The CEO of VPG, John Walsh, tells the paper that the company quietly stopped production last October after making 2,500 of its MV-1 vans, and was forced to lay off all of its staff, and shut its offices after running out of funds. The company raised around $400 million from investors including T. Boone Pickens, natural gas distributor Clean Energy Fuel Corp., Perseus, and Three Seasons Capital.

VPG was the last of five companies to receive funds from the Department of Energy’s Advanced Technology Vehicle Manufacturing Program; the company won the conditional loan in November 2010. The other auto loan winners included Nissan, Ford, Tesla and Fisker. Fisker has struggled heavily in recent months, and the DOE seized funds from a reserve account in anticipation that Fisker would default on its first loan payment.

The ATVM program was created in 2007 and funded by Congress in 2008 and offered loans for companies making vehicles in the U.S. that had better mileage or reduced dependency on foreign oil. The ATVM program has now essentially been frozen for a couple years, and the DOE says that despite the fact that it has $16.6 billion remaining in the fund and seven applications pending, it will not award any more loans.

Founded in 2006, VPG had been producing both gas-powered and natural gas-powered versions of a wheel-chair accessible six-passenger van that featured a door that can open 36 inches wide and an interior height of nearly 60 inches. The company sold the van for taxi and company fleets. The base model that runs on gasoline started at $39,000, and the natural gas version came in around $48,000.

The company seemed to be scaling in early 2012, when we covered them, but Walsh tells USA Today that the company needed more money to continue operations and was unable to raise it. The struggles of Fisker, Solyndra and others have made the environment for fund raising for alternative transportation and clean power difficult.

At one point VPG had planned to make 22,000 vans a year, and create 900 jobs.Walsh tells the paper that the company has not declared bankruptcy yet and is in discussions with two potential acquirers.

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If you remember back four years ago — when clean power, cleantech and the potential for carbon policy in the U.S. was hitting a peak — Pickens announced to the world that he planned to kick off the world’s largest wind farm in Texas. It was part of his Pickens Plan to make the U.S. energy independent, and he even bought 500 turbines from GE to build the farm. But then the recession hit hard in late 2008, the Texas wind farm struggled to get the proper transmission lines permitted, and natural gas started on its downward spiral in price, making clean power less attractive to investors.

In the spring of 2010, Picken’s decided to move the planned wind farm up north to Minnesota. The project was originally going to see 334 turbines land in Goodhue, Minnesota, creating a 78 MW wind farm, according to local Minnesota media back then. However, in recent years the wind farm plan had clearly gotten much smaller in scale, and is now reportedly a 50-turbine wind farm, estimated to cost $180 million.

Despite that Pickens has finally sold off his stake in the project, the owner of the wind farm, now called New Era Wind Farm, says he’s still try to get it built. The project is reportedly controversial in the area because of “concerns about potential noise and unpleasant shadows from spinning blades,” as well as “threats to protected eagles and bats that might hit the blades.”

Pickens still seems bullish on natural gas, particularly natural gas for transportation. Last year he was working on a bill that would help provide incentives for natural gas for transportation. Here’s a video interview I did with Pickens back in early 2011, and he told me back then that the wind part of his Pickens Plans was “on the shelf,” because of the low price of natural gas:

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A morning chunk of last week’s Wall Street Journal ECO:nomics Conference at the beachside Bacara Resort in Santa Barbara focused on a decidedly less picturesque topic — hydraulic fracking and natural gas.

The conference organizers describe ECO:nomics as a meeting to discuss “profitability, innovation and smarter uses of energy,” and one can’t discuss these areas without acknowledging that a leading vision for a natural gas economy is emerging from major investors like billionaire T. Boone Pickens and top energy CEOs like Chesapeake Energy CEO Aubrey McClendon, both of whom were panelists.

The natural gas vision

That vision goes something like this: While there have been countless revisions to estimates of how much natural gas exists in the U.S., thanks to the massive discovery at the Marcellus shale, it’s a lot more than expected. So much so that folks in the oil and gas industry often refer to the discovery of natural gas in Pennsylvania combined with much better drilling technology that allows explorers to find the source of gas and oil (not just where it’s leaking to the surface) as a black swan event. The Energy Department thinks we have so much that by 2016 the U.S. could become net exporters of liquefied natural gas, with a capacity of over a billion cubic feet day.

These figures approach or begin to exceed the energy equivalent of oil reserves that the Saudis have. Moreover, natural gas is cheap, around 15 percent of the current price of oil. In 1970, 24 percent of oil was imported. Today that number is 60 percent. It’s time to reduce foreign oil dependence and stick it to OPEC.

