Even though our local economy is far from strong, I am pleased to report that at the Northwest Energy Angels, we continue to see and invest in interesting deals across the spectrum of clean technologies.

In the past year, we’ve seen and closed deals in virtually every segment of the cleantech industry, including more efficient lighting, purer water technologies, and more productive renewable energy. Contrary to the popular press, our shrewd entrepreneurs are doing it with little reliance on special subsidies or government funding.

For 2012, there are several trends that I expect to see emerge and develop in these segments (borrowing the category definitions from the Cleantech Open):

Air, Water, and Waste
For the last few decades we have been wrestling with the need to develop alternatives to fossil fuel reliance and are now clearly on a path to consider water and its shortages in a similar vein. In many respects, the clean water segment is where the energy industry was a couple of decades ago. We will continue to see companies looking to develop ways to use water more efficiently, measure water and its cleanliness more precisely and cost-effectively, and recoup water that was previously thought unusable.

Domestically, vigilance in air quality makes opportunities for dramatic improvement difficult. Obviously, carbon dioxide emissions are a huge exception to this, but uncertainty over government mandates and/or incentives will make CO2 control a market that startups will have a hard time making a dent in.

The area of waste will continue to offer a wide variety of disparate, but valuable opportunities as cost of disposal and potential value of the refuse continues to be recognized.

Energy Efficiency
The Pacific Northwest has been blessed and cursed in this segment. The ethic of the region is very pro-conservation but our energy costs are among the lowest of any region, which gives priority to other faster-paying investments in this economy. As we look at efficiency technologies, the key questions are, first, will it sell in California (and elsewhere) and second, is there any way for a local company to deploy, test and further develop its technology for commercial roll out?

Given recent predictions for climbing energy costs, the second question is most often the decider for investor involvement. As I’ll explain below, I see a very positive trend here and am bullish on this sector for our local companies for the first time in a long while.

Green Building
As in the case of efficiency, our region enjoys quick consideration for new green building products here and enthusiasm for early winners. Status quo materials and practices are, unlike our energy, on par cost-wise with the nation, giving local solution providers an excellent chance to gain early market traction.

Renewable Energy
This segment of the cleantech world is seeing the biggest changes. The sunsetting of many U.S. government incentives is causing entrepreneurs to rethink their prospects. Opportunities will continue for those companies that have a “mine the miners” strategy to help established renewable energy equipment manufacturers to improve their product offerings—especially when products are aimed at the world market, which is expected to see much less retrenchment in 2012.

One area of exception to the slowdown is renewable transportation fuels, aviation fuels in particular. Our region has a leg up with Boeing and military interest in the subject as well as the nation’s largest operating biodiesel producer, Imperium Renewables. While it won’t be built overnight, I do see more and more opportunities for companies that can contribute to the success of this industry.

Smart Power, Green Grid, and Energy Storage
The Smart Power, Green Grid, and Energy Storage category encourages links between information technologies and electricity delivery that give customers greater control over when and how their energy is delivered and used.

In many regards, startups in this space have a chicken-and-egg problem: Utilities and regulators want to see products before using these new technologies at scale, while startup companies (and their investors) want to see buyers ready to write checks before gearing up for production.

Our region is rich in the technologies needed to implement the smart grid and its cousins—we have a tradition of progressive utilities that have implemented its precursors. But I remain skeptical of a fast market uptake in 2012.

Our Secret Weapon
Military installations. The local cleantech community has been sought out by representatives of the Navy (Naval Base Everett) and the Army/Air Force (Joint Base Lewis-McChord) to help them achieve some truly remarkable sustainability goals for waste, water, and energy.

Don’t get me wrong—this isn’t to say that the procurement floodgates have opened. They haven’t. The military is on a downward budget trend and they know it. But what they do have is a long view and a willingness to invest in projects that will pay off over a longer term than most homeowners or businesses would.

These military installations capture a complete subset of our local economy: industrial operations, commercial/office buildings, residences, and more. In some cases there are also financial partners who will step in alongside military sustainability initiatives, to provide funding where others wouldn’t.

Perhaps most importantly for our entrepreneurs, these bases are looking for good, early commercial products to test, demonstrate and embrace to achieve their goals.

The Road Ahead
While I don’t think that cleantech is in for any 1990′s-style boom, I do think we will continue to see a wide variety of clever entrepreneurs with great market insights and technological breakthroughs in 2012. And the Northwest Energy Angels will continue to be ready, willing, and able to fund them.

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As we turn the page on the year 2011, there is no shortage of topics about which the entire world seems to be debating. One that interests me the most is the renewed debate on the role of government in the energy sector, specifically in the United States. Budget shortages, deficit increases, front-page analysis of public-backed private enterprises, and a particularly bitter political climate have combined to push this topic to the forefront more so in 2011 than in recent years. It’s as though we are back in the smoky classrooms of the University of Chicago in the ‘50s and ‘60s where economists engaged in frequent Keynes Vs. Friedman (Milton not Thomas, mind you!) debates.

Energy is always a popular topic in the U.S., given its strategic importance to national security. All this recent debating has been interesting to follow but a bit confusing. Economists, reporters, business folk, and politicians do not seem to agree on what constitutes a government subsidy, let alone which sub-sector is the recipient of how much. While I do not want to take any sides, I thought it would be worthwhile to examine what constitutes a government subsidy, and what subsidies and how much were provided by the U.S. government historically.

As I began to think about what sectors to focus on, it made sense to examine those that have been of significant strategic importance to U.S. economic growth in the past. The rise of the U.S. to be the largest economy in the world was driven to a large extent by what some refer to as the second industrial revolution constituting the rise of the railroad, steel making, telecommunications, petroleum, and the automobile industries. This article attempts to capture the subsidies provided by the U.S. government to some of these industries at different stages of their growth cycle.

What is an energy subsidy?

I am no economist, but it seems to me that we can all agree on what constitutes a government subsidy without too much debate. Table 1 (below) attempts to summarize the different forms that energy subsidies can take. Most of these subsidy types are immediately recognizable. The “type” that has generated much debate so far is the “Failure to include Externality Costs.” No matter where you stand on the climate change debate, it is not that hard to see that pollution has at the very least caused smog and acid rain—ask the residents of the Los Angeles from the ‘80s and, more recently, those from Beijing. There has not been a worldwide accepted externality cost measure yet, but as we move forward the chances of that happening are higher.

