Advanced material delivery systems are based on novel substances to control placement and function of active ingredients. They rely on innovative approaches ranging from solid polymer shapes, alternative materials like cyclodextrins, and even blood cells harvested from the patient and loaded with drug. As a class, companies in this category are noticeably less mature than other targeted delivery companies, and they have yet to prove the value of their technology and their ability to execute.

The clear leaders are Monosol Rx and Capsulution Pharma. The former’s thin-film formulations of prescription and over-the-counter actives have led to steady growth in product development, partnerships, and sales revenue of around $10 million. Monosol also scores highly on technical value due to its product’s patient-friendly form factor and low cost compared pills or injections. Capsulution Pharma scores high technical marks for the bioavailability and loading of its solid polymer nanoparticles and polyelectrolyte-based drug delivery systems in targeting grave indications like glioblastoma. A strong management team drawn from corporations like Merck as well as start-ups helps boost Capsulation’s score on the business execution dimension.

Soy Works’ comparatively high technical score derives from the versatility and apparent effectiveness of the biodegradable plastic resins it’s developing based on soy protein. Representative applications include nutrient-releasing pots for houseplants and drug-loaded feed granules for animal medicine. The small founder-funded company is growing organically, but without partners or a cash infusion it struggles on business execution.

Source: Lux Research report “Ranking Targeted Delivery Technologies on the Lux Innovation Grid.”

Mark, who dwelled on material and design choices, said that, in an integrated design approach, “a cascading set of uses” is key. In other words, components should serve more than one function. By way of example, he showed a roof design that shades the building, captures and stores thermal energy, and captures rainwater for use in the fire safety system and toilet flushing. We like this concept a lot, and apparently so does Mother Nature: In biology, multifunctional adaptations are called exaptations, and they have proven to be an effective innovation tactic for everything from birds’ feathers to fishes’ bladders – and now buildings.

Hank noted that 48% of U.S. energy consumption goes to making and maintaining buildings, and said that “50% to 80% of the energy use can be eliminated with material and design choices, such as proper use and installation of insulation, and orienting buildings to control the effect of solar heating.” He talked about the need to educate students not just on materials and design, but on use, as well: “Most kids entering school today come from a house with more bedrooms than people, and struggle with the idea of sharing a bedroom with anyone, much less a stranger. Old dorms only have one plug!” Since a lot of sustainable housing is necessarily multifamily construction, dorms provide a living lab for students to experiment and develop their ideas. Universities looking to expand architecture programs should make live-in labs an explicit part of students’ work. Importantly, this would encourage them to think not just of new buildings, but retrofits, since older buildings constitute the vast majority of living and working space globally. One open question remains: Should the students get a rebate on their housing fees?

The new rate, begun on July 2, lowered the tariff by 20% to C$0.642/kWh, specifically for ground-mounted projects. Moreover, commercial entities that lease land or rooftops for PV installations are no longer eligible for the microFIT program at all. Ground-mounted projects have inherently lower installed costs per watt than roof-mounted projects. Therefore, customers, mostly in rural areas, could generate extremely high returns by opting to install small ground-mounted projects.

We had previously said that the OPA would cut solar subsidies under political pressure as early as 2011 (see the April 8, 2010 LRSJ*), and Lux Research clients should expect this announcement to foreshadow further cuts before the end of the year. While this cut corrects flagrant abuse of an overly generous rate, many of the 11,000 pending applicants that submitted proposals after July 2 are already expressing discontent at the changes. Meanwhile, members of the provincial parliament representing rural constituents lobbied for these tariff reductions and will step up their efforts as Ontario’s citizens grow weary of funding extensive solar subsidies. While Ontario may remain a solid solar market at more reasonable FIT rates, the gold rush there could be drawing to a close.

* Client registration required.

Even before the financial crisis of 2008, however, investing in large-scale plants was yielding VCs poor returns. By the end of that year, VCs had changed tack again, shifting focus from end product to other start-up features, such as flexible process technologies, capital light business models, and new geographies. They also made smaller investments in a range of other technologies, including cellulosic fermentation (Qteros’s $3.5 million Series A round in 2007), algae photobioreactors (Sapphire Energy’s $50 million Series A in 2008), and other chemical processes (Segetis’s $17.2 million Series B in late 2009).

Overall, in 2009, VCs invested $877 million across 51 deals for bio-based fuel and materials production, signifying a 26% drop from 2008.

Source: Lux Research report Navigating Through Scale to Successful Exits: A Compass for Biofuel and Biomaterial Investors.

The rise in investments encompassed targeted delivery technologies for pharmaceutical, food, and nutraceutical applications, as well as nanotechnology innovations for food packaging. We also presented our assessment of how countries within the European Union ranked – both, against each other and on a global scale – based on the amount of nanotechnology-related activity within countries there, and how successful they were at commercializing their nanotechnology innovations (see the report Nanomaterials State of the Market Q1 2009: Cleantech’s Dollar Investments, Penny Returns*).

