The evidence of that was ample at the Cleantech Forum in San Francisco this week. Through keynote speeches and panel discussions, the conference emphasized opportunities in the traditional energy industry and a growing symbiotic relationship between cleantech developers and big energy companies.

Behind the trend

Several forces have emerged in recent years that have been contributing to this trend. First off, venture capitalists have been shying away from investing in cleantech startups in areas like new types of solar panels, or biofuels. Many of the investors have yet to make their money back, due to the long timelines and large capital requirements needed for the companies to mature. It could also be that “righteous investing” gave them blinders to good investments.

With the lack of investments from VCs, startups are increasingly looking to corporations to help them with funding. And the companies that tend to be interested in investing in next-generation energy technologies, are — not surprisingly — the traditional energy companies. For example, natural gas provider Encana recently backed thermoelectric tech startup Alphabet Energy, Shell has been hunting for startups through its GameChanger program, and Total has made a variety of investments into cleantech companies over the years, including SunPower.

Meanwhile, the emergence of abundant and cheap natural gas has changed the energy game in the U.S. It’s providing traditional industry jobs to many states, and has been embraced by the Obama administration as a clean energy opportunity. There will be massive opportunities when it comes to selling next-generation technologies to natural gas firms and helping natural gas providers avoid environmental problems.

The growth of the renewable electricity sector will be tied to natural gas. Solar and wind generation can’t produce power around the clock, and utilities will have to match clean power with 24/7 energy like natural gas. Natural gas proponents have stepped up efforts to form alliances with renewable energy players, some of whom see the pairing as a practical approach to promote clean power generation.

Cleaning up fossil fuels

Energy executives “are all excited about the unconventional oil and gas in North America, and they know it will only take one or two environmental disasters for the game to be over,” said Wal van Lierop, co-founder and CEO of cleantech venture capital firm Chrysalix Energy Venture Capital, when I caught up with him at the Cleantech Forum.

To gain public confidence, comply with regulations and, in some cases, reduce risks and production costs, oil and gas producers are hunting for technologies that clean up wastes, recycle water and boost production. And if any of these technologies can earn a low-carbon designation and help with public relations, then all the better. The Texas Tribune ran an interesting story this week that looked at oil companies attempts to recycle dirty water from oil production.

Chrysalix is fond of backing companies that can serve oil and gas, as well as mining, companies. It’s invested in GlassPoint Solar, which designs steam generation equipment to help oil companies boost production; Axine Water Technologies, which offers a way to get pollutants out of wastewater from industrial operations and cities; and Seair, a public wastewater treatment company whose CEO, Ric Charron, spoke about his experience working with oil and gas companies at the cleantech conference.

While helping oil and gas producers boost production and win public support isn’t the same as saving the planet, van Lierop argued the results are no less worthwhile: “It’s a very important goal to ensure that you clean up traditional energy sources.”

Fossil fuels not going anywhere

The oil and gas industry is here to stay for a very long long time. Strong federal support for oil and gas exploration — part of President Obama’s “all of the above energy strategy” — continues to protect entrenched energy players and allows oil and gas companies to continue their grip on transportation and electricity generation. These companies operate at such a massive scale that it’s hard to a tiny startup to compete with them.

Fossil fuel companies are partly investing in renewable energy sources as a defensive move. It’s a hedge against any quick change in government policy and public sentiment. Chevron made some small investments in renewable energy technologies, and probably was glad it didn’t invest more when it realized later that its investments weren’t as lucrative as it had expected. The growth of the biofuel business, in particular, will require the support of major oil industry players.

Some venture capital investors maintain that cleantech investing is still a financially viable option — that a cleantech 2.0 investing wave will come some day in the future. But for now, in a year when “cleantech” has become a dirty word, it makes sense for cleantech companies to go make friends with the dirty fossil fuel industry.

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As I previously pointed out, it’s pretty rare these days that a cleantech startup can close on such a large round — investors are far less willing to put big rounds into cleantech startups in 2012 (see GigaOM Pro’s Q3 wrap up). But some cleantech startup outliers — able to raise sizable rounds — are still out there.

BrightSource develops solar thermal plants and its design uses fields of large mirrors to concentrate sun light onto the top of large towers. The tower has a boiler at the top that heats liquid, which in turn runs steam turbines and produces electricity. BrightSource is building a solar farm called Ivanpah near Las Vegas on 3,600 acres, and currently has 2,100 workers installing about one mirror a minute onto poles in the desert ground.

