GM's Woes: Bad News for Clean Energy

GM's Woes: Bad News for Clean Energy

Coskata, a much-touted biofuels company, is stalled.

So, for the moment, is Compact Power, a U.S. maker of lithium-ion batteries.

Why? Partly because of the global economic meltdown. Partly because both depend on General Motors.

I'll get to Coskata and Compact Power in a moment—their CEOs spoke today at the Wall Street Journal's Eco:nomics conference—but, first, a bit of context.

To me, the overarching question about the environment in the U.S. right now is this: Will the momentum created by the Obama administration's enthusiastic support for clean energy be enough to overcome the headwinds generated by the global financial crisis?

This week, New Energy Finance, a London-based consulting firm that focuses on clean energy and carbon markets, released a report concluding that the financial crisis is, indeed, an enormous obstacle to progress on climate change. It said:

The world economic crisis has hit investment in clean energy and means its growth is no longer on track for the world to avert the worst impact of climate change….

NEF analysts say that although lower economic activity due to the financial crisis will reduce CO2 emissions, in the longer term the drying up of funding for lower- carbon energy solutions is likely to have far greater adverse impact on emissions.

According to The Environment News Service:

Michael Liebreich, chairman and chief executive of New Energy Finance, said, "This should be a real wake-up call. New Energy Finance is generally on the optimistic side of the debate. Even with the current recession we are more bullish on the shift to clean energy than most mainstream analysts."

"However, it is no longer possible to say we are on track to achieve peak CO2 by 2020," Liebreich said. "Something has to happen, either in terms of restoring credit to clean energy projects, or in terms of a surprisingly substantial outcome in Copenhagen."

Sobering. Coskata's CEO, William Roe, made much the same point. The company, which says its technology can make ethanol at a low cost from a variety of inputs (biomass, agricultural and municipal wastes), wants to build its first plant. But Roe isn't making headway with lenders.

Talk to a banker and "all you get is a smile and a pat on the head," Roe says. "There is no project finance today."

Interestingly, Coskata, which is based outside Chicago, raised money as recently as December, reportedly getting a $40 million infusion from the Blackstone Group, the big private equity firm.

But GM, teetering on the verge of bankruptcy, didn't pony up any dough. GM had announced its original investment in Coskata back in January, 2008, with some fanfare., Roe said then that the financing coming in from the auto giant is enough to make Coskata "a speed-to-market play."

Now he's waiting for a loan from the U.S. Department of Energy.

"That's my only alternative at this particular point in time," Roe says. "Absent getting that loan, we are stalled."

For Compact Power, the North American subsidiary of Korea's LG Chem Ltd., a big producer of lithium-ion batteries for the auto industry, the road to the future also leads through Washington.

CEO Prabhakar Patil, who worked at Ford for nearly 30 years before joining Compact Power,  said his company will need help from the U.S. Advanced Battery Consortium. That's a government-funded consortium of automakers, battery companies, federal researchers and universities.

In January, Compact Power announced some good news—its parent company, LG Chem will be the production source for the battery cells for the highly anticipated all-electric GM Volt. Compact Power plans to build the battery packs for Volt development vehicles until GM's battery facility is operational.

The Volt is supposed to arrive in late 2010—assuming GM is still around. Its stock trades for less than two bucks a share.

Compact Power is headquartered in Troy, Michigan, outside Detroit, to be near the big automakers. Patil took care not to dismiss efforts by startups like Tesla and Phoenix that are making electric cars, but he indicated that he didn't think the business could get to scale without the big guys.
"Most people don't appreciate the effort it takes to get vehicles on the road and make them safe and successful," Patil said.

He added, unnecessarily: "The vehicle manufactures are critical for our survival."