Archive for February, 2007

Biodiesel pure-play

I’ve written an article for Alternative Energy Stocks on Blue Sun Biodiesel’s expected merger with M~Wave.  The article begins:

On January 29th, M~Wave [NASDAQ:MWAV] and private vertically integrated Biodiesel distributor Blue Sun Biodiesel announced a merger between the two, with Blue Sun becoming a division of M~Wave, and the merged company being renamed Blue Sun Holdings. Managerial control will also pass to “certain directors and the officers of SunFuels.”

If this merger goes through as planned in the second quarter of 2007, US investors will have their first opportunity to invest in a stock focused on a biofuel which is much less controversial among environmentalists than corn-based ethanol. Estimates of the well-to-wheels Energy Return on Energy Invested (EREoI) for biodiesel range from about 1.93and up, depending on the feedstock, although few numbers are available. The most commonly quoted EREoI for biodiesel is 3 or 3.2, but I’ve never found a reputable reference for that, and it will clearly vary widely depending on the oil feedstock, with waste oil being “best.”

 Click here to read the whole article.

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CitizenRE leaked memo

Looks like I’ve been out of the CitizenRE loop.  According to this leaked memo it looks likely that they’ll pull their whole MLM (multi-level marketing) scheme because they won’t be able to build enough volume of panels to satisfy demand.  Will current signees get their panels?  Possibly.  But as I said in response to an earlier controversy, PV is not a great financial investment, and there are green things you can do with your money that have much better returns.  So if you’ve already signed a FRA, I say wait and see (unless some other outfit comes along with panels in hand to offer you a rental agreement.)  If you have not yet signed, it does not look worth the bother.

 I still believe that the rental/utility model is sound… we just have to wait until the technology and production capacity of PV are such that they will actually be able  to deliver enough systems to homeowners.

I do think there will be other companies offering the rental model to homeowners in the next few years, but it will probably be much smaller scale, and locally based in states with high incentives.   They’ll probably also charge higher rates for the electricity to make up for their higher per unit cost (compared to CitizenRE’s rosy projections.)

I hope the rental model (or the PV industry as a whole) will not be tarred by association.  At least MLM could not exactly lose much in terms of reputation. 

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Visual Comparison of Electricity Generation Technologies

I just put together a couple graphs for a talk I’m giving on Monday to give people a visual feel of the various technologies for generating electricity.  These come with a gigantic caveat: the numbers are far from precise.

With changing technologies, it’s impossible to represent any of this with a single number anyway.  I’m trying to show how the technologies compare to each other, and I used four parameters:

  • Cost ($/MWh),
  • Availability (better the closer the profile of the technology matches a normal demand curve (wind is bad, baseload is okay, dispatchable is best, solar),
  • Emissions (and I count waste storage when it comes to nuclear),
  • Bubble sizes represent the size and durability of the resource (I’ve tried to combine in one number how much power we can get from the resource, but also how long supplies of fuel will last.) 

In both charts, the “best” technologies are in the upper left (low cost, low emissions, and available when we need them.)

I know that I’m going to upset a lot of people because I was too harsh with their favorite technology, so feel free and comment on the numbers I’m using, but also please provide references for where you get your numbers.  Most of these are off the top of my head, so their accuracy is admittedly questionable.   Here are the numbers I used to make the graphs.

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Contest: Best Energy Efficiency Headlines

On my Psychology of Energy Efficiency post yesterday, Marc Gunther (columnist for Fortune and CNNMoney) left a comment as to another reason Energy Efficiency gets so much less attention than it deserves:

Compared to wind, solar or nuclear, [Energy Efficiency] is boring–and therefore gets less media attention than it should. It’s rarely controversial. And just try writing a headline that will grab people for a story about efficiency. I have. It’s not easy.

I’d like to open up the comments on this post to a challenge: come up with an attention grabbing headline for a story on energy efficiency.   Entries will be judged by me and Marc (who was kind enough to volunteer) and I’ll post the best entries on my blog on  March 5th.   The best entry will win a Kill-a-Watt appliance tester, or a half hour investment consultation by phone from me (your choice.) 
Feel free to submit headlines from published articles as inspiration for other contestants, but please tag them as such.   Part of the goal here is to come up with catchy titles Marc can use in the future.  Only new headlines will be eligible to win (and I will check.)
Let the games begin!

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The Psychology of Energy Efficiency

Efficiency is unquestionably the largest, cheapest, and cleanest wedge among the many we need decarbonize our energy economy.  Energy efficiency tends to cost just 1 to 3 cents per kWh saved, far less than even coal-fired generation.   Every renewable technology, from wind to solar, to biomass, has trade-offs.  At the very least, we have to decide if the energy we are using for one purpose is not better used for something else.

