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.
Showing posts with label biofuels. Show all posts
Showing posts with label biofuels. Show all posts
Monday, January 10, 2011
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.
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.
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"
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"
Wednesday, March 17, 2010
The Corn Ethanol Evolution and Transformation
The corn ethanol industry is at a very exciting and scary point. We know the capacity is nearing the 10% blend wall but we also know that the blends can be increased over time. (Brazil) We know there are better renewable alternatives to ethanol but they have not obtained commercial scale production.
What will the future look like for these companies and their facilities? It depends on many factors but they will have one thing in common. These facilities will be producing products for many years to come. It may not be ethanol from corn. It may not be ethanol at all. But it will be renewable fuel, chemicals, and other products.
Let's just take a look at corn ethanol. Not so many years back a typical ethanol plant was located with reasonably priced corn, steam energy, electricity, water, transportation, etc. The plants were designed to make ethanol and either wet or dried distiller's grains. The plant may or may not have captured the CO2 depending on the local market. It was a pretty standard model duplicated some 150+ times across the US.
The ethanol plant today is affected by GHG emission legislation, indirect land use, water use, and increasing economic pressures. The corn ethanol plant of today uses advanced equipment to reduce energy consumption, water usage, is developing other valuable products, and is investing in upgrades to improve their efficiency. Water recycling, oil extraction, anaerobic digestion, and other changes are helping to increase the value these facilities are extracting from each bushel of corn and do it more efficiently. This is a sign of an industry which is maturing. It is a good and necessary evolution for the industry .
The refining industry did not just appear and operate at their current efficiencies. It has taken many, many years of distillation improvements, bottleneck elimination, and many other developments in the refining industry to get where we are at today. They are still improving! Why would we expect corn ethanol to be any different?
Now let's look to the future for these facilities.
Corn ethanol production stated simply is converting carbohydrates into sugars and turning these sugars into ethanol through fermentation. Why do we use corn? It is an inexpensive source of sugars and has a well established supply chain.
Anyone who has done a nickel's worth of research on cellulosic ethanol knows the first hurdle is getting the sugars released from the material so you can use them. The second hurdle is getting the ethanol produced and extracted at a competitive price to corn ethanol. When these factors are overcome for cellulosic ethanol and other products there is going to be a dramatic change in the ethanol industry.
The production of cellulosic ethanol, biobutanol, and many other products actually use the same types of equipment in many processing steps. When these products are made at an existing corn ethanol facility it makes things very interesting.
Imagine an integrated biorefinery which has the ability to change feedstock AND final products based on availability and pricing. When you combine the flexibility on feedstock and final product you have created a model which allows each facility to take an individual approach to their feedstock and final product choices to maximize their profits based on their specific opportunities. This is an industry transformation which is getting closer every day.
What will the future look like for these companies and their facilities? It depends on many factors but they will have one thing in common. These facilities will be producing products for many years to come. It may not be ethanol from corn. It may not be ethanol at all. But it will be renewable fuel, chemicals, and other products.
Let's just take a look at corn ethanol. Not so many years back a typical ethanol plant was located with reasonably priced corn, steam energy, electricity, water, transportation, etc. The plants were designed to make ethanol and either wet or dried distiller's grains. The plant may or may not have captured the CO2 depending on the local market. It was a pretty standard model duplicated some 150+ times across the US.
The ethanol plant today is affected by GHG emission legislation, indirect land use, water use, and increasing economic pressures. The corn ethanol plant of today uses advanced equipment to reduce energy consumption, water usage, is developing other valuable products, and is investing in upgrades to improve their efficiency. Water recycling, oil extraction, anaerobic digestion, and other changes are helping to increase the value these facilities are extracting from each bushel of corn and do it more efficiently. This is a sign of an industry which is maturing. It is a good and necessary evolution for the industry .