Regardless, it is safe to say preferential tax treatments and price controls are as much a government subsidy as a cash grant or a low-interest loan. The U.S. government wallet is a bit lighter in both cases.

Historical U.S. government subsidies

The growth of the U.S. economy after the Civil War to become the world’s largest economy was driven by increasing commercialization of technologies including the railroad, iron and steel making, petroleum, and the internal combustion engine. Besides private capital and resources, an important catalyst behind the development and growth of these industries were U.S. government subsidies at different stages. Table 2 summarizes the amounts, types, time period, and stage at which government subsidies were provided to these industries.

Railroad and transportation

U.S. railroad companies laid more than 35,000 miles of track between 1867 and 1873—more than three times that laid in the previous 30 years. Congress gave the railroad companies more than $64 million ($8 billion in 2011 US$ at 3.5 percent inflation) in loans and tax breaks and more than … Next Page »

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It seems doubtful that the U.S. Navy has ever gotten as much media attention for offshore cruising between San Diego and Port Hueneme as the decommissioned destroyer Paul H. Foster received last week.

The Spruance-class destroyer, which has been refitted to serve in various ways as an ocean-going test platform, arrived at the naval base near Oxnard, CA, about 185 miles north of San Diego, Thursday morning after a 17-hour transit powered by a fuel blend that included algae-derived biofuel. It was the Navy’s largest alternative fuel trial.

The overnight sojourn was intended as a demonstration of the Navy’s plan to expand the use of “drop-in” biofuels that would require no changes to Navy engines, ships, supply infrastructure, or fueling piers. The only difference is that the biofuel was derived from algae, or “green crude,” instead of conventional fuels made from petroleum-based crude. (A pretty good account of the demonstration is here.)

San Francisco-based Solazyme provided the algae-based biofuel, which can be produced in its U.S.-based facility in a few days, according to Stephanie Tabor, a spokeswoman for the company. “We use standard industrial fermentation equipment to efficiently scale and accelerate microalgae’s natural oil production time to a few days,” Tabor says in an e-mail this afternoon. Solazyme’s technology is flexible, she says, “and can utilize a wide variety of renewable plant-based sugars, such as sugarcane-based sucrose, dextrose, and sugars from other sustainable biomass sources including cellulosics.”

As we reported last year, the Navy has decided for reasons of energy security, naval strategy, and environmental stewardship to develop and certify alternative fuels that can be used instead of standard-issue ship and aircraft fuels.  Navy Secretary Ray Mabus has announced a goal of conducting a test exercise next year with a “Great Green Fleet”—a 13-ship carrier battle group powered either by nuclear energy or 50-50 blends of biofuels, based on press reports.

The Foster took on about 20,000 gallons of diesel biofuel that Solazyme delivered to the Defense Fuel Supply Point at Naval Base Point Loma. It was blended 50-50 with a standard naval marine diesel known as F-76 (a NATO specification), and used in gas-turbine engines aboard the Foster that are equivalent to engines in U.S. destroyers and cruisers around the world.

“For our program with the Defense Logistics Agency,” Tabor says, “we are supplying the U.S. Navy with renewable F-76 diesel fuel and renewable JP-5 jet fuel for testing and certification.”

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In a very difficult climate for U.S. solar companies, one Boston-area startup has made some significant progress in solar technology. SiOnyx, a Beverly, MA-based semiconductor company known for its “black silicon” approach to various applications, including solar cells, is reporting today that it has achieved an overall efficiency that is higher than the current industry standard, and more uniform from cell to cell—and that this result should have commercial impact soon.

“We have a solar program that’s starting to have tremendous results,” says James Carey, the company’s co-founder and principal scientist.

When we last caught up with SiOnyx almost exactly a year ago, the company had just closed $12.5 million in second-round venture financing. (Its investors include Polaris Venture Partners, Crosslink Capital, and Vulcan Capital.) The firm’s black silicon technique involves peppering silicon wafers with ultrafast laser pulses to roughen their surface, such that they become more efficient at absorbing near-infrared light.

That means a solar cell made with the technique will absorb more light and, in principle, produce more electricity than one made of conventional silicon. But until now, the company hadn’t proven this to be the case in a manufacturing setting. In partnership with German research institute and chip foundry ISC Konstanz, SiOnyx has demonstrated an improvement of 0.3 percent in absolute efficiency—the ratio of electrical energy out to light energy in—over industry-standard silicon. (The cutting edge of conventional solar cells is just over 17 percent efficiency.)

Big deal? Well, it turns out that 0.3 percent represents roughly a year’s worth of progress in the traditional solar cell industry, says Chris Vineis, the company’s director of solar technology. “Existing solar cell manufacturers can take this [SiOnyx process], drop it into their line, and get an efficiency boost,” he says.

The SiOnyx technique is inserted in the early part of the conventional silicon wafer processing. The method substitutes lasers for chemicals in the initial texturing step, but the rest of the manufacturing process is untouched, Vineis says. The end result, he says, is slightly higher efficiency, potentially thinner wafers that use less silicon, and more uniform efficiency across wafers. Together, those factors could lead to savings of “several cents per watt,” Vineis says.

But it’s still early days for the company’s solar business. SiOnyx, which has nearly 30 employees and says it is still growing, is in initial conversations with potential solar customers. The idea is the company will license its black silicon process to solar cell manufacturers. “We’re not actually making solar cells, which is good for us,” Vineis says. “The industry is in a very tough spot.”

Solar is actually only a small part of the startup’s overall business, however. SiOnyx plans to make about 80 percent of its revenues on its image sensor products and 20 percent on its solar process, Carey says. The image sensor application, which I wrote about last year, uses the same black silicon technology to create fundamentally more sensitive cameras and other imaging equipment.

“We’re more than a one trick pony,” Carey says.

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Is there anything worse than a Silicon Valley VC coming to Boston to poach talent from the startup ecosystem?

