Thursday, December 31, 2009

Establishing the US Renewable Energy Industry

Our dependence on fossil fuels is simply based on the scalability and low cost options these fuel sources provide.  Crude oil, coal, and natural gas provide very good sources of transportable energy. 
Today we realize that whether we like it or not the use of fossil fuels is pumping CO2 and other contaminants in our atmosphere.  In the US we also have a tremendous appetite for fossil fuels which necessitates the dependence on energy from some countries which to put it nicely have a “love-hate” relationship with the US.  If these countries decided to stop selling energy to the US it would mean significant changes to our lives.
We have imported 3+ billion barrels of crude oil annually since 2000.  We produce about 2 billion barrels of crude oil domestically.  Renewable Energy is competing with large highly developed supply chains and conversion technologies.  Crude, coal, and natural gas have been used for decades.  Over time these supply chains and conversion processes have become very large, efficient, and deliver good value.
It is difficult or not possible for many renewable energy technologies to compete with fossil fuels since they are either relatively young or have been used sporadically.  They simply have not had the time and/or money to develop cost effective processes and large supply chains.
These environmental and economic factors should be leading us to aggressively pursue and support renewable energy opportunities.  The government has an opportunity to step up its role in the development of a lasting renewable industry.
Currently we have 38 CZARS give or take.  Renewable energy at least deserves an executive position (maybe even a cabinet position) with clear and simple goals?  Reducing our dependence on foreign energy and producing more energy in a sustainable manner.
 The US needs a path forward which ensures that renewable energy and traditional fossil fuel based energy interests are aligned with a common goal of reducing our fossil fuel usage and environmental impact.  The economic factors may not be enough to move renewable energy forward and similar to other national interests a clear plan needs to be developed and executed.

Wednesday, December 2, 2009

EverGreen Renewable

     EverGreen Renewable was established in 2006 by several business associates who wanted to put their efforts into developing renewable energy and fuels in the Northwestern US.
     Our first efforts were directed towards developing a corn based ethanol facility in Central Washington.  In late 2007 we decided that the corn ethanol market was becoming saturated and that we would not build the facility.  This was probably a good decision.  Nearly all of the ethanol facilities located outside traditional corn producing areas have gone bankrupt along with some major ethanol industry leaders.
     The ethanol facility provided first hand exposure to biomass power production and the agricultural resources in Central Washington.  We knew we wanted to develop renewable energy projects in this region.  We learned a great deal from the ethanol facility and continued our search for the appropriate biomass project(s).   We have a simple foundation for our plans.  If you are going to build a biomass based conversion facility you will need economical feedstock.  Economical feedstock results from high production per acre with low input and aggregation costs.  The collection area and inputs need to be minimized for the economics to work.  In agricultural regions this brought us to dedicated energy crops and subsequently to miscanthus x giganteus.  Miscanthus is a high yielding dedicated energy crop used widely in Europe for co-firing in power production.  It is a perennial grass which once established is productive for 15+ years.  Miscanthus gives the producers a long term high yield crop.  This then provides the stable feedstock supply for conversion facilities who need the biomass and want to lower the risk of the capital investment.  We will talk about miscanthus, the economics, and the research, and other types of biomass in later posts.
     We have researched and/or contacted many (well over 50) of the leading cellulosic ethanol/advanced biofuels/biomass conversion/renewable energy companies to really understand the status of their technology.  We wanted to find the best commercially available technology top convert the biomass into higher value products.  We have found that after billions of dollars of private investment and government assistance many of these companies will have a hard time ever getting to commercial scale.  Some are closer than others, some have very deep pockets which will help them get farther, and some are banking on breakthroughs to make the economics of their technology work.  If you want to read a really good blog on these technologies take a look at the R-Squared Energy Blog by Robert Rapier.  He as some of the best information on these technologies you will find anywhere.  We may also provide a company list with our comments from a business perspective in a later post.

What have we learned?
     1.  Biomass is not free or cheap.  It will continue to be valuable and increase in value as the conversion opportunities are developed.  If someone is selling technology based on free or cheap biomass I would dig deep and understand why it will always be free or cheap.  When you find that biomass let us know.
     2.  Drop in solutions are higher value than energy equivalent alternatives.  Let's learn form the ethanol and biodiesel industry.  If it looks like chicken, tastes like chicken and has the same composition as chicken you can sell it as chicken, and everyone knows chicken.  Synthetic fuels, biocoal, and renewable oils upgradeable to ASTM equivalent transportation fuels produce known products, use the existing infrastructure, and are leveraging the existing markets to create demand.  People want renewable alternatives.  Familiar substitutions allow renewable alternatives to penetrate large markets.
     3.  Evaluating technologies requires significant due diligence and financial modeling.  Technology developers are not necessarily ready to answer questions that become critical when operating a commercial scale facility.  If you get a "financial model" from a technology developer a detailed analysis may show many cost estimates left out and/or contain unrealistic operating assumptions.  Missing and/or incorrect assumptions can swing the operating costs into the red quickly.  If you are going to commercialize a technology you have to know the operating limits and affects of price volatility.  If you can't understand the market and how the company will make money in good and bad times walk away.  You will be happy later.
     4.  No one technology will dominate the biomass energy industry.  Biomass is a regional resource.  Transporting raw biomass long distances is simply not economical.  Biomass will be converted near the source to the highest value product possible.  This will vary with the regional demand for biomass based products.  A biomass facility in Southern California may produce synthetic fuels and chemicals while a facility in Wyoming may produce biocoal for export to power production facilities.  A facility in Canada near pine beetle infested timber may produce wood pellets.  There are so many potential biomass applications and demand for drop in substitutes that economically viable technologies will find success in the appropriate locations.
     5.  Commercial projects are not easy to finance.  If you are going to develop a commercial project you may spend $3-$5 million dollars before you buy any property or equipment.  There is a great deal of time and effort involved in just getting ready for project financing.  If an investor is going to put down $20+ million equity dollars to help fund the construction they will need to have feedstock and off take controlled for the life of the debt or until their exit.  The debt participants will also need these to provide the construction financing.  They will all want independent verification of your analysis and information so be prepared to hire good consultants.
     6.  It takes perseverance but in the end it pays off.  If you are going to commercialize biomass based renewable energy you are going to need to first make sure you know what you are talking about.  People will spot someone winging it a mile away.  If you can't walk into a room and effectively explain your ideas to a group of people who had no idea what you are talking about prior to meeting you are not prepared for the road ahead.  I cannot tell you how many presentations we have given and how many questions we have answered about what we are doing but I can tell you that if you have done your homework and you are legitimately bringing good renewable business ideas to the group you are addressing it will generate interest which will generate contacts which will generate funds.  When you get calls form people who have "heard about your company" and want to talk it is starting to pay off.

Where are we going?
     We have spent the better part of the last 3 years "getting up to speed".  We are now ready to execute our plans.  We have presented our business plans in front of many local and regional groups.  We have met with academic, scientific, governmental, and private stakeholders to understand their objectives so we can try to align their goals with our plans.  We have gained the understanding and support of these stakeholders to ensure that our projects will have their support moving forward while helping stakeholders further their goals as well.
     EverGreen Renewable has several opportunities in various stages of development which will provide biomass supply and conversion for millions of tons of biomass annually.  In future blogs we will detail these plans as they unfold and our thoughts on different aspects affecting the renewable energy industry.