The refining industry did not just appear and operate at their current efficiencies. It has taken many, many years of distillation improvements, bottleneck elimination, and many other developments in the refining industry to get where we are at today. They are still improving! Why would we expect corn ethanol to be any different?
Now let's look to the future for these facilities.
Corn ethanol production stated simply is converting carbohydrates into sugars and turning these sugars into ethanol through fermentation. Why do we use corn? It is an inexpensive source of sugars and has a well established supply chain.
Anyone who has done a nickel's worth of research on cellulosic ethanol knows the first hurdle is getting the sugars released from the material so you can use them. The second hurdle is getting the ethanol produced and extracted at a competitive price to corn ethanol. When these factors are overcome for cellulosic ethanol and other products there is going to be a dramatic change in the ethanol industry.
The production of cellulosic ethanol, biobutanol, and many other products actually use the same types of equipment in many processing steps. When these products are made at an existing corn ethanol facility it makes things very interesting.
Imagine an integrated biorefinery which has the ability to change feedstock AND final products based on availability and pricing. When you combine the flexibility on feedstock and final product you have created a model which allows each facility to take an individual approach to their feedstock and final product choices to maximize their profits based on their specific opportunities. This is an industry transformation which is getting closer every day.
Sunday, March 7, 2010
The "Second Wave" of renewable energy development
The years have taught us all a great deal about renewable energy. One of the things I noticed is if you follow the investments and the press releases you begin to see that a good portion of the investment money follows the best promoters. I will not name any company in specific since there are more than a handful of companies who fall into this category. Some of which I believe will be gone in the near future because they have not developed viable technologies. In the end deep pockets do not make a technology viable.
I think we should brace ourselves for the renewable energy fall out we are going to see in the next several years. There are many companies which have hyped their way to large high profile investments. They have secured large government grants, loan guarantees and still not met their milestones for technology development. In the end viable processes and technology is necessary for success.
In the background far removed from the press and high profile investments are companies that are beyond announced milestones and working hard to refine their technologies and scale up their processes. I believe that some of these companies will lead what I call the "second wave" of renewable energy development. These are the companies which have developed frugal ways to utilize capital, feedstock, and existing infrastructure to develop truly viable options for our future. These companies have quietly developed economically viable processes and are ready to scale.
What does this mean for advanced fuels development? I think it means we will not see significant production for at least 5 more years. The key word in this is "significant". This is because the remaining high profile and second wave companies need to get their technologies into commercial scale and this is not going to be an easy process. Some high profile companies are going to fall flat on their face. Investors are going to be wary of putting good money after bad. The normal technology challenges of scale will also be encountered. There will be success stories.
In 2 years there will several companies producing advanced renewable fuels at prices competitive to the market. There will be demonstration and commercial scale operations. There won't be significant amounts in overall terms but these companies will have scale facilities which can develop into significant production over time
We will be at a significant point in advanced fuels development. We could be entering into a build out phase which could provide the investment, employment, and environmental opportunities we have envisioned for many years.
I think we should brace ourselves for the renewable energy fall out we are going to see in the next several years. There are many companies which have hyped their way to large high profile investments. They have secured large government grants, loan guarantees and still not met their milestones for technology development. In the end viable processes and technology is necessary for success.
In the background far removed from the press and high profile investments are companies that are beyond announced milestones and working hard to refine their technologies and scale up their processes. I believe that some of these companies will lead what I call the "second wave" of renewable energy development. These are the companies which have developed frugal ways to utilize capital, feedstock, and existing infrastructure to develop truly viable options for our future. These companies have quietly developed economically viable processes and are ready to scale.
What does this mean for advanced fuels development? I think it means we will not see significant production for at least 5 more years. The key word in this is "significant". This is because the remaining high profile and second wave companies need to get their technologies into commercial scale and this is not going to be an easy process. Some high profile companies are going to fall flat on their face. Investors are going to be wary of putting good money after bad. The normal technology challenges of scale will also be encountered. There will be success stories.