BrightSource’s investors include power company Alstom and venture firm VantagePoint Capital Partners, and additional investors included DFJ, CalSTRS, DBL Investors, Goldman Sachs, Chevron Technology Ventures and BP Ventures.

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My destination is Chevron’s oldest oil field in California, located near the town of Coalinga, which has a population 18,000 and gets its name from having been a coal supply depot for trains that ran on coal-generated steam power. I’m visiting the oil field to check out a project that is demonstrating a way to use the sun’s energy to produce steam to increase oil production. Chevron pipes steam down the wells to pry loose oil that is stuck in rock fissures and this makes it easier to pump the oil back to the surface (see my photo slide below).

Where fossil fuels and solar power meet

BrightSource Energy, which counts Chevron as an investor, built the project and completed it last fall. The 29 MW project includes a field of 3,822 heliostats – each of which is made up of two, 10-foot by 7-foot mirrors – on 65 acres (the entire project takes up 100 acres). The mirrors track the sun’s movement to direct sunlight onto a series of panels containing water pipes at the top of a 327-foot tower.

The sun’s energy heats the water to generate steam that reaches 700 degrees Fahrenheit, says Ray Guidry, a construction supervisor from Chevron Technology Venture who shows me and other visitors around the solar mirrors and takes us up to the tower for a close look at the steam production system.  The steam goes to a heat exchanger near the bottom of the tower to transfer that heat to another water-containing pipe to generate the steam that then fans out across the oil field.

Cleantech proponents may not see oil production as an ideal use of solar energy. They probably would much prefer the world to cut its reliance on oil and other sources of fossil fuels. But Chevron isn’t running the solar steam project to earn good will from its critics. The company sees solar steam as a potentially good alternative for oil fields that don’t have ready access to natural gas because of their locations or geopolitics.

Certainly, if natural gas prices go up significantly, then a solar steam project also could become a cost-effective choice. For now, natural gas is cheap and Chevron actually produces most of the natural gas it needs for its Coalinga operation from the Coalinga oil field.

No solar for you

With rain in the morning in the San Francisco Bay Area and big pillows of clouds over Coalinga when I arrive, it becomes clear that the day isn’t ideal for seeing the solar field in action. The wind is kicking up and is set to really blow after dark, so most of the mirrors are in a rest position that places them parallel to the ground. The spot atop the tower that would normally shine brightly from being a receiver of the concentrated sunlight is dark.

“The rule of thumb is if you can’t see your own shadow, then you can’t” put the solar mirrors to work, Guidry says as we stand amid a forest of heliostats.

Guidry wants to show us the mirror washing equipment. Some of the mirrors already are perpendicular to the ground and ready for a mop down. Fine dust coasts the mirrors, requiring them to be cleaned. A big truck rolls toward us as it tackles each mirror with a big roller brush.

New technology

Chevron has only been operating the solar field for about seven months, so the company is in the early days of collecting field data to see if the technology will perform as promised. How often the mirrors should be cleaned is one of the questions that the field data will help answer – the current estimate is once a month.

So far, the field is producing 10 percent more steam than what the company expects based on its daily performance model, Guidry says. BrightSource took on the project knowing it would incur losses, but it accepted the contract to showcase its technology anyway because the project was to be its first installation in the United States. But the company ended up losing more money than it anticipated in 2008, when it thought the losses would amount to $10.5 million. The figure actually reached $67.3 million by the end of 2011, the company said in a regulatory filing. The value of the contract was $27.8 million.

BrightSource is now focusing on a bigger project that will generate solar electricity in the desert near Las Vegas that is a third completed. The company expects to finish the project in 2013. BrightSource more recently made headlines for withdrawing its IPO plan.

A bright view

An elevator ride to the top of the tower gives us a breathtaking view of the solar field and, beyond that, the vast scrubbed land dotted with pumpjacks, the rocking horse-like structures that pump oil out of each well. Regardless of whether the project will work out as planned over the coming decades, the gleaming solar mirror field and tower are impressive and worth a stop if you pass through the area. Its construction certainly has drawn many curious residents nearby.

“We did a lot to make sure they know this is not an Area 51 thing,” says Morgan Crinklaw, a Chevron spokesman who accompanies us on the tour. “People would drive out here, tailgate, drink beer and watch this.”

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Chromatin’s plans

Chicago-based Chromatin said it has lined up $10 million – the first close of the D round – from investors including the venture arm of oil giant BP and the investing arm of product firm Unilever. Chromatin has developed a technology to genetically modify energy crops so that they grow fast and abundant, and its plant of choice if sorghum, a grass with some desirable, natural characteristics as a bioenergy feedstock, such as a high tolerance for drought and heat.

