The Big ‘Aina Koa Pono’ Risk

Richard Ha writes:

Hawaiian Electric Company (HECO) and Hawaii Electric Light
Company (HELCO) are asking for PUC approval to pay Aina Koa Pono $200/barrel for biofuel, and they are asking for approval to pass the cost straight through to the rate payers (us).

Should we rate payers accept the risk and provide the
subsidy? No!

We need to attend the upcoming PUC hearings and testify against assuming the $200/barrel cost of biofuels. Please consider attending. The hearings are:

East Hawai‘i:

  • Monday, Oct. 29th, 6 p.m. at the Hilo High School cafeteria

West Hawai‘i:

  • Tuesday, Oct. 30th, 6 p.m. at the Kealakehe High School
    cafeteria

O‘ahu:

  • Thursday, Nov. 1st, 6 p.m. at Farrington High School

Should we rate payers pay for biodiesel that costs $200/barrel, starting in 2015 and lasting until 2035? There is a great risk that the price of oil will not follow the Annual Energy Outlook 2012 ‘high price forecast’, and if that’s the case, we will be paying more for electricity than we would be otherwise.

Very risky.

There is also a technology risk. Fuel has not yet ever been produced using the feedstock that Aina Koa Pono proposes to grow. So far, the feedstock being used experimentally is white pine. The Micro Dee technology Aina Koa Pono wants to use is still experimental.

Risky.

There is a risk that this process might use more energy than it generates. Generating electricity is generally about boiling water and making steam that turns a turbine. It’s cheaper to burn the product to boil water. Aina Koa Pono’s proposed process – making electricity to make microwaves to vaporize the cellulose to get the liquid and then refine it to make it burnable, and haul it down to Keahole in tanker trucks to make steam – is extremely energy intensive.

Very risky.

Mid-year last year, on the mainland, the EPA drastically decreased its 2011 estimate for cellulosic biofuel from 250 million gallons to a paltry 6 million gallons. Almost all the cellulosic biofuel companies went bankrupt.

This makes this project risky as well.

In 2010, cellulosic biofuel companies needed to buy their feedstock for $45/ton. But because farmers were making $100/ton for hay, the biofuel firms got a $45/ton subsidy. I asked how much Aina Koa Pono expected to pay for feedstock, and the AECOM Technology Corporation consultant said between $55 and $65/ton. The problem there is that Hawai‘i farmers have been earning $200/ton for hay for 10 years now.

The supply of feedstock is a risk.

There is agriculture production risk, as well. Palm oil is the only industrial-scale biofuel that can compete with petroleum oil. In the tropics, it produces 600 gallons of biodiesel per acre of production. Say Aina Koa Pono can produce 500 gallons of bodiesel, since we are located 22 degrees north of the equator. To produce 16 million gallons a year at 500 gallons per acre would require 32,000 acres of productive land. Add 10 percent more for roads and unusable land and you would need 35,200 acres. But we only have 12,000 acres to use. Is the feedstock throughput adequate to cover the capital costs? We don’t know. They have not decided on a feedstock yet.

Risky.

Imagine the 12,000 available acres could produce 16 million gallons. Then each acre would need to produce 1,333 gallons to get the required throughput.

This would be twice as productive as the best biofuel producers in the world.

It’s a risky assumption.

Ka’u Sugar relied on natural rainfall. Depending on natural rainfall makes achieving optimum production very risky, due to the very real possibility/probability of occasional drought.

According to Energy Expert Robert Hirsch, in his book The
Impending World Energy Mess
, the best model is a circular one, where processing is done in the center of a field (which does not exceed a radius of 50 miles) that consists of flat land, deep fertile soil with irrigation and lots of sun energy. This situation exists in Central Maui, where Hawaiian Commericial & Sugar Company (HC&S) is located. That is exactly why HC&S is the sole surviving Hawai‘i sugar plantation.

If Aina Koa Pono is supposed to serve as an example from which to expand, then there is very limited suitable land on the Big Island
that meets the criteria. To compete heads up on the world market will require the best possible combination of production factors. These are not them.

Locking into a 20-year contract would preclude lower cost alternatives. Geothermal, for example, is the equivalent of oil at $57/barrel. Oceanthermal has the possibility of being significantly lower in price than $200 oil. Water-to-liquid fuel is a possibility, too.