In fact that last sentence is no exaggeration. In a moment of candor, McClendon said he looks forward to the day he can say “to hell with OPEC.” There’s a patriotic sell to all these arguments, which I confess, I find appealing. I’ve always believed that energy independence is critical to national security. I’d just rather that we start looking to renewable resources, not finite ones like natural gas, and ones that don’t contribute to climate change.

Climate change, what climate change?

What I admire about The Wall Street Journal is that there’s a healthy dose of market realism in all of its dialogue and reporting about cleantech and the energy sector. But in the almost two hours of conversation last Thursday on the merits of moving to a natural gas economy, no one blinked an eye and asked, “What will the impact of a significant move to natural gas be on climate change? Moreover, if we factor the economic consequences of climate change in, what is the true cost of natural gas?”

But all was not lost. Carter Bales, who founded environmentally focused private equity firm NewWorld Capital and who has authored a number of analyses on climate change for McKinsey and Foreign Affairs, stood up and pointed out that “what we have today is low cost energy [natural gas]….which is good. As a consequence renewables are not likely to develop when energy gets as cheap as you’re making it.” And referencing the accumulation of greenhouse gases, he added, “natural gas is half the carbon of coal. When we are burning natural gas, we are cooking ourselves a bit more slowly, but we’re clearly cooking ourselves.”

And that’s where the rub is. Natural gas is often described as a bridge fuel to get us through the transition from fossil fuels to renewables. But it’s clear that for guys like McClendon and Pickens, it’s not a bridge fuel, it’s an abundant natural resource found on every continent that they hope will dominate the 21^st century, as much as oil dominated the 20^th century.

The impact on renewables

A likely side effect will be that investment in renewables suffers because there won’t be price pressure, like $4 gas ($8 in Europe), contributing to the drive to develop solar, wind, nuclear and biofuels. Given the rapid growth of fossil fuel consumption in India and China, moving to natural gas may not even cook us “slowly” as Bales puts it, but at the same rate or faster since cheap supply will stoke demand.

President Obama endorsed natural gas in the state of the union, a move that former Democratic Governor Ed Rendell of Pennsylvania, who joined Pickens on the panel, described as “an incomparable victory for the [natural gas] industry.” It’s clear that the natural gas charge is happening (Rendell conveyed that in 2007 drillers applied for 71 permits in Pennsylvania. In 2010 that number was 3316).

So I have one request, one that Bales was alluding to. If the U.S. is going to bet the ranch on natural gas, a fuel that research papers show has similar characteristics to coal in terms of its impact on global warming, then the U.S. should make a similarly big bet on financing renewable energy. Because, otherwise, we’re just kicking the can down the road while we continue to cook ourselves. And however fast we cook ourselves, we’re still cooking.

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Founded in 2006, VPG is re-entering the spotlight lately partly because it was among the lucky five that were able to clinch loans from the DOE’s Advanced Vehicle Technology Manufacturing program before the bankruptcy of Solyndra last fall led to a political backlash that seems to have made the DOE less willing to approve more loans. Three companies, including startup Bright Automotive, which wanted to build a plug-in hybrid delivery van, withdrew their applications for a vehicle loan recently, citing the changing and increasingly stringent terms demanded from the DOE. Bright Automotive now plans to shut down.

VPG closed the $50 million loan in March 2011 and was required to raise $10 million in equity before it started drawing down the loan and then another $5 million before it took out the last piece of the loan, said Joe Vecchiolla, VPG’s chief financial officer. The company had raised over $205 million by the time it received its first loan installment, he added. Overall, the startup has raised about $300 million since its inception.

VPG — backed by Perseus, Three Seasons Capital (led by Drasner), T. Boone Pickens and Pickens’ Clean Energy Fuel Corp. — is rolling out its inaugural model, called MV-1, at a time when there is a renewed interest in natural gas vehicles. President Obama is keen on promoting natural gas, which the U.S. can produce in abundance domestically, for producing electricity and powering cars. Last week, General Motors and Chrysler said they will roll out heavy-duty pickup trucks that can run on both gasoline and compressed natural gas.

The company is selling a gasoline version and a compressed natural gas version of the MV-1, and the $50 million loan went to create the latter. Like many car startups, such as Tesla Motors and Fisker Automotive, VPG set out to target a niche market initially: it created the MV-1 to be wheel-chair accessible and is targeting fleet managers, such as taxi companies.

