Category Archives: Water

Steven Chu steps down at U.S. Department of Energy, leaving a mixed legacy

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Last week brought the widely expected news that Steven Chu will be stepping down as Secretary of the U.S. Department of Energy (DOE). Chu has been a hero to scientists and clean energy advocates, but on his watch the DOE has made some questionable decisions, particularly from a commercialization and business standpoint. That said, Chu has also laid the groundwork for a strong legacy of energy innovation – if those initiatives produce results, he may justly be regarded as one of the most important DOE Secretaries since the department was created in 1977.

Unfortunately for Chu and DOE, the name “Solyndra” will appear in the first paragraph of most appraisals of his term – the DOE’s ill-fated $535 million loan guarantee (client registration required) to the Silicon Valley solar panel maker became a rallying cry for opposition to the Obama administration’s clean energy investments. Other recipients of DOE loan guarantees and other largesse, including A123 Systems (client registration required), Beacon Power (client registration required), EnerDel, and Abound Solar (client registration required), have also filed for bankruptcy. While there was a case for deploying government funds when private investors largely stopped lending during the financial crisis, the DOE loan guarantee program mixed investments in reliable projects, like solar power plants using established technologies, with funds for firms like Solyndra that faced steep technical and market risks. It was highly likely that several would fail, but DOE either underestimated the risks or wasn’t well prepared for the political fallout (or some combination of both), and arguably hurt the cause of government support for new energy technologies – previously a point of bipartisan consensus.

Chu’s DOE also showed commercial naïveté in its claim that it could help bring 1 million electric vehicles to U.S. roads by 2015 – and President Obama personally cited Chu’s assurances in defending the administration’s focus on electric vehicles. While the DOE target included plug-in hybrids (PHEVs) like the Chevy Volt, as well as all-electric vehicles (EVs), only around 250,000 such vehicles will realistically be in operation in the U.S by the end of 2015 (see the report “Small Batteries, Big Sales: The Unlikely Winners in the Electric Vehicle Market” — client registration required). Anemic sales to date of PH/EVs also belie such optimism, and just before Chu stepped aside, DOE began publicly backing away from the goal – suggesting that DOE’s EV enthusiasm may not have been the best use of its resources.

What’s more, DOE has largely been on the sidelines of the most important energy story of Obama’s first term – the phenomenal boom in domestic gas and oil production, driven by technologies like hydraulic fracturing. To some extent that’s only right – by the time the technology (which had benefitted from DOE support in decades past) was ready for prime time, the industry hardly needed further help from DOE. However, given the impact this production will have on the energy and climate picture in the U.S., and the remaining technology and policy needs to help access these resources safely and make the best use of them, it’s surprising how little focus they’ve received (barely meriting a mention in Chu’s review of his term in his resignation letter).

Despite these stumbles, history may well look kindly on Chu’s tenure, because programs he’s championed have the potential to create a generation of impactful new technologies and keep the U.S. a center of innovation in energy. Through the network of 46 Energy Frontier Research Centers, and especially the new Advanced Research Projects Agency – Energy (ARPA-E), the DOE is funding research on really novel technologies with a breadth, depth, and purpose beyond its previous basic science efforts. ARPA-E, in particular, is well-positioned to help fill a void left by venture capitalists that are (wisely, by their financial standards) increasingly reluctant to invest in early-stage energy technologies. If these programs help shepherd along impactful energy technologies that that come to the market over the next decade, they’ll have a greater impact than even a successful Solyndra would have, and will validate Chu’s initiatives.

