Nancy Cook Lauer’s story on the PUC hearing concerning the Aina Koa Pono biofuel project was yesterday’s most read story in West Hawaii Today.
Hawaiian Electric is seeking approval pay Aina Koa Pono an unspecified price acknowledged to be well above the current price of petroleum-based diesel, and charge the difference to all HECO and HELCO consumers.
The price is reportedly “competitive with the pricing currently being paid for biodiesel in Hawaii for electrical generation,” and includes price increases over the term of the contract in line with predicted price changes.
The amount of the subsidy will float depending on the price of regular diesel. Hawaiian Electric’s application to the PUC acknowledges that under some market conditions, it might be possible to import biodiesel from out of state at a lower cost than it will be paying AKP. However, HECO argues “cost certainty” over the term of the 20-year contract is worth the possible premium.
Hawaiian Electric has estimated that the AKP biofuel subsidy will initially add about 1/3 cent to each kilowatt hour sold to consumers.
Their assumption is that at some point during this 20 year contract the price of regular diesel “could” rise above the contract price of biodiesel, eliminating the subsidy. At that point, if it is reached, the deal will begin saving consumers money and assure a source of diesel that isn’t dependent on imported oil.
Henry Curtis suggested a method for converting the 1/3 cent per KWH to a more meaningful number, based on a reported 8.8 billion KWH sold by HECO and HELCO last year. The 1/3 penny add-on would amount to something in the neighborhood of $29 million annually, a little less depending on the exact surcharge. That something in the neighborhood of $29 million for the purchase of 16 million gallons of biodiesel per year beginning in 2015, or about $1.80 per gallon.
So the contracted price is likely to projected price of regular diesel over the term of the contract PLUS a subsidy that would begin at about $1.80 per gallon.
According to HECO, the contract price would also include “all applicable taxes and transportation and logistics costs to deliver the Biodiesel to the Receiving Facility at HELCO.”
Here’s what Aina Koa Pono says about their pricing.
The price that HELCO will pay for bio-diesel is currently higher than what it pays for petroleum based diesel. Does this mean that AKP’s process is not efficient enough to be competitive in the market?
No, the price that AKP required for its first plant is affected by the level of return needed by project investors to entice them to provide funding. As AKP develops additional facilities the price will drop considerably as the engineering costs will have already been incurred and the risk to investors lowers.
It sounds like AKP is front-loading its development costs into this subsidized contract, which reduces the risk to investors IF the technology works at the planned commercial scale. So it’s a good deal for investors, but it’s difficult to know if it’s as good a deal for consumers, both because pricing details remain confidential, and because nothing is known about competing bidders.
A few comparison points are available, although hard to interpret.
For example, TekGar apparently holds U.S. rights to the thermo catalytic depolymerization technology to be used by AKP, and is part of AKP’s “team.”
TekGar’s own website brags of its system’s “cost per gallon of diesel produced between $0.52 and $0.58 US$ without government subsidies” using “many sources including municipal garbage, agricultural waste, refinery bi-products, and all types of plastics.”
Our proprietary catalyst systems, reactor design and refining processes have achieved yields of renewable fuel products of approximately 67 gallons per bone dry ton of biomass, or BDT, in our demonstration unit that we believe would allow us to produce gasoline and diesel blendstocks today at a per-unit unsubsidized production cost below $1.80 per gallon, if produced in a standard commercial production facility with a feedstock processing capacity of 1,500 BDT per day.
As I said earlier, it’s difficult to interpret these cost estimates or to compare them to the HECO-AKP contract. They do, however, certainly raise additional questions.
The investment site Seeking Alpha took a recent look at KiOR and other competitors in the fledgling biofuel industry, including several companies using technology similar to that of TekGar and Aina Koa Pono.
As of yet, none on this list have truly proven their concepts at scale and with the attendant revenue expansion that would arrive when theory meets practice you could expect greater investor interest from here.Gevo , Amyris, KiOR, Solazyme and Codexis all were able to greet the public markets with relative confidence and most of these companies are trading near or above offering prices. But the pressure is on to get bigger faster and at least demonstrate a path toward profitability before questions of viability set in.
If the PUC had insisted on a more transparent process, it would be easier to understand how all these factors are playing out as HECO moves forward with its expansion into renewables.
Again, I would be interested in readers’ perspectives.