The company designed the six-passenger van to comply with the Americans with Disability Act, and its features include a door that can open 36 inches wide and an interior height of nearly 60 inches. VPG can customize the MV-1, and Drasner said one design that is gaining interest in California comes with a bike rack to fit three bicycles.

Finding the right niche market

The aging population of Baby Boomers, a growing interest in adding wheelchair-accessible taxis in places such as New York City, and the federal government’s support for domestic natural gas production will help grow VPG’s business, said Drasner, who noted that natural gas currently retails at about $2 per gallon cheaper than gasoline.

VPG is targeting primarily fleet managers partly because there isn’t an extensive natural gas fueling network in the country just yet. Fleet operators often set up their own fueling stations. VPG is offering any customer who buys a minimum of 25 vehicles an installation of fueling stations at no upfront cost. Clean Energy, a California-based natural gas supplier and fuel station builder, will do the work.

Natural gas vehicles aren’t new to the market, but many of them are created in after-market conversion shops. Only Honda is selling a factory-built natural gas passenger car that is a version of its Civic. VPG contracts with AM General to assemble MV-1 in Mishawaka, Ind.

VPG is using a Ford 4.6L V8 engine and installing three compressed natural gas tanks that collectively can last 290 miles per fueling, VPG said. The base model that runs on gasoline starts at $39,000, and the natural gas version is around $48,000, Drasner said.

The natural gas version is more expensive primarily because of its heavy fuel tank, Drasner said. Unlike a gasoline car tank, which Drasner referred to as a “tin can,” a natural gas car tank needs to be extra beefy to hold the highly pressurized fuel. Prices also will be higher for the Chrysler Ram that will launch in July and be able to run on both gasoline and natural gas. This new Ram will start at $47,500, which is about a third more than the gasoline-only model.

The DOE recently called for research-and-development proposals that would lead to lighter and cheaper tanks for compressed natural gas passenger cars.

Scale up production

VPG has sold about 1,100 MV-1s (for both types of fuels) in 30 states since last fall, when it started to roll them out of the factory, and about 35 percent of them are the natural gas version, Drasner said. The company plans to deliver around 6,800 cars in 2012 and 18,000 in 2013, and it expects the natural gas version to make up 40-50 percent of the total delivered, he added.

The startup has no plan to roll out passenger cars such as a four-door sedan soon, however, because it doesn’t see an advantage in competing with the hundreds of available models. Nudging consumers to pay a hefty upfront price in order to reap long-term savings hasn’t worked for electric vehicles so far. “Our focus is on niche markets where we have a unique marketing proposition instead of competing on a broader scale,” Drasner said.

For its next model, VPG is looking at delivery vans that are similar to what cable companies or UPS use now, he said. The model would use the same chassis and be designed for urban use. The company would start to roll out this new model “as soon as I find a big customer,” Drasner said.

That will also be the job of the new CEO, John Walsh, who was CEO of National Bus Sales & Leasing. VPG is moving into the Canadian market and is eying Brazil, Mexico, Saudi Arabia and Abu Dhabi as potential markets.

Photos courtesy of the Vehicle Production Group.

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The money will come from the Department of Energy’s early-stage technology program called ARPA-E. The DOE is targeting the gas tank as a key area for innovation. It wants to help deliver a lighter gas tank for holding pressurized natural gas because the bulky tanks that exist today work for buses, but not so much for passenger cars. The goal is to support technologies that make it cheaper and safer for consumers to refuel their natural gas cars at home, and that will require technologies that can lower the pressure of natural gas inside tanks, the DOE said. So the projects that the DOE will consider include innovative compressor designs and “absorbing materials that are able to hold gas, similar to how a sponge holds water.”

Popularizing natural gas cars isn’t a novel concept. Remember T. Boone Pickens, who made his fortunes in oil and carved fame from his push for wind power and natural gas cars? We took a look at the market for natural gas vehicles back in 2008, and the benefits and challenges we analyzed remain true today. Honda’s Civic GX is probably the best known natural gas-powered passenger car, and it also remains relatively unpopular, though that’s partly because there isn’t a good fueling network to support it.

The DOE actually closed a $50 million loan to The Vehicle Production Group in March 2011 to develop a 6-passenger, wheelchair-accessible van that can run on compressed natural gas, but the same program that provided that loan gave way more money for electric car manufacturing to Tesla Motors ($465 million), Fisker Automotive ($529 million) and Nissan ($1.45 billion). The Vehicle Production Group, by the way, is backed by Pickens through his own investment funds and a natural gas distribution company called Clean Energy Fuels.