Energy efficiency is the exception to this rule: you can not use a kilowatt-hour or a BTU over and over again.  Given these advantages over generation, it’s amazing that energy efficiency is nevertheless so extremely cheap.  Given an even moderately efficient [pun intended] market, you would expect that all the cheap energy efficiency measures would long ago have been taken until the marginal price of the next efficiency measure was above the marginal price of added electricity generation.

So why hasn’t it? 

Why is TXU trying to build a half dozen coal fired power plants in the face of broad opposition from the community when, for a fraction of the cost, they could instead pay to help people insulate their homes, change to more efficient air conditioners, and replace energy efficient lighting and save as much power as they plan to generate with the coal plants without any cost for fuel and harm to the environment from mining and emissions?

For that matter, why don’t TXU’s customers (and the rest of us) take these steps ourselves, when the internal return on investment is many time what we can rationally hope to achieve in the financial markets, and in many cases is even higher than the interest borrowers with the worst credit ratings pay on their credit cards.  (Like most financial advisors, I hate debt, especially credit card debt, but even if you’re drowning in $30,000 of credit card debt at 25% APR, it still makes sense for you to buy a pack of CFL’s at $3 each on that high-interest credit card, and replace every incandescent light bulb in your house that you use more than 2 hours a day.)

Here’s a blog which does a good job outlining the usual answers: lack of financing, perverse incentives, and disinterest on the part of people for whom energy is only a tiny part of the budget (all of which are true.)  He goes on to outline perscriptions that will undoubtably help to break down the barriers to the adoption of many Energy Efficiency measures.

I see other barriers that lie behind these.  Not just a failure of normal market forces, but conceptual problems.   While energy in general is a fuzzy concept to most people, using less energy is even less tangible.  You just can’t drop energy efficiency on your foot.  You’re not even at risk of electricution from it.

The pernicious consequence of systems of measurement is always that things we can’t measure go unnoticed.  If you have a hammer, everything looks like a nail, but even more insidiously, things that will never look like nails no matter how hard you squint dissappear from your vision altogether.  It is this psychological quirk that makes energy efficiency go unnoticed.

What image comes to your mind when I say “wind power”?  If you’re anything like me, you probably had a image of a forest of giant wind turbine blades turning gracefully on the horizon like ballet dancers.  Or, you might be like my wife, who would also have an image of a wind farm, but thinks they are ugly (although not so ugly as the haze from a distant coal plant) despite recognizing their necessity.  She wishes they were painted to camouflage them into the background.   Whatever your attitude towards wind power, you probably saw an image.

 Now try “energy efficiency.”  It’s a lot trickier, isn’t it?  I think about energy efficiency all the time, the way a teenage boy thinks about sex (okay, maybe not quite that much), and even I can’t settle on an image.  My mind flashes from the act of replacing an incandescent bulb with a compact fluorescent lightbulb (CFL) to an industrial scale combined heat and power facility, to closing the blinds at night to keep the heat in.

Not only is energy efficiency hard to picture, it’s also hard to measure.  To compute the energy savings from any activity, you have to establish a baseline: how much energy would you have used if you had not changed your methods.   Even in the simplest case of replacing a CFL, we don’t really know that the bulb we replace would really have stayed in the socket until the CFL breaks: A CFL can easily last 10 years, and by that time, we may be replacing all our bulbs with LEDs.  And that does not even begin to account for the effects on our HVAC systems.

Is your mind spinning?  That’s my point.  It can be so hard to get our minds around all the impacts of energy efficiency that, for most people, the most people, it may actually be rational to waste a little energy in order to avoid the headache that trying to get their mind around efficiency may entail.

The problem is, that decades of conserving brain power has left us as a society that wastes energy egregiously.

My prescriptions, designed to make thinking about efficiency easier:

  1. Measure energy use at every opportunity.  Many Prius drivers report that the real-time MPG gauge on the dash causes them to change their driving habits to grive more efficiently.  Getting a Kill-a-Watt energy meter makes us think more about our next electronics purchase.   Getting to know your electric meter can also motivate you to track down wasted energy.  A radical idea: on new homes, the electric meter should be inside, along with the circuit breakers.  New meters can be read (and even turned on and off) remotely, so there is no reason any longer to have them on the side of the house where we never see them. 
  2. Another thing we need to measure is when we use our electricity, not just how much.  Wholesale electricity prices can vary from a few cents per kWh to 30 cents or more during peak consumption.  As we move to a grid based on renewable energy supplies, most of which are intermittent and non-dispatchable, we need to get used to paying the real-time price of the energy we’re using.  Wide-spread adoption of time of use metering will drive the invention and adoption of appliances that can adapt themselves to changing prices.  There are direct, immediate benefits to the system by shaving peak loads, but the real benefits will come when people adopt new ways of doing things and new devices that will cause our appliances to run and our devices to charge when electricity is plentiful, and runonly the most essential uses of electricity when it is scarce.   Xcel is currently doing a pilot study on Time of Use Pricing in Colorado.  The preliminary result are that the right pricing scheme encourages customers to change their energy use much more than they had anticipated… but it still would not be “economic” to change out meters for more sophitocated models capable of handling this sort of billing.  Their definition of “economic” almost certainly does not include the benefits of the creativity which realistic pricing would unleash. 
  3. Allowing utilities to profit from selling less rather than more.  This concept, known as decoupling, is covered well here.  It’s important to remove (or even reverse) the incentive of utilites to sell us more electrons when we really want them to help us use less.

