The activity in the Northwest picked up a little bit around the holiday weekend. In the past week, we’ve seen some interesting deals in alternative energy, healthcare, and software.

—Seattle-based Qliance Medical Management raised $4 million in venture capital led by Second Avenue Partners, with participation from New Atlantic Ventures and Clear Fir Partners, as Luke reported. Qliance provides basic healthcare to patients without involving health insurance companies, with the idea of paying doctors to spend more time with fewer patients. The company was founded in 2006 and has raised a total of $7.5 million. Luke first profiled the firm, which is led by CEO Norm Wu, back in December.

—Xconomy reported that Prometheus Energy, a Redmond, WA-based producer of liquid natural gas, raised $10 million from Shell Technology Ventures (managed by Netherlands-based Kenda Capital), with $10 million more coming down the road if Prometheus meets certain milestones. It’s a big deal for Prometheus, which has developed a novel method of producing alternative fuel from waste gases at landfills, coal mines, and other facilities. It’s also a big deal for Seattle cleantech and for the alternative fuels industry, which needs support from big oil companies.

—R.W. Beck, a Seattle-based engineering and business consulting firm, has been acquired by SAIC (NYSE: SAI), the San Diego government contractor, as Eric reported. Financial terms weren’t given. SAIC performs research and services for U.S. intelligence, defense, and security agencies. R.W. Beck was founded in 1942 and focuses on the energy and infrastructure sectors.

—Seattle stealth startup Ground Truth raised $2.6 million in equity funding, according to an SEC filing. The investors include venture capitalists Tom Huseby and Erik Benson of Voyager Capital in Seattle, and Beau Laskey of Steamboat Ventures in Burbank, CA. Ground Truth is led by executives Sterling Wilson and Michael Libes.

—Burnaby, BC-based Ballard Power Systems (NASDAQ: BLDP) has teamed up with Bend, OR-based IdaTech to sell 310 hydrogen-fueled generators to ACME Tele Power, a wireless infrastructure company in India, as Eric reported. Terms of the sale weren’t disclosed. The generators will help ACME produce backup power to maintain wireless networks during outages.

—The Financial Times reported that Microsoft (NASDAQ: MSFT) is in the process of selling Razorfish, its Seattle-based online advertising subsidiary. The report, which has not been confirmed by Microsoft, claims Morgan Stanley has been appointed to find a buyer, and that Publicis, a French marketing firm, is a possible bidder. Microsoft acquired Razorfish in 2007 as part of its $6.4 billion purchase of aQuantive in 2007.

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Kirt Montague is the Comeback Kid of the Seattle cleantech community. We saw the fire in his eyes back in March when he rocked the room with a killer presentation on waste-to-energy at Xconomy’s cleantech forum in Seattle. And we see it again now that his company, Redmond, WA-based Prometheus Energy, which produces liquid natural gas from waste, has just closed $10 million in financing—with another $10 million to come upon reaching certain milestones—from Shell Technology Ventures Fund, which is managed by Netherlands-based Kenda Capital, a division of the Dutch oil giant.

Prometheus Energy, and Montague, have been through some rough patches. The company was founded in 2003 and raised more than $20 million in venture funding through the alternative fuels heyday of 2006. That year, Montague took Prometheus public on London’s Alternative Investment Market (AIM). The move didn’t work out, and the company was de-listed in 2008. Prometheus went through layoffs, personnel changes, and slumping revenues. Last September, the assets of the company were acquired by Black River Asset Management, a large private equity firm based in Minnetonka, MN, and San Mateo, CA.

“We’ve hung in there, we’ve weathered the storm,” says Montague (pronounced “Mon-tag”), Prometheus’s co-founder and CEO. “It hasn’t been easy. It’s been painful. But we’re still here, and we’re growing. Having Shell [Technology Ventures and Kenda Capital] close this deal validates a lot of what we’ve done.”

