Long before the BP oil spill in the Gulf of Mexico, entrepreneur Andrew Perlman set out to find the single biggest way to clean up the environment.
He had successfully started and sold three businesses in other sectors, but this time Perlman wanted to make a difference.
GreatPoint Energy takes coal, which Perlman calls the dirtiest, cheapest and most abundant fuel, and turns it into clean natural gas for all sorts of applications. Over time, the clean fuel will reduce global warming while improving health and quality of life in developing countries, Perlman said.
For GreatPoint Energy to be successful, however, being environmentally friendly wouldn’t be enough. The technology — and the energy produced from it — would have to be financially viable. Perlman knew investors would be looking first at the dollar signs.
So he put together a team of prominent energy researchers to improve upon a catalytic process developed in the 1970s to convert coal into clean natural gas, while capturing and sequestering the carbon dioxide byproduct. By improving efficiencies, GreatPoint came up with bluegas, a clean, pipeline-quality natural gas that can be used to generate power as well as for commercial and domestic heating.
We had to develop the technology from a beaker to a major demonstration plant and prove we could do it economically, Perlman said. By 2005, we felt we had the absolute lowest cost, most efficient way to turn coal into natural gas, he said.
Over time, it’s expected to cost significantly less than new drilled natural gas and imported liquified natural gas, Perlman said. Currently, it’s getting more attention in Asia, where natural gas costs more than in the United States, and in parts of the Middle East, where natural gas is scarce, he said. Using GreatPoint’s bluegas to generate electricity will lower energy costs in many foreign markets.
GreatPoint, which has its research and development facility in Chicago and headquarters in Cambridge, Mass., has raised $150 million to date from private equity and strategic partners like Peabody Energy, Dow Chemical and Suncor Energy. The company looks for investors who are willing to contribute expertise as well as capital, because often it’s more valuable.
We’ve hugely focused on bringing in outside consultants and advisers,” said Perlman, president and chief executive, who works in Chicago along with 20 employees. GreatPoint has raised $150 million to date from private equity and strategic partners like Peabody Energy, Dow Chemical and Suncor Energy. Perlman looks for investors who are willing to contribute expertise as well as capital, because often it’s more valuable. We’ve hugely focused on bringing in outside consultants and advisers, Perlman said.
The idea of taking a plentiful, cheap feedstock like coal and converting it to a higher-priced fuel that could displace traditional natural gas appealed to private equity investors. We thought it could be a very profitable firm, said Ray Lane, managing partner at Kleiner Perkins Caufield & Byers. That’s the whole reason we invested.
By tapping the resources of the Gas Technology Institute, GreatPoint Energy also shaved more than $30 million in costs and several years in development time. They catapulted us forward, Perlman said of the nonprofit with a sprawling 18-acre campus and 280,000-square-feet of laboratory space in Des Plaines.
GreatPoint Energy used GTI’s laboratories and expert staff to prove its concept and validate the process, said Vann Bush, managing director of gasification and gas processing at GTI. We have a platform, but we also have people who can really accelerate the development, Bush said.
Now GreatPoint is in the process of closing a round of more than $100 million in additional funding to build its first commercial plants and roll out production. It also plans to bring in more strategic partners.
If $100 million sounds like big bucks, think again. When you look at energy plants, those numbers are small, Lane said. A small plant can cost $500 million, while major refineries cost billions of dollars to construct, Lane said. GreatPoint plans to build a plant in China and another in the United States, with each expected to cost more than $100 million, Perlman said.
While raising funds is always a challenge, GreatPoint has been more successful than most start-ups, Perlman said. Still, the company’s size is a limitation. We’re a small company. We’re trying to build plants that compete with $10 billion to $20 billion refineries that major gas companies built, Perlman said.
The more that a company can prove its concept will be profitable, the more likely it is to attract private investment dollars, said Rod Shrader, associate professor of management at the University of Illinois-Chicago. If they have customers signed up, that’s a good step he said.
GreatPoint Energy has a number of customers lined up in China, where it is designing a 20-acre plant in Inner Mongolia. In the meantime, power companies and manufacturers that rely on natural gas are likely to be the first U.S. customers, Perlman said.
Coal’s domestic abundance makes it appealing, particularly when its emissions problems can be resolved, Perlman said. There’s more energy in Illinois in the form of coal than there is oil in the Middle East, but it’s obviously a big contributor to pollution, Perlman said.
Historically, price has been the determining factor in buying energy, but that’s changing, Bush said. The BP oil spill put the spotlight on environmental concerns related to energy production. Since the BP disaster, Bush said, It’s a natural reaction to look at what the mix of energy supply is and how we can take advantage of other natural resources to meet our energy needs.
A version of this story first appeared in the Chicago Tribune’s Business section on July 5, 2010.