Following the presentation, the audience was particularly interested in how much large food corporations were investing in nanotech applications such as Aquanova’s encapsulation of nutraceuticals and vitamins (see the June 29, 2010 LRTJ*). Kraft Food’s Fellow Vijay Arora confirmed our thoughts, stating that large corporations such as Kraft are “closely monitoring” technology developments in additives and functional foods, but that food packaging innovations are likely to be the “lower hanging fruit.” Additionally, Vijay stated it’s unlikely that nanotechnology targeting food applications will ever be profitable or popular unless there is a step-value improvement in solubility and bioavailability – particularly given the negative public perception of food nanotechnology. His statements were in line with the theme resounding throughout the day: innovation is ahead of regulations, and unless regulatory agencies decide how to handle food nanotechnology, negative public perception will continue to persist. 

That said, we advised the audience (consisting of food scientists and technologists working in industry, government, and academia) to adopt an open innovation methodology wherein regulators, researchers, and non-governmental organizations work together. Collaborative efforts will help illuminate the real risks associated with food nanotechnology and put perceptual risks at bay (see the report Nanotech’s Evolving Environmental, Health, and Safety Landscape: The Regulations Are Coming*).

So is GM’s optimism misplaced? Edward Niedermeyer points out in a New York Times editorial – entitled “GM’s Electric Lemon” – that the Volt requires “premium gasoline, seats only four people (the battery runs down the center of the car, preventing a rear bench) and has less head and leg room than the $17,000 Chevrolet Cruze.”

However, the Volt’s primary competitor is not the Cruze, but the Nissan Leaf. Leasing terms are key here because, with lots of uncertainty around any new technology (the cycle life of the Li-ion batteries causes particular concern), many customers would prefer to lease than to buy. Since the Volt and the Leaf will be priced comparably and have similar warranties, the Nissan Leaf’s all-electric status will likely tip the scales in its favor among the eco-conscious minds of the early adopters. Moreover, Nissan has the advantage in that its lower sticker price will make it easier to convince lessees to buy the vehicles after three years, while GM risks having to take back heavily-devalued Volts. In addition to these unfavorable comparisons, the global electric vehicle market is likely to disappoint the overinflated expectation that the Volt will help salvage GM’s fortunes (see the Lux Research report, “Unplugging the Hype around Electric Vehicles” – client registration required). Unfortunately for the U.S. taxpayers who have billions of dollars riding on GM’s success, all signs point to another disappointment for the automotive giant.

In a recent report*, Lux Research summarized the opportunities of this space, and applied its proprietary assessment tool, the Lux Innovation Grid, to compare the field of competitors and identify its most likely winners. The Grid scores each company on three attributes – technical value, business execution, and maturity, and then assigns a relative position on the Lux Innovation Grid’s four quadrants.

Overall, the report found little technological differentiation between firms targeting this segment. A123Systems, alone, pulls away from the pack due to its solid business execution. Like many of its competitors, the company develops nanostructured lithium iron phosphate battery electrodes for the automotive market. But A123Systems was the only nanotech company to go public in 2009, and signaled one of the year’s most successful IPOs in any technology category.

Electrovaya, which scored highest in technical value, is developing nanostructured polymer electrolyte technology for three different battery cathode chemistries. A relatively strong revenue-to-employee ratio of $41,538 and a strong partnership list that includes Tata Motors also help distinguish it from the competition.

Alone in the Long Shot quadrant is K2 Energy Solutions that, despite two recent battery-development deals, hasn’t yet landed a large partner in the lucrative automotive sector. The aforementioned deals include a $30 million grant from the Chinese government for a joint venture with DLG battery, and another with an undisclosed customer in personal mobility (e.g. scooter and e-bikes).

Also, Altair Nanotechnologies’ status has changed for the worse since Lux issued its report in March. With a Q1 burn rate five times its 2009 annual revenues and a stock price below $0.40, Altair is in danger of being delisted from NASDAQ by the end of 2010. Although an updated score for Altair is as yet unavailable, its position on the Grid has likely drifted into Long Shot territory.

* Source: Lux Research report “The Governing Green Giants: Makers of Cleantech Nanointermediates on the Lux Innovation Grid” (client registration required)

The combination of renewable power, particularly solar power in the sundrenched Middle East, and desalination may prove the perfect symbiotic relationship. Solar power’s detractors have noted that its intermittency, demand for large expanses and cost all make it ill-suited for conventional electricity generation. However, desalination plants don’t necessarily require high capacity power, as the product water is easily stored. Furthermore, the Middle East is replete with large empty tracts of high insolation land. The last barrier, cost, is also eroding as PV prices tumble globally; cost is now also one of the major focuses of The Middle East Desalination Research Center (MEDRC).

Even so, concentrated solar power (CSP) – a form of solar energy generation that uses mirrors to focus the sun’s rays and create heat – is emerging as the most alluring renewable power solution for desal in the bright Middle East. Tunisia water utility SONEDE is considering solar power for a series of small brackish water desalination plants in its southern provinces, while Morocco’s bulk water provider Office National de l’Eau Potable (ONEP) has ambitious plans to build a 9,000 m3/d pilot desalination/CSP plant in Tan Tan in the south of the country. As discussed (see April 22, 2010 LRWJ – client registration required) Saudi Arabia is also actively pursuing the use of CSP to power a 30,000 m3/d desalination in conjunction with IBM. In short, new opportunities are arising in sundrenched but water poor regions of the world, even as CSP and renewables in general face new hurdles in developed nations and debt-ridden sovereigns pull back on generous subsidies.