The amount of risk involved is just far too great. In the investment world, the reward is generally commensurate with risk. Except for protection from $200 per barrel oil in the later years, there is little reward for all the risk we would assume.

This is a very bad deal for consumers.

Our Plan to Lower Electric Bills, Validated

Richard Ha writes:

If you signed up on the website with the Big Island Community Coalition, you recently received the following email from us.

Gail Tverberg received it and she emailed me this:

Thanks! Good for you!
The message about getting lower cost electricity is exactly right. It is hard to be very competitive (except maybe at tourism) with very high energy costs.

It’s hard for me to express how respected a position Gail holds in the world of energy commentary. She is very knowledgeable, highly respected and she holds the starkest possible view.

I look at what she has to say as, “Okay, that’s the worst case possible, and let’s figure out a way around it.” What she emailed me validates our “work-around.” It’s an extremely important validation.

From the Big Island Community Coalition:

Aloha Members!

The PUC is holding two hearings this month, one in Hilo on October 29th, 6:00pm at Hilo High Cafeteria, and the other on October 30th, 6:00pm at Kealakehe High School Cafeteria. They want to hear YOU. Bring your kids, bring the kupuna, and bring your friends. Tell the PUC how rising electricity rates are affecting you and your family. We do not have to accept these rate hikes.

Rising electricity rates act like a giant tax that hurts the most defenseless among us. Seniors on fixed income, single moms, renters, working homeless, and businesses are all hurt by rising electricity rates. Just last month, it was reported that two houses burned down from using candles. One household was using candles for light because they could not afford the electricity bill.

The Big Island has had electricity rates 25% higher than Oahu for as long as anyone can remember. If we were successful in getting the Big Island electricity rate lowest in the state, we would be able to grow and sell more products on Oahu. There would be more jobs here on the Big Island. Instead of leaving for the mainland to find jobs, our children would be able to stay here and work.

If we were successful in getting locally-produced, lower-cost electricity, our school budget would not rise by 25% every two and a half years. That saving would go toward your child’s education instead of oil from a foreign country.

Already your actions are starting to get results. Just a short time ago, no one could imagine talking about lowering electricity rates. But because of the actions of the Big Island Community Coalition, HELCO is running full page ads in the newspaper. They are now focusing on how they can lower your electricity rates. If you show up in large numbers at the PUC hearings, you can change the thinking of the state government as well.

At the last PUC hearing the participants were mostly from Ka’u. This time folks from Ka’u, Kona, Kohala, Puna, Hilo, Waimea — the whole island, will be represented. At the last PUC hearing, the Consumer Advocate was in favor of ‘Aina Koa Pono, dismissing the opposition as NIMBYism. This time when you all show up from all parts of the Big Island, the Consumer Advocate has no choice but to advocate for the consumers — all of us.

    Your beliefs become your thoughts,

    Your thoughts become your words,

    Your words become your actions

    Your actions become your habits,

    Your habits become your values,

    Your values become your destiny.

    – Mahatma Gandhi

When you show up at the PUC hearings in large numbers, your words will become your actions. Then your actions will become your habits — on the way forward, your values will become your destiny. Our values are — taking care of all of us, not just a few of us, for generations to come.

Share Your Story

How has the rising cost of electricity affected you and your family? How would an even higher electricity rate have an impact on your lifestyle? Are you neighbors with the family who spends their evenings by candlelight? We want to know. Every story matters. This issue of costly energy involves all of us. Email us your story to bigislandcc@gmail.com.

Please mark on your calendar the PUC meeting nearest you, and consider attending if you can. Every person in attendance, every story, will make a difference. 

And join us at the Big Island Community Coalition if you haven’t yet. Enter your email address here, and we will send you an occasional newsletter, like the one above, to keep you informed.

Try Wait – Comparing costs for Geothermal vs. Aina Koa Pono Biofuels

Richard Ha writes: 

It’s all about the cost.

What if we substituted geothermal electricity for Aina Koa Pono’s biofuels proposal, in order to replace the 80MW that the Keahole liquid fuel-fired plant produces?

Aina Koa Pono’s proposed plan would cost rate payers the equivalent of $200/barrel of oil.

