Ze-gen Ramps Up its Waste Gasification Process: Lessons from a Clean-Energy Startup
Xconomy has been around for 27 months now, long enough to watch quite a few of our fellow Boston-area startups expand, deal with serious challenges, and start to get their technologies out into the world. One of them is Ze-gen, a waste gasification company that I first visited in August 2007. This week I got a chance to take a second tour of the company’s demonstration plant in New Bedford, MA, an hour south of Boston, and to get an update from president and CEO Bill Davis, who founded Ze-gen in 2004.
The tour and the interview turned into a mini-education in the hurdles facing startups in the bustling, bruising cleantech sector. So far Ze-gen has been clearing those hurdles, and if all goes according to plan, the company will have its first commercial gasification plant up and running by the second quarter of 2011. That’s about a year behind the schedule the company originally laid out back in 2004. But considering the state of the economy lately, a year’s slippage isn’t all that bad.
I thought I would try to sum up some of the insights from Ze-gen’s experience in digest form, which I’ve done below. But first, a quick refresher on Ze-gen’s business and technology. The company is developing an industrial-scale system in which organic waste material such as construction and demolition debris (called “C&D,” and composed mostly of wood) is dropped into a vat of molten metal. Under tremendous heat, the waste instantly breaks down into elemental gases—mainly a mix of hydrogen and carbon monoxide that’s known as “syngas.” The syngas can in turn be combusted to run electrical turbines or boilers, or turned into liquid biodiesel fuel. (Unlike incineration, the gasification process produces no carbon dioxide emissions; the name Ze-gen stands for zero-emissions generation.)
Ze-gen’s prototype system takes up a building the size of a large barn—and the commercial version will be even larger. The system was in full, hot, noisy swing during my visit. As the photos scattered through this article illustrate, the process is fairly simple, with shredded C&D waste falling from a hopper onto a conveyor and up an elevator, then falling back down into a furnace half-filled with a molten copper bath that’s maintained at about 2,400 to 2,700 degrees Fahrenheit. Syngas from the furnace flows out into a combustor—where the boiler or turbine would go, in a commercial plant—and leftover gases are scrubbed and vented.
Lately, Ze-gen has been running the plant for about 12 hours a day, gathering data on its syngas production efficiency using various types of feedstock, and at various bath temperatures. Getting to this point has been a five-year slog. “Any pre-revenue company, in my view, is frustrating, or should be frustrating, because it takes other people’s money in order to get a technology to the point where it’s producing,” says Davis. “For the first few years, at our demonstration plant, it was a lot of episodic testing. You’re not really ready for commercial deployment until you can prove that you can run continuously.” But Ze-gen now has the permits it needs to run 24/7, and as soon as the company can hire enough qualified staff, the gasifier will be running around the clock. “It’s actually quite satisfying, because I can come down here on any given day without making any special plans, and the plant is running,” Davis says.
The company has more than doubled in size since my last visit: it now has 27 staffers, 11 of them in an adminstrative and engineering office in Boston and the rest at the plant, which is conveniently located on the grounds of a solid waste sorting facility in New Bedford. All of that growth takes money, of course, and earlier this year, the company augmented a $4.5 million Series A round from 2007 with a much larger, $25 million round. The main funders include Flagship Ventures, VantagePoint Venture Partners, the Massachusetts Technology Development Corporation, and an Oman-based industrial conglomerate called Omzest Group.
Ze-gen’s overall story is an illuminating one, not just for other clean energy startups, but for technology startups in general, many of which run into the same general types of problems that Davis has had to tackle over the past two years. Here’s my take on a few of the lessons:
“Invention” is not a discrete event—it’s a process that stretches out over years, and often involves sharp turns.
When I visited Ze-gen in 2007, the centerpiece of the demonstration plant was the company’s prototype gasification furnace, which would later be half-filled with molten iron. Under the company’s original design, waste was fed into the middle of the iron bath through a tube that was partially submerged in the liquid metal. This tube also supported a rotating coil that constantly stirred the iron to speed gasification.
The company quickly found that this system didn’t work. The torque on the feed tube from the stirring, along with the drastic thermal gradient between the bottom of the feed tube and the top, inevitably caused it to weaken and break off after a few minutes or hours of operation. (During my tour this week I got a look at an old photo of the remnants of one feed tube, floating atop the molten iron as partially melted slag.) After each failure, the tube would have to be replaced, causing great expense and delay.
“Our first feed tube cost $12,000 and lasted about 12 minutes, and four months later they cost $700 and lasted 7 hours, so there was progress made,” Davis recounts. “But ultimately we decided that having a feed tube was not the way to go. We needed to get the feedstock into the gasifier without the use of feed tubes.”
That led to what Davis calls “a major engineering modification”—essentially, a complete redesign of the the furnace. In the new design, the tube that brings feedstock into the furnace has no stirring function; in fact, it ends just above the surface of the copper bath, meaning it acts mainly as a shroud, carrying the feedstock to the zone of highest temperature before it gasifies. Also, Ze-gen switched from molten iron to molten copper, which has a lower melting point, and therefore doesn’t congeal on the tube and the inside walls of the furnace when it splashes (a major problem with the first prototype).
All of this reengineering cost Ze-gen some time, but it wasn’t necessarily a surprise, Davis says. “When you start off, you know what you want to create, and you have an idea of how you want to get there, but we also knew there were a lot of things we would have to figure out along the way,” he says. “We were confident that we could assemble a team to do that, and that if we hit a roadblock, we’d find a workaround. That is what we have been able to do.”