Given the ups and downs of Chu’s tenure, who should Obama tap to replace him? Some favor another academic, like Shirley Jackson of Rensselaer Polytechnic Institute, or Ernest Moniz of the MIT Energy Initiative, to continue to build DOE’s innovation efforts. Others argue that DOE’s commercial blind spot argues for a businessperson like Duke Energy CEO Jim Rogers. While a course correction is needed, and energy business acumen at DOE would be welcome, a utility executive may not be the best steward of Chu’s innovation legacy (and may sit uneasily atop what’s still largely a scientific agency). A business leader with more innovation experience could serve admirably – GE CEO Jeff Immelt has been floated, though seems unlikely to serve. Otherwise, given the controversies DOE has weathered and the need to defend its budget in an era of sequestration and discretionary spending cuts, a more seasoned politician might also be a wise choice to follow Chu. Someone like former (moderate) Republican governor and EPA administrator Christie Todd Whitman or past North Dakota Senator Byron Dorgan could serve to consolidate Chu’s gains in long-term innovation, but would still be inclined to pivot the agency more toward the pressing issues of the day.

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Hutchinson Water Acquires Kinrot Ventures

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Israel-based venture capital firm and technology incubator Kinrot Ventures (client registration required) recently announced it was acquired by the Hong Kong-based engineering firm Hutchinson Water. Kinrot provides seed capital between $500,000 and $1 million for water-related ventures, and also provides laboratories and operational/administrative assistance. Israel is well known as one of the primary innovation hubs for water technologies. Situated in a water-scarce region, the Israeli government invested resources into water technologies to secure its freshwater supply but also to stimulate economic growth. Israeli government as well as private entities provided capital for Kinrot. Hutchinson announced that it may invest up to $25 million into Kinrot within the next eight years.

Lux actively follows several of Kinrot’s portfolio companies, including Hydrospin (client registration required) and Diffusaire (client registration required). Despite Kinrot’s diverse water technology portfolio and the hands-on support given to each company, there have been none of the lucrative exits that investors of venture funds expect. When we last spoke with the Kinrot Ventures CEO Assaf Barne, in January 2011, Lux estimated that Kinrot had about $7.5 million in assets remaining. It’s possible that investors became impatient with the lack of return or that the fund was simply out of cash. Regardless, it is not surprising that a Chinese company acquired the technology incubator. Of the $5 billion of trade between Israel and China, about half is water- and agriculture-related (client registration required). For Kinrot’s portfolio companies, Hutchinson provides a gateway to the large and growing Chinese water markets. Expect to see one or more of these portfolio companies expedited to commercialization specifically in the Chinese market.

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Timely Technology Will be Critical to Reducing Water Risk in the Food and Beverage Industry

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As established players have known for years, food and beverage is a multi-trillion-dollar industry with relatively minor variations in water quality and regulatory requirements. Moving forward, major societal drivers are pressing both industry and agriculture toward novel water solutions.

To control water risk, the food industry is expanding its focus beyond processing plants to water savings across the value chain. With deeper pockets and a better market-oriented grasp of costs than municipal water, this industry is rich with opportunity for technologies that can reduce water needs, promote reuse, and efficiently pretreat wastewater for discharge. The industry will be forced as never before to listen both to downstream retailers concerned about sustainability and upstream agriculture that makes up much of their water risk.

The range of applicable technologies is as diverse as the opportunity is large, demanding an analytical framework – the Lux Innovation Grid – for understanding all the emerging innovative entities in the space. Focused solutions are rife, from crop like AquaSpy and UgMO that use moisture sensors and crop knowledge to monitor field conditions and Capilix’s capillary electrophoresis sensor technology for monitoring hydroponics systems, to production plant where the likes of Bilexys and Emefcy look to apply their variants on microbial fuel cells to generate chemicals or energy from process wastewater.

The overall takeaway is clear. With increasing trepidation about population growth in the face of climate change, and increasing world affluence driving more water-intensive foods, industry demand for novel solutions from farm to factory have just begun to accelerate.

Source: Lux Research report “Farm to Factory: Technology in Reducing Water Risk in the Food and Beverage Industry” — client registration required.