The “barrel of oil equivalent” for geothermal-produced electricity is $57/barrel, and this price will be stable for 500,000 to a million years. (Geothermal is competitive with – though cheaper than – natural gas, which is $5.16 per million BTUs and breaks even with oil at $57/barrel; and nuclear power, which breaks even at $6.26 and $69).

At today’s oil prices, there is an 11 cent difference between oil- and geothermal-produced electricity. Geothermal is cheaper by far.

The Keahole plant’s capacity is 80MW, which is 80,000 kilowatts per hour. Using geothermal would save $8,800/hour, $211,200/day, and $6,336,000/month. In a year, the savings would be $76 million.

Why can’t we split the difference? Part of the savings goes to lowering rate payers bills, and the other half to retire debt?

The electric utility should not be punished for trying to achieve its renewable energy goals. But we have to realize there may be alternatives that better prepare us for the future. Let’s not lock ourselves out of these opportunities by signing a 20-year contract just because of an arbitrary time schedule.

In the end, with geothermal we would pay the oil equivalent of $57/barrel on our electric bills. If we go Aina Koa Pono’s route, we pay the equivalent of $200/barrel.

Am I missing something?

What if Aina Koa Pono’s Projections Are Wrong?

Richard Ha writes:

We don’t have the actual numbers, because HELCO hasn’t released them, but what if the agreement with Aina Koa Pono is that they get paid $200/barrel, and then the oil price follows the High Oil price curve of the AEO 2012 (see below)?

In that case, if oil is $175/barrel in 2015, then the rate payers would pay the remaining $25/barrel to enjoy the benefits of jobs, biochar and liquid fuel.

But what happens if Aina Koa Pono is wrong? What happens if the price of oil follows the reference line of this graph below, instead?

Chart

Say oil in 2015 costs $110. The difference between that $110 and $200/barrel is $90/barrel.

IS THAT WHAT THE RATE PAYER WOULD PAY IF THE ACTUAL COST OF OIL IS $110/BARREL? $90/BARREL?

This can’t be right.

SURELY THE CONSUMER ADVOCATE WOULD NOT LET THAT HAPPEN TO THE CONSUMERS?

Taking Matters Into Our Own Palms

Richard Ha writes:

Over the weekend I went to a Palm Oil presentation given by Dr. Bill Steiner, the recently retired Dean of the University of Hawai‘i College of Agriculture, Forestry & Natural Resources, and I made a decision: We are going to plant palms, and produce enough palm oil to make our farm free of fossil fuel in 10 years.
Screen Shot 2012-10-09 at 9.25.19 AM

We use 12,000 gallons of diesel annually for our tractors and trucks.

Oil palms produce 500 gallons/acre per year. If we plant thirty acres in palms, that should produce 15,000 gallons annually. This would allow us to grow our crops and definitely get them to market, no matter what happens in the Middle East.

We have the land, deep soil and free water. A big disadvantage is that harvesting palm oil is labor intensive, but the palms will not need to be replanted for 25 years. We already have the land, and if oil is cheap and abundant 10 years from now, then we control our
cost by not harvesting. If, at that point, oil is expensive and hard to get, then we harvest and are to get our produce to market. There are some other issues, which we are working through right now.

Palm oil production is a proven technology. Palms like to grow in the tropics, and Hawai‘i is not perfect at 22° north latitude, but we think it’s good enough. Palms need 80 inches of rain per year, and where we are we have one and a half times that amount falling out of the sky.

Robert Rapier, who writes the R-Squared energy column at Consumer Energy Report, has this to say about palm oil:

The Palm Oil Conundrum

by Robert Rapier

People sometimes ask which biofuels are competitive head to head with crude oil. By competitive, I mean those that can actually compete favorably with oil prices on a level playing field (i.e., they don’t require big subsidies or mandates in order to compete). There are two that always come to mind: Ethanol from sugarcane (although less competitive currently due to high sugar prices) and
fuel from palm oil (oil derived from the fruits of the African Oil Palm). In fact, in the first book chapter I wrote in 2007 (Renewable
Diesel
 in Biofuels, Solar and Wind as Renewable Energy Systems:
Benefits and Risks
) I highlighted palm oil as a crop with great
promise, but also great environmental risk:

By far the most productive lipid crop, palm oil is the preferred oil crop in tropical regions. The yields of up to five tons of palm oil per hectare can be ten times the per hectare yield of soybean oil. Palm oil is a major source of revenue in countries like Malaysia, where earnings from palm oil exports exceed earnings from petroleum products.

