Archive for October, 2006

Green Diesel (and Gas) vs Biodiesel

When I wrote my post about green diesel last week, I neglected to mention one other very useful attribute of green diesel: it has a much lower pour point than biodiesel.   According to an articlein NREL’s 2005 research review,

“Green diesel consists of paraffin molecules produced by hydrogenating triglycerides by means of a conventional petroleum refining process. Green diesel has a very high cetane number, so it ignites fairly quickly after injection, and a low pour point—the lowest temperature at which a fuel will pour. Thus, it is a high-quality diesel fuel and is totally compatible with petroleum diesel.”

This is in contrast to biodiesel, which is produced by trans-esterifying triglycerides with methanol, and has a much higher pour point… which is why I can only use B20 (20% biodiesel) most of the year here in Colorado. At temperatures below about 50F, biodiesel begins to “cloud” and will clog fuel filters, preventing the fuel from getting to the engine. Since I don’t like my car stalling on me, I only use B100 during the hottest summer months.

The closest source of biodiesel to me is a truck stop without a heated storage tank, and so in the winter they only have B5 available, while they have B20 in the summer (which means I make sure to fill up with B20 whenever I’m near one of the greater Denver areas 3 other biodiesel stationsI know about.)  The availability of green diesel would mean I could use 100% all the time, not just in the summer.

I did some more searching and found this presentationon the subject from Michael J. McCall, T.L. Marker, J. Petri, and D. Mackowiak at UOP, a division of Honeywell, in collaboration with D. Elliot at PNNL, SCzernik at NREL, and David Shonnardat Michigan Tech.  According to their lifecycle analysis, Green Gasoline and Green Diesel produced from oils in refineries would actually have lower lifecycle CO2 emissions.

In short, the economics, environmental characteristics, and physical properties of green diesel/gas/jet fuel blow biodiesel out of the water (just as biodiesel is much better than ethanol from corn.)  The downside: limited feedstocks.  Avialable oil and grease from conventional sources is could only supply a tiny fraction of our liqid fuels; we will need to turn to nonconventional sources of oils to make a real dent in our liquid fuel needs (as well as invest massively in the efficiency of our transportation fleet.)

Non-traditional sources of oil to look into: algae and pyrolysisoil.  I plan to write more about pyrolosys in another blog; it is a quick way of converting all sorts of biomass into useful syngas, and has some useful byproducts as well, and pyrolysis a a relatively omnivorous process, able to process everything from old tires to corn stover to forest trimmings, there is a lot of potential pyrolysis oil out there.

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Stock Picking and Dating

Stock picking is like trying to find Mr/Miss Right.heart money

We probably all known someone who says they want someone steady and reliable, who will be there in times of need, and cares about them as a person… and then keeps picking up dates in bars because they look good, dress right, or say things that make our friend feel special, if only for the moment.

Investments are a lot like that.  The ones that everyone is gaga over, that seem to have unlimited growth prospects, and always seem to be one step ahead of the competition, are the ones to avoid.  The seeming promise of eternal economic bliss is too good to be true, just like the stranger in the bar who says all the right things, making us feel like we’ve found our soul mate, but who can’t even remember our name in the morning.

            A good mate isn’t the person with all the right words; a good mate is the person with the dedication to stick with you when times get rough, who wants us for who we are, not for what we can do for them, be it buy them some drinks or add one more notch to the bedpost. 

            A good stock pick, likewise, is not the company everyone is sure will take over the world in the next couple years, with the snazziest technology and the rock-star CEO.  A good stock pick is the unrecognized company, that will be ready for whatever changes the economy throws it, and has an edge over the competition that no one but you see; a diamond in the rough.

            There will always be investors who chase today or yesterday’s hot story, and drive the price beyond all hope of returns based on future earnings.  Just as there will always be men chasing the beautiful girl who knows she’s beautiful, and plays men off against each other because it makes her feel special, and there will always be women who fall for the silver-tongued Don Juan, only to be surprised when they are instantly abandoned.

            Don’t be one of those investors.  Look for value where it has not yet been recognized, in companies that will faithfully pay dividends from strong cash flows for years to come.  In the stock market, there is no such thing as hooking up.  When you by, you’re making a commitment, so try to commit to something that won’t require a messy divorce. 