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Utah oil sands operator’s prospects dry up

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US Oil Sands, whose name could be taken as a misrepresentation of their Canadian origins, recently faced a challenge from environmental groups claiming that the company’s water-intensive oil sands mining operations in Utah, requiring up to 84,000 gallons of water daily, would be too environmentally disruptive. Western Resource Advocates, a nonprofit environmental law and policy organization, appealed US Oil Sands’ mining permit, citing state regulators did not assess threats to groundwater when granting the approval. US Oil Sands has leased nearly 6,000 acres, of which 213 acres representing 189.9 million barrels will be initially mined, and targets production of 2,000 barrels per day by 2014. The Utah operation, using proven surface mining techniques deployed in Canada’s oil sands for the past three decades, will use as much as 636,000 liters of water each day in a desert that is already suffering the driest summer since 2002. Although US Oil Sands says 85% of the water can be recycled, an administrative law judge will rule on the company’s mining permit later this month.

Utah is the second driest state in the U.S., getting only 10 to 12 inches of rain every year, and has seen very little commercial development in its oil sands reserves due to water availability. Geological surveys of Utah’s oil sands reserves show that the state holds 25 billion barrels of “mineral matter consolidated” bitumen, in which the sand grains are cemented together with the oil and require the use of a citrus-based solvent, d-Limonene, along with hot water. US Oil Sands, however, struggle to even find adequate water sources to utilize in mining operations. They have drilled 108 holes, at depths of a few hundred feet, and four deeper wells, which all came up dry. Other oil sands reserves, such as those in Canada and Venezuela, are known as “water-wet” deposits, where a thin layer of water surrounds the sand grain, allowing for cost-effective and less water-intensive separation of sand from the oil. US Oil Sands’ second quarter statements identify the need to “source optimal water well locations for the Project’s future processing facilities.”

Potential exists to withdraw from the Colorado River, where Utah has not fully utilized its apportionment, but state regulators facing a growing population and recurring drought are not likely to grant oil sands producers these water rights. US Oil Sands may have two remaining options: the Ute Tribe of American Indians holds a significant quantity of water; and produced water from surrounding oil and gas producers, approximately 46.5 million barrels annually, could be used in the oil mining operation with significant treatment. US Oil Sands’ success hinges on their ability to secure water rights and prove that they are able to extract from Utah’s bitumen deposits.

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Hydrocosm Investments Rebound: A Look at Global Value of Private Placements by Application

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Investments in water treatment and conservation technologies have been funded by $3.1 billion in private investments since 2007, and the innovation sector is a fraction of water activity overall. While outsiders see the water industry as monolithic, it is a highly fragmented industry. Each sector is unique, with different timelines for venture funding, growth equity, and exit windows.

In a recent report (Client registration required), Lux Research dissected the water sector by technology type and application to gain insight into how investors approach it. In terms of technologies, the report analyzes advanced oxidation, biological, chemical, thermal, mechanical, membranes, and monitoring and efficiency. But this week’s graphic looks at how private placements since 2007 were distributed across applications, specifically exploration and production (E&P), potable water, process water, infrastructure, and wastewater.

After raising only $37 million in 2008, annual investments into E&P have steadily grown to $62 million by 2011. This year is no exception, with E&P having already secured $34.2 million in the first four months of 2012. The emergence of start-ups in this sector is due to the recent shale gas disruption (see our report “Risk and Reward in the Frack Water Market.” Client registration required). The oversupply of natural gas in the U.S. insures only companies already well-positioned in the market will survive.

Infrastructure has attracted nearly $1 billion in investments since 2007, making it the most heavily invested of the group – even excluding pure play infrastructure providers, which are not reflected in the graphic. Private placements to upgrade infrastructure rapidly grew from $134.9 million in 2007 to $398 million in 2010. After stalling in 2011, investments bounced back in 2012, with $95 million in private investments recorded for the first four months of this year. Buyers have also been active in this space, with $1.3 billion worth of merger and acquisition (M&A) activity since 2007.