Read the rest

Plan Ahead: Peak Oil Conference at Univ of Texas Nov. 30

Richard Ha writes:

This year's annual Peak Oil conference is coming up. It's at the University of Texas at Austin from November 30 to December 2, 2012, and I recommend that lots of folks from Hawai‘i attend – especially our future leaders. 

Our changing world energy environment is going to strongly affect Hawai‘i. At this year's conference, there will be a full discussion of natural gas issues in addition to the world oil situation. This information and knowledge will be very beneficial to decision makers in every aspect of Hawai‘i's economy. 

This will be my fifth Peak Oil conference. I was very impressed with how many investment advisers attended the first meeting. They are interested in getting the most current knowledge possible so they can stay ahead of the pack in their field. 

Read more about the upcoming Peak Oil conference.

Kenoi Can Guide Big Island into Uncharted Future

Richard Ha writes:

Big Island Mayor Billy Kenoi has consistently made the point that in this changing world, we, too, must change. He pointed that out again recently: That our highest-in-the-nation electricity cost – which is 25 percent higher than O‘ahu’s – is too heavy a burden for the Big Island’s people to bear. To help the most defenseless among us, as well as our local businesses, we need lower cost renewable electricity; not higher cost electricity.

The mayor has consistently been in favor of finding lower cost alternatives to the status quo (which is, of course, dependency on
expensive fossil fuels). The Geothermal Working Group, co chaired by Wally Ishibashi and me and authorized by the Hawai‘i State Legislature, could not have carried out its work without the mayor’s backing. It was an unfunded mandate implemented by volunteers. The mayor just told his people, “Make sure they have what they need.”

Mayor Kenoi is a quick learner; one who gets both the big picture and the small one.

He led a delegation to Ormoc City, Philippines to see how 700 MW of geothermal energy was developed in a place with a population size similar to the Big Island. I was on that trip and saw how the Philippines is way ahead of us in assessing and utilizing its resource. It’s a great credit to Filipino leaders that, as the Philippines incorporates more geothermal into its grid, the country will be very well-positioned to cope in a world of rising oil
prices.

The Philippines produces a large percentage of the food its people eat, too, as compared to Hawai‘i. Our trip also resulted in a university-to-university relationship.

It’s not that geothermal is the only solution. But because we have geothermal here on the Big Island, that fact-finding trip was a responsible thing to do. That was a very practical, useful and cost effective trip Billy led.

Sitting in the middle of the Pacific Ocean, Hawai‘i is vulnerable to events out of its control, and is sailing into uncharted waters. It’s similar to when our early predecessors sailed up from the south to find a better life.

Who can I see leading today’s expedition that carries the Big Island to a better tomorrow?

I see Billy Kenoi as that leader.

How To Evaluate a Renewable Energy Technology

Richard Ha writes:

Robert Rapier has been in the trenches, fighting hype and misinformation, for a long time.

In this 2006 article, he challenged Vinod Khosla:

Vinod Khosla Debunked

By Robert Rapier

Update: Vinod Khosla and I have discussed his claims. That conversation is documented here.

Who is Vinod Khosla?

When an influential person begins to affect energy policy decisions – decisions that will have a huge impact on all of our lives – we better take a critical look at the claims that person is pushing. You can’t discuss ethanol for long with an ethanol proponent without having them mention the endorsement of Vinod Khosla. If you don’t know who Khosla is, here are a couple of blurbs from his Wikipedia biography:

Vinod Khosla is an Indian American venture capitalist who is considered one of the most successful and influential personalities in Silicon Valley. He was one of the co-founders of Sun Microsystems and became a general partner of the venture capital firm Kleiner, Perkins, Caufield & Byers in 1986. In 2004 he formed Khosla Ventures.

Vinod was featured on Dateline NBC on Sunday, May 7, 2006. He was discussing the practicality of the use of ethanol as a gasoline substitute. He is known to have invested heavily in ethanol companies, in hopes of widespread adoption. He cites Brazil as an example of a country who has totally ended their dependence on foreign oil.