Chromatin wants to make money by selling its hybrid sorghum seeds to growers and license its technology to agricultural companies. The plants could be used to produce transportation fuel, electricity or chemicals for other products.

The company’s reach for commercial production may arrive sooner now that more cellulosic biofuel producers are finally getting on with building their first refineries. Generous government grants and loans have helped biofuel companies complete their technology development plans and build pilot and commercial plants. The U.S. Department of Energy last month finalized a $105 million loan guarantee to Poet to build a biofuel refinery in Iowa using corn cobs, husks and leaves, and a $132.4 million loan guarantee to Abengoa Bioenergy to build a plant in Kansas that will cover agricultural wastes such as corn stalks and leaves to fuel.

Mastering the processes of converting biomass to fuel is only one of the steps in boosting the country’s cellulosic biofuel production, however. Producing enough feedstocks is also important and could be a bottleneck for reaching the renewable fuel goals set by the U.S. government. Fuel giant Chevron certainly sees a shortage of feedstocks.

“There is a number of promising conversion technologies, but the limiting step is a lack of large-scale biomass feedstock,” said Des King, president of Chevron Technology Ventures, in an interview last month. King said 100,000 square miles of forests will be needed to produce 1 million barrels of cellulosic biofuel per day. Chevron formed a cellulosic biofuel joint venture called Catchlight Energy with Weyerhaeuser in 2008 to take advantage of Weyerhaeuser’s timberland holdings.

Genomics guru Craig Venter and his startup Synthetic Genomics also announced this week that they’re creating a joint venture around using genomics to create crops with a higher yield, lower cost, and better crop protection in an effort to use the crops potentially for biofuels.

However, transportation fuel may not be the first sources of profit for Chromatin’s technology. The company just signed a preliminary agreement with electricity producer Constellation Energy to test Chromatin’s sorghum to produce power at two plants in California. One plant current uses coal, while the other uses agricultural and wood wastes.

Zeachem’s goals

Meanwhile, ZeaChem said it has raised a $19 million Series C round as it marches toward commercializing its process of turning plants into fuel. Like many other biofuel companies, ZeaChem also is exploring the use of its technology for chemicals that can be used in products other than transportation fuel.

The Colorado company plans to bring a demonstration refinery plant online in Oregon by the end of the year, with an annual capacity of 250,000 gallons. ZeaChem recently received a $40 million grant from the U.S. Department of Agriculture to use the demonstration plant to produce blending fuels for cars and jets that run on diesel and other types of petroleum-based fuels. The company expects to produce the first batches of jet and diesel fuels in 2013 and gasoline replacement in 2015.

Birchmere Ventures led the $19 million round, which also came from investors such as Firelake Capital, Globespan Capital Partners and Mohr Davidow Ventures.

Image courtesy of Chromatin, and GigaOM

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BrightSource says that when the project was first established back in December 2008, the company thought it would take a loss on the project, because it was the company’s first and was intended to be a proving ground. BrightSource says it had estimated contract losses of $10.5 million at that time. However, as of this summer, June 30, 2011, BrightSource says its loss since inception of the project was $58.6 million, “or $48.1 million greater than the initial loss estimate as recognized in December 2008.”

BrightSource says it recognized revenue from Coalinga of $24.8 million as of June 30, 2011. Overall, BrightSource had a net loss of $88.4 million for the six months ended June 30, 2011, across all of its business lines.

BrightSource further says the cost overruns of Coalinga were due to a number of factors, including:

Discrete events transpired during the periods subsequent to when the initial loss estimate was made, through June 30, 2011, that required adjustments to the original estimated costs to complete the project. These items included non-recoverable customer driven design changes, increased vendor and material costs due to scope and design changes, increased mechanical and electrical costs associated with design and engineering changes, delays and subsequent costs to remobilize and accelerate construction as the result of abnormal weather patterns, and increased costs associated with efforts to accelerate the scheduled completion of the facility.

In addition BrightSource says during the first half of 2011, one of the third-party design engineering subcontractors introduced design specification errors, which led to BrightSource having to replace that design engineering subcontractor. “A subsequent detailed review resulted in modification of certain engineering designs associated with the solar tower systems. This change resulted in significant delay and substantial rework.”

