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A startup is finally bringing heat-to-power tech in a big way for vehicles

Startup Alphabet Energy's power modules can convert waste heat into electricity.Startup Alphabet Energy's power modules can convert waste heat into electricity.
Startup Alphabet Energy's power modules can convert waste heat into electricity.Courtesy of Alphabet Energy.

Have you ever accidentally brushed against the tailpipe of an idling car? Yep, it’s pretty hot. It’s estimated that at least half of a vehicle’s fuel energy ends up as heat expelled from the tail pipe.

For vehicles on the road, that’s a lot of wasted energy. For the various companies, entrepreneurs and researchers exploring ways to capture this waste heat and reuse it, that’s a huge opportunity.

One startup in particular, six-year-old Alphabet Energy, seems to be getting close to doing what very few companies have done: commercialize waste heat technology for substantial applications in the automotive industry.

For decades, government labs and universities have been a big force behind developing waste-to-power technology for industry. But the impact has been limited. For example, the idea has been put to use by auto product companies to heat and cool luxury car seats. But the technology has long been considered too expensive to be widely used with car and truck exhaust systems.

Alphabet Energy CEO Matthew Scullin tells Fortune that his company has a new partnership with exhaust system developer Borla, which plans to use Alphabet’s devices in its exhaust retrofits. Although Borla is best known for high performance exhaust systems for race cars, the company plans to package and sell Alphabet Energy’s tech to companies that operate fleets of vehicles.

Such retrofits could capture 5% to 10% of a vehicle’s waste heat and reuse it to increase the vehicle’s fuel efficiency. Alphabet Energy’s device, called a power module, converts the waste heat from the exhaust into electricity that is then used to reduce or replace the electric generator’s load on the engine.

While the improved fuel economy might not be particularly attractive for mainstream car owners, it could be a big deal for companies and organizations that regularly operate trucks, buses and big motor pools. Picture fleets of FedEx vans, city buses, and semi trucks.

A semi that travels 200,000 miles a year could be burning up to $200,000 in fuel annually. With this type of waste heat retrofit, the operator of that semi could save $7,500 per year in fuel costs. Scullin says that the payback time for buying Alphabet Energy’s waste-to-heat products tends to be between 18 months and three years.

The automotive industry is a huge and untapped market for this type of energy efficiency technology. Automakers face continuously raised efficiency standards globally, like the ones the Obama administration announced last week. To meet these types of standards, car and truck companies may eventually embed waste to power converters directly into vehicles, but the market is first starting with retrofits.

Alphabet Energy's power modules in its E1, a thermoelectric generator.
Alphabet Energy’s power modules in its E1, a thermoelectric generator.Photo courtesy of Alphabet Energy.
Courtesy of Alphabet Energy.

One of Alphabet Energy’s core innovations is getting the cost of the material inside its power modules as low as possible. The materials it uses are called “thermoelectrics,” or semiconductors that can convert heat into electricity. Scullin founded the company while at the Lawrence Berkeley National Laboratory and has used the latest in material science and nanotechnology to get the costs down.

Over the decades, many thermoelectric materials have been made that use rare and expensive materials, making them prohibitively expensive to use in widespread commercial applications. In contrast, Alphabet Energy is using abundant and low cost materials like tetrahedrite and silicon.

Alphabet Energy is aiming for a sort of “Intel-inside” type of business model for energy-intensive industries. The company recently started selling its devices individually to partners like Borla. Its customers can package them up, use them or resell them to customers like oil and gas companies, the defense industry, and steel manufacturers.

While a vehicle would likely use a single power module, dozens of power modules could be bundled together to capture waste heat from energy-intensive equipment like a big generator. The power modules can capture waste heat from any exhaust stream within a temperature range of 350 to 600 degrees Celsius, and convert it usable electricity.

Because the market is only just emerging for these types of waste heat to power converters, it can be hard for potential customers to picture how they could use the tech. That’s partly why Alphabet Energy made an initial product that it started selling last year, called the E1, which packages together 32 power modules and is being used by oil and gas and mining companies to reduce diesel fuel use at remote generators. The company calls it the “world’s first industrial scale thermoelectric generator.”

While Alphabet Energy is starting to do deals with bigger players like Borla, the company is still a startup and it’s backed by money from venture capitalists and strategic partners. Alphabet Energy has raised over $35 million in funding from investors including Canadian natural gas giant Encana, Oakland, Calif.-based venture capital firm Claremont Creek Ventures, the venture arm of TPG, and the CalCEF Clean Energy Angel Fund.