While there is generally good news for biodiesel, the RFS2 is a veritable reality check for cellulosic biofuels cheerleaders.

Here are the blending mandates the recent regulatory action proposes: for cellulosic biofuel (0.015%), biomass-based diesel (0.68%), advanced biofuel (0.77%), and total renewable fuels (7.95%). All proposed mandates apply to any gasoline and diesel produced or imported in year 2011. In setting these targets, the EPA reaffirmed the scheduled advanced biofuels mandate of 1.35 billion gallons, as well as the 800-million-gallon blending mandate for biodiesel.

However, for the second year in a row, it had to dramatically slash the cellulosic biofuel mandate from RFS1 targets, this time from 250 million gallons to a 6-million-gallon to 25-million-gallon range. As a result, and because the EPA didn’t slash the overall mandate, blenders will now have to look elsewhere for 124 million to 144 million gallons of qualifying advanced biofuels to make up the portion of the advanced biofuels mandate not met by the cellulosic biofuel or biodiesel targets. Options include importing sugarcane ethanol, finding additional biofuel production, or buying appropriate Renewable Identification Number (RINs) credits to make up the difference. Clients should monitor companies like Dynamic Fuels (a joint-venture of Tyson Foods and Syntroleum Corporation), LS9, and INEOS to see if they can step up to the plate and provide this additional capacity.

The reception to this regulatory action has been mixed. While organizations like the Renewable Fuels Association (RFA) took offense with the downward correction of the cellulosic biofuel mandate, seeing in it the potential to further hamper investment, others thought the EPA was optimistic to anticipate 25 million gallons of cellulosic biofuel supply. However, everyone agrees that the EPA didn’t really have a choice but to stay true to market realities.

In determining the applicable standards, it is required by law to conduct an in-depth evaluation of how much qualifying biofuel can be made available in the following year. If the projected available volume is less than the required volume specified in the statute, it must lower the required volume to match the projected amount. In short, the EPA must match its mandates to available production capacity.

Cellulosic biofuels were done in by the sluggish pace of commercialization of developers like Range Fuels, Gevo, Iogen, Enerkem, and others who have all frequently missed milestones for maturity and commercial penetration. If the latest projections are to be believed, this capacity picture is unlikely to alter significantly for the next three years to four years, in which time competing technologies could blaze critical inroads into the market and make the outlook for cellulosic biofuels even more bleak. This news should come as a definite cause for concern for investors in and champions of cellulosic biofuels, whose only respite might be new loan guarantee programs from the U.S. Departments of Energy and Agriculture that are specifically engineered for cellulosic biofuels.

Meanwhile, as cellulosic biofuels grapple with this sobering reality, there are positives in the overall story for advanced biofuels in general. The EPA believes the overall mandate of 1.35 billion gallons of advanced biofuels in 2011 is enforceable, and we certainly agree. What is bad news for cellulosic biofuels might be good news for developers of other types of technology options like biodiesel or renewable diesel. Clients active in this domain should engage companies like Amyris, Solazyme, or Benefuel.

In the next decade, the expanding use of advanced fluorescent lamps, light emitting diodes (LEDs), and automated control technologies will all help reduce the energy used to power direct lighting by an estimated 1 trillion kWh, or a whopping 60%. That means that, even as the developed world expands its floor space by approximately 11.3 billion ft2 per year, the cost to illuminate it will actually decline from $174 billion today to $119 billion in 2020.

This week’s Graphic comes from the recent Lux Research report, “The future is so bright: Energy, carbon, and cost savings through better lighting (Client registration required),” and illustrates how energy savings break down by application.

Residential lighting clearly improves the most, but from the lowest base. Residences comprise nearly 80% of the world’s floorspace, and have far less efficient lighting systems that still rely heavily (i.e. 45%) on 16 lm/W incandescent bulbs. However, a steady infiltration of CFLs will produce up to 80% of the residential light in 2015 followed by adoption of LEDs, bringing average lamp efficacy up from 42 lm/W in 2010 to more than 100 lm/W in 2020; a 245% improvement. With smart lighting controls, Lux projects overall savings of 0.79 trillion kWh – a 43% reduction of total direct energy used by 2020.

Use of smart lighting controls in government building floorspace, and advanced lighting used to illuminate commercial and industrial space will have a combined effect. Together, they will shave 110 billion kWh off the direct energy expended these buildings in 2020. On top of that, the growing use of T5 fluorescent tubes, LEDs, and other advanced lighting will improve energy efficiency of 70%, signaling direct lighting energy savings of 0.26 trillion kWh in 2020.

The smallest gains will be in decorative and exterior illumination and task lighting which, by 2020, will see energy savings of 0.002 trillion kWh and 0.025 trillion kWh, respectively.