OK, that’s not really what Greg McAdoo is about. The Sequoia Capital partner was in town last weekend, in part for the Startup Bootcamp event at MIT (and related meetups), which featured talks by a number of founders backed by Sequoia, including Drew Houston of Dropbox (an MIT alum), Paul English from Kayak, and Nathan Blecharczyk of Airbnb.

McAdoo is a busy guy, serving on the boards of Airbnb, Bump Technologies, Clustrix, Greplin, Loopt, Achates Power, and other firms. He has been with Menlo Park, CA-based Sequoia since 2000 and is involved with the Y Combinator seed-stage startup program. He was also involved with Sequoia’s investment in Isilon Systems, now part of EMC, the whole story of which we know well.

We met for coffee on Saturday, and I got a download of McAdoo’s thoughts about the startup ecosystem and what he was hearing from local entrepreneurs—ideas on everything from smartphone security for enterprise to the prospects of nuclear fusion for energy production. I also took notes on his advice to entrepreneurs (which I found particularly insightful), and some important trends in consumer-tech and cleantech startups in Boston, New York, San Francisco, and beyond.

While Sequoia isn’t about to open an East Coast office, McAdoo says, there is certainly enough going on—think raw talent, ambitious entrepreneurs, and a few company investments—to draw its partners out here regularly.

Here are some highlights from our chat:

Xconomy: People talk about the consumer tech ecosystem, or lack thereof, in Boston and other cities vs. Silicon Valley. But you’re telling me there’s a bigger trend going on than whether or not we have enough role models here.

Greg McAdoo: There are a host of applications that appeal to folks that live in dense urban centers. The big shift is towards a startup community in urban centers. That, by the way, affects the San Francisco Bay Area every bit as much as the New York metropolitan area or the Chicago area. Whereas the suburbs of the Bay Area have a very well established startup community, I think everybody’s on equal footing to some degree in that major urban centers don’t really have that startup community. They used to many years ago.

If you wanted to get a consumer Internet startup off the ground in 1995 or ’96, you needed to have fabulous product sensibilities and a wonderful front end engineering and design team. But if you were building anything at scale you also had to have some hardcore technologists in the back end and be able to rack and stack servers. Fast forward to 2011, and much of that back end expertise is provided by service providers—cloud guys like Rackspace or Amazon. Also some of the hardcore back-end technology is open source software now. So you don’t have to worry about being in SoHo in New York and trying … Next Page »

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It’s not often that soil and mulch makes the front page of Xconomy. But this is Harvest Power we’re talking about.

The Waltham, MA-based cleantech company, which has operations in Seattle and Vancouver, BC, said today it has acquired Coastal Supply, a Delaware-based soil and mulch manufacturer. Terms of the deal weren’t disclosed. But Harvest CEO Paul Sellew said in a statement that the acquisition will “have an immediate positive impact on our business.”

Harvest Power started in 2008 and specializes in converting organic waste into soil products and renewable fuel. The company is backed by a number of big investors including Kleiner Perkins Caufield & Byers, Waste Management, DAG Ventures, and Generation Investment Management (which was co-founded by Al Gore). It has raised more than $75 million to date.

Coastal Supply’s big customers include Lowe’s and Home Depot. Joe Kollock and Steve Liffers will stay on as co-presidents of Coastal Supply, which is being renamed Harvest Garden Pro.

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Busy day for a couple of well-known cleantech companies around Boston. One public company has signed a big deal in China, while the other, an ambitious upstart, is carefully protecting its intellectual property as it heads toward large-scale commercialization.

—A123 Systems (NASDAQ: AONE), the Waltham, MA-based maker of lithium ion batteries, said today it has won a contract with China’s Dongfang Electric, a large manufacturer of wind turbines and power equipment. A123 will provide an energy storage system for Dongfang’s manufacturing facility in Hangzhou by the end of this year. Financial terms weren’t given. If all goes well, this will be A123’s first storage system installed in China.

A report in CNET today has more context on the deal: A123’s battery bank will be attached to a 1.5-megawatt wind turbine and diesel generator to test how well the batteries can smooth out the dips in wind energy production. A123 has car battery manufacturing facilities in China, but no grid storage systems there yet, the report says.

—Joule Unlimited, the Cambridge, MA-based biofuels startup, said today it has been awarded a pair of U.S. patents that cover its method for producing ethanol at high volumes and high efficiencies. The method involves genetically engineering “photosynthetic bacteria”—microorganisms that convert sunlight and carbon dioxide into ethanol without fermenting sugars from cellulose or other types of biomass. The patents (#7,981,647 and #7,968,321), which were granted in the past month, cover various enzymatic mechanisms that Joule has engineered into cells to maximize their ethanol productivity.

Joule has received plenty of media attention since it started in 2007. The company is also applying its method to produce energy in the form of diesel fuel, which could power trucks and planes. Joule has previously been awarded patents in the area of diesel production. The overarching idea is to replace fossil fuels, but most biofuels makers have found “they can’t compete on a cost basis,” said Joule senior vice president Troy Campione, on a panel at our XSITE conference last month. Joule, of course, believes it is different.

The company has a pilot plant in Texas that has been producing ethanol and is slated to start producing diesel later this year. Joule says it has also signed a lease for land in New Mexico on which it is building a demonstration-scale plant that will begin operations next year.

While the new patents should help distance Joule from some of its competitors, they don’t necessarily get the company to commercialization any faster. George Church, the Harvard geneticist (and chairman of Joule’s technical advisory board), was quoted in the New York Times in March saying, “It’s not a totally obvious organism and they’ve changed it pretty radically, so it’s not clear they can protect everything by patents.”

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LS9, the South San Francisco-based developer of renewable fuel technologies, said today it has advanced to the second phase of a collaboration supported by Chevon Technology Ventures. The next step aims to further improve the company’s technology to produce “specific pure hydrocarbon products,” LS9 said in a statement. Financial terms of the agreement weren’t disclosed. LS9 raised $30 million in equity financing last December, in a deal that included another entity affiliated with Chevron, the oil giant.

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Solazyme must be getting ready for a heck of a company party this Memorial Day weekend. The renewable oils company pulled off its long-awaited IPO last night, and got a quite bullish (although not exactly LinkedIn-style) reaction from investors.

