I sat down at last week's Biotechnology Industry Organization (BIO) conference in Orlando with Vinod Khosla, reputedly the “best venture capitalist in the world” to discuss America's alternative energy future.
(Photo courtesy of Marc Auster/BIO)
Khosla’s company, Khosla Ventures is investing heavily in new energy technology companies in the United States, as well as places like Brazil and India.
Bush administration officials recognize Khosla’s influence in helping steer the president’s new alternative energy policy. Khosla believes ethanol can entirely replace oil as our main transportation fuel in the future, while other renewable energy technologies can produce a large share of our electricity needs.
David Adams: President Bush says we are “addicted to foreign oil,” and Al Gore told Congress that the environment faces “a planetary emergency.” So what are our future energy options?
Vinod Khosla: We need alternative energy sources for lots of reasons. Whether you care about energy security or whether you care about the environment, or whether you care about rural development - and I care about all of them - we need alternatives to oil.
The only large scale source in the short term, the next 20 years, appears to be biofuels. It’s a technology we know, it has a relatively easy adoption compared to all the other options for the infrastructure, and the planets seems to be reasonably politically well-aligned, so all that makes for a pragmatic choice for making it happen.
DA: Pessimists say there’s no real substitute for oil, and society is doomed. Can biofuels realistically replace gasoline and diesel?
VK: The question is in what time frame? President Bush has proposed 35 billion gallons in ten years, or 20 per cent of our gasoline. I think it’s an aggressive number, but doable. It will start to make a difference in worldwide markets. More importantly it will be a good role model to other countries. If every country in the world reduced their gasoline consumption by 20 per cent you would see a huge difference. And I think that’s what will happen.
After we do it other countries will start to follow.
DA: Where does the United States stand today in the global picture of alternative energy use? Are other countries ahead?
VK: Because of a variety of reasons, not the least of which is the Iraq war and the high oil prices, it’s a particularly opportune time. The United States has a constituency that wants to push this internally. So I think the politics in America are just right for this to happen, and politics have to be right for things to happen. It turns out politics coincides with what is the right thing to do, both for America and the planet. And it’s true whether you are an energy security hawk or if you are an environmental hawk.
What has happened in the last year since President Bush mentioned cellulosic ethanol, [making ethanol from any plant material, not just corn or sugar cane] is a lot of the scientific, technical and entrepreneurial brains in the country have gotten involved. So, we are starting to see technical breakthroughs.
Nobody in an organization like BIO would have thought about this two or three years ago, of having a talk focused on it. So, it encourages more people to get involved and more people to solve what is clearly an important problem. People like working on important problems. So I think we will see a lot more activity, and more importantly a lot more R&D money applied to the problem and that’s always good news.
DA: You have been at this for a while and at first you may have thought you were bashing your head against a brick wall. Are you surprised how far America has come?
VK: I am surprised at the pace of adoption. It has come from nowhere in the last 18 months. I think the key was President Bush’s advocacy in the Department of Energy that lent a different kind of voice to what was traditionally just the corn lobby and some small self-interested group advocating it. It lent a credibility to it. I think it also helped that between 2003-2006 Brazil made a lot of progress. And role models are always important because otherwise it’s easy for the naysayers to say it cannot be done.
DA: President Bush says he is “passionate” about biofuels. How did he get to where he is today.
VK: My guess is he's finally bought into this as a real alternative. People tend to go almost instantly from denial to despair - denial that oil is a problem to despair that you can’t do anything about it.
I think it’s extremely valuable that people look at solutions because you know, hearing an Al Gore [global warming] pitch is great but the next step is what can you do about it, and solutions are important. I suspect that president Bush saw a solution which he wasn’t expecting to see. I think most people are surprised at the new opportunities out there.
DA: Brazil as shown the world what it can do making ethanol from sugar cane. What kind of future do you think biofuels have in Florida?
VK: Florida has a strong agriculture industry and biomass grows well in Florida. That makes it a natural. We just started a project in Georgia, not too far from here. That technology could produce two billions gallons of ethanol in Georgia, about 40 percent of the fuel they consume from what’s left as forest waste today. That’s not even cultivating any new crops. It’s just taking what’s there already, left as waste. Some combination of greater efficiency in cars and using these kind of fuels, and why would Georgia need oil?