In 2 years there will several companies producing advanced renewable fuels at prices competitive to the market. There will be demonstration and commercial scale operations. There won't be significant amounts in overall terms but these companies will have scale facilities which can develop into significant production over time
We will be at a significant point in advanced fuels development. We could be entering into a build out phase which could provide the investment, employment, and environmental opportunities we have envisioned for many years.
Thursday, February 11, 2010
The Never Ending Cycle of Renewable Energy Trade Offs
We are fairly diligent in our review of information regarding biofuels, renewable energy, biomass, etc. I am always amazed at the comments which bring up new and inventive ways in which these technologies are "potentially harming" the environment and our economy.
I wanted to share some observations that have stuck out in my mind over the years.
1. Biofuels are causing habitat reductions for orangutans. There are no doubt habitat reductions for many species but let's be realistic. How much are biofuels really contributing compared to urban sprawl and the standard of living increases in countries?
2. Food vs. fuel. I will not get into detail on this other than make a couple comments. How many food shortages would be prevented if we stopped all corn ethanol production? How much would the US agricultural community be affected if the 30% of the corn which is now locally bought and converted to higher value products was sold overseas at commodity prices? When you look at the price of food on the shelves how much is related to raw agricultural products and how much is related to processing costs and distribution? How much has the biodiesel and corn ethanol production helped us to move towards a greener future? Isn't there some value in trying? It is better than setting on our hands waiting for a perfect solution.
3. Removing forest and agricultural biomass for energy production will harm the land. This is correct. Removing biomass without first understanding and considering the effects can harm the land. Landowners and policy makers have been regulating the management of land with economic or policy based decisions for many years. It is not in any stakeholders best interest to harm the land.
4. The best solution may never make economical sense. I know there are cleaner and more efficient means of generating power and fuels. If they don't make economic sense they are not going to scale and displace a significant portion of capacity. This also goes for making environmentally "dirty" processes clean. Dare I say clean coal technology.
The point is nothing is perfect. We seem to forget the environmental harm fossil fuels create just because they are widely used and main stream sources of energy. We also think that renewable energy should cost the same as fossil fuel derives sources.
Renewable energy solutions are not and will probably never be perfect or the lowest cost. We have to be striving to make each solution better than the last.
I wanted to share some observations that have stuck out in my mind over the years.
1. Biofuels are causing habitat reductions for orangutans. There are no doubt habitat reductions for many species but let's be realistic. How much are biofuels really contributing compared to urban sprawl and the standard of living increases in countries?
2. Food vs. fuel. I will not get into detail on this other than make a couple comments. How many food shortages would be prevented if we stopped all corn ethanol production? How much would the US agricultural community be affected if the 30% of the corn which is now locally bought and converted to higher value products was sold overseas at commodity prices? When you look at the price of food on the shelves how much is related to raw agricultural products and how much is related to processing costs and distribution? How much has the biodiesel and corn ethanol production helped us to move towards a greener future? Isn't there some value in trying? It is better than setting on our hands waiting for a perfect solution.
3. Removing forest and agricultural biomass for energy production will harm the land. This is correct. Removing biomass without first understanding and considering the effects can harm the land. Landowners and policy makers have been regulating the management of land with economic or policy based decisions for many years. It is not in any stakeholders best interest to harm the land.
4. The best solution may never make economical sense. I know there are cleaner and more efficient means of generating power and fuels. If they don't make economic sense they are not going to scale and displace a significant portion of capacity. This also goes for making environmentally "dirty" processes clean. Dare I say clean coal technology.
The point is nothing is perfect. We seem to forget the environmental harm fossil fuels create just because they are widely used and main stream sources of energy. We also think that renewable energy should cost the same as fossil fuel derives sources.
Renewable energy solutions are not and will probably never be perfect or the lowest cost. We have to be striving to make each solution better than the last.
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.
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.
Subscribe to:
Posts (Atom)