Companies that treat water to potable quality raise small but consistent levels of investments. Since 2007, potable water companies have raised $355 million in private investments and attracted $411 million in M&A activity. One particular point-of-use potable water treatment company, Quench, raised five rounds of funding since 2008, draining a total of $98 million from its investors. With this much capital infused, only an IPO will satisfy its investors.

Multinationals pay for high priced process water technologies. This sector contains the most highly valued M&A transactions. Among them are Ecolab’s $8.2 billion merger with Nalco, and Pentair’s acquisition of both Porous Media ($225 million) and Norit’s Clean Process Technologies division ($713 million). This sudden spike in large scale consolidation activity derives from cash accumulated during the economic downturn, so transactions of this scale will likely slow.

Wastewater treatment is a highly energy-intensive process. Consequently, innovations here are driven technologies that seek to recover energy or nutrients. Many companies specializing in nutrient recovery from wastewater are based in or have ongoing projects in northern Europe. Europe also leads the way in nitrogen and phosphorous removal from wastewater for eutrophication prevention. Companies in wastewater treatment typically require large funding rounds, and acquisitions have slowed.

Source: Lux Research report “Big Cleantech: Investing in Water Innovations.”

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Eureka Resources Building Second Water Treatment Facility in the Marcellus

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Despite current rock-bottom North American natural gas prices, frack water treatment companies continue to pile on. While the short-term lull in demand should shake out marginal players, we expect renewed demand in the coming years, barring the emergence of disruptive technology. (See our report “[Risk and Reward in the Frack Water Market: https://portal.luxresearchinc.com/research/report/10190]” Client registration required.) Several U.S. gas companies, including Sempra Energy and Dominion Resources, have sought permits to export natural gas to gain access to higher gas prices in Europe and Asia.

The less-than-ideal geology in the Marcellus Shale region, combined with thousands of old shallow oil and gas wells, practically eliminates deep well injection as a viable option for disposal. Approximately 20% of this wastewater is currently desalted, and with a range of treatment and reuse strategies among gas companies it is unclear whether that percentage is likely to increase. Demand for fracking wastewater treatment surged in 2010 when Pennsylvania tightened wastewater discharge regulations for the natural gas industry. Competitors Eureka Resources and Altela (Client registration required.) made critical partnerships in parallel, leaving them well positioned to tap the fraction of water treatment applications where salt must first be removed before the water is blended for reuse or disposal.

Eureka partnered with Aqua-Pure (Client registration required.) to expand its existing Williamsport facility. In 2011, Altela partnered with Casella Waste Systems to use landfill-produced methane to power thermal distillation units.

In May, Eureka announced plans to construct a new facility in Standing Stone Township, Bradford County, PA, with expected completion in the third quarter of 2013. This facility includes a concentrated brine crystallizer that will generate solid-phase salt cakes and distilled water. The new plant will reduce the need for brine disposal and its associated transportation costs and will recover valuable water for reuse in the industry. There is also potential for the creation of salable salts for purposes such as road deicing. Look for dropping treatment prices and narrow margins as competition heats up for applications of this traditional technology to flowback water.

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No Latitude for Latitude Execs

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Lux Research spoke with Latitude Solutions’ Director of Financial Relations, Virginia Dadey, about the recent major shakeup there that saw the replacement of CEO Harvey Kaye and COO Ray Harlow. Industry veteran Jeffrey Wohler is the new acting president.

Latitude is one of the many startup water treatment companies competing for the rapidly evolving shale gas frack flowback and produced water market. As we noted in our recent profile (Client registration required), Latitude’s ongoing manufacturing partnership with Jabil Circuit makes it unusually well-positioned for strong growth. Apparently, however, sales weren’t flowing in to match capacity.

With inventory stacking up, the board decided new leadership and a new, more flexible sales cycle were both in order. Dadey says, for instance, that the company had insisted on one- to two-year contracts for its services, but is now content with contracts as short as six months to get its technology in front of customers and prove its capability.