Indeed, it’s a big deal for Prometheus Energy, for Seattle cleantech, and for the future of alternative fuels. It also highlights some broader and more globally important business trends. One is that big oil companies are starting to invest heavily in alternative energy technologies, even in the midst of the recession. Another is that the capital for these deals in the U.S. increasingly is coming from overseas. “You’ve got a situation where the market for this technology is not just domestic, it’s global,” says Michael Butler, CEO of Seattle-based Cascadia Capital, the investment bank that brokered the Prometheus deal. “Kirt went to Shell [Technology Ventures] because of the value they bring.”

Gaining a strategic partner like Shell Technology Ventures appears to be quite …Next Page »

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Last week, we published a series of three stories documenting the companies and organizations in the Pacific Northwest that are focused on alternative energy and cleantech. We organized the lists by geography, breaking out separate lists for companies in Washington, Oregon, and British Columbia. Now we can take a step back, analyze the trends in each region, and—although the lists aren’t comprehensive—compare them to one another in terms of their strengths and weaknesses.

But first, some big-picture trends from the whole Northwest. We catalogued 160 organizations in total—27 of them working on alternative fuels (17 percent), 18 on solar power (11 percent), 16 on wind power (10 percent), and 19 on other alternative energy sources like geothermal, nuclear, and hydro (12 percent). Thirteen companies specialize in transportation technologies like hybrid vehicles and engines (8 percent), while nine are focused on fuel cells (6 percent). We counted 15 organizations focused on smart-grid technologies and electricity management (9 percent). And in total, 20 of the companies (13 percent) have a strong software component to their products, while seven are focused on energy storage or new materials (4 percent).

“We haven’t quite seen anything like what’s happening in the energy space,” says Rick LeFaivre, managing director at OVP Venture Partners in Kirkland, WA, which has invested in several alternative energy companies on the West Coast. “There’s a huge drive for cleantech. We’ve hit an inflection point.”

Washington is the clear leader in software and alternative fuels, with about one-fifth of its 83 organizations focused on each of these areas. Its leaders in energy software include Optimum Energy, Powerit, and Verdiem, while a new generation of biofuels technology is emerging, led by the likes of Arzeda, Bionavitas, and Boeing. The state is also strong in smart grid and electricity management, with 11 companies in this emerging arena, including Itron and Areva T&D. For its cluster size and level of activity, however, Washington does not have many venture firms or angel networks with a focus on cleantech (we counted just three—Arch Venture Partners, OVP Venture Partners, and Northwest Energy Angels).

Oregon is strong in solar, wind, and biofuels, with about one-fifth of its 36 cleantech organizations focused on each of these. SolarWorld and SpectraWatt are leaders in solar, …Next Page »

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Propel Fuels, a clean fuel company with operations in Washington and California, announced today it has named Matt Horton chief executive officer. Horton, who has worked on cleantech with the venture funds @Venture and Garage Technology Ventures, succeeds Propel founder Rob Elam, who is staying on as president and director. The company recently moved its headquarters from Seattle to Sacramento, CA.

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Oil prices have recently dropped well below $100 in response to slower economic growth around the world. But this decline doesn’t necessarily mean that the utilities industry will be able to provide cheaper power to millions of American consumers and companies.

In fact, utilities are going to face huge and upward price pressure on the electricity they deliver over the course of the next decade because of environmental clean-up costs, rising world market prices for energy sources like natural gas, much-needed infrastructure improvements, and an eventual restoration of economic demand. All of this will lead to larger energy bills—at least triple what we’re paying now—for citizens across the country.

Fortunately, there’s a significant new business model coming of age in the utilities industry today, a localized energy distribution system that will gradually replace the centralized approach that has somehow managed to stand the test of time in American cities and towns since the 19th century.

This 21st century distributed model is facilitating the development of exciting new alternative energy technologies, which will ultimately lower electricity prices for business and residential customers while allowing them to customize and control their energy intake in the home or at the factory or warehouse. When it takes hold, the localized model will even enable companies and consumers to generate their own energy, or sell it to a utility.

Clearly, this is a profound and sweeping technology transformation in the making. For over 100 years—ever since Westinghouse and Edison fought over AC and DC current standards—utilities have functioned like mainframe computers; hulking and centrally located power plants have done all the work and then sent the electricity out along a tangle of old, antiquated transmission lines. Unlike the one-way central-station-to-customer model, the new distributed model puts energy users in charge, thanks to smart grids, digital meters and intelligent appliances that talk to each other the way PCs do in a distributed computing network.