South San Francisco-based Solazyme (NASDAQ: SZYM) raised more than $197 million through its initial public offering by selling almost 11 million shares at $18 apiece. Demand for the new shares was intense for an otherwise slow Friday heading into the Memorial Day weekend, as the stock shot up 16 percent to $20.81 at 2:26 pm Eastern time. That frenzy of activity has left Solazyme sitting pretty, with a market valuation of more than $1.2 billion.

This is a much richer outcome for Solazyme’s investors and employees than what was envisioned back in March, when the company filed paperwork that said it was hoping to pull in $100 million through the IPO. The company, founded in 2003, has become a bellwether of sorts for the young biofuels industry, having put together diverse set of partnerships with big companies like Chevron, Dow, Qantas, Sephora, and Unilever. It also has contracts to supply renewable diesel to the biggest user of diesel on the planet—the U.S. Department of Defense.

This deal means a lot for the biofuels sector, as other companies have been counting on it to provide a spark of enthusiasm. The deal also means that Solazyme’s co-founders, CEO Jonathan Wolfson and chief technologist Harrison Dillon, both at age 40, have done particularly well for themselves financially. The biggest single shareholder in Solazyme now is The Roda Group, with 24 percent ownership, Braemar Energy Ventures (13.1 percent through a couple different entities), followed by Dillon (7.2 percent), Wolfson (7 percent), the Fiddler Group (6.3 percent), and Lightspeed Venture Partners (4.9 percent), according to a regulatory filing.

It will be interesting to see what markets Solazyme pursues most vigorously with its newly topped-off war chest of cash. The company has been on a mission to show it can produce renewable fuels at large scales, in industrial fermenters, as I described in a feature last July.

While Solazyme’s investor prospectus notes that the conventional oil market was worth a mind-boggling $3.1 trillion in 2010, Solazyme is a long way from making a serious dent in a market that size, if it ever gets there. Solazyme generated revenues of $38 million in 2010, and had a net loss of $16.3 million, according to its investor prospectus.

Critics have questioned whether it can scale up to the really gigantic volumes needed to be a major player in fuels. And Solazyme has been careful to build up a diversified product lineup. The company has been making its oils into some of the common petrochemical derivatives that we get from fossil fuels today—things like specialty chemicals, nutritional supplements, and personal skin care products. Those oil-based compounds are thought to be attractive because they can be made in lower volumes, and sold at higher profit margins than fuel. So while most people get intrigued by the idea of renewable fuels for cars, quite a bit of Solazyme’s fortunes will be riding on these lesser-known niche markets in the near future.

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Votes are in for the second class of Pivotal Leaders—the peer-selected group of cleantech business leaders in the Pacific Northwest, created by Portland, OR-based venture firm Pivotal Investments. This year’s honors were whittled from a field of more than 700 nominations for leaders from Washington, Oregon, Idaho, and British Columbia.
One interesting thing about the criteria for the Pivotal Leaders is that they reach beyond just the world of business to include notable people from higher education, government, and the nonprofit sector. As we discussed when the program was launched, the founding idea is to formalize a network of top people who can build connections and grow the regional cleantech industry.
This year’s honorees include folks from outfits like Microsoft, McKinstry, Nike, Climate Solutions, SeQuential Biofuels, and much more. Go check out the list of nearly 50 people identified by the regional the cleantech community as poised to make a big impact in the next few years.

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Gas is $4 a gallon, consumers are steaming, the oil companies keep getting tax breaks, and alternative fuels are still a long way from reaching the consumer masses.

What’s going on here?

There’s a lot of meaty material to discuss as I’m getting ready for tonight’s Xconomy event, titled “Separating Hype from Reality in Alternative Fuels.” Registration starts at 5:15 pm, the program starts at 6 pm, and the networking will get going at 7:30 pm. This conference will be at the Institute for Systems Biology’s new headquarters at 401 Terry Avenue North, right across the street from the new Amazon headquarters, in South Lake Union.

We have an awesome lineup of speakers tonight who can talk about some of the big ideas being pursued by Boeing, Bill Gates’ investment firm, Waste Management, Kleiner Perkins Caufield & Byers, and more. Here’s who you can expect to hear from:

Kristina Burow, Arch Venture Partners; Co-founder, Sapphire Energy

Margaret McCormick, Co-founder and CEO, Matrix Genetics

Ned David, Founder and President, Kilimanjaro Energy

Tom Ranken, President, Washington Clean Technology Alliance

John Gardner, Dean of Academic Affairs, Bainbridge Graduate Institute

Jan Allen, Co-founder and VP of Engineering, Harvest Power

Michael Ramage, CEO, Asemblon

Jeff Surma, CEO, S4 Energy Solutions

Hoby Douglass, Director of Sustainable Business Development, General Biodiesel

Kelly Ogilvie, CEO, Blue Marble Energy

We still have seats available, so you can register here online in advance, or at the door. This is going to be a fun and provocative evening for debate and networking with people working on one of the toughest problems facing humanity. See you there tonight.

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Gas is selling for more than $4 a gallon, and consumers are hopping mad. Even though we’ve all seen this movie before, nobody has yet made a serious impact with alternatives that power motor vehicles with something other than fossil fuels. Finding various clean, renewable, and cost-competitive sources of energy is one of the big challenges for science and business in the decades to come.

That’s why I’m fired up about the big Xconomy event tomorrow night, titled “Separating Hype from Reality in Alternative Fuels.” This will be a unique gathering of people and ideas, including some that have earned the backing of Boeing, Bill Gates, Waste Management, and Kleiner Perkins Caufield & Byers, as well as startups that are little more than two guys and a dog. We are bringing all these people together, banning PowerPoint, and will let the sparks fly.

Some of you veterans of Xconomy events may know what to expect, but for everyone else, I figure it’s worthwhile to post the agenda for tomorrow night’s gathering in advance. So here goes, along with a little note on what to expect.

5:15 pm. Registration and networking

6 pm. Welcome. Nitin Baliga, a professor at the Institute for Systems Biology, will provide some opening welcome remarks as the host. Baliga is one of the people at ISB who’s seeking to use systems biology approaches—which seeks to understand whole organisms or ecosystems instead of one gene at a time—as a way to grapple with environmental health problems.