Latitude isn’t the only company that is finding itself in a buyer’s market. With U.S. gas prices at rock bottom, significant numbers of well operators are saving money by reusing flowback water for new fracks with little or no treatment, regardless of fears the filthy water will reduce well productivity. Increasingly, tech suppliers are touting the usefulness of their products outside oil and gas – Latitude itself has looked into the food and beverage industry, among others. But the company is convinced it’s sitting on a disruptive technology, and is determined to sell it into the unconventional oil and gas industry. With some units already in the gas fields and a newly announced West Texas Permian Basin contract with an unnamed “top tier oil and gas company”, it remains to be seen whether Latitude can gain traction against the likes of the already profitable – if perhaps more conventional – WaterTectonics/Halliburton combination and the many other would-be water service suppliers selling every conceivable method of treating highly contaminated brine. Investors should use extreme caution investing in this field, but pay attention to the evolving technology. With so many innovative players, some really interesting water treatment technologies may become available at bargain prices.

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The Lux Top 10

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During the fourth quarter of 2011, Lux Research analysts profiled 262 companies across 12 different emerging technology domains in the fourth quarter of 2011.Here are the 10 they thought were the most compelling. Some, such as Proterro, stand out for their disruptive potential. Others, such as Diamon-Fusion, made the grade with well-executed business strategies. The competition for a Top 10 spot will only get hotter as we expand our portfolio of coverage domains to include Energy Electronics and a broadened green buildings portfolio.

1. Diamon-Fusion International – Positive – Advanced Materials

With its transparent silicone film used to coat silica-based substrates, Diamon-Fusion is one of the few startups in the protective coatings space with a strong track record in both technology and business execution.

2. Proterro – Wait-and-see – Bio-based Materials and Components

Proterro is commercializing a strain of photosynthetic organism that produces sugars at levels ten times more productive than sugarcane and in a configuration that could deliver the holy grail of “five cent” sugars (i.e. five cents per pound). But it will need funding and downstream partners to scale its potentially breakthrough technology beyond a lab prototype.

3. Topell Energy – Positive – Alternative Fuels

Working with German utility RWE, Topell Energy scaled its first commercial torrefaction facility in 2011 to convert wood waste into bio-coal pellets. Topell is a leader in the torrefaction space and is positioned to capitalize on healthy incentives in the EU for coal/bio-coal co-firing.

4. Spirae: Wait-and-see – Smart Grid

With the growing grid penetration of renewable energy sources and the inherent difficulty in managing their fluctuating inputs, Spirae could be in a prime position to support utility infrastructure with its comprehensive control and management system – if it can prove its concept on a large scale and secure long-term utility contracts.

5. eIQ Energy – Positive – Solar Systems

One of the few DC/DC optimizer companies staying with stand-alone hardware, eiQ partners with engineering, procurement, and construction companies that can realize its technology’s value in the strong commercial market segment.

6. Pervasive Displays – Wait-and-see – Printed Electronics

Using a technology honed for the One Laptop Per Child Program, Pervasive Displays produces low-power electrophoretic display modules that target application developers for warehouse signage and electronic shelf labels. While Pervasive has power advantages from its control functions, it will need to drive its costs down to compete with more established competitors and access a broader market.

7. Kurion – Positive – Water

A high-risk but high-profit U.S. nuclear contamination control company that rapidly scaled to clean up the Japanese Fukushima radioactive cooling water problem. The work generated massive windfall profits when no one else on the planet was prepared to deal with the problem.

8. Hycrete – Wait-and-see – Green Buildings

Hycrete’s water barrier technology improves the durability of concrete infrastructure at prices significantly cheaper than the incumbent membrane-based approach. But it will need to establish partnerships with well-known infrastructure or chemical companies in order to gain market access in the conservative infrastructure segment.

 

9. Citic Guoan MGL – Wait-and-see – China Innovation, Electric Vehicles

In the sea of Chinese lithium-ion battery developers, state-owned MGL stands out for its traction in China’s electric and hybrid-electric bus market. Its strong government relationships could provide ready channels to market for would-be foreign technology partners. But competition with other domestic firms such as China Aviation Lithium Battery Corporation (CALB) will be fierce.

