February 22-- Officials associated with the Range Fuels plant in Soperton are responding to an editorial in the Wall Street Journal which called the project "a fiasco." Last month the local plant manager told the Soperton News the plant was being closed temporarily due to a lack of financial support from investors. Here's the response to the WSJ editorial from the California venture capitalist who spearheaded the investment and the CEO of Range Fuels in Colorado.
Range Fuels Is a Good Energy Investment for Taxpayers
Regarding your editorial "The Range Fuels Fiasco" (Feb. 10): I have never publicly uttered the word Cello, nor classified it as a "great cellulosic hope." In fact, I have never owned any shares or options on Cello Energy, or even evaluated the technology directly or indirectly. A fund I invested in paid Cello a small amount for a nonequity relationship to buy blind "insurance," a tiny amount compared to our biofuels portfolio. A paper company called P&W was the principal backer of Cello but the Journal failed to report that. And I have not invested in E3 BioFuels, as others have reported. These facts have been widely misreported in the press.
Also, Range did not receive $76 million from the Department of Energy. Only about half was used to build phase one of the project, roughly as projected in the original grant application. The company voluntarily chose not to take the rest of the money as phase two as originally defined was superseded by new technology developments. The goal was never 100 million gallons for a $150 million project—those numbers would make it less capital intensive than corn ethanol projects—and it was not a figure Range ever planned.
Phase one was completed mostly as planned with 60%-plus equity match by Range, in spite of the financial crisis of 2008-2009, which affected everyone. The DOE project was the only one of the six DOE grants that has been built and met most of its goals in my view. The biggest failure was a wood feed supplier Metso Corp., not the new technology.
The editorial chose to call it a fiasco, but Range is in active discussions with alternative biofuels companies to use their gasification facilities with biochemical syngas catalysis companies and other biofuels technology companies. These combinations pencil out to be economic with good internal rates of return but success is never assured in high-risk projects, contrary to journalistic expectations. The project did let us assess what was economic and what was not and how it compared to other technologies. I would not invest in less economic technologies if better combinations were available but it does not lessen the contribution the DOE program made.
Most of the investment was spent on the Range gasifier, the front end of the biofuels project. This gasifier is valuable and can be used with newer biofermentation-based backend processes, an advancing technology that has superseded the chemical catalysis backend originally planned by Range. We should applaud the continued progress, and that entrepreneurs iterate as superior technology becomes available. This is how innovation happens, but the Journal does not really understand innovation.
The editorial fails to critique the heavily subsidized fossil oil business on its access to sub-market-rate royalties and other direct and indirect subsidies, nor the over $7 trillion spent over 30 years on carrier groups in the Middle East to protect our oil lanes! This is a version of incumbency capitalism, where incumbents and their lobbyists have tilted the playing field away from innovation capitalism. Creating competition for fossil oil through biofuels or alternatives like electric cars should be treated as a vital strategic goal for the country, and in the case of biomass, a critical rural jobs engine.
I believe it is far more important than our efforts in Iraq and deserves resources. We've spent trillions protecting our oil interests, so it seems reasonable to spend a tiny fraction of that on technologies that help end our oil addiction. We cannot achieve that with a 100% guarantee of success, just as we cannot guarantee that our policies in Afghanistan will be successful. We must take risks: That means course corrections and even failures, and we have to be tolerant of that.
Government support aims to fill the commercialization gap in many nascent industries. About $100 billion was used to support the nuclear industry as it was getting started, support that continues through efforts like subsidized loan guarantees, decommissioning funds and subsidized insurance. Government support of nascent industries drives more innovation capitalism, creates competition and ensures global competitiveness. Though most legislation is imperfect, let's not throw the baby out with the bath water and throw out all government efforts. There are abuses, and as an example I have written against continuing corn ethanol, biodiesel and even wind subsidies. There is a balanced position between "support every green thing" and the bigotry of "government shouldn't do anything."
The editorial complains that "the result has not been another Google." Unfortunately, not every venture is a Google and as President Kennedy said, "only those who dare fail greatly can ever achieve greatly." Range's original formulation may not have been successful, but such risk-taking deserves applause, not derision. I invested more in Range than the DOE or anyone else, because I believed in the technology.
I may be wrong often, but over the last 25 years my efforts have generated about $14 billion in profits from under $1 billion from investors. In biofuels we have generated hundreds of millions in profits for our limited partners. I started in this country with less than $300 in my bank account and no other support. I would like to compare this record with your editor's accomplishments before he chooses to trash my efforts and classify me derisively as the superrich. I will keep taking large risks and shoot to solve large problems.
When we first invested in biofuels, I expected up a 70% to 90% chance of failure (and went on record saying so), and today I'm pretty confident that 50% to 60% of the technologies will succeed. Those are better odds than wildcatting for oil. Intelligent dialogue about when government support is for the social good and when it is a gravy train is necessary. But bigotry only shuts down intelligent dialogue.
Vinod Khosla, Palo Alto, Calif.
Solutions to the monumental U.S. energy, environmental and economic challenges will not be solved by small private companies alone. It will take broad private and public collaboration. It requires continuity of policy and strategy to provide a consistent business climate that will attract long-term investment to this capital-intensive industry. It will require a wide range of solutions and technologies across the energy and environmental spectrum.
Range Fuels employees have put heart and soul into trying to change the way America produces energy. Commercializing first of a kind technology is difficult work. Converting wood waste and on-purpose energy crops into high quality syngas on a commercial scale had not been done before Range did it. This syngas can be converted via a number of technologies into methanol, ethanol, other transportation fuels and chemical building blocks. This is a significant step in the advancement of numerous cellulosic biofuels technologies.
Cellulosic biofuels and chemical building blocks will ultimately be successful. As with many other industries, our early production begins at the peak of the cost curve. Economies of scale and operational excellence will dramatically drive down costs in the future. The financial crisis has slowed our industry progress but it continues to move forward. Innovation in energy solutions can either happen in the U.S. or we can wait and import the technology and associated products from China. China already invests more than double the amount of the U.S. each year in renewable energy and energy efficiency.
In the words of Teddy Roosevelt: "It is not the critic who counts . . . the credit belongs to the man in the arena . . . who spends himself for a worthy cause."
When gasoline hits $4.50 per gallon, let's chat again.
David C. Aldous.CEO
Range Fuels, Inc.