These cost overruns are worrisome, because Coalinga was a smaller 29 MW project for Chevron, and BrightSource is currently knee-deep in building a far larger 392 MW farm in the desert near Las Vegas. BrightSource and the owners of Ivanpah say they have committed to funding up to “$66.5 million of overrun contingency reserves, known as the funded overrun equity,” for Ivanpah. But after that amount, BrightSource is fully responsible for all cost overruns. In the case of Ivanpah, Bechtel is acting as the engineering contractor (clearly a company with a whole lot of experience in that space).

BrightSource also really needs to have its IPO to be able to borrow more and start paying off its loan commitments. According to the S-1, it has a new loan agreement that will enable it to borrow another $10 million after the closing of its IPO if it generates proceeds of at least $100 million.

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“What we are seeing is less cleantech opportunities offered for consideration. It wasn’t as vibrant as it was a few years ago,” King said during an interview on Thursday at the California Cleantech Open, a business competition for startups.

Chevron Technology has invested nearly $200 million in 60 companies across sectors over time, with 36 of them in its current portfolio, King said. The portfolio now is made up of 50 percent in IT, 25 percent in cleantech, 20 percent in oil and gas, and 5 percent in others, he said.

There are more than a few reasons for the shift away from cleantech. One of them is the rise of natural gas, which is cheap and abundant now that new technology have been developed to extract gas from shale and new resources have been found over the past few years in the U.S. Chevron says it has been seeing new startup companies in the natural gas technology space.

At the same time, clean power – from solar to biofuels – remains uncompetitive and unprofitable, King said. Chevron is interested in solar, but is also seeing less need to make equity investments in solar technology because the tech is maturing and commoditizing. With solar panel prices coming down, Chevron is interested in deploying solar technologies rather than nurturing new startups.

Chevron’s solar projects

Chevron has been running technology demonstrations for a variety of solar technologies, including solar photovoltaic (solar panels), concentrating photovoltaic (using mirrors to focus light onto solar cells), and concentrating solar thermal technologies (a combo of concentrating mirrors and using the sun’s heat to produce steam, and then electricity).

Chevron unveiled its 740 KW Project Brightfield in early 2010 to test mostly thin film solar photovoltaic technologies from seven companies: Sharp, Abound Solar, MiaSole, Schuco, Solar Frontier, Solibro and Innovalight. Innovalight, unlike the others, makes silicon ink to apply to solar cells to boost the sunlight-to-electricity conversion (the company has since been bought by DuPont).

“Some worked very well, and some we found didn’t stand up to the real environment. They cracked,” said King, who declined to name the manufacturers who produced the faulty panels. Solar panels are supposed to last 20-25 years.

Chevron has no plan to stop running Project Brightfield, which is located in Bakersfield, Calif. It’s looking at building solar power projects but will likely do so overseas where energy prices are high, King said, and he named Indonesia and Hawaii as examples. The company doesn’t want to build solar farms to sell them or operate them while selling electricity to local utilities. Instead, it wants to build them for its own use, King said.

That philosophy is evident in the unveiling of a 29 MW project by BrightSource Energy near a Chevron oil field in central California earlier this week. BrightSource, which counts Chevron as an equity investor, built the solar thermal farm to produce steam, which is then shipped to the oil field to loosen up the sticky oil and make it easy to extract.

Chevron also is running a demonstration project for concentrating photovoltaic technology in New Mexico. The company built a 1 MW project earlier this year near its molybdenum mine in Questa, New Mexico, using technology from Soitec’s Concentrix division.

Images are of Chevron’s solar to steam farm in Coalinga, and of MiaSole’s factory.

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Aerial view of Chevron, BrightSource solar oil plant

The 29 MW, 100-acre, solar plant will use BrightSource’s solar thermal power tower technology to produce steam, which will be used for enhanced oil recovery. Oil companies inject high-temperature and pressure steam into oil wells to access more oil. Not exactly clean, but a way to extend oil supplies.

The plant will use 3,822 heliostats (each have two 10 by 7 foot mirrors on 6-foot steel poles), and these heliostats focus the sun’s rays onto a central boiler that sits on top of a 327-foot tall tower. BrightSource is also in the process of building a much larger 392 MW, 3,600-acre, solar farm near Las Vegas, which will uses thousands of heliostats and three 450-foot towers.

The video:

The photos:

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Chevron BrightSource Solar to Steam Project

The project is in Coalinga, Calif., and will have more than 7,000 mirrors concentrating sun light onto the central boiler. Gunther says the project appears to be on track to begin operations in the second half of 2011. To read more of Gunther’s analysis check out his post, and have a look at the photos below.

Images courtesy of Gunther Portfolio.