10. Ablynx – Wait-and-see – Formulation and Delivery

Ablynx engineers its “nanobodies” – therapeutic proteins derived from antibodies in camel blood – to specifically deliver small molecule drugs to a target site. Despite stiff competition in the saturated antibody field and a multitude of emerging targeting strategies (such as DNA aptamers), Ablynx has snagged more than its share of heavyweight partners (Boehringer Ingelheim, Merck Serono, Norvartis, Pfizer), and is generating tens of millions in revenue to assist in its own healthy development pipeline.

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Sizing up next-generation municipal wastewater treatment technologies

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Traditional municipal wastewater treatment deserves some praise for preventing human disease, protecting natural systems, and efficiently disposing of the noxious and unavoidable products of human civilization. But more often it is faulted for gobbling up 3% of all electricity production, and imposing ever increasing sludge disposal costs. Next-generation wastewater treatments will totally revolutionize the practice. But the question is: Which technologies will win out, and where?

This week’s graphic comes from a recently published report, in which Lux Research looked at a number of companies fielding innovative new technologies for municipal wastewater treatment. It illustrates a quick order-of-magnitude assessment of the potential impact for select technologies in the developed and developing world. A quick disclaimer: the graphic presents market size on a relative scale, not in terms of cubic meters or customers served. That said, readers can derive a feel for estimated market size from the fact that, in our analysis, a score of 100 corresponded to an annual market of nearly 70 million people served worldwide.

In our shorthand analysis, the technologies of three companies – Aqwise, Entex and Microvi Biotech – came away a clear lead in our comparative analysis. Each has significant market potential in both the developed and the developing world.

While Aqwise and Entex have huge market potential, so do all of their competitors. Even so, their particular approach to offering fixed or moving media as an alternative to traditional activated sludge has enormous market potential worldwide – especially fixed media, which is a technically simple compromise to activated sludge. Establishing or defending any IP for such a simple technique is more of a challenge. Fortunately, there’s plenty of market to go around.

The other company, Microvi Biotech, also shows enormous market potential. It is inexpensive, widely applicable, imposes a small footprint and offers numerous possible uses. While the most striking potential of its technology is sludge reduction, the company is currently focused on reducing nitrate and phosphate using a specialized set of microbes. Its technique is simple and contained in a small footprint. But if the company doesn’t capitalize on its technology’s broader potential, it could miss out on a significant part of their huge projected market, not to mention their most noteworthy claim.

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Will O&G companies get the frack (water) out?

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There has been an explosion of frack water treatment companies, especially in the Marcellus, where geography and water disposal challenges favor small-scale solutions. Companies like WaterTectonics*, NeoHydro*, Produced Water Solutions*, Latitude*, Watervap*, and Altela* have pinned their hopes on a robust fracking market despite soft gas prices and strong regulations that fall just short of banning the practice outright. So far, the market has developed well regionally, with notable bans in New York State and in France. But we’ve expected a shakeout in the number of companies in the space, and the technologies applied to it.

Enter GasFrac, a startup that uses hydrocarbons like propane instead of water to fracture the rock. Already deployed at one site in the Marcellus, the company’s technology promises performance superior to water fracking, as well as capabilities that would be impossible using water – namely, reduced fluid volumes and near-complete recovery of used fluid.

Reducing the volume of water used in fracking won’t shut down demand for technologies that treat and dispose of produced water. GasFrac may not even be competitive in regions that generate an excess of produced water for disposal. But it has the potential to replace water fracking in dry climates, where water supply is problematic. That includes sites in the Middle East and China. Plus, if accepted by regulators as a more environmentally friendly way to frack, it could carve major inroads into regions where water is the current method of choice. Clients considering investing in this space should watch GasFrac’s progress carefully.

* Client registration required.

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