KLEINER'S ENERGY INVESTMENT... FROM FUTURE BOY

John Doerr's Stealth Energy Company
Ion America wants to bring the fuel cell to your home.

BUSINESS 2.0
By Erick Schonfeld
May 28, 2004

I first heard that John Doerr was funding a stealth energy company during a phone conversation a few months ago with Paul Saffo, director of the Institute for the Future. Saffo asked if I knew anything about Doerr's new company, and said, "He is being very coy about this." The two had attended an event together at Stanford, and Doerr had started spouting about the potential of distributed energy and let slip that he was backing a fuel-cell company still in stealth mode.

This anecdote reminded me of Doerr's last engineering-intensive stealth company: Segway. I wondered whether this was another flop waiting to happen, or whether perhaps it could be the Netscape of the budding alternative-energy industry.

The second time I heard about Doerr's stealth company was from Bob Corker, the mayor of Chattanooga, Tenn. Corker was promoting the tech-friendliness of his fine city on a trip to New York when he mentioned a deal the city is trying to strike with a fuel-cell company called Ion America to pilot the technology in Chattanooga. "It is a distributive model," Corker told me. "It can use natural gas to produce hydrogen." He wants the company to not just pilot the fuel cell in Chattanooga but eventually manufacture it there as well. In fact, he's so excited about the prospect, he helped arrange a meeting between Ion America and a fellow Tennessean, Senate Majority Leader Bill Frist, to help the company "get federal funding." When I asked him whether this was the same fuel-cell company Doerr was involved with, he looked surprised and asked me how I knew that. Then he clammed up. But at least now I had a name.

Ion America is a startup developing fuel-cell technology in Mountain View, Calif. Besides Doerr's Kleiner Perkins, New Enterprise Associates is also an investor. Cypress Semiconductor CEO T.J. Rodgers is on its board. And it even has a Washington lobbyist, Andrew Lundquist, who previously was the director of Vice President Dick Cheney's notorious energy-policy task force.

When I telephoned Ion America chief scientist Jim McElroy and asked him what he was up to, he said, "We are a company in stealth mode. No comment." He did, however, confirm what I'd suspected, which is that Ion America is developing what is known as a solid oxide fuel cell. This is not the same type of fuel cell that would run hydrogen-powered cars. Rather, solid oxide fuel cells are much larger and are meant to power buildings, or even whole neighborhoods. And they are likely to be commercialized much sooner than hydrogen fuel cells for cars.

Many companies -- from giant General Electric (GE) to tiny NanoDynamics -- are trying to develop a solid oxide fuel cell. If such fuel cells could produce 1 to 5 megawatts of power, they could form the basis for a dispersed power system. That is, instead of large, centralized power plants that require more and more transmission lines to feed our insatiable hunger for energy, smaller stationary fuel cells could power individual neighborhoods or homes. According to Saffo, Doerr's stealth company is making just such a "residential fuel cell." For the technology to be economically attractive, it would have to deliver energy at a cost comparable to that of hulking natural-gas power plants, which produce energy at 3 to 4 cents per kilowatt-hour.

However, much of the power plants' energy dissipates as it goes through transmission lines. So Ion America's fuel cells, which would be located closer to the actual point of demand and thus would lose less energy along the way, could probably get away with producing energy at twice the cost. With such a distributed model, energy production could also be added as it's needed, which is more economical than paying up front for a large power plant.

The concept of a solid oxide fuel cell has actually been around since the 19th century. One fuel it can use is natural gas. But instead of releasing energy from the gas through combustion, it releases the energy more slowly and with less waste by forcing oxygen ions through a solid ceramic membrane separating the gas from the oxygen. The huge desire for oxygen pulls the ions through the ceramic membrane, creating electricity. Interestingly, Ion America's founder and CEO, K.R. Sridhar, is a former aerospace engineering professor who developed for NASA a system to convert the carbon dioxide atmosphere of Mars into oxygen.

There are four potential advantages to a solid oxide fuel cell: It could create the basis for a dispersed energy system; it should be more fuel-efficient than a turbine-powered plant; it should produce virtually no greenhouse-gas emissions, since there is no combustion; and one of its byproducts is hydrogen. That hydrogen, by the way, could then be used as the fuel for those hydrogen fuel cells in cars. In this way, solid oxide fuel cells could help solve one of the biggest problems delaying the launch of the so-called hydrogen economy -- namely how to produce hydrogen.

It's too early to say whether Ion America will crack this nut. And even if it does, it still could end up as another Segway, selling the energy equivalent of a useless $4,500 scooter. The downside of solid oxide fuel cells is that they generate a ton of heat -- operating at 750 to 800 degrees centigrade. But a quick peek at some of the patent applications Ion America's scientists have filed shows that they are trying to come up with ways to regenerate energy from that heat or use it in other creative applications (such as heating the air in a blimp).

Even if Ion America emerges from its self-imposed silence sometime soon, don't expect fast profits. One indicator of progress is that it is advertising for a product marketing manager to "research and prioritize potential markets" and to "develop market entry strategies." For now, though, it seems like the startup is scraping by on VC largesse and government grants, including a $500,000 joint project with the Department of Energy and a recent $2.7 million contract from the Navy. It's amazing what a few high-powered friends in Washington can get you these days.