Tag Archives: Aina Koa Pono

Cost questions surround HECO’s Aina Koa Pono project

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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.

Public hearings tomorrow on HECO biodiesel project

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Public hearings are scheduled tomorrow in Hilo and Kona on Hawaiian Electric’s proposed 20-year contract for purchase of biodiesel from Aina Koa Pono-Kau LLC. According to the hearing notice, the Hilo session will begin at 9 a.m., while the Kona hearing is set for 4 p.m.

The Public Utilities Commission earlier denied a request from the County of Hawaii to participate in the Aina Koa Pono proceedings, saying that the county’s request was submitted months after the deadline. Environmental advocate Life of the Land, which submitted a timely application to intervene, was also denied following opposition from Hawaiian Electric.

Documents filed in the PUC docket regarding Aina Koa Pono are available on the PUC website, although the state’s web servers appeared to have been down this morning.

The company has leased some 13,000 acres of land to grow grasses or other feedstock to be converted into biodiesel by a yet-to-be-built $350 million processing plant using technology that has never been attempted on this scale. Much of the agricultural land has been encumbered with a conservation easement in deals with the Hawaii Islands Land Trust.

A document filed by HECO last week in response to questions from the Office of the Consumer Advocate acknowledged that the biodiesel processing is not a completely clean process, and that Aina Koa Pono is seeking EPA approval to discharge up to “250 tons per year of any regulated pollutant”.

Per AKP, it has completed the preliminary engineering of the project, including a further process validation by Eichleay Engineers, and assessed permit requirements, including estimated emissions. AKP has also engaged AECOM to undertake their initial air permit application. AKP estimates their initial air permit application will be submitted mid to late August, 2011. AKP has also investigated the Prevention of Significant Deterioration (“PSD”) requirements and is in the process of securing EPA confirmation that the threshold for PSD for AKP’s project will be 250 tons per year of any regulated pollutant versus the more restrictive 100 tons per year.

Other recent entries regarding Aina Koa Pono appeared here on July 18 and July 19.

Another piece of the power structure

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Taking another look at the management of Aina Koa Pono, the company selected by HECO to build and operate a biofuel refinery using an as-yet commercially untested technology. Its “board of advisors” includes company co-founder Melvin Chiogioji of Mele Associates, familiar figures like attorney Paul Alston, former HECO president and CEO Bob Clarke. Then there’s Kimberly Dey, not really a household name.
In the company-provided bio, we learn:

Kimberly Dey is CEO and owner of NumberEight (N8). N8 was created in 2010 through the partnership agreement between Nothing But Results (NBR), a locally-owned, boutique marketing company with a successful track record, and Liquid Planet Studios (LPS), one of Hawaii’s largest and most diverse HD production companies.

Hmmmm. There’s more.

An entrepreneur by nature, Dey also operates a portfolio of several other business entities, including an accomplished sport horse breeding business, which is an extension of her love for horses, competition and sport. Her horses have earned numerous national and international awards and she, herself, is an established rider who was the World Champion Amateur Hunter Rider for two consecutive years and the first Asian American to win such honors.

Then we learn why this accomplished horse breeder and champion rider is in a position to advise a company trying to upscale this technology for the first time, with electrical ratepayers statewide picking up much of the tab.

She also works as the Vice President for her father’s private charitable organization the Charles B. Wang International Foundation, which focuses internationally on children and cross-cultural affairs.

Aha. Her father is Charles Wang, the billionaire who co-founded Computer Associates back in the mid-1970s.

Interesting.

Mention that she is an officer of the Charles B. Wang International Foundation quickly led me to a New York Times story by Stephanie Strom(February 23, 2011) providing an entertaining look at hardball politics in the work of philanthropy.

Kimberly Dey and her husband made news in 2006 buying three contiguous lots along Kahala Avenue for a reported $34 million, and started planning a new house on the property. The properties were put up for sale this year for $45 million after plans for the house were dropped. The experience of evacuating during the March 11 tsunami warning made Dey reconsider the idea of oceanfront living, according to a story in PBN.

A Wikipedia profile of Dey’s father, Charles Wang, describes his career with Computer Associates as “marked with controversy.”

In building up CA, Wang engaged in fifty takeovers followed by immediate firing of top management and key employees. His strategies had provoked descriptions like “rapacious”, “heartless” and “Attila-the-Hun”, largely driven by the draconian practices he engaged in with acquired companies, although these tactics were legal in the State of New York. The most notorious of these practices included forcing the employees of an acquired company to sign new employment contracts on-the-spot at a company meeting without prior warning – employees who refused to sign at the meeting or wished to have the contracts reviewed by a third party prior to signing were immediately fired.

He also alienated many in and out of CA by his paternalistic, family-oriented management style. In 1979, three years after CA’s founding, Wang had installed his older brother Tony, a onetime corporate lawyer, as president and COO. Tony held the position until his retirement in 1992 to make way for Sanjay Kumar. In 1998, Nancy Li, Charles Wang’s second wife, was named CA’s chief technology officer. Wang has argued that the investment community was punishing CA’s stock because of his refusal to override his sense of familial loyalty to avoid the appearance of nepotism.

There’s more. You can read it here. Parts of the Wikipedia account have been challenged as lacking proper documentation, and the issue apparently has not been resolved.

All this, of course, really has nothing to do with whether or not Aina Koa Pono can pull off its engineering feat and make this renewable project work. It does, however, add a bit more background information about the power structure of Hawaii’s search for new sources of energy.