Monday, January 10, 2011

Renewable Fuels Industry and Government Incentives

     The US renewable fuels industry recently got a boost with the extension of the tax credits through 2011.  
     The expiration of the biodiesel tax credits at the end of 2009 nearly killed the industry in 2010.  In 2010 the biodiesel industry operated at less than 10% of the available capacity.  Needless to say the tax credits where necessary to support the industry.  Extending the biodiesel tax credits for a year may increase biodiesel production a little in 2011 but in order to make a significant difference and attract investment the biodiesel credits would need to be extended for 3-5 years to make a notable change in production.
     The blenders tax credits for ethanol are giving people in the ethanol industry a little breathing room but in all actuality the RFS mandates for ethanol are nearing the capacity of the corn ethanol industry.  The essentially means that margins should improve over the next few years since the capacity and demand will be in sync.  There are ethanol industry insiders which estimate that 2011 is the last year the tax credits would be needed to help the corn ethanol industry.
     So what should we do in 2012 with tax incentives to spur the renewable fuels development necessary to really make a difference in our future?  Clearly we should not continue business as usually another year.  The incentives need to be overhauled to ensure that the industry as a whole is developing better pathways for fuel production and improving existing pathways.
     The corn ethanol production is nearly reaching the mandate cap of 15 BGY set by the RFS.  What other renewable fuels are going to propel the US to a more significant renewable portfolio?
     Considering the rocky start of cellulosic production and biodiesel there is a long way to go.  It is a critical year for the government to move to a strategic focus and provide incentives to truly move us forward.
Please make sure you elected officials know the importance of this year and let them know decisions need to be made quickly so the proper long term incentives can be in place for 2012.

Tuesday, August 3, 2010

The Ethanol Path Forward

   People on all sides of the ethanol industry are talking about the 10% blend wall.  Is the 10% blend wall really the a problem or are we not looking at it from the correct perspective.  It is a significant accomplishment that we are at the point of replacing 10% of the US need of gasoline with ethanol.  We should celebrate this fact and look at the opportunities going forward.
   I read a recent article by Robert Rapier which jogged my thinking a bit.  Robert in his usual fact based thinking was comparing the cost of the $4 billion ethanol pipeline to increasing the utilization of E-85 in the Midwest to displace fuel usage instead.  The lights turned on in my head and I started thinking about how this could really affect the ethanol markets and how could we encourage this new strategy to quickly provide demand for ALL ethanol produced.  Even the sugar cane ethanol!
   Here are some rough numbers just to prove illustrate the point.  If we say that  annual gasoline usage in the US is about 130 BGY (billion gallons per year) and we currently have a 10% maximum we have a maximum ethanol blending of 13 BGY.  If we say 10% is going to be the limit for non flex fuel vehicles in the US and we are going to increase the biofuels usage to 18 BGY by 2014 as projected in the RFS2 where does the growth come from?  Increasing the overall blend maximum to 15% will get us there.  But we have an alternative which may prove to be better in the long run.
   What if we did not increase the blend ratio to 15% and started adopting a strong E-85 strategy?  OR maybe even better yet we did both?  We could significantly shift the demand upward by placing incentives in the market.  We could develop the 36 BGY demand by 2022 as projected in the RFS2 by replacing less than 25% of our current needs with E-85 even if we left the remainder of the fuel blended at 10%.
   The current ethanol blenders credit is going to expire at the end of this year.  It is already getting cut back.  Why don't we redirect those funds to foster the development of E-85 blending and infrastructure.  What if we cut the E10 blenders credit but left the credit the same if ethanol was used for E85?  What if we let people who invested in ethanol blending and distribution equipment accelerated tax benefits for their investment?  What if we required auto manufacturers to make all gasoline vehicles flex fuel and we subsidizes each vehicle a little?  We could put this money not spent on the E10 blending to good use and have the infrastructure in place to move into more renewable fuels.
   This would all be done with the limits on corn ethanol staying the same at 15 BGY.  We would drive the demand so far past our current corn capacity that we may be able to eliminate the import tariffs on sugar cane ethanol.
   This brings about the possibility of halting the increase in crude oil usage in the near future.  Isn't that what we really want to do?  Additional developments in drop in replacement fuels may actually allow us to REDUCE the use of crude oil to much lower levels.
    There are many ways to win.  We need to use what we have and move forward.  Pontification on the ultimate solution prevents us from making good changes today.