Scaling things up is rarely a smooth process.
There’s little way that Ze-gen could have anticipated the problems with the original feed tube and the splashing iron bath without actually building a barn-sized prototype, filling it up with molten metal, and trying it out.
“There are some technologies where you could build a version that fits on a table, and be reasonably confident that you could replicate it at a much larger scale,” Davis says. “But when you get into stuff like this, you can’t prove the chemistry in a coffee pot. If you want to prove commercial viability, you’ve got to be meaningfully scaled to do that.”
Ze-gen’s next step—after it has collected enough data from continuous operation of the demonstration plant—will be to try the process on a slightly larger scale, in a plant where the syngas will be fed into a real boiler, for purposes of either heating or electrical generation. Doing that will require a larger partner to help with the financing, and Davis says Ze-gen hopes to announce a joint venture agreement with an as-yet-unnamed company this fall. Who the partner is, or where the plant will be, are secrets for now—but construction is expected to start in the second quarter of next year.
If you raise some money and show some early success, you can expect competitors to come after you—sometimes with lawsuits in hand.
Last September, a Fall River, MA-based company called Quantum Catalytics sued Ze-gen, saying the startup’s gasification technology infringed on patents it had acquired from a now-defunct 1989 MIT spinoff called Molten Metal Technologies. I wrote two extensive stories about the patent dispute, which centered around allegations that Ze-gen acquired confidential information about the patented process by hiring engineers, consultants, and attorneys who formerly worked for Molten Metal.
Ze-gen denied the allegations. If the startup had licensed the Molten Metal technologies from Quantum Catalytics in 2005, when Quantum’s CEO first approached Davis, it might have avoided the suit. But Davis declined to cut a deal then, and Ze-gen said later in legal documents that not only were the two companies’ technologies non-overlapping, but many of the patents Quantum claimed it controlled were expired. (In a motion to dismiss the lawsuit, Ze-gen’s attorney went even farther, describing Quantum’s approach to Ze-gen as a “shakedown operation.”)
The fact that some of the disputed patents were inactive may have decreased Quantum’s leverage; in any case, after months of legal maneuvering and negotiation, the suit has now been settled. In an agreement finalized on September 18, Quantum Catalytics and Ze-gen dropped all claims and counterclaims. Davis says Ze-gen’s settlement payment was so small that it won’t materially affect the company. “I’m not free to disclose what it was settled for, but I’d say we were very pleased with the outcome,” he says.
If your business plan depends on regulatory changes, tread carefully—and try to line up political support.
Unlike some other energy companies we’ve covered—IST Energy, which has developed a cargo-container-sized waste gasification machine, comes to mind—Ze-gen hasn’t had trouble getting the permits it needs to run its demonstration plant. But there is a major regulatory snafu that could prevent the company from growing in Massachusetts. That’s the fact that the Massachusetts Department of Energy Resources has not yet decided whether to classify waste gasification as a form of renewable energy. Unless it does, Ze-gen won’t be eligible to sell renewable energy credits (RECs), which have become an important financing vehicle for most cleantech companies. (An REC is essentially a promise by one entity that its activities will decrease carbon dioxide emissions by a certain amount, offsetting the CO2 emissions of the REC buyer. There’s a growing trade in RECs, with companies like Worcester, MA-based World Energy acting as marketplaces.)
“In my view, it is beyond perverse that an advanced technology like ours, which not only prevents landfilling but prevents all of the uncaptured methane that landfills produce from entering the atmosphere, would not qualify” for RECs, Davis says. The opposition to classifying waste gasification as a form of renewable energy apparently centers around fears that it might reduce recycling. But that’s an “illogical” fear, Davis says, since C&D waste like that used in Ze-gen’s demonstration plant has already been recycled—the company gasifies what’s left after everything recyclable has already been recovered.
Fortunately for Ze-gen, the Waxman-Markey climate and energy bill passed by the U.S. House of Representatives this summer includes a provision ensuring that C&D waste gasification would count as a form of renewable energy. Davis says two large non-governmental organizations lobbied specifically on Ze-gen’s behalf for the inclusion of that language. “I’m not allowed to mention the name of the groups that lobbied for us, but they recognize the perversion of disincentivizing advanced technology while awarding incineration and landfilling,” Davis says.
The Senate, however, has yet to come up with its own version of climate and energy legislation—so Ze-gen could still use some friends in high places.Be open to redefining your market as the economy dictates.
The main problem for U.S.-based energy entrepreneurs has always been that fossil fuels are so cheap here, meaning there’s little incentive to invest in alternatives. In 2008, when petroleum and natural gas prices shot up, it looked like the economics of cleantech might finally be changing, but the spike was short-lived. That could force Ze-gen to look outside the U.S. for its eventual commercialization partners, not to mention its customers.
“A year ago, natural gas cost around $12 per mmBTUs [million British thermal units], and today it’s $3 per mmBTU,” Davis observes. “It’s very difficult to imagine going ahead and building a plant with coventional financing, unless there are either [regulatory] incentives or higher fuel prices. That’s not an argument for giving up, but rather for looking to places that have different economics than in the U.S. We have very cheap natural gas relative to the rest of the world, other than the Middle East. It’s going to stay cheap for a while. But if you go to the U.K. or other countries dependent on natural gas, things are very different.”
So, look for Ze-gen to start exploring foreign markets soon after building its next plant. And watch this space for further developments—Davis says news about the company’s joint venture agreement is coming soon.