Next-Generation Biomass Furnaces

Producing energy—and greater efficiency, economy and green-collar job growth—at the local level is the wave of the future for the utility industry. And one of the most under-estimated and under-publicized delivery systems for this decentralized but potentially large-scale approach is the new generation of clean-burning and cutting-edge biomass furnaces. These state-of-the-art mobile furnaces, which are based on the latest breakthrough technology, utilize readily available and tremendously inexpensive feedstock like wood and wood waste. [Disclosure: The author is the founder of Greenwood Technologies, which develops clean-burning, biomass furnaces---Eds.]

Our recent analysis of available fuel sources in a cold-weather region like New England shows just how cost-effective these wood-burning biomass furnace systems can be. Assuming that home heating oil is currently about $3.50 a gallon, we calculated equivalent prices that range from $0.26 a gallon to $0.90 a gallon for cord wood, utility-scale wood and wood waste.

We believe that the new “biomath of biomass”—which reflects a considerable pricing differential between wood / wood waste and just about any other fuel possibility—is sustainable, structural and solid for the long haul. And our projections for future energy production confirm this. Indeed, after crunching the numbers, we anticipate that overall domestic energy production will grow 0.8% annually between 2006 and 2030 versus 4.3% for biomass.

The story behind these production numbers revolves around regulatory uncertainty, the cost of technology, and global energy flows and pricing. Carbon capture, for example, is a very well understood process, but no one is certain if it will really work on a large scale. These doubts, plus the government’s ambivalence about a carbon cap-and-trade program or tax of some sort, have effectively taken new coal plants off the table. Even without carbon capture, the costs of a new coal plant are massive, on the order of $2 billion, so very few utilities can afford to make a financial commitment this large—especially in a credit-constrained environment.

If coal is a no-go, then what about natural gas? Natural gas plants are relatively …Next Page »

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The Automotive X Prize in Los Angeles announced today it has chosen its first 22 teams to compete for $10 million in prizes that will be awarded for developing super fuel-efficient vehicles (100 miles per gallon or equivalent is the nominal goal). Among this first wave of contenders are three Northwest teams: Bellingham, WA-based Avion; Kinetic Vehicles, based in Cave Junction, OR; and the Vehicle Research Institute at Western Washington University in Bellingham.

—Avion has built an aerodynamic, diesel-powered, ultra fuel-efficient sports car. The company is led by Craig Henderson.

—Kinetic Vehicles has developed MAX, a turbocharged diesel-powered roadster. Its fuel comes from petroleum, biomass, or straight vegetable oil. Jack McCornack leads the operation.

—Western Washington University’s Vehicle Research Institute (VRI) has developed a series of cars called Viking, which run on gasoline, electricity, or biomethane and compressed natural gas. The VRI was founded by Michael Seal in the 1970s and is now headed by Eric Leonhardt.

The Automotive X Prize, which is sponsored by Progressive Insurance, will kick off its competition next year, holding stage races in several cities. More than 100 additional teams have signed letters of intent to compete so far, according to the X Prize website. The winners are expected to be announced in 2010. “The technologies reflected in this first wave of Registered Teams are as diverse as the teams themselves, and we look forward to hearing more about their individual ideas in advance of the 2009-2010 stage race competition,” said Julie Zona, director of team development and relations for the Automotive X Prize, in a statement.

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After years of disappointment, Mike Lewis is finding encouragement in small signs that business is coming back to life for Pearson Fuels.

Lewis opened Pearson Fuels in a blighted San Diego neighborhood in 2003, with financial backing from the owners of a local Ford dealership, where he had worked in finance. It was part of an ambitious $15 million “Regional Transportation Center” regarded by state and federal energy officials as a model for promoting the use of alternative fuels.

The centerpiece was a futuristic automobile showroom operated by Pearson Ford that sold Think electric cars and alternative-fuel vehicles then made by Ford.

The adjacent Pearson Fuels service station, built and operated by Lewis, sold nine kinds of fuels, including conventional gasoline, ethanol, biodiesel, propane and different grades of compressed natural gas.