6:05 pm. Introductory remarks. Tom Ranken, the president of the Washington Clean Technology Alliance, will say a few words about this budding trade association, which is seeking to herd all kinds of cats from the Northwest who have an interest in cleantech, but don’t mingle as much as they could.

6:10 pm. Feature panel. We have three awesome speakers who will talk about the big challenges with building alternative fuel businesses. Kristina Burow, a partner at Arch Venture Partners, can speak to her experience as a co-founder of San Diego-based Sapphire Energy, an algae biofuel company that has raised more than $300 million. She will be joined by her fellow Sapphire co-founder Ned David, who has now moved on to another big project, San Francisco-based Kilimanjaro Energy, which seeks to capture carbon dioxide from the atmosphere to pump underground and pop loose oil that’s trapped in rocks. Margaret McCormick, the founding CEO of Seattle-based Matrix Genetics, will share her perspective on why this latest venture thinks it has found a secret sauce in modifying single-cell algae to become mini factories of oil.

7 pm. Sustainable Aviation Fuels Northwest. John Gardner, the incoming dean of academic affairs at the Bainbridge Graduate Institute, will provide a quick overview of a big effort that Boeing, Alaska Airlines and about 40 other stakeholder organizations have worked on behind the scenes to set up a regional network for growing oil crops, refining the oil, and consuming it all here. This big project, which I reported on last month, is getting close to issuing its final recommendations, and Gardner can share more of what’s going on here.

7:10 pm. Burst presentations. This is the fun, fast-paced part of the evening where entrepreneurs get to step to the microphone, and say who they are, what their company does, and why it has potential to disrupt their industries—all in four minutes or less, and with no PowerPoint. We have a great lineup of cleantech entrepreneurs who have accepted this challenge, knowing of course, that this is really just a segue to more detailed questions people will have during the networking portion of the evening. Here’s who you can expect to hear from:

Kelly Ogilvie, Blue Marble

Jan Allen, Harvest Power

Jeff Surma, S4 Energy Solutions

Michael Ramage, Asemblon

Hoby Douglass, General Biodiesel

7:30 pm. End. This is where I’ll wrap things up, invite everyone to hit the bar and carry on with networking. Those who are interested are welcome to take short tours of the new Institute for Systems Biology headquarters.

There are still tickets available for tomorrow night’s gathering, including discounts for students and employees of startup companies. I look forward to seeing you there tomorrow night.

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The renewable fuels business has been long on talk and short on action for a few years now. That helps explain how Emeryville, CA-based Amyris could achieve impressive financial results simply by fulfilling its promises—even if that means hitting some fairly incremental goals.

The company has seen its stock climb 72 percent, from $16 to $27.55 a share, since its IPO in September.

“We’re getting a good amount of attention. We’re a very high potential growth company at a critical point,” says Jeri Hilleman, Amyris’ chief financial officer. “We’re going from pre-commercial to the commercial stage. We’ve tried to be really clear about the milestones we’ve tried to achieve, and we’ve achieved them.”

Amyris (NASDAQ: AMRS) still has quite a way to go to complete its transformation into a fully integrated, profitable company, but it has made some strides in the past year. The company has been making progress on carrying out a business plan for converting sugar into specialty chemicals that go into things like cosmetics, plastics, and lubricants. Those products can be sold in small volumes, and at higher profit margins than the thing that gets the most attention—renewable fuel.

Amyris, even after raising about $400 million, certainly isn’t about to put the oil companies out of business anytime soon. But it did earn some important credibility points on Wall Street by showing earlier this year its renewable, yeast-based process to convert sugar into specialty chemicals in 100,000-liter and 200,000-liter fermenters. That was an important early step in a plan to put Amyris’ technology to work on true industrial scales over the next couple years, on its way to making large volumes of fuel, Hilleman says.

No doubt, others in the biofuel business are watching this company and taking cues. The company was founded in 2003 by a trio of postdoctoral fellows who worked with Jay Keasling at UC Berkeley. It started as a non-profit with a mission to come up with a cheaper and more abundant source of artemisinin, an anti-malarial drug compound that is derived from natural sources in Southeast Asia. The project has support from the Bill & Melinda Gates Foundation. But as the technology took shape on the artemisinin project, it wasn’t long before a group of blue-chip VCs—Kleiner Perkins Caufield & Byers, Khosla Ventures, and TPG Ventures—saw potential for more lucrative products to come from the technology.

Jeri Hilleman

By October 2006, as cleantech was booming, those three venture firms pumped $20 million into Amyris, named former BP executive John Melo as the CEO, and set out to use “cutting-edge tools in chemistry and biology to develop solutions for major world problems,” according to a statement at the time. John Doerr of Kleiner Perkins stated one of his oft-repeated lines: “Greentech could be the largest economic opportunity of the 21st Century.”

The rhetoric about biofuels has toned down a bit, but Amyris has a lot more experience under its belt now. The company has worked out a process in which it modifies microbes to become factories that pump out chemicals we currently get from petroleum sources. This is, without question, still a speculative business. Amyris still runs in the red, and burned through about $30 million in cash in its most recent quarter. Any dreams of capturing the largest economic opportunity of the century are still fairly far out on the horizon. But interestingly, Amyris has staked out a pretty methodical plan to start small on its way to doing something big. And its revenues have been rising—going from $30 million in the last quarter of 2010 to $37 million in the most recent quarter ended March 31.

One of the early big decisions for every biofuel company is in … Next Page »

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Margaret McCormick has been dreaming of ways to make microorganisms do big things since her grad school days in biology at MIT. Years later, the scientist-turned-venture capitalist is now in a position to act on those dreams as CEO of a Seattle-based startup called Matrix Genetics.

The idea is about as big as startup visions get: engineering single-cell varieties of algae to become the workhorses that crank out commercial quantities of oil.

“I’ve always been fascinated by the power of single-cell organisms,” McCormick says. “There is so much unlocked potential for them to help us solve big problems.”

