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Financial Times: Green shoots from dead wood

By Peter Marsh
Published: February 13 2008 02:00 | Last updated: February 13 2008 02:00

For hundreds of thousands of years, wood was the answer to mankind’s energy needs. Now Tom Blades is giving a 21st-century twist to the age-old fuel by using waste wood as the starting material for a novel type of biofuel.

“We have at our disposal a set of technologies that could create a huge range of possibilities to reduce the world’s dependence on fossil fuels, and as a result help to combat global warming,” says Mr Blades, whose black Mercedes is emblazoned with the words “SunDiesel – made by Choren”.

The 51-year-old British engineer is chief executive of the 18-year-old company based in Freiberg, Germany. Until his arrival four years ago, Choren had seemed in danger of losing its way.

With a background in the oil and gas industry and valuable experience running mid-sized technology businesses, Mr Blades has galvanised Choren. He has raised more than €100m (£74m) in funding, much of it from Royal Dutch Shell, the energy company, and carmakers Daimler and Volkswagen.

Choren’s main product is a form of diesel that can be used in ordinary diesel-powered cars. The company turns out only small amounts of SunDiesel at present but has announced plans for a full-scale plant to be built by 2012 at a cost of €800m.

Mr Blades, who has a German mother and has lived in Germany for the past decade, is a firm believer in using entre-preneurial skills to sharpen technological ideas, an area where he thinks UK managers have something to offer.

While German companies come up with exciting technological opportunities, the country’s managers – particularly those in charge of the Mittelstand group of mid-sized industrial businesses – are sometimes “too set in their ways” to make the most of them, Mr Blades believes.

“I came to Choren knowing that the science behind the company was sound, but that it had to be more ambitious and commercial.”

He had spent 18 years as an engineer for Schlumberger, the oilfield services company. He also worked for a brief spell as chief operating officer at Numar, a US company that makes instrumentation for the oil industry. Then in 1998 he took over as chief executive of Spectro, a mid-sized German maker of analytical equipment.

The latter career change helped focus his attention on the part investors play in technology-based companies, through his participation in a management buy-out of Spectro, which was backed by equity investors including BHF Bank and BancBoston Capital.

Mr Blades also became a nonexecutive director at other businesses with novel scientific ideas. Among his interests is Twister, a Dutch company that works on ways to separate chemicals derived from oil and gas by swirling them through tubes at high speed.

The first area Mr Blades had to tackle at Choren was making sure the process at the heart of the company’s ambitions worked properly. Choren was founded in 1990 by scientists working in former East German research establishments. It had been seeking to commercialise ideas for “second-generation” biofuels – which do not require food crops as an energy source – because these had been studied in the Freiberg area since the 1920s.

Because second-generation fuels use more of the plant’s total biological structure as an energy source, in theory they yield more energy than first-generation fuels. What is more, first-generation fuels, which use crops such as corn or sugar cane, have attracted criticism that they push up food prices and use land available for agriculture.

But second-generation fuels are a lot harder to make. Novel processes are required to turn hard, woody materials such as lignin and cellulose into the hydrocarbon molecules required for fuel.

The scientists behind Choren had begun to work out how to do this using materials such as wood waste and chicken manure. But they struggled to perfect the complete process, called Carbo-V. A stumbling block was a phase of the reaction in which carbon monoxide and hydrogen are converted into hydrocarbons.

“The company had been trying for years to devise a catalyst that would ensure that this reaction worked,” Mr Blades says. “Eventually we decided to draw a halt to this effort and, for this specific part of the process, bring in a partner.”

Three years ago Mr Blades signed a licensing deal with Shell to use its Fischer-Tropsch technology in the reaction. At the same time the oil group took a minority stake in Choren.

Shell’s involvement has given Choren a welcome infusion of capital, while further investment has arrived through the shareholdings of Volkwagen and Daimler, which were announced last year.

While Mr Blades does not divulge details of the stakes of individual shareholders, which include the companies above and several private investors as well as himself, he says that “nearly all” the money put into the company since it was founded – a total of €130m – has come in the past four years.

Mr Blades has also brought new managers into the company and staff numbers have risen from 60 to 230 since his arrival. “We needed a particular injection of new thinking based around process engineering – a discipline where we had to improve if we were to be serious in our ambitions,” he says.

Finally, he launched an effort to ensure the product is more closely linked to car drivers – SunDiesel’s potential end users – by tapping the resources and skills of his big investors. Shell will use its retail network to sell the diesel to drivers, he says, while Volkswagen and Daimler have offered ideas for testing the product and working out how it performs in real-life conditions. “All three have been a big help as we try to increase the potential of our fuel,” he says.

The technology, however, could be adapted to provide fuel for aircraft or ships – or even used to produce ordinary non-diesel petrol.

The next few years are likely to be challenging, but Mr Blades believes that Choren will become a profitable business – with the chance to introduce the world to a new form of “green” energy.

The funding conundrum: how the CEO keeps Choren fired up

While Choren, a biofuels business in which Royal Dutch Shell, Volkswagen and Daimler are key shareholders, appears to have promising technologies, making sure the company does not run out of money remains a conundrum for Tom Blades, the German company’s chief executive.

So far the business has received €130m (£97m)in funding – but will only make sizeable revenues after 2012, when its first large-scale plant is built.

Producing 200,000 tonnes a year, the unit will be located in Schwedt, northern Germany.It will turn wood chips and other forms of wood – such as offcuts from timber yards and furniture plants – into biodiesel.

The cash for this, Mr Blades hopes, will come partly from German government grants and loans used to fund the alternative energy sector. He is considering a public offering as early as next year to fund expansion.

By 2020, about 15 plants similar to that in Schwedt could be operating in the US and China as well as Europe.

Mr Blades says that most of these will be run by independent companies that pay a licence fee to use Choren’s technical ideas.

Copyright The Financial Times Limited 2008

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