By 2004, however, Ford stopped making alternative fuel vehicles and the gleaming showroom, which is now empty, lost its reason for being. Lewis continued to operate Pearson Fuels, but the service station sold mostly conventional gasoline.

I met Lewis as a reporter for the San Diego Union-Tribune earlier this year, when the price for unleaded gasoline was soaring beyond $4 a gallon. Amid a resurgence of interest in alternative fuels, I described his entrepreneurial quest here.

Lewis remains convinced that alternative fuels will prove to be a good business over time. But even as millions of venture dollars pour into the development of new biofuels each quarter, he still sees enormous challenges in developing a viable market.

“You have to be very cautious about investing in a government-induced market,” Lewis said. “That’s what we did, and it was a mistake.”

Now Lewis is seeing a gradual comeback in what was once a moribund alternative fuels business.

Lewis is one of the few ethanol suppliers in California, and he has been working to expand the market by helping new service station owners get the necessary permits to install ethanol pumps. In exchange for his consulting services, he gets a long-term contract to supply ethanol to the station.

Yesterday, the San Diego ethanol entrepreneur was in Riverside County at groundbreaking ceremonies for two new ethanol fuel service stations in Beaumont and Perris. The day before, he was in Carlsbad for the grand opening of a new alternative fuel station in Carlsbad—the second in San Diego County. A third is expected to open in Oceanside in two more weeks

Next week, he plans to attend similar ribbon-cutting ceremonies at new Chevron stations in the East Bay communities of Concord and Hayward. During the construction of each station, Lewis supervised the permitting and installation of pumps that sell E-85, a mixture of 85 percent ethanol and 15 percent gasoline

By the end of October, there will be exactly five service stations in the entire state that sell E-85 fuel. Pearson Fuels has long-term contracts to supply ethanol for all five, and Lewis is working to get E-85 pumps installed at eight more.

You might think that puts Lewis in an enviable situation. In California, there are an estimated 500,000 “Flex-Fuel Vehicles” that have the capability of running on either E-85 or unleaded gasoline.

But developing this business takes an unusual kind of perseverance.

At the Pearson Fuels station in San Diego, the only station that Pearson owns, Lewis sold 38,000 gallons of E-85 in June, when the alternative fuel was at least 90 cents cheaper per gallon than regular unleaded gasoline.

Since then, gasoline prices have fallen. Now E-85 is only about 20 cents cheaper per gallon. Lewis says he only sold about 18,000 gallons of E-85 last month.

So while soaring gasoline prices have made 2008 the best year ever for alternative fuel sales, Lewis says all that really means is that it’s just been his least unprofitable year—so far.

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I first heard of a Seattle startup called Voltan Biofuel two months ago, when I talked to Jim Roberts, head of business development at UW Tech Transfer’s LaunchPad, a program to promote university spinoffs. Voltan was a LaunchPad company that won $5,000 for “best cleantech idea” in UW’s 2008 CIE Business Plan competition. Yesterday the company announced its official launch under a new name, AXI, with seed funding from Allied Minds, an investment firm based in Quincy, MA.

The terms of the deal were not disclosed, but Allied Minds typically invests a few hundred thousand dollars in each of its companies. As we’ve written about previously, Allied’s strategy is to fund very early-stage technology startups fresh out of academic labs—which VCs often avoid because such ventures are unproven. “What ends at the university is still too early for most investors,” says Roberts. “[Allied] fills a void there for us.”

I caught up with Roberts to hear more about the deal. More than a year ago, Roberts says, he first visited the lab of UW biology professor Rose Ann Cattolico. She was experimenting with new strains of algae that can produce large amounts of oil for biofuels. Not by genetic modification, but rather by using natural evolutionary processes that could potentially be scaled up to large operations. Given the skyrocketing interest in alternative fuels, Roberts immediately grasped the opportunity. “As soon as I saw it, I knew,” he says.

Through LaunchPad, Cattolico partnered with two UW M.B.A.s, Eric Gertsman and Carrie Stearns, and together they entered the business-plan competition. Although they didn’t win the grand prize, they placed well and learned a lot. Having filed a patent for the technology and formed the team, both through the university, the next step was to get an investor interested.