McCormick, one of the featured speakers at next week’s Xconomy event on alternative fuels, has led this quiet effort for the past three years inside Seattle-based Targeted Growth. While Targeted Growth grabbed headlines with hybrid camelina seeds that it turned into jet fuel for Boeing planes, McCormick and her team of a dozen scientists plowed away behind the scenes at something they believe has much bigger long-term potential.

The work has been focused on modifying one of the relatively simple genetic strains of algae, known as cyanobacteria, to produce more oils. Now that some critical early tests have been passed, McCormick says this effort is spinning off into a company of its own, which she believes can compete with a couple of the big names in the business of modifying algae strains for fuel. That includes Craig Venter’s Synthetic Genomics (which has a partnership with Exxon Mobil) and Cambridge, MA-based Joule Unlimited.

These are still the earliest of days for Matrix as a company. The company is made up of a team of 12 scientists, eight of them with Ph.Ds, housed inside the Institute for Systems Biology. Jim Roberts, a professor at the Fred Hutchinson Cancer Research Center, and Fred Cross, a professor at Rockefeller University in New York, are a couple outside advisors who have played a key role, McCormick says. So far, Matrix has five patent applications filed, with more to come, and it is on the fundraising trail, with a goal of nailing down its first $10 million to $15 million, McCormick says. But even at this very early point in the company’s development, McCormick says she has already had some preliminary talks with oil companies that she hopes could lead to technology licensing deals over the next couple years.

Roberts, who’s close to the project, has some bullish things to say about its progress. “The future of Matrix is very bright,” he says in an e-mail. “Our progress surpasses other companies that are also interested in developing cyanobacteria as an oil-producing organism, such as Synthetic Genomics and Joule.”

Exciting as it may be in the lab, it’s still quite a long way from being applied in the business world. The global energy and transportation market is staggering in size, worth an estimated $7 trillion a year, and Matrix Genetics has no illusions that it will take over a big chunk of it by itself. The business model depends on making important discoveries for turning cyanobacteria into oil factories, and then licensing the technology to big oil companies that have the money and expertise to refine, distribute, market and sell the energy products. Matrix, at this point, is sticking to its basic science, and isn’t banking on raising a huge amount of capital that would be required to build up its own commercial infrastructure.

“We believe the return on investment for us will be in the genetics. Our expertise has always been in the genetics, and we don’t have the team that will be needed to build out the entire value chain,” McCormick says.

The history of how this came about is pretty interesting. Targeted Growth, a company that’s been around more than a decade, has a lot of experience in using knowledge of genetics to boost crop yields. As years went on, and oil prices went up, Targeted Growth got more interested in … Next Page »

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The cleantech industry has a million different technology ideas out there, and just about as many financing strategies. There are mom-and-pop companies raising cash from friends and family, there’s venture capital, government grants, big energy company partnerships, and huge projects such as wind farms or ethanol refineries that rely on deep pockets in private equity like, say, BlackRock.

Much gets made of the role of federal support, subsidies, etc., in this business. One of the latest vehicles out there is from the U.S. Department of Agriculture, through what it calls its 9003 Loan Guarantee program. This essentially protects private equity investors from losing all their money in biorefinery projects, while leaving investors room for upside returns.

I got a bit of the download on this program, and why it’s important in the context of other financing alternatives, from James Dack, a vice president with Stern Brothers, a financial brokerage with offices here in Seattle. The approach is relevant to many entrepreneurs, including Blue Marble Energy’s Kelly Ogilvie, who will be attending Xconomy’s next event, “Separating Hype from Reality in Alternative Fuels,” on May 19.

Here are excerpts from the conversation with Dack, edited as always for length and clarity.

Xconomy: What do you guys do, and how has your business gravitated lately into cleantech financing?

James Dack: We are a project finance boutique investment bank. We place non-recourse project finance debt in the form of bonds into the institutional capital markets. So debt can be a loan or bonds. Bonds provide some liquidity features that make them interesting to institutional investors like insurance companies, pension funds, mutual funds, and some private equity and hedge funds.

X: How did you get interested in alternative energy?

JD: Our firm figured out a way to finance first generation ethanol plants using tax-exempt bonds. When compared to a taxable bond, it provided a lower interest expense, so people could borrow more cheaply. We did several pioneering transactions in first-generation ethanol.

X: OK, so what kind of project scale are you talking about doing now?

JD: These are project financings, to actually build the physical assets of a biofuel project. On the low end, they can be for $60 million to $70 million, all the way up to $300 million-plus. We’re a broker/dealer, so we structure the bonds and place them with buy-side clients who are the insurance companies, pension funds, mutual funds.

X: So you got a taste of this with the ethanol boom in the early 2000s, but how did those projects turn out? We hear a lot of negative press, especially on the West Coast, about the inefficiency of ethanol, especially corn-based ethanol.

JD: In the early 2000s, the way ethanol projects were financed, they were merchant projects. So they didn’t have what we’d call contracted cash flows. So you’d be subject to … Next Page »

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We had a grab bag of life sciences-related coverage this week, with a big device company acquisition, some wild ideas for global health, and a whole lot of focus on biofuels.

—Kleiner Perkins Caufield & Byers never has done much investing in the Northwest from what I can tell, but this week I came across a quiet company in South Lake Union that the fabled VC firm built to help convert organic waste into clean-burning natural gas. The big idea at this company, called Harvest Power, is to develop what you could call a giant concrete stomach.

—While biofuel entrepreneurs are brimming with enthusiasm about weaning the world off fossil fuels, I thought it would be helpful to get a bit of a reality check from a top local scientist who’s been thinking hard about this problem—Nitin Baliga of the Institute for Systems Biology. Baliga will also provide some brief welcoming remarks at the next Xconomy Seattle event on May 19, titled “Separating Hype from Reality in Alternative Fuels.”

—This week, I spent a fair bit of time recruiting new speakers to flesh out the agenda for the event mentioned above. The new additions, who will each provide 4-minute “burst” talks about their approach to alternative fuels, are Kelly Ogilvie of Blue Marble Energy, Hoby Douglass of General Biodiesel, and Jeff Surma of S4 Energy Solutions.