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Green Diesel and Jet Fuel

On a recent tour of NREL‘s Biomass reserch lab, I learned about a new (to me) way to make biofuel.  Plant and animal oils and fats can used in conventional petroleum refineries to make diesel and jet fuel.  This idea has actually been around since the 1990s, when it was first demonstrated on a pilot scale.

Most of my readers are probably well aware of efforts to cultivate microalgae as a source of oil for biodiesel.  This is to biodiesel production what cellulosic ethanol technology is to ethanol production: an up-and-coming technology that has the potential to increase the level of production to where it can actually provide a significant volume of fuel relative to our transportation needs (corn ethanol and biodiesel from conventional crops and waste oil both fall far short on this measure.)

Green diesel and jet fuel address two major problems for biofuels:

  1. Biofuels lack an existing distribution infrastructure (they must be moved around by train, and even if it were possible to use existing pipelines, they do not lead to where most biofuel is currently produced.)  Conventional refineries, naturally, are already integrated in the existing infrastructure.
  2. Ethanol has a lower energy density than gasoline (about 30% less), and I know of no way to convert biomass into a high enough energy density fuel to power jet aircraft.  This process produces jet fuel, neatly dealing with that problem, and holding out the hope eventually reaching a 100% transport (we’d still have to massively increase efficiency to reduce consumption to a sustainable level.)

Oil refiners are interested because bio-based oils contain little or no sulfur, and removing sulfur from diesel is an increasingly expensive process as more stringent standards go into effect.  In fact, regulation for ultra-low sulfur diesel is partly behind the recent price rise in diesel vs. conventional gasoline.  It used to always be cheaper than gas, but now it is more expensive. 

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Free trades at B of A

Bank of America has announced that it will start offering free online trades to customers who are self-Bank of America Higher Standards Homedirected and maintain balances of $25,000 or more in their bank accounts.  This offer is not available now; they will be rolling it out across the country, and it is expected to be available everywhere between now and spring 2007.

I’m very excited about this for my clients and readers, whom I expect will qualify as “self-directed” at most brokerages.    Even if my clients end up not qualifying for this, the online discount brokers I use will probably be forced to cut their commissions even further.  Thank you, B of A!

 Why is this important?  Because brokerage commissions are the one thing standing between small account holders and full diversification without mutual funds.  To gain the full benefits of diversification, an account needs at least different 20-30 positions, which translates into 20-30 commissions.  To be competitive with index funds, trading commissions should be less than 0.5% of account value, which, for a $25,000 account would mean about $5 each.  A typical discount broker usually charges three times this amount for an account this size.

30 free trades a month opens up a whole new strategy for the owner of a $25,000 account.  She could put together a portfolio of stocks that closely mimics most any market index, for free.   This would allow her tax-manage her account, by choosing when to take capital gains (an option which is not open to owners of mutual funds), and do so for less than the expenses of the cheapest index fund.

The downside is you have to maintain a balance of $25K in your bank account to get the free trades in your brokerage account, but there’s no reason you have to keep the $25K there after you have a portfolio you’re satisfied with. 

 I’ll definitely be mentioning this at my investing workshops.

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Large Scale Electricity Storage.

One of the biggest barriers to the adoption of wind and solar electricity generation is the lack of storage technology with the capacity to handle the hundreds or megawatt hours necessary.    

Large scale electricity storage technology also allows utilities to flatten their demand, and defer construction of expensive new generation. 

Here’s a quick rundown of some of the technologies vying to meet this need.  Most of this is information is drawn from the Electricity Storage Association website.

Technology

Description

Comments

$/kWh; efficiency

Investment opportunities?

Pumped Hydro: Reservoir to Reservoir

Energy is stored by pumping water from a low reservoir to a higher one, and recovered by running the water back out through a turbine.  This system can be easily retrofitted into existing reservoirs, but has limitations due to water regulations.  First used in 1890.

The cheapest and most developed technology, pumped hydro is nevertheless limited by the availability of suitable sites.

$3-$50 per kWh;

70% to 85%

The major supplier in the business is private.  Could look for opportunities in utilities that have good potential projects.