Finally, I do call this blog EE/RE Investing, so here are the sectors that I see benefiting from these recommendations as they are adopted:

  1. Companies selling advanced metering devices, and control systems that adapt to changing electric rates.
  2. Companies that sell building management systems.
  3. Energy storage technologies, such as as advanced batteries, flow batteries, and compressed air energy storage.
  4. Broadband over power lines technology, to handle the increased flow of information.

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There is an excellently researched article on CitizenRE (also see my previous blog entry which has been in my top posts constantly since January) on Renewable Energy Access by Jeffery Wolfe of groSolar.  As the CEO of a solar installer/distributer, he is rightly worried about CitizenRE’s ability to cannibalize his business…. especially if they sign a bunch of people up, and then go bust.

This is a valid concern, both for groSolar and those of us who want the solar industry as a whole to grow and succeed.  My thought on this is if you are seriously considering installing solar on your home yourself, you should go ahead and buy it from an established solar contractor.  There are many uncertainties with CitizenRE, and the most surprising result would be if they actually get their plant running and start installing solar on people’s homes on time in late 2007.  If they do get everything working, 2009 or 2010 before a customer sees his/her solar panels is much more like it.

That does not mean, however, that no one should sign up.  As I constantly point out, rooftop PV is a lousy investment for an individual from a financial standpoint.  If you have a mortgage, do yourself a favor and use that $8,000 you were thinking of spending on PV and pay down your mortgage instead.  If you really want to spend money to do something for the planet, give your friends some CFLs, get an efficient car, use public transit, or, use that money to buy the stock of carefully selected renewable energy companies or income funds.  Buying stocks always puts your money at risk, but it will take 20-30 years to even recoup your investment when you put up a PV system.  You can do all these things in addition to signing up with CitizenRE (or future companies which I expect will be offering PV via the rental model within a year.)  If they actually come through with the panels they have promised, you and the environment will be even better off.

One other counter to Mr. Wolfe’s argument is that CitizenRE management thinks that they will eventually be up and running, and they are spending money to support the marketing effort get FRA’s signed.   It will probably take a lot longer than they are saying (these things always do) but they clearly think that they have a decent chance at pulling it off eventually.

Other good blogs to read up on CitizenRE: SolarKismet, Sietch Blog.  They’re both quite skeptical, and I think that’s healthy.  For myself, I consider money spent on solar panels to be money that could be better spent on other green endeavors.  So what if the skeptics are right?  If I want to invest in solar, I’ll buy a portfolio of the better solar manufacturers out there: they’re volatile, but I expect the payback to be a lot shorter than the 20-30 years I expect from PV on my roof.  In the meantime, signing up with CitizenRE costs me nothing.

Disclosure: I have signed up as a CitizenRE distributor.  To date, I have not signed a single FRA (Forward Rental Agreement) because I have better uses for my time than sales.    The CitizenRE links in this blog are referral links For Frank Knight, who has agreed to make a donation to an environmental charity if CitizenRE actually pulls it off and you click through one of the links here.

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The Irony of Enhanced Geothermal

When an 18-member MIT panel released a study claiming that Enhanced Geothermal Systems (EGS) could supply  10% of all US power (and not just in traditional geothermal regions) by using new drilling techniques to to tap the heat much deeper down than conventional geothermal resources with an $800 million investment in research and development over a decade to make it cost effective, my first thought was, “There’s another great idea our government isn’t going to fund because they’re too busy pandering to corn farmers and oil companies with subsidies that don’t yeild long term benefits to society.  And if the the US government isn’t going to pay for it, who is?”

I got my answer today, from the intrepid Toronto Star reporter (and Clean Break blogger) Tyler Hamilton.  Tyler writes that a consortium of Canadian Oil Sands developers called Geopower in the Oil Sands has decided to research the technology in order to provide process heat to replace the extensive use of natural gas in oil sands extraction.  I think it’s extremely ironic that one of the world’s most CO2 intensive energy sources (because of all the natural gas used in extraction) may end up funding necessary research into one of the most promising clean technologies.

 We can also thank the Governator, because it was California’s new well-to-wheels fuel decarbonization law may well have been a factor which led these companies to look into carbon free sources of heat for their processes (although they have long had reason to worry about their carbon intensity, since Canada is a signatory of the Kyoto protocol.