—Seattle-based Dendreon (NASDAQ: DNDN) came out with its first-quarter earnings report, and there were no big surprises. The company hit its forecast for sales in the first three months, has started scaling up sales in April now that it has more available manufacturing capacity, and reiterated that it plans to sell $350 million to $400 million worth of sipuleucel-T (Provenge) for prostate cancer patients in 2011.

—One of the big dreams in biofuels is that someday we’ll have open ponds in the desert, full of fast-dividing algae that are genetically modified to spit out the maximal amount of oil. Ned David of Arch Venture Partners has pushed that idea forward as a co-founder of Sapphire Energy, but a couple years into that endeavor, he realized he needed to capture a whole heck of a lot of carbon dioxide from the air in order to feed the algae at companies like Sapphire. The result is his latest startup, Kilimanjaro Energy, which I profiled this week.

—Seattle Genetics (NASDAQ: SGEN) got a big date to circle on the calendar—August 30. That’s when the FDA has agreed to complete its review of the company’s application to start marketing brentuximab vedotin (SGN-35) in the U.S. The agency agreed to a faster-than-usual six-month review schedule for this drug because of its groundbreaking potential against a couple deadly forms of cancer.

—The Bill & Melinda Gates Foundation has taken some flack for its approach to funding big science ideas in the past, which some contended was too heavily weighted toward big-money, long-term projects. The foundation has sought ways to make a bigger impact by tilting more of its research portfolio to really early-stage, out-of-the-box proposals that get $100,000 to sink or swim, which discovery director Chris Wilson explained in our interview.

—Considering a career in biotech? I’m not so sure it’s a good idea to encourage young people to dive in, as you can see in this week’s BioBeat. The action is clearly in computer science, and unless something pretty dramatic happens in government research funding, or pharma/biotech business models, it looks like it will stay that way for quite some time.

—Seattle-based Oncothyreon (NASDAQ: ONTY) pulled in more than $40 million in a new stock financing. This will provide a lot more fuel for the company to pursue development of the cancer drugs in its pipeline other than Stimuvax, the immune-booster that is being developed in partnership with Merck KGaA.

—GE Healthcare made a pretty sizable acquisition last week when it took over Issaquah, WA-based Applied Precision. The local operation, which has 130 employees, makes super high resolution microscopes with software and data visualization tools for biomedical researchers.

—Lastly, Vancouver, BC-based Indel Therapeutics reported that it raised $1.4 million in a Series B financing to support its development of new antibiotics. Things have been pretty quiet lately on the financing front—makes me wonder if there are some big ones in the works.

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Talk to any biofuels entrepreneur, and you are likely to hear a passionate riff on why their technology trumps all the up-and-comers.

Some, like San Diego-based Sapphire Energy, say you’ve got to harness free sunlight and the magic of photosynthesis, to grow oil-rich algae in open ponds at the scale of modern agriculture. Others, like South San Francisco-based Solazyme, say that will never work at commercial scale, and you need the controlled environment of industrial fermenters to keep out all kinds of curveballs Mother Nature might throw in the mix. The critics shoot back that the bioreactors will be too expensive to really scale up to meet energy needs for a world with a voracious appetite for energy, in a $7 trillion annual marketplace.

These are what you’d call engineering risks. But what about the basic science risks? Scientists have been working for a long time on various alternatives to fossil fuels as the fundamental unit of energy, without much success. No one person or institute has all the answers here, but Nitin Baliga, a professor at the Institute for Systems Biology in Seattle, runs a lab that works on a wide variety of relevant research projects with implications for human health, environmental cleanup, and biofuels.

The scientific challenge with biofuels has definitely been top of mind for me the past few weeks, as I get ready to moderate our next event, “Separating Hype from Reality in Alternative Fuels” at the ISB’s new headquarters in Seattle on May 19. Thinking through the challenges the past couple years has been sobering, Baliga says.

“I’ve become smarter about knowing what the challenges are,” Baliga says. “I’m not a pessimist yet, but my optimism is more guarded (than a couple years ago). I know now where it is more likely to work, and less likely to work. I do think there’s enormous potential that’s still really untapped, because we don’t understand how the systems work.”

When Baliga and his colleagues talk about systems, they are talking about not just studying one gene, one protein, or one organism in isolation. He’s talking about how whole networks of genes, or whole ecosystems in some cases, adjust and adapt in response to some new stimuli. One of his big discoveries from a couple years ago was about how a microbial cell will respond to a variety of environmental assaults, such as radiation and certain metals. Lately, he’s expanded on that idea to become interested in how whole communities of microbes adapt to change in the environment. For example, can you figure out how communities of microbes collaborate, compete, or even re-calibrate their genomes, when, say, the ocean becomes more acidic?

Nitin Baliga

The U.S. Department of Energy and the National Science Foundation are interested in some of these fundamental questions, which might help us better predict what might happen, if say, engineered microbes were dumped into the Gulf of Mexico to clean up an oil spill. Oil companies have a different interest—like how efficient a microbe might be at converting sugars or sunlight into oil.

Baliga sees plenty of tricky scientific questions that need to be asked in all of those scenarios.

“Whichever organism you want to use for oil, whether it’s algae, cyanobacteria or something else, preferably you’d capture free solar energy, but then you run up against the efficiency of how much light energy gets sequestered, and how you harvest it. The first challenge in an open pond is that it’s hard to maintain monocultures.” That means you create a thriving pool for other species to hop in and do other things to compete for survival, doing things other than creating the desired stream of oil. “They take over,” Baliga says.

While a controlled bioreactor might keep the opportunistic species out of the pond, and create the desired stream of oils, they are expensive, and require energy to run themselves.

In the near term, Baliga says he sees promise in … Next Page »

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Four years ago when Ned David and his wife were thinking of starting a family, a realization hit. Why was he using his knowledge of chemistry and entrepreneurship to start biotech companies? Wasn’t there something more meaningful to do with his life than come up with a new diabetes drug or antibiotic?

How about saving the world?

“When you are holding your son, this little being, you suddenly realize you are finite,” David says. “Humanity survived pretty well for tens of thousands of years without access to modern medicine. But if we don’t reinvent our energy production system, we might not survive the next 10,000.”