Building a market for a new set of car technologies will take billions, not millions of dollars, so the new funding from the DOE is good for a short-term boost. Obama has made domestic natural gas development a priority, so we will likely see more money for building natural gas cars and fueling stations , especially if he’s re-elected.

Aside from setting aside money for natural gas vehicles, the DOE also announced a $14 million fund for creating transportation fuels from algae. The DOE already supports more than 30 algae biofuel projects.

Photo courtesy of Honda

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Chesapeake’s first two investments include $150 million into natural gas vehicle fueling company Clean Energy Fuels, which if you remember counts T. Boone Pickens as a Director (he also founded the company that later turned into Clean Energy Fuels). The other investment is $155 million into stealthy biofuel company Sundrop Fuels, which gives Chesapeake a 50 percent stake in Sundrop.

One billion dollars dedicated to new natural gas tech could have a substantial influence on some of the biofuel, fuel cell, or natural gas vehicle startups out there. Fuel cells, like Bloom Energy’s, can use natural gas to make electricity; there’s a variety of biofuel firms that can use natural gas as a feedstock to convert into renewable fuels’ and there are a few auto makers that are looking to develop better natural gas cars and fueling infrastructure.

Strategic cleantech investing is one of the bright spots in the seemingly depressed greentech industry. Oil companies Exxon, Chevron, and BP have made minor investments in biofuel companies, oil refiner Valerohas made some more substantial bets as well, and chemical giant Dow has backed a variety of startups recently. GE and Intel Capital have been the more established investors in the cleantech space. And there’s always the group approach, which NRG Energy, ConocoPhillips have taken. A GM event launched an inaugural $100 million auto tech fund.

Corporations that have energy interests can use VC arms to find the latest innovative technology, and then either invest and buy the tech, or enter into exclusive commercialization deals. While a lot of these early companies are risky, from the corporate’s perspective the investment is often times relatively small compared to its massive balance sheet. Chesapeake’s investments are some of the bigger ones coming out of the gate from a new investor — often times several million dollars is more standard.

Image of natural gas car at LA Auto Show.

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Louisiana pledged back in 2009 to provide up to $67 million in grants under a “mega fund” for economic development — on the condition that, among other things, Next Autoworks wins low-cost federal loans requested under the Department of Energy’s Advanced Technology Vehicles Manufacturing program.

But now state lawmakers are considering a proposal to take $82 million from the mega fund to fill gaps in Governor Bobby Jindal’s spending plan for the fiscal year beginning July 1. If the proposed amendment passes, Jindal economic development chief Stephen Moret told the local Monroe News Star, “It would definitely kill the Next Autoworks project.”

Importance of the Mega Fund

The state funds are an important piece of Next Autoworks’ case, when it comes to winning the funds from the ATVM program. The ATVM program already rejected the company once, partly due to insufficient private capital and the lack of solid distribution plans. The promise of state funds is evidence of both local support and the startup’s ability to come up with its share of financing if the loan comes through (ATVM loans can cover only 80 percent of project costs).

But the clock is ticking, and Louisiana has a budget to balance. “I’ve fought this for three years, but I just can’t hold it any longer while we wait on Washington,” Louisiana House Appropriations Committee Chairman Jim Fannin told the Star last month. “We don’t normally hold unencumbered money that long.”

While the Energy Department’s Loan Programs Office declined to comment on a specific application, a representative did confirm with us this week that the agency considers financial support from state and local governments as part of its overall evaluation of a project and its financial viability.

Still Hope

David Hitchcock, Vice President of Louisiana Operations for Next Autoworks, said in an interview that local and state officials still support the Next Autoworks plan to set up manufacturing at a shuttered plant in northeastern Louisiana. “We’re extremely honored by their confidence and patience,” he said, emphasizing that the budget proposal has not been signed into law. “The money’s still there,” he said. After the final vote, expected June 23, “that’s when we’ll know for sure.”

But some damage may already be done. Moret was quoted in the News Star saying just the committee vote sends a message that lawmakers may not support economic development. “If it’s not reversed, it’s a crushing blow to northeastern Louisiana, and even if it’s reversed, it undermines our efforts,” he said.

Still Banking on DOE, After All These Years

According to Hitchcock, the two years that Next Autoworks has spent pursuing federal funds have not gone to waste or forced the company into catch-up mode. “What doesn’t kill you makes you stronger. This time has been well spent,” he said. Although he declined to provide specifics, Hitchcock said the company has made progress in refining its business model, brand, and the design of the car itself to make it “more fun and modern.”