Florida is in a much better position that Georgia when it comes to generating biomass. So, my view is there’s a huge opportunity and I think you will see other states jump in.
That’s important because traditionally this has been considered a corn belt state activity and self-interest. It is in fact something Florida can do, Carolina can do, Georgia can do, Tennessee can do, the Northeast can do and the Northwest can do, in addition to the Midwest [corn belt].
Essentially most states have some form of agricultural potential for biofuels. In the end large scale production of ethanol will happen to the point where it makes a dent in our oil consumption and it will come from biomass I believe.
Sugar cane can be used for sugar and the bagasse [leftover cane leaves] can be used for ethanol. Switchgrass and myscanthus, are often cited. Then there’s forest waste. I think that’s where we will start. Eventually we will go to other forms of waste. For instance municipal waste can be used to make biofuels.
DA: You travel a lot. In your opinion which country is the best model that we should study?
VK: It depends on what you are trying to achieve. California on the environment front is taking an aggressive posture and I think countries should follow that model. On ethanol adoption Brazil has been a great model. In the western world Sweden is doing a good job on reducing dependence on fossil fuels.
We clearly need to do more in this country. We need more [alternative energy] vehicle fleets, we need more ethanol pumps and distribution. And of course we need to ramp up production from these new technology sources like cellulosic ethanol.
DA: You are a venture capitalist. The Bush administration believes in letting the markets drive this. Do you think the government needs to intervene more?
VK: Transitions don’t happen without policy, and policy has traditionally been biased towards encouraging oil. Why do we spend $50 billion just to defend more sea lanes? Embedded in the infrastructure are all kinds of things that favor an industry. The oil industry has all kinds of tax breaks, far greater tax breaks than ethanol.
The dollar volumes are amazingly large. So we need policy to create this new market, the right policy. But I’m not a big fan of longterm subsidies. I don’t think we’ll need those.
DA: As a venture capitalist people will say your business is all about taking big risks with other people’s money. Some people have compared what is happening today with dotcom bust. Is there are difference?
VK: Well first people should go back and look back at the dotcom bust.
A Google was created after the bust. A YouTube was created after the bust.
If you look at internet traffic, it never stopped. Since 2001 when the bust happened internet traffic and usage has steadily been going up. So we ought to differentiate stock prices from what is actually happening on the ground in the industry. Stock prices for ethanol prices may go up and down, and that is the nature of capital markets and stock trading. But I suspect ethanol as a fundamental resource will keep growing as an industry.
DA: What guides the risks you take?
VK: Our focus is almost entirely on breakthrough technologies.
You have to take the risk of adopting new technologies to get the quantum leaps in the technology to make all this, to scale it where it can really compete with oil both on the scale of availability as well as cost.
If it’s not going to compete on cost then we are not going to need scale. If it does compete on cost then we are going to need scale.
DA: What might the future look like in 25 years?
VK: In 25 years we could easily have replaced the bulk of our petroleum, not all of it, but more than 50 per cent of it worldwide. And we could be generating 30-40 per cent of our electricity from solar thermal [using the suns’ rays to super-heat water creating steam to drive turbines], 20 per cent from geo-thermal [naturally-occurring underground heat] , and the rest from other renewable sources. Then there’s the legacy plants; coal and nuclear.
Wind energy has one fundamental issue, you can’t store it. Storing electricity is not very viable. Wind is good for 10-15 per cent of your supply, but you need to get to 50 per cent for the new technology to have a material impact. For electricity generation you have to have storage. With solar thermal you can store steam which is something we know how to do from old technology.
DA: What about solar energy from rooftop panels?
VK: Each energy option has its specific niches. We are still investing in PV [solar rooftop panels, known as Photo-Voltaic systems], so don’t get me wrong. It’s still a large market, but it won’t meet utility needs the way solar thermal will. On home and commercial rooftop installations PV will do well, but the bulk of the power in the world is generated by utilities so that’s the problem you have to solve.
- David Adams
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