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.”
KiOR, a company using similar technology to produce biofuels, went public this year. In its required Form S-1 stock registration statement accompanying its initial public offering, KiOR stated:
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.
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Whilst it depends a bit on the feedstock, biodiesel produces about 9% less energy than petrodiesel per equivalent unit. So a gallon of diesel and a gallon of biodiesel are not exactly equivalent. This needs to be considered when calculating comparative prices.
The following is from the disappeared news, Oct. 26, 2011:
http://www.disappearednews.com/2011/10/heco-releases-confidential-information.html
On October 25, 2011 the Honolulu Star Bulletin printed a column by Jay Fidell: “Tech View: Rejection of biofuel plan is a huge setback for isles.” Jay wrote that the AKP contract is “a dream deal” and that “local biofuel is the latest target in the war against renewables.”
First, is there really a war against renewables? I cannot think of any particular individual or faction that opposes renewable fuels. I have seen Panos Prevadouros and Fred Hemmings being interviewed in Hawaii Reporter praising the latest generation of nuclear power technology (which only exists in theory), but even they are not against renewables. (They are for distributed generation like solar power, and even if they were against renewables, they have no power).
I think one thing Fidell overlooks is that a lot of biofuels serve no real purpose, either economically or environmentally.
That’s the criticism of ethanol, that it requires massive inputs of petroleum-based fertilizers, and that all it does is drive up the price of corn (and thus of food). At some time in the future, it is hoped that there will be a cost-effective way of producing ethanol from breaking down the cellulose of plants in general, and that what is being done now is creating a fuel infrastructure so that biofuels can be ramped up immediately when dirt cheap sources of ethanol are developed. What is being done now is merely a very costly laying of the foundations of what might be a radical change in energy consumption.
But in Hawaii, it seems that biofuels are simply a kind of loophole in the Hawaii Clean Energy Initiative. Even the PUC, which has long been understood locally as a puppet of Hawaiian Electric, makes that assertion. Yes, biofuels would be renewable, and would therefore help HEI avoid getting fined by not meeting the goals of the HCEI. But the biofuel projects being promoted in Hawaii would not cut down on greenhouse gas emissions nor promote energy independence (at least that is the argument).
Here we have the difference between technology and context. Fidell claims that the rail project in Honolulu will not work, but the Big Wind will work. But that’s looking at things from a purely technological viewpoint. For example, it might be technically feasible to build a bridge from Oahu to Kauai. Economically, it would not make sense, because it would cost billions of dollars and it would generate almost no local economic activity (or at least very minimal activity during the building stages compared to outlays, because the costs will be for imports). Culturally and socially, it might damage Kauai, turning it into weekend homes for Kahala residents. Environmentally, it would be taking millions of tons of steel and concrete and the energy associated with construction to build a white-elephant project that could not be maintained indefinitely and would eventually fall into disrepair. That’s the context: it would serve no purpose aside from being a cool technical achievement.
That seems to be a big part of the appeal of big projects: the cool technical sex appeal. This is also why corporations build things like the Sears Tower or countries build the Petronas Towers: corporate ego and national inferiority complex. There really is no practical reason for these things.
These kind of things also represent a huge breakdown of creativity, as opposed to companies like Apple building really cool stuff that gets it right in so many ways. I mean, Apple is a cool technology company, but it was run by Steve Jobs, who knew little about technology. Most tech companies are run by engineers who want to add more buttons and bells and whistles to a beige box; Apple built works of art that had as few buttons as possible. Steve Jobs was a “genius” by default because he understood the context of consumer desire, unlike 99% of engineers and computer scientists.
That brings us back to Jay Fidell, who seems like a smart man and a good public servant. I think that he is in love with technology, the way some professors are in love with a particular ideology (again, think of Panos Prevadouros). I am not sure that he really understands the concerns of the PUC and of an organization like the Blue Planet Foundation. (Personally, I don’t think that the biofuels projects are that bad, but then I know little about this. The Big Wind does seem much more problematic.)
I once heard an interview on NPR with a conservative jurist. Fascinating.
Among other things, he said that he was opposed to the Miranda decision of having cops read rights to the arrested. He said that a little-known compromise with Miranda was that once cops read those rights to an arrested person, the police were then allowed to lie to them. Interesting.
He was also rather skeptical of the standard rationale of jury trials, because jury trials — he claimed — did not promote justice any more than non-jury trials.
But he was nevertheless a strong supporter of the jury system. He said that what the jury system promoted was a working knowledge to laymen of how the justice system worked — a kind of educational program.
This is why I think these reality TV daytime courtroom programs like “Judge Judy” are useful. They (hopefully) teach the viewer what the legal system is all about — which is not justice or morality but rather documented adherence to the law. As one young comedienne said about what she learned from such shows, “You betta have them receipts for the judge…” It doesn’t matter if your boyfriend was cheating on you with your best friend when you were paying off half of his car loan; the question is whether you had a contractual agreement with him to get paid back.
I was reminded of this when I recently read an article in Civil Beat about the resistance to the Big Wind on Molokai.
http://www.civilbeat.com/articles/2011/11/13/13689-up-in-the-air-will-molokais-resistance-save-it-from-big-wind/
Here’s a quote from a Molokai islander:
“It’s a stand against greed!” Espaniola yells to the crowd. “It’s a stand against injustice! It’s a stand against things we don’t stand for!”
Unfortunately, from such reactionsI am not sure just what the logical relevant arguments are against the Big Wind. It’s all so vague and emotional.
Their reactions seem deeply felt. But the most rational arguments boil down to “It will negatively impact our lifestyle.”
There are good argument that relate to this. Why should Molokai sacrifice its cultural existence for the lifestyle of Oahu when Oahu should be sacrificing for energy independence at least as much as Molokai would?
(This is complicated because the standard reaction to negative externalities imposed on third parties is to compensate them financially. But Molokai residents claim that they don’t really value a monetary economy, they claim to value a subsistence economy, which seems to make up for one third of their economy.)
There are also issues of local democracy.
Now, there are very strong arguments against the Big Wind which one can find in the “Disappeared News” blog. These are regarding issues such as energy loss in the cable and the potential early obsolescence of the system with emerging technology, and how geothermal and OTEC, for instance, are much more reliable than intermittent sources of energy like wind.
But the general tone of the arguments coming out of Molokai do not seem to have been vetted through a team of attorneys or professors or journalists. The arguments seem incoherent.
Also, just how much will those wind turbines really affect life on Kauai? I once had read that pig hunting with a rifle will be banned in areas with turbines; this seemed to be the single most concrete and practical example of how people will be impacted. But most pig hunting in Hawaii is done with knives and dogs. And using a rifle sounds a bit too modern in terms of the cultural preservation arguments being made.
And how much does Oahu pay to subsidize the Molokai lifestyle?
I don’t think that these particular anti-Big Wind arguments coming out of Molokai are going to stand up in Judge Judy’s court. (Gotta have them receipts for the judge….)
Molokai needs to lawyer up and zip it. They need to read the “Disappeared News”. They are losing.