It turns out Allied Minds has a vice president based in Seattle. Erick Rabins has been involved with the local innovation community for years as an entrepreneur and now an investor. Roberts knew him, so he introduced Rabins to Cattolico. It proved a good fit. With Roberts negotiating the terms of the technology license and other parts of the agreement, the deal was done quickly. It’s the first between UW and Allied Minds, but probably not the last. “We hope to do business with them again,” says Roberts.

Roberts says AXI will be based in Washington and will grow oil-producing algae, though its exact business model is still to be determined. “Once we do the deal, we step out of the way,” he says. “But we’ll keep in touch, we’re very interested in how it’s doing… We’re very, very confident. The technology is very, very promising.”

Still, AXI will have plenty of competition in the algae-biofuel space, what with the likes of South San Francisco-based Solazyme, Cambridge, MA-based Greenfuel Technologies, and Naples, FL-based Algenol Biofuels, to name a few. But to Roberts, this is a good thing, as well as a challenge. “There’s real demand and real need,” he says. “The market is definitely there.”

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Study Predicts Few Hydrogen Cars Before 2023

It will be at least 15 years until hydrogen becomes a competitive fuel, and then only with substantial government and private investment, says a study from the National Research Council. According to Science News, the study found that cars driven by hydrogen fuel cells could be commercially available in a decade, but will be very expensive. At that point, the government would have to step in with subsidies to help build an infrastructure for distributing hydrogen.

EPA Sees Increased Health Risk in Global Warming

Global warming poses risks to both human health and the American way of life, the Environmental Protection Agency says in a new report. Reuters tells us that the EPA has been under fire for not dealing with the impact of climate change. Now its report predicts more heat-related deaths, heart and lung disease from exposure to ozone, and health problems related to hurricanes, extreme precipitation, and wildfires.

Blogger Asks, Are Gore’s Energy Goals Crazy?

Al Gore gave a speech this week calling for a “moon landing” type of project to meet all of America’s energy needs with renewable sources within 10 years. At CNET News, Neal Dikernan, a banker specializing in cleantech startups, asks, “Is Al Gore Nuts?” Though he supports Gore’s goals long-term, Dikernan says Gore’s projections are based on unrealistic assumptions about the maturity of alternative energy technologies.

Metering Broadband May Not Be a Good Idea

Internet service providers such as AT&T and Time Warner are considering plans where a customer pays for broadband access based on how many gigabytes she uses each month. But a writer at GigaOm argues that might not be smart business. If higher prices are discouraging users from downloading more content, he writes, content providers have less incentive to pay the same ISPs to make their content available online.

More Elderly Patients Get Latest Medical Treatments

The combination of a growing population of people older than 75 and new high-tech medical care is leading to more treatment for the very old. People in their 90s are now having hip and knee replacements, cataract surgery, heart valve replacements, and pacemaker implantations, despite a lack of research on the effects of such efforts, the New York Times reports. Now some healthcare experts are questioning whether this is a wise use of Medicare dollars and whether it actually helps some patients.

California Wants Buildings to be Greener

California issued new building standards this week that would reduce the energy used in buildings by 15 percent and cut the water used for landscaping by half. The Los Angeles Times reports that Gov. Arnold Schwarzenegger praised the new standards. But environmentalists complained that the standards were heavily influenced by the construction industry and not as stringent as they could be.

Internet Research Undermines Science, Sociologist Says

Searching the Internet for scientific articles tends to push researchers towards more recent and more popular publications, cutting off scientists from older scholarship, says a University of Chicago sociologist. Wired reports that James Evans analyzed the pattern of citations of 34 million journal articles that went online between 1998 and 2005. His findings, published in Science, show that Internet searching is narrowing the scope of scientific research.

Solar Factories Headed to Asia

With the growing push for renewable energy, manufacturing solar panels could be an industrial boon for the United States. But the CEO of Applied Materials, an equipment maker in Santa Clara, CA, says the factories he’s selling to are being set up in Asia. The Wall Street Journal warns that the U.S. may be missing out on a chance to create manufacturing jobs.

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