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Seminar: Taking a Hard Look at IGCC. Denver Feb 12

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Blue Sun Biodiesel

Many of you know of Blue Sun Biodiesel from one of my more popular posts Why I Bought a Jeep where I talk about my decision to buy a Jeep Liberty diesel (which I run on biodiesel) as a cost effective alternative to a hybrid SUV.   That article was first published in the Colorado Renewable Energy Society blog, which led Blue Sun cofounder John Long to contact me, I ended up doing due diligence for a client for a private placement with them.  Blue Sun Biodiesel

I liked Blue Sun’s business model and management, but had reservations about the price they were asking… evidence for good management, because if they had been offering a price I liked, they probably weren’t asking enough… I’m very cautious when valuing private equity; there’s a lot that can go wrong and no exit if it does.  My client decided to make a substantial investment despite my reservations.  Events have now proven him correct. 

On January 29, Blue Sun announced that they were merging with M-Wave in a move which essentially gives them a back door to a Nasdaq stock market listingSarbanes-Oxley, by making conventional routes to going public much more difficult, has made this route much more popular in recent years.   Blue Sun shareholders will own 87.5% of the merged company and gain access to a much broader pool of equity to fuel their expansion plans.  As the quality leader in biodiesel, they are one of the few stand alone companies that have a chance against agricultural giants such as ADM and Bunge. 

Blue Suns’s other advantage over the giants is thier emphasis on quality.  As Texas producers know, it’s very important to have biodiesel of consistent quality, and Blue Sun sets the gold standard.  Unlike most biodiesels, Blue Sun’s actually reduces NOx emissions (along with particulates, VOCs, etc., and increased lubricity, which reduces maintenance costs like other biodiesels), as well as having a lower cloud point, due to their proprietary additives and use of higher quality oil as feedstock.

As a side note, there was a rumor going around the Colorado Cleantech Initiative last Tuesday night that this was the biggest private equity deal in Colorado history.   Jeff Probst, Blue Sun president was there, but he didn’t know for sure how the deal stacked up to previous deals.

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Holistic Approaches to Energy Problems

H. L. Mencken said, “For every human problem, there is a neat, simple solution; and it is always wrong.”  When it comes to solving the problems of peak oil and global warming, I also think that the loudest barking is up the wrong tree.  We look for the quick fix, trying to find a substitute energy source that allows us to change the way we do things little as possible, when the real problem is actually what we’re doing, not how we’re doing it.   We need holistic solutions, not quick fixes.

Too abstract?  Here are some concrete examples:

 Problem: Peak Oil

Quick fixes: Ethanol and slight increases in vehicle efficiency standards.

Holistic solutions: Change our driving culture and infrastructure, by changing the way car use is priced from fixed charges to a per mile basis (“Pay as you drive”).   Removing subsidies to use cars when other forms of transport are available, and redesigning our cities to make them easier to get around on foot, bike, and public transport.  Like other holistic solution, all these steps increase safety and reduce congestion, reduce obesity and associated health problems, as well as reducing the use of gasoline.

Problem: Wind and Solar are intermittent resources, but coal produces too much CO2 and natural gas prices are rising rapidly.

Quick Fixes: Nuclear power and “Clean” Coal.

Holistic Solutions: Shift our demand for electricity to times when it is available, by using time of use pricing, energy storage and demand alignment, and distributed energy storage such as plug in hybrid vehicles.

Investing opportunities:On thing that’s striking about these examples is it’s much easier to find investment opportunities in the quick fixes than in the holitistic solutions.  To invest in ethanol, you can just buy ADM or one of the multitude of ethanol stocks that have been going public recently, but I have yet to come up with a satisfactory way to invest in better urban planning (except buy a house in a walkable community, which is something I’m planning on doing this summer.   Stapleton is the community.  I currently live there, but I’ve been renting and waiting for the end of the housing bubble.  I actually don’t think that housing is going to go up again any time soon, but I’m tired of waiting.) 

The investment landscape is a little better when it comes to energy management.  Itron and Siemens both have divisions that help utilities manage their grids better, and there are many battery and other energy storage companies to choose from.  Still, it’s a lot harder to pick through battery companies than to just buy a nuclear powered utility or uranium miner.

Holistic solutions, by their nature, have weak boundaries… the benefits tend to be diffuse, and spread over society as a whole, so it is difficult to charge fairly for them.  This, I think, is why there are so few companies pursuing them when they can pursue a quick fix that they can charge for up front.  

Companies have an obligation to their shareholders to make money.  It’s our job, as human beings, to work towards regulations that make it easier for companies to make money with holistic solutions that actually solve the problem than it is to make money with quick fixes that just cover the problem up.

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