to have three things:
—Relevant cost. Energy technologies are only scalable if they’re competitive without subsidies in places like China and India (what he calls the “Chindia price”)
—A scaling model. The technology’s growth has to be exponential and highly distributed (“we saw this in the Internet,” he says).
—Low adoption risk. “The only thing that solves the carbon-reduction problem in transportation is a liquid fuel-based solution,” he says. Something like hydrogen fuel requires too much development in infrastructure to make it go mainstream.
So why hasn’t he invested in algae yet? Khosla first gave his broader “venture rules of investing.” First, a company should “attack manageable but material problems.” Second, its technology should achieve “unsubsidized competitiveness”—which in the case of algae, would be prices competitive with oil prices of around $50 per barrel. Third, the tech has to scale to large numbers of users, and have declining costs with scale. And fourth, it should have “manageable startup costs and short innovation cycles. He pointed out that algae satisfies all of the above (“I can do a new strain of algae in 6 months”), except for the cost competitiveness.
Looking ahead, Khosla said, “To predict the future, invent it. It’s not what it is, it’s what it can be.” He proceeded to give a detailed reality check for algae, in that it is competing with things like biomass methods for producing ethanol and oil. Calculating a theoretical maximum output of 2000 to 6000 gallons of oil per acre per year for algae (based on solar energy availability and current conversion systems), he said, “Algae clearly has the potential to have very high miles driven per acre, but today it’s pretty low.”
Adding up the production costs for algae-based fuels—carbon dioxide, harvesting, containment, and energy, as well as systems to move, mix, and add light to the plants— he concluded, “I think algae can get above biomass in total gallons per acre, but the reason we haven’t invested is we haven’t believed the plans we’ve seen so far meet the [cost] criteria.”
To break through, Khosla advised pursuing “black swans,” technical approaches from outside the realm of traditional experience, with game-changing impact. “The strategy is more at-bats, more shots on goal,” he said. “Most of your approaches will fail, but a few will succeed. You will build from each others’ experience, and get better and better.” The examples of possible black swans he gave were companies like Algenol Biofuels (ethanol-producing algae) and Sapphire (oil-producing algae), and the idea of ocean farming for algae.
As for advice to startups in the space, Khosla said, “Don’t try to get to market quickly with a small improvement. Even a good process isn’t good enough, you have to be truly great to compete. That’s the right vein to build an algae company. I’d say we need to work on more fundamental breakthroughs in algae…Take your time, don’t be in a hurry where you’ll reduce your technical risk, but increase your market risk. Take two more years and do the research. The day you have good fuel out of algae that’s cost-effective, it’ll get into the market.”
Khosla ended on a hopeful note. “I am convinced someone here will break the code,” he said. “Some people would give up. I’m convinced algae will work, but it’ll take a different, out-of-the-box approach. Figure out the costs, and compare them globally with oil. That’s what we’re replacing.”