Why Khosla Must be Challenged

I have previously made the case that Khosla’s claims don’t stand up to scrutiny. However, I recently got an e-mail from a reader who had watched a video presentation by Khosla. He had been referred to the video by a blog, where a poster wrote: “this is actually starting to sound like a rational plan to me.”

…In addition, another e-mail recently called my attention to a coast-to-coast road trip being fueled by E85:Kick the Oil Habit Road Trip. In one of the blog entries from the trip, there is a conversation between the driver of the E85 car (Mark Pike), Tom Daschle, and Vinod Khosla. The conversation is archived at:

Sen. Tom Daschle & Vinod Khosla talk Ethanol [ed’s note: this link is no longer active]

I documented my impressions of the exchange at:

RR Critiques the Road Trip

For me, the most disturbing part of the exchange came when Mark Pike said: “If the technology is good enough for Mr. Khosla, it’s good enough for me. I know that guy has done his research, so I trust him. I will leave all of the scientific data and research to him.”

There we come to the crux of the matter: People trust that he knows what he is talking about. The Wikipedia biography says he is “successful and influential.” Make no mistake; he is influencing people in this ethanol debate, including political leaders. Khosla is convincing people that his projections are viable. Yet, are they carefully scrutinizing his claims? No, because they trust him. Yet claims like his, will dampen conservation efforts, and Americans will not be prepared for Peak Oil. After all, Khosla, a guy they trust, says we are going to produce enough ethanol to replace our oil imports….

Robert came under immense pressure for his article because he was going against the conventional wisdom of the day. He was even accused of being an obstructionist. I liked his approach, though, because he is always interested in the greater good.

And at the end of the day, it turns out, Robert was right.

I first became aware of his work when I went to the Peak Oil conference in 2007. Then I missed the 2008 conference, but went to the 2009 conference in Denver. By that time, biofuels were starting to get traction in Hawaii.

We farmers thought the whole idea was iffy because we knew that a barrel of oil weighs over 300 pounds and when oil is $100 per barrel each pound of oil is worth 30-something cents. So if we had to grow four pounds of stuff to get out one pound of liquid, we knew that the most we could earn for the stuff was less than 10 cents per pound. Forget it.

I admired Robert’s tenacity and integrity, and I asked my friend Gail Tverberg if she would introduce us at the Denver conference. She sent him an email and I was amazed to find out that he had moved to Waimea and was sitting in Michael Saalfeld’s office at that moment. I called him and we have become good friends.

Robert writes the Rsquared blog. One of his interesting posts talks about how to do due diligence in order to evaluate a renewable energy technology. At the end of his post, he
suggests asking 10 questions.

Summary

To break this down into a short “cheat sheet,” here is a summary of some important questions that you want to ask. Try to corroborate answers by talking to employees or competitors.

  1. At what scale has the process been actually demonstrated, and is the process currently running?
  2. What is the source of raw materials for the process?
  3. What is being done with the product?
  4. What are the primary energy inputs into the process, and what is the energy balance?
  5. Will there be intermediate scale-up steps before a commercial facility is built?
  6. What are the key assumptions for a commercial facility (e.g., size, cost of production, location)?
  7. What is the presumed source and cost of biomass for a commercial facility?
  8. Has the process been proven on that specific biomass?
  9. What are the patent or patent application numbers relevant to the process?
  10. What prior work is most similar to yours, and who are your perceived competitors?

If you manage to get honest answers to those questions, you will be well on your way to burrowing through the hype to understand the true potential of a process.

This template is very useful, because we can put all proposed projects on an equal footing by comparing answers. It allows one to compare risks. If all a project’s costs are borne by private investors, then no harm/no foul. But if taxpayers or ratepayers are being asked to pay for the project, then one needs to know how much risk the tax/rate payer is assuming.

At the end of the day, the fundamental question is: Are we socializing the risk and capitalizing the return?

If we are going to socialize the risk and capitalize the returns, we cannot let our decisions be based on P.R. They must be based on a systematic analysis of the process.

