Big Ideas for a Greener World

Alternative energy companies are vying for investor dollars with some audacious approaches to providing cheap, clean energy

by Moira Herbst

Jim Heathcote says his company can one day make crude oil irrelevant. Britain-based ITM Power, of which Heathcote serves as chief executive, is promoting a low-cost way of splitting water molecules, leaving hydrogen as a cheap fuel. "Our scientists agree that it's the greatest scientific advancement since the beginning of the Industrial Revolution," he says, without a trace of irony or bluster.

As the U.S. looks to reduce crude oil imports, kick its oil "addiction," and trim carbon emissions, there's a wild scramble for green fuels. Given the general turmoil in the Middle East and ongoing volatility in oil prices, "energy independence" has become a buzz phrase in Washington. The Bush Administration is placing its faith in technology to tackle the problem, and fortunately, there's no shortage of big thinking when it comes to how to fuel the economy without Big Oil.

The financial community has taken an interest in this call for a greener future, and energy conferences have been springing up around the country to give startups an opportunity to mingle with investors. Hyperbole, scientific snake oil, and revolutionary advances abound for money managers trying to sort through a dizzying array of alternative energy approaches. In this emerging field, separating the junk science from the quality can be the trickiest task.

Sorting Out the Winners

On Feb. 21, the coffee and Red Bull were flowing at one such event, the Opportunities in Alternative Energy Symposium, hosted by investment bank and securities firm Piper Jaffray (PJC). At the conference, more than 45 alternative energy companies presented, hoping to garner support from one or more of the hundreds of hedge fund, mutual fund, and private equity managers in attendance.

From thinner solar film to cheaper fuel cells to biofuels made from hog fat, investors had plenty to choose from. The array of solar, "clean" tech, and biofuels companies unfolding their wares—and the complex science behind them—boggled many a mind. As most are publicly traded companies, investors have easy access to their financial condition. But sorting out which technology will prove revolutionary is the potentially billion-dollar question.

As it stands, few new technologies can compete with fossil fuels in the marketplace. While they don't burn clean, oil and coal are efficient energy sources, and most of the world's infrastructure is built around them. By contrast, fuels like ethanol and solar power aren't as energy-efficient and lack the manufacturing and distribution channels that are well established for fossil fuels. But each of the startups is doing its best to show prospective investors they hold a valuable key to unlocking a better, cheaper, greener future.

The End of Fossil Fuels?

In one of the biggest leaps ahead, ITM Power sees a world without gasoline. With its gray marketing materials and soft-spoken CEO Heathcote, the British outfit didn't attract much of a crowd at the symposium. But ITM made perhaps the boldest claim of the day—that its technology can replace gasoline and eventually end the burning of fossil fuels entirely.

The company, based near Cambridge, England, says its claim to greatness is an "electrolyzer home refueling system," which creates hydrogen fuel virtually anywhere. The unit, which is about 18 inches square and stored in a refrigerator-sized tank, uses electricity to split water into oxygen and hydrogen—freeing up the hydrogen to fuel anything from an oven to a car. Hydrogen has long been considered a potential alternative to fossil fuels, but costly materials like platinum needed for traditional electrolyzers and a lack of infrastructure for distribution have made it prohibitively expensive. Heathcote says ITM's electrolyzer solves both problems because it uses cheaper materials and can distribute the fuel itself. It will cost $164 per kilowatt, versus $2,000 to $5,000 per kilowatt for traditional electrolyzers. And that, ITM says, prices its hydrogen fuel competitively with gasoline.