So David, a big thinker who has co-founded five different companies with Arch Venture Partners that have raised a combined $700 million, switched his focus to alternative energy about four years ago. The first step came through co-founding algae biofuel high-flier Sapphire Energy. He’s now deeply involved in a new startup, San Francisco-based Kilimanjaro Energy, pursuing another big idea. If Kilimanjaro can pass some early technical hurdles, it could help meet the world’s voracious demand for fossil fuels for decades, reduce U.S. dependence on foreign oil, and cut down on carbon emissions—although maybe not enough in the near-term to save the snows of Kilimanjaro.

The idea at Kilimanjaro is to make industrial machines that capture carbon dioxide from the air. If it can be done efficiently at large scale, Kilimanjaro plans to compress the CO2 and pump it underground into old abandoned oil wells. That ought to force out oil that is trapped in porous rock underground, David says. Estimates are that half of the world’s oil reserves are trapped deep underground in porous rock, and that pressured CO2 forced underground could pop loose 15 to 30 percent of that oil. The process could open up a market worth $250 trillion worldwide, David says. In the U.S. alone, there is thought to be enough underground oil to meet 100 percent of U.S. oil demand for about 15 years, he says.

Ned David

Enhanced oil recovery of the sort that Kilimanjaro is pursuing “is the single largest business opportunity I’m aware of anywhere in the world,” David says.

This concept, which David will be on hand to discuss at Xconomy Seattle’s alternative fuels event coming up May 19, is still in its embryonic phase. There’s no way anyone can say for sure if it will be even half as good as David hopes. But the story of how David settled on this idea says a lot about the challenge of re-inventing the fuel business of today.

David, along with others at Arch Venture Partners, started thinking about carbon capture about two years ago for a different reason—as a way to feed algae organisms. Sapphire, if it is ever going to use algae to produce crude oil at commercial scale, is going to have an immense appetite for carbon dioxide to feed the algae. And the way to get that today is through having commercial vendors get CO2 from industrial processes, compress it in a highly purified form, and deliver it on semi trucks to open algae ponds.

“I realized that’s not going to work, it can’t be done at scale if every carbon molecule has to be delivered to you by a guy in a truck,” David says. “If you want to do it at scale, you have to get CO2 from the air.”

So David looked around and got familiar with … Next Page »

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While venture capital activity increased nationwide during the first quarter that ended in March, VC investing in San Diego fell to its lowest level since the first quarter of 2009. Our roundup of that and the rest of last week’s tech news begins now.

—Data on first-quarter venture capital activity arrived separately from New York-based CB Insights and the MoneyTree Report, which is put together by the National Venture Capital Association, PricewaterhouseCoopers and Thomson Reuters. CB Insights found that venture investors sunk $7.5 billion into 738 deals throughout the country, while the MoneyTree Report said $5.9 billion was invested in 736 deals. Both reports say the dollars invested were up sharply from the same quarter a year in 2010—27 percent in CB’s case and 14 percent, according to MoneyTree.

—In the San Diego area, VCs invested just over $100 million in 22 startups during the first quarter, a 55 percent drop in capital and a 29 percent decline in deals from the first quarter of 2010, according to the MoneyTree Report. CB Insights does not break out regional data on venture capital investing.

—The Ford Motor Company is targeting San Diego for the initial launch of its 100-percent electric vehicle later this year. In an exclusive interview, Ford’s Mike Tinskey told me how Ford used its popular Focus model compact as the automotive package for its all-battery drive train in order to leverage its existing economies of scale, since Ford has been selling about 2.6 million Focus compacts a year. Ford also hopes to differentiate itself from rival EV carmakers by developing its own charging stations, which it says are capable of recharging an EV twice as fast as other chargers.

—San Diego’s Mushroom Networks has developed HD video capability for the Teleporter technology it launched a year ago. Mushroom Networks said that makes its Teleporter the first cellular-based high-definition live video streaming technology, enabling a TV crew to transmit real-time HD video from any location where … Next Page »

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Hydrogen is the most abundant element in the universe, and scientists have dreamed for years about turning it into a source of clean alternative fuel. The vision hasn’t materialized, but one Seattle-area entrepreneur, Michael Ramage of Asemblon, says he is more confident than ever that this idea can reach the marketplace in about two years.

“I’m optimistic,” he says.

Asemblon, advised by University of Washington bioengineering professor Buddy Ratner, has long seen itself as a key technology provider to the hydrogen fuel business. The company, founded in 2005, has raised about $12 million since inception to develop organic carrier molecules that are supposed to make hydrogen practical as a liquid fuel. The big knock on hydrogen has always been that it requires a whole new infrastructure for distribution and storage, making it too expensive and impractical to replace fossil fuels.

Asemblon’s way around this problem is through its science, and an incremental business strategy. Scientifically, it is seeking to enable hydrogen to be stored at a wide range of extreme hot and cold temperatures, and without high pressure tanks, so people can carry it around in containers or ship it on pipelines or on trucks like gasoline. That’s much different from the hydrogen fuel of today, which must be kept under high pressure and in cold temperatures. That isn’t cost efficient, and raises safety concerns in the event of a crash.

The business plan is to license the hydrogen storage technology to partners, who will put it to work in the commercial trucking business. Commercial trucking makes sense as a place to start, Ramage says, because it’s a large market that accounts for about one-fifth of all the U.S. transportation fuel. And yet it doesn’t represent such a huge distribution challenge, because most of the fuel goes through about 500 commercial fueling stations dotted along Interstate highways from coast to coast, says Ramage, who will be a speaker at Xconomy Seattle’s next event, titled “Separating Hype From Reality in Alternative Fuels“ on May 19th.

One of Asemblon’s partners, Los Angeles-based Vision Industries, has said it believes hydrogen fuel stations could be equipped to serve cross country truckers for less than $100 million. And Ramage says one of Asemblon’s other prospective partners—whom he wouldn’t identify—has told him its fleet of 17,000 commercial trucks could save $120 million to $130 million a year by switching to hydrogen fuel, assuming diesel stays where it is, at more than $4 a gallon on average nationally.

“The economics are what will really drive this,” Ramage says.

While Ramage isn’t in position to announce any … Next Page »

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