Front Page News

Richard Ha writes:

Front page news today in the Hawai‘i Tribune-Herald newspaper:

September 28, 2012

Isle’s energy at center of debate

By PETER SUR

Tribune-Herald staff writer

The Public Utilities Commission’s public hearing on Hawaii Electric Light Co.’s rate increase and biofuel surcharge proposals is a month away, and all sides are digging in for what could be an explosive meeting.

The PUC has scheduled public hearings to gather community input on Oct. 29 at the Hilo High cafeteria and Oct. 30 at the Kealakehe High cafeteria. Both meetings start at 6 p.m.

At issue are two proposals by HELCO. One is for a $19.8 million increase in revenue, or 4.2 percent in the coming year. The other, which is being jointly proposed by Hawaiian Electric Co., is the establishment of a biofuel surcharge provision of between 84 cents to $1 per month to support a Ka‘u biodiesel refinery to be built by Aina Koa Pono.

The article goes on to discuss the Big Island Community Coalition and actions we are taking. It also discusses the Aina Koa Pono project.

Both proposals are opposed by the Big Island Community Coalition, formed by a group of prominent citizens who are asking people to come out and tell the PUC the effect of HELCO’s utility prices on their lives. Read the rest here

Did you mark your calendar yet? Come to the PUC meetings (October 29 at Hilo High cafeteria, and October 30 at Kealakehe High cafeteria; both at 6 p.m.) and here’s more on what you can do to help with our mission to make Big Island electricity rates the lowest in the state.

Peak Oil Concerns Now Mainstream: Christian Science Monitor, Citigroup

Richard Ha writes:

The further some things recede in the rearview mirror, the clearer they become.

Concepts that were new and cutting edge at Peak Oil conferences several years ago are now mainstream.

I want to introduce you to the Resource Insights blog, which we have added to our list of blog links at right. You can always click over to it from there.

This was posted a couple days ago (that’s my emphasis there in its final paragraph):

SUNDAY, SEPTEMBER 23, 2012

This is the fourth of a six-part series introducing readers of The Christian Science Monitor to concepts useful in understanding the Resource Insights blog. Selected posts from Resource Insights are now appearing regularly on the Monitor’s Energy Voices blog. To read the previous installments of this series click on the following: Part 1Part 2, Part 3
It is with trepidation that independent petroleum geologist Jeffrey Brown has watched global oil exports decline since 2006. With all the controversy in the past several years over whether worldwide oil production can rise to quench the world’s growing thirst for petroleum, almost no one thought to ask what was happening to the level of oil exports. And yet, each year a dwindling global pool of exports has been generating ever greater competition among importing nations and has become a largely unheralded force behind record high oil prices.

Even though the trend in oil exports has been evident in the data for some time, the analyst community was caught by surprise when a Citigroup report released earlier this month forecast an end to oil exports in 2030 from Saudi Arabia, currently the world’s largest oil exporter. Read the rest

If the Citigroup report is right and Saudi Arabia will stop exporting oil by 2030, then we in Hawai‘i are in big trouble.

Our solution, the Hawaii Clean Energy Initiative, anticipates 70 percent freedom from fossil fuel by 2030. That is to be achieved by 40 percent renewable energy and 30 percent energy efficiency – which means that 60 percent of our energy will still depend on fossil fuel.

But there may not be any oil we can afford then. And actually, we probably won’t be able to afford oil way before 2030 – even, say, 2020? That’s only eight years from now.

There are other views of the future that are just as persuasive. Richard Heinberg and others talk about the end of growth in this video:

In this scenario, oil prices may fluctuate in a relatively narrow band, going from expansion when oil prices dip and contraction when oil price rise above, say, $115/barrel for any extended period.

That is the reason we formed the Big Island Community Coalition.

We all feel the same urgency. The Coalition anticipates driving Big Island electricity prices to be the lowest in the state, in a timely manner. This protects us from whatever happens with oil prices.

We started with the desired end result, and worked backwards:
  • Protect Big Island families from rising electricity rates
  • Make the Big Island more food secure
  • Raise our standard of living relative to the rest of the world
  • Give working homeless better options
  • Help Big Island businesses become more competitive in the O‘ahu market, as well as worldwide
  • Prevent having to export our children, our most precious resource, by having jobs available here on the Big Island
To get the above desired results, we need lowest cost electricity. So our focus is clear. Read more about the Big Island Community Coalition.