Week of August 31

We have noted a rather sharp diminution in the number of announcements we have been receiving regarding alternative fuels, indicative, perhaps, of a waning interest on the part of the public and of investors in this area. We have noted no new admissions to Vinod Khosla's stable, and we have seen a decline in both the number of new plant openings, and in the number of new processing technologies being showcased. What can this mean?

I see several factors figuring in the seeming eclipse of our segment of the alternative energy business.

The recent apparently serious advocacy of pure electric and hybrid electric cars on the part of some auto maker and suppliers as well as the powerful semiconductor industry has definitely shifted attention away from the internal combustion engine as the sole power source for transportation and thus away from new fuel sources for IC engines. We have been covering this area extensively of late, and we think that the reintroduction of the electric car, after a century of hibernation, is going to proceed in earnest. Whether it will be successful is another matter, but it cannot be ignored.

Furthermore, the travails of the corn based ethanol industry have negatively impacted the larger alternative fuels industry—no doubt about it—and especially the biofuels segment. What is worse, the notion that biofuels manufacturers are somehow taking food out of the mouths of the poor has begun to take root among political progressives, precisely the group whose support is vital for the growth of the industry.

Purveyors of unconventional fossil fuels, of course, never enjoyed much support from the political left in the first place, and only lukewarm support from any portion of the political spectrum. More importantly, they couldn't attract investment capital in the quantities necessary to build processing plants on a scale that would be cost competitive with conventional petroleum refining. So they're not doing very well either, though we are witnessing the first tentative efforts to establish a real coal-to-liquids industry.

Finally, T. Boone Pickens vociferous advocacy of natural gas as a motor fuel has had an impact, and, moreover, it has come at a time when many unconventional natural gas resources have rather suddenly come into play.

The increasing likelihood of a Palin Presidency also clouds the prospect not only of alternative fuels but of alternative energy in general. We would expect that this individual would continue the policies of the younger Bush, and might perhaps pursue them with even greater ardor. On the other hand, we do not believe Palin or McCain could possibly reverse the downward trend in domestic oil production or the long term trend of ascending oil prices, or, indeed, the relentless shrinkage of the Polar ice caps. So perhaps they will not prove as successful ultimately as George W. Bush has been in selling such policies to the public.

Bosch Makes a Bet

Bosch Corporation, a leading supplier of components to the automotive industry, issued a statement last week to the effect that hybrids and pure electrical vehicles would comprise 3% of global automobile sales by 2015. Bosch is further predicting that electric traction will begin to predominate late in the third decade of this century.

Bosch is already heavily involved in the manufacture of high performance electric motors and controllers, current converters, voltage regulars, and a whole range of components utilized in hybrid and electric vehicles. They are well positioned to take advantage of pervasive electrification in personal transport.

They are likely to profit enormously from such an eventuality, so their views in this manner can certainly be considered biased. But they are not alone.

Both Nissan and BMS spokesperson recently expressed belief in a future dominated by electric vehicles, as have numerous parties within the semiconductor industry. MIT's recent study on the future of the automobile expressed doubt as to the likelihood of a transition to electric power, however.

We are contemplating the composition of a book length report on the matter with projections regarding semiconductor and electrical component sales to automobile manufacturers within the years to come, so we view such statements with interest. Is this in fact the way that industry is tending?

As we have indicated elsewhere, we think an electrified future in motorized transportation is possible though not certain. It is quite unlikely in general aviation and shipping and boating with current technology and somewhat unlikely in heavy rail transport. There are so many intangibles and contingencies in this area, that definitive statements are unwise, but we can suggest, as in the preceding segment, that electricity is now definitely in contention.

electricity and heavy transport.

There was a salesman for solar panels at our business the other day. He had some interesting things to say. One was that we could generate 2 gigawatts of power from our parking lot, and provide highly desirable shade for vehicles in the process. For reference, the parking lot is about 2 football fields in area. With various incentives, the payback could be as short as 6 years. What might come to be is a cost efficient way to make DME from electricity. At some time in the future, if electricity costs decrease, and fuel cost increase, then there will be a point where "heavy transport," i.e. diesel engines, could run on a derivative of electricity. My guess is at about 60 kilowatthours per gallon of diesel equivalent.