing for this young company.
    ————–
    The Company has incurred significant losses from operations since its inception and its accumulated deficit as of September 30, 2011 was $321.8 million . The Company expects to finance its operations for the foreseeable future with cash and investments currently on hand, with cash inflows from collaboration and grant funding, potential cash contributions from product sales, and with new debt to provide additional working capital and to cover portions of its capital expenditures. As currently contemplated, the Company’s operating expenditures, capital expenditures and other strategic plans for the remainder of 2011 and for 2012 require significant inflows of cash from credit facilities and similar sources of indebtedness, as well as funding from collaboration partners, that are not yet subject to definitive agreements or commitments from such parties.
    ……………
    Revenue Recognition
    The Company recognizes revenue from the sale of ethanol and reformulated ethanol-blended gasoline, farnesene-derived products, delivery of research and development services, and governmental grants. Revenue is recognized when all of the following criteria are met: persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the fee is fixed or determinable, and collectability is reasonably assured.
    Product Sales
    The Company sells ethanol and reformulated ethanol-blended gasoline under short-term agreements at prevailing market prices. Ethanol and reformulated ethanol-blended gasoline sales consists of sales to customers through purchases from third-party suppliers in which the Company takes physical control of the ethanol and reformulated ethanol-blended gasoline and accepts risk of loss. Starting in the second quarter of 2011, the Company began to sell farnesene-derived products, which are procured from contracted third parties. Revenues are recognized, net of discounts and allowances, once passage of title and risk of loss has occurred and contractually specified acceptance criteria have been met, provided all other revenue recognition criteria have also been met.
    Grants and Collaborative Revenue
    Revenue from collaborative research services is recognized as the services are performed consistent with the performance requirements of the contract. In cases where the planned levels of research services fluctuate over the research term, the Company recognizes revenue using the proportionate performance method based upon actual efforts to date relative to the amount of expected effort to be incurred by the Company. When up-front payments are received and the planned levels of research services do not fluctuate over the research term, revenue is recorded on a ratable basis over the arrangement term, up to the amount of cash received. When up-front payments are received and the planned levels of research services fluctuate over the research term, revenue is recorded using the proportionate performance method, up to the amount of cash received. Where arrangements include milestones that are determined to be substantive and at risk at the inception of the arrangement, revenue is recognized upon achievement of the milestone and is limited to those amounts whereby collectability is reasonably assured.
    —————
    [link]      
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