Generating power without much fuss.

Capstone touts turbine as perfect source of energy

If best-laid plans don't go astray, tiny turbine power plants produced by Capstone Turbine Corp. soon will be humming away in the nation's office buildings and factories.

And after that, maybe they'll be in the world's motor vehicles - a production target market of 50 million units a year and rising.

For jaded observers of the high-tech venture capital scene, the plans of Tarzana-based Capstone Turbines' may at first blush seem to be wishful fantasy.

But Capstone has induced big-name financiers to cough up tens of millions of dollars, including Paul Allen, co-founder of Seattle-based Microsoft Corp., and Ben Rosen, chairman and founder of Compaq Computer Corp.

Capstone turbines are small (165 pounds, and about the size of a beer keg), but can deliver enough electricity to air-condition a 7-Eleven on a hot day. They require no scheduled maintenance and run on clean-burning natural gas or other fuels.

That's all well and good in theory. But the challenge is to put theory into practice to mass produce the machines using readily available materials and to sell them at an affordable price.

Enter Paul Craig, the affable, 57-year-old president and chief executive, who was brought to the company two years ago for his past wizardry in converting wild ideas into commercial production.

It was Craig who delivered breakthroughs in the production of automobile turbocharges for his former employer, AlliedSignal's Garrett automotive division in Torrance.

"My background is in manufacturing high-speed turbochargers (for automobiles) in volumes of 1 million to 2 million a year," says Craig. "I intend to ramp up production here."

The trick in making this new technology commercial, Craig explains, is to use off-the-shelf manufacturing techniques.

"We are designing for high-volume production, using commodity (non-exotic) materials, and manufacturing processes that have been proven," he said.

Capstone currently has just 70 employees, mostly engineers, ensconced in a makeshift 23,000-square-foot plant in Tarzana.

The company was founded in 1988 by former Allied Signal executives, and for several years survived with the help of research grants from motor giant Ford Motor Co. and the federal government.

By 1994, Capstone managers and financial backers felt they had a good idea, but needed production smarts to bring it to market - resulting in the hiring of Craig.

So far, not a single turbine has been placed into commercial use, although 24 have been put into various sites for testing. Two turbines whir and whine outside Capstone's headquarters, helping power the plant.

Capstone's short-run goals are to install the relatively low-priced turbines into office buildings, grocery stores and factories. And there is much to suggest that it will find a market.

Right now, big power companies are grappling with the challenge of deregulation and competition at a time of relatively slow growth in electric demands.

Plans for huge power plants have been shelved because of high costs, but new customers still need power. Existing plants, and transmission lines, are in some areas slowly becoming overwhelmed.

"It's not a time to commit to huge projects," says Jim Reilly, manager of research and technology applications for Southern California Edison, a unit of Rosemead-based Edison International Inc., which has purchased five Capstone turbines for testing. "But we can install hundreds of these little guys (turbines) for not much capital expense."

Cheap - that's one of Capstone Turbine's advantages.

The 2,200-megawatt San Onofre nuclear power plant, for example, cost Southern California Edison $4.3 billion to build, almost $2,000 per watt.

And 2,400 workers toil to keep it training. In the industry, it is considered an economic dinosaur.

In contrast, a Capstone turbine will retail at $12,000, and while it produces only 24 kilowatts, that's only about $500 per installed watt. And they can be connected for greater output.

In the cutthroat energy markets of the future, utilities are wondering if the turbine is friend or foe. The prospect of huge additional sales also has gas companies intrigued. Electric utility customers might become gas customers, generating their own electricity.

Southern California Gas Co., a unit of Los Angeles-based Pacific Enterprises Inc., has purchased turbines, and is studying if they could be put widely into place, according to a company spokesman.

In Third World nations, Craig points out, the tiny turbine stacks up well. It is small enough so that it could be easily shipped to remote villages - where reliability is key - thus voiding the need for expensive stringing of powerlines.

"Globally, there might be a market for hundreds of thousands of these turbines," ventured Dan Rastler, a researcher with the Electric Power Research Institute in Palo Alto, an industry research and think tank.

Nationally, Reilly of SCE guessed that perhaps 10,000 to 15,000 micro turbines could be installed within five years, if the little engines work as advertised.

So maybe there is a real-world demand for Craig, his intrepid investors and their turbines. But can Capstone produce in volume, and not hit bottlenecks? What about price and reliability?

A network of Southern California vendors are ready for the task of greatly increased production, claimed Craig.

"We believe the market is for thousands of units, and that is what we have to produce to bring prices down. The supply base is in position to allow us to grow to 100,000 units a year," he states.

Craig's easy banter sometimes sounds too easy - but he is the man who brought automobile turbochargers to market by the millions for AlliedSignal.

In fact, AlliedSignal could turn out to be Capstone's biggest competitor in the micro-turbine market. The firm is building a turbine about twice as large as Capstone's, also with mass production in mind.

Nevertheless, Capstone Turbine officials believe they can compete with the larger firm.

Capstone has attracted a cadre of venture capitalists, including Seattle-based Paul Allen Group, to pour perhaps $20 million to date into the enterprise, although no one will say exactly how much.

Other backers include New Zealand-based Fletcher Challenge Ltd., Rowayton, Conn. - based Canaan Partners and Dallas-based Sevin Rosen Funds.

"We think there is a market for the turbine, and that the turbine offers low-cost, reliable and clean power," said Vern Raburn, chief executive of the Paul Allen Group. "The utility market is a huge market...we think the rewards justify the risk."

And providing competition to the electric company is just a first step. As a longer term goal, Capstone hopes to use turbines, in connection with flywheels, to power motor vehicles.

A flywheel is a kinetic energy storage device, sometimes called a mechanical battery.

The idea is to spin a wheel up very fast, and then draw energy out of it. Capstone has teamed up with Rosen Motors Inc. in Woodland Hills, formed by Compaq chieftain Ben Rosen, and his brother Harold, a longtime Hughes engineer of note. They have poured $10 million into flywheel design.

The gameplan is to perfect a flywheel - made partially of space-age plastic composites - that would spin in a vacuum chamber at 54,000 RPM, To date, the Rosens haven't made it work, but they feel they are closing in, according to insider accounts.

In a motor vehicle, the flywheel would supplement the turbine, when power was needed on hills, or for acceleration. The whole result, on paper, is efficient, and clean-burning.

When braking, the turbine-powered vehicles would put power back into, or re-charge, the flywheel. The turbine-flywheel combination, on paper, easily beats batteries, which are very heavy, and of limited range. The Rosens have stated that their car will emit almost no emissions and have plenty of pep.

Craig, when he allows himself to muse, sees a bright future for the Capstone turbine-flywheel motor vehicles, which could even become mobile powerplants.

"Oh, I see the day when you might drive to your remote cabin near Big Bear, and then plug the car in when you get there, to provide electricity during your stay," he says.

At A Glance

Capstone Turbine Corp.

Headquarters: Tarzana

Founded: 1988

Top Executive: President and CEO Paul Craig

Major Investors: Vulcan Ventures (Paul Allen group), Canaan Partners, Rho Management Inc., Sevin Rosen Funds, Fletcher Challenge Ltd.

Employees: 70.

Telephone: [phone].