Next Autoworks has “several” prototypes now, including “one all dressed up as a demo vehicle.” It also has a new CEO, Kathleen Ligocki, who came on board last fall after the DOE rejection triggered Frank Varasano’s departure.

Since then, the company has “reexamined everything we’ve been doing,” said Hitchcock. One thing it has not seemed to have done is concentrate on a backup plan in case Uncle Sam says no. It’s not uncommon for companies vying for government funds to be mum on alternatives, but they’ll sometimes note the possibility of manufacturing overseas (A123 Systems, Boston-Power, Coda Automotive), for example, or raising private capital (Aptera, Bright Automotive).

Others simply go about their business developing sources of revenue that don’t require a big factory (again, Bright). That’s not Next Autoworks’ style. Hitchcock said he “wouldn’t want to speculate on Plan B,” as the company is tightly focused on the DOE loan and being able to act quickly if it comes through.

Struggle to Keep Up With the Fords

The Next Autoworks team has been working hard to “keep track of where the market’s trending,” especially in terms of fuel economy and connectivity. After all, the American market for high-MPG small cars has become considerably more crowded since Next Autoworks first unveiled plans for a “high quality, environmentally friendly and fuel-efficient” vehicle two years ago.

Add to this the fact that plug-in hybrid and electric vehicles are now commercially available, and one has to wonder if the window of opportunity has closed for a startup with no large-scale manufacturing experience, little brand recognition, and a plan to use the old internal combustion engine for supposedly advanced vehicles.

Yet Next Autoworks has always said its competitive strength will lie in the whole package — in offering “the best value, not the best,” as Hitchcock put it. For an unnamed affordable price, the company says it will sell a car with not the best fuel economy, but better than average, and connectivity tools that are “not earth shattering,” but “intuitive, easy.” Hitchcock calls the strategy “intelligently frugal.” That’s a tough spot for a startup years away from achieving the economies of scale enjoyed by legacy automakers. Yet Next Autoworks remains confident.

“If our car was in the marketplace now, we’d be doing very well,” Hitchcock said. If and when the car rolls out, “I think the market will still be there,” and it will be big enough for Next Autoworks to carve out a slice. “I think there’s room.”

Image courtesy of Kevin Briody.

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T. Boone Pickens On A Call With Reporters About NAT GAS Act

Close to three years after oil man turned clean energy advocate T. Boone Pickens launched his Picken’s Plan, which seeks to give gas-guzzling Americans an oil intervention, the 82-year-old has just reached a major milestone. On Wednesday, Congressmen John Sullivan (R-OK), Dan Boren (D-OK), John Larson (D-CT) and Kevin Brady (R-TX) introduced into the House the NAT GAS Act, (H.R. 1380), a bill that would give manufacturers and buyers of natural gas-powered vehicles significant tax credits.

The Act is Picken’s baby, and the culmination of everything he’s been working on for the past three years. In a media call the Congressmen heartily thanked Pickens for his leadership on the issue. In an interview with me right before Pickens and the Congressmen made the official announcement on a media call, Pickens told me the introduction of the bill is “the first step to put us at the big table for energy.”

The whole idea behind the NAT GAS Act is to move big rigs and fleet vehicles onto natural gas. Pickens thinks the bill could enable the production of 8 million 18-wheelers powered by natural gas, over several years, which he says could cut out half of the oil imported from OPEC to the U.S. These natural gas vehicles would largely be made by auto-makers — compared to vehicles that are retrofitted to run on natural gas — and if signed into law, the Act could essentially spur an entire new industry around natural gas vehicle manufacturing.

Well, first it’s got to pass the muster of a Congress that’s focused on budget woes and stopping the government from essentially shutting down. Pickens and lawmakers have tried to get the NAT GAS Act passed into law before, and introduced a similar one as far back as 2009. If you remember back then there was still talk of a comprehensive climate bill that the NAT GAS would have likely been wrapped up into, but two years later those overarching climate bill talks have largely died out.

There are a few reasons why this time around the mood could be different. Pickens thinks that focusing on narrow pieces of a clean energy strategy, instead of pushing through a comprehensive clean energy bill, will find better favor and bipartisan support. On top of that there’s high profile turmoil in the Middle East, and gas prices are rising again. And the bill is bi-partisan. Pickens told me in our interview he thinks the bill will be signed into law by the end of this year. The full video interview is embedded below:

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