X Prize offers 100 million for Alternative Fuels

In a bid to speed innovation, the foundation plans awards for breakthroughs in biofuels and other alternative-energy fields

Workers unfold a roll of photovoltaic solar panels on a roof of a warehouse in France on Apr. 15, 2008, to be part of the largest power producing energy by solar panels on a 54,000-square-meter roofsize.

The X Prize Foundation made its name handing out $10 million awards for cutting-edge innovation in promising but thinly financed fields of research. But now the Santa Monica (Calif.) foundation is targeting one of the most-crowded contests in technology: the race to discover clean alternatives to fossil fuels.

In its richest and largest competition yet, the foundation will divvy up some $100 million for transformations in biofuels, clean aviation fuel, energy storage, the provision of basic utilities for developing nations, and other categories.

The announcement, coming as oil approaches $120 a barrel, is a fresh jolt to the search for a replacement for fossil fuels in transportation and electricity. In terms of profit, a true breakthrough could create the equivalent of a new computer industry, analysts say, and 8% of all U.S. venture capital—about $2.2 billion—was poured into clean technology investment last year alone, according to the National Venture Capital Assn.

Progress Is Too Slow

Yet X Prize CEO Peter Diamandis says innovation is not happening fast enough, is not necessarily concentrated in the right areas, and is excluding the needs of the developing world. If the U.S. had declared energy independence a goal after September 11, "we would be there" already, Diamandis asserted in a telephone interview.

A seven-year solution—what Diamandis suggests was possible at the beginning of President Bush's first term—is almost certainly a stretch. David Victor, a law professor and expert on alternative fuel at Stanford University, for instance, says a resolution of the nation's energy problems would involve "a multidecade effort with costs today and benefits only in the more distant future—usually a losing formula for politicians."

But Diamandis thinks rapid breakthroughs are possible. "There is an incredible amount of brilliance and technological ability around us," he says.

The X Prize Foundation has previously launched competitions for breakthroughs in private space travel, genome mapping, and high-mileage cars. In 2004 aerospace entrepreneur Burt Rutan won the Ansari X Prize by sending his rocket-powered SpaceShipOne to an altitude of more than 367,000 feet with a pilot and the weight equivalents of two passengers. More recently, Google ( GOOG) has backed an X Prize of $30 million for the first team to send a robot to the moon, travel 500 meters, and transmit video, images, and data back to Earth.

Ethanol's Pitfalls

The foundation has issued skeletal details on the new prizes in recent days on its Web site. In a telephone interview and an e-mail exchange, foundation President Tom Vander Ark said the biofuels prize would be launched late this year, followed by the other categories over the coming two years. The biofuels prize will be worth at least $10 million, he said.

The current spike in corn, wheat, and soybean prices, blamed at least in part on the production of ethanol, is reflected in the rules for the biofuels category. Among the rules are that contestants must produce a biofuels plant that uses nonagricultural fuel. The plant must also be small-scale and easily shipped, thus making the technology applicable anywhere in the world. "The current generation of biofuels is having terrible, unintended consequences, and we will try to avoid that with the next generation," Vander Ark says.

Vander Ark, who previously was executive director for education at the Bill — Melinda Gates Foundation, which is focused on the developing world, says the new categories will attempt to take the X Prizes into such countries. He says one prize will be for innovation in providing water, broadband, and clean electricity to villages in the developing world. Other energy categories will be for innovation in energy transmission and the construction of energy-efficient houses and commercial facilities.

LeVine is a correspondent in BusinessWeek's Washington bureau.