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Solazyme’s shares will start trading on the Nasdaq today under the symbol SZYM, and we’ll see how well the stock does on its debut. Next-gen biofuel IPOs from Amyris and Gevo fared well on the public markets when they debuted last year.

Solazyme engineers efficient algal strains and grows its designer algae in fermentation tanks without sunlight by feeding it sugar. Then, using existing industrial equipment, it extracts the oil. Solazyme is a leader in the algae fuel space, but competes with Sapphire Energy, Craig Venter’s Synthetic Genomics, and a handful of other companies looking to scale up algae oil production.

While Solazyme isn’t currently selling its algae in large volumes as fuel, it is currently selling algae-based specialty biochemicals, cosmetics and food supplements. For example, Solazyme struck a deal with Dow Chemical to make an algae-based fluid for transformers.

Solazyme has raised at least $125 million throughout its eight years of existence, from investors including Chevron’s VC arm, Morgan Stanley , Richard Branson, and food and personal product giant Unilever . Unilever wants to use algae to replace palm oil, because the harvesting of palm oil has led to deforestation in Indonesia and Malaysia and has drawn the criticism of environmentalists.

But ultimately, Solazyme wants to scale up algae oil production to tackle the biofuel market. Solazyme is looking to commercialize its fuel technology in the 2013 time frame, with a production cost target of $60 to $80 per barrel. To get there, it will have to build a commercial-scale algae plant, which can cost over $100 million (one reason it needs cash from an IPO).

Solazyme updated its financials in its latest S-1, and for the first three months of 2011, ending March 31, reported $7.74 million in revenues. That’s slightly up from revenues of $5.76 million for thee first three months of 2010. At the same time, over the first three months of 2011, Solazyme lost $7.29 million, an increase from a net loss of $3.95 million for the period in 2010. For the full year of 2010, Solazyme lost $16.28 million on revenues of $37.97 million.

There is a total of 10.98 million shares of Solazyme common stock being offered, with Solazyme selling 10.38 million shares and 600,000 shares coming from selling stockholders. Solazyme is also offering the underwriters a 30-day option to purchase another 1.65 million shares.

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Pasadena, Texas-based KiOR has a long way to go between today’s announcement and actually producing and selling its biocrude. But signing up potential customers will be important for the startup as it seeks to prove to would-be investors and Department of Energy loan application officers that it can deliver on its promises.

UPDATE: KiOR’s first conditional customer, Hunt Refining Co., plans to integrate KiOR’s biomass-based crude oil substitute biofuel products into its existing oil refining processes. Catchlight, on the other hand, was formed in 2008 to become a “major integrated producer of biofuels,” doubtless looking to turn Weyerhauser’s forestry byproducts into marketable biofuel via Chevron’s refining and fuel distribution expertise.

KiOR’s biocrude could fit into Catchlight’s plans in a different way than most biofuels like ethanol and biodiesel, which are not made to be put directly into vehicle gas tanks. The large majority of today’s ethanol and biodiesel are made from food crops — corn and sugarcane for ethanol or soy and palm oil for biodiesel. Next-generation biofuels made from non-food sources like wood chips, straw, grass, or other bio-based waste products, have so far struggled to move into commercialization at prices that can compete with petroleum-based fuels.

KiOR is hoping to circumvent that problem by turning biomass like wood chips into a substance identical to crude oil, using a catalyst designed to help the oil industry clean up super-heavy crude by superheating it in the absence of oxygen. That process, known as pyrolysis, is pretty widely used in industries like chemical manufacturing, compared to the harder-to-handle, genetically modified bacteria, yeasts or algae strains that underlie many of today’s next-generation biofuel efforts.

KiOR needs to raise a lot more money than the estimated $41.5 million in venture investment it has raised to date, and a proposed $75 million Mississippi state grant will only get it partway toward its goals. That’s why it’s looking to go public and is asking for an unprecedentedly large $1 billion DOE loan guarantee — $1 billion being about the amount it says it will need to build five plants throughout the U.S. Southwest.

So far this year, we’ve seen several biofuel companies go public with some success. Biocatalyst developer Codexis is working with oil giant Shell’s $12 billion sugarcane-to-biofuel operations in Brazil, and genetic engineering company Amyris just opened its first industrial-scale plant for turning sugar into the industrial chemical farnesene last month, though it’s not planning full-scale biofuel production until 2012.

As for this year, biomass-to-biobutanol retrofitter Gevo went public earlier this year, and algae-to-biofuel startup Solazyme is planning a $100 million IPO later this year as well.

Image courtesy of Sarah Cady via Creative Commons license.

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