Wednesday, July 7, 2010

Renewable Energy Support

     When will we finally realize that in order for the US to develop long term renewable energy sources that the government and consumers will need to be behind it?  We have watched the ebb and flow of wind and solar power investment as the production tax credits expire and get renewed.  We have watched the biodiesel industry die in 2010 to less than 20% of the total production with the expiration of the tax credit.  
     We can't have our cake and eat it to.  At least not right now.  The cost of renewable electricity and fuels are higher than their "dirty" alternatives.  We have to go into this with our eyes wide open knowing that it is a path we must take but it is not the least expensive today.  It will be in the long run, but not today.
     I urge everyone to educate themselves on these support programs and then contact your elected officials to ensure that they are supporting the programs for the long term.
     Investment in the renewable energy space is drying up right before our eyes.  The lack of decisive governmental support is going to set the renewable energy industry back decades if we do not make it a priority.  We have banks that are too big to fail, we have auto companies which are to big to fail, we have multi billion dollar war efforts under way, and the government supports these efforts consistently.
     There are billions of dollars invested in renewable energy infrastructure and projects in the US alone.  Many of these investments are sitting idle due to lack of support or adequate investment.  Why can we not see the importance of supporting renewable energy development?  The government wants to create jobs.  Ensuring that these facilities are running consistently provides thousands of full time jobs.  In the coming decades as these resources become more valuable our choices to support renewable energy will make an ever increasing impact in our daily lives.  We need to ensure that we making the right decisions today.

Sunday, May 30, 2010

Another Scientist on "The End of Cheap Oil"

Here is a scientist which points out the Energy Return on Energy Invested in oil recovery.  He makes a good point about the fact that oil is not going away but "cheap" oil is slowly but surely leaving.

The End of Cheap Oil

Saturday, May 29, 2010

The Corn Ethanol Industry Making Improvements

     The corn ethanol industry has been working very hard to improve their efficiency.  The difficult financial times forced many producers to refine their processes and make changes to simply stay in business.  This industry is not a perfect solution by far but is making improvements.

Corn Ethanol Becoming More Efficient

Wednesday, May 5, 2010

Using Renewable Energy Policy to Build The Renewable Energy Industry

     When are we really going to change our policies, mindset, expectations, and provide the appropriate support to develop the renewable energy industry?  We can be operating with more renewable energy every year but it takes persistence and a unilateral commitment to the long term goal.  The renewable energy industry is going to require long term bi-partisan support programs. The trillions of dollars of investment in fossil fuels did not happen overnight and the renewable energy industry simply has little or no chance of competing against it.  We need to accept this fact and move on to support the industry or simply let the renewable energy industry develop ad hoc and see what happens.  We have to face the facts that our energy demands are only going to increase and fossil supplies are a limited commodity.
     The government must provide the support necessary to develop and sustain a strong US renewable energy industry.  The infrastructure investments require solid long term support.  Adequate capital will not flow into new industries where you are the underdog and existing energy players can squash your efforts with minuscule amounts of money compared to their profits.  Investments must be enhanced through fair guaranteed minimum returns.
     The expiration of the bio-diesel tax credit at the end of 2009 started a chain reaction which has basically shut this industry down.  The bio-diesel industry had already been hurt significantly by the drop in fuel prices during the economic down turn and the loss of the tax credit has added further strain.
     The entire renewable energy industry would benefit immensely by using a price based model which allows investors to know that they will be guaranteed a fair return on their investments.  We can forget the tax credits, blenders credits, producers credits, production tax credits, investment tax credits, and roll them into one universal renewable energy program.
     If we define base technologies which are covered and appropriate margins for each we would have a self regulating system which would spur new investment in proven technologies and eliminate the subsidies when market prices provided the necessary support for the projects.
     Maybe it is as simple as new wind power projects get $0.XX per kwh which is the baseline industry standard given reasonable production and fair investor return.  
     Biomass and CHP systems could have their own rates which ensured a fair return based on a processing spread between the biomass cost and the energy revenues.
     You could use a crush margin for ethanol.  The commodity prices for corn, ethanol, and energy  will fluctuate but if you can control the crush margin you can secure investor concerns.  This would also work for cellulosic ethanol, biodiesel, and other advanced biofuels as their technology was approved for the program.
     The program would be available for facilities using approved technologies and production methods.  This would help new technology companies focus on getting their processes approved and ready for commercial application.  This would hopefully move the technology risk to the venture capital markets and away from the government as is currently common.  The majority of the tax payers money should go towards development of proven technologies and renewable energy supply, not betting on the next technology breakthrough.  The government's exposure to this risk should be limited, a small portion of the overall programs, and limited to specific areas which need to be boosted to meet renewable energy goals.
     This universal renewable energy program can provide the structure for moving the capital into these companies as new technologies are proven, added to the approved list, and taken to market.
     We need to help our government officials on both sides understand that renewable energy is not a "nice to have" option.  It is something we "need to have"