Compressed Air Storage (CAES)

Energy stored by compressing air into large underground caverns.  Air combined with natural gas on exit and burned in turbine.  The gas compensates for the cooling as air decompresses. 

Gas used is about 40% of the amount used in comparable peaking turbine.  First built in 1978.

70% to 80% efficient; $30-$100 per kWh

 

Underground Pumped Hydro

As above, but water is pumped between an aquifer and an above ground reservoir.

More sites available, developing application.  Might have some water quality issues.

Costs Low

75% to 85% expected efficiency.

Small turbine/pump makers.

Polysulfide Bromide battery

A regenerative fuel cell based battery technology (aka “Flow Battery.)  Seems have run into difficulties due to the toxicity of the chemicals involved.  

15 MW demonstration project in 2003; more recent projects canceled.

75%, unknown cost;

Regenysis, the owner of this technology, was a subsidiary of
Germany’s RWE.  No recent activity; the program may have been wound down.

Molten Sodium-Sulfur (NaS) Battery

Molten battery technology.  “Safety concerns addressed in

30 sites in
Japan, mostly for peak shaving.  Largest is 6 MW for
Tokyo electric

Cost “High” compares to BrS and hydro/ CAES.

NGK, Japanese power equipment supplier focused.  Can be bought by US investors on the Pink Sheets NGKIF.PK

Regenerative Fuel Cell (Hydrogen)

Fuel cells can be run in reverse for electrolysis, with the hydrogen stored in large tanks.

First pilot project 2004

“much less” than 80%

Fuel cell manufactures: Ballard, FCEL, and others.

All these technologies except hydrogen are dealt with very well on the Electricity Storage Association site.  They have some great technology comparison graphs which deal with a lot more variables than I have here in their technology comparison section.

Cost Comparisions

Click to enlargeClick to enlarge

Efficiency/Quality Comparisons:

Click to enlargeClick to enlarge

Of these technologies, Pumped Hydro and CAES are the only ones ready for near term, large scale deployment (with NaS and Flow Batteries applicable in some markets highly constrained markets.)

The major downside for pumped hydro is siting, part of which problem can be solved with the smaller scale reservoir to aquifer option.   For CAES, the downside is the need to use gas to run the turbine, albeit a very efficient one.  One option might be to substitute for the natural gas used in CAES with hydrogen from electrolysis, allowing the system to work at locations remote from natural gas supply, and, for wind energy storage systems, be 100% renewable.

 10/20/06- Article about a flow battery from VRB power systems for an Irish wind farm.

8/5/07: Here’s an article I just wrote about two potential investments in utility scale electricity storage.

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Pay off debt first.

I recently talked to a small, progressive business owner, call her Susan, in Eugene Oregon.  Business was going well, and she felt she and her partner could start saving for retirement.  She wanted advice on how to set up an SEP, and wanted to be sure that the money was invested in a socially responsible way.

I told her to forget about the SEP and start paying off the home equity loan she’d used to fund her business, despite the fact that she would be giving up the tax advantages of the retirement account, and the mortgage tax deduction on the interest she was paying. 

Let’s run the numbers.  Suppose she has $10,000 of pre-tax income she and her partner can invest in an SEP or use to pay down her home equity loan, and she’s in a 22.5% tax bracket.  The interest rate on the loan is 9%.  If she puts the money in the SEP, she won’t owe any tax on it, but she will have to pay tax on the money and any earnings when it comes out.  She puts the money in a socially responsible mutual fund with an expense ratio of 2.66%.  For those of us used to index funds and ETFs (expense ratios often around 0.5%) this seems extreme, but this is a real, socially responsible mutual fund.  I could have also chosen the Class A (load) version of the same fund, but the comparison I’m about to do would make the class A shares look even worse. Her other option is to take the $10,000 and pay down her home equity loan, after paying taxes of $2,250.  Suppose there are 3 possible scenarios for the assets the fund is invested in: down 10%, up 10%, or up 30% over a period of two years. 

Here is where Susan would be after two years in each of these scenarios:

  Pay back loan SEP, -10% SEP, +10% SEP, +30%
Amount invested $7,750 $10,000 $10,000 $10,000
Gain over 2 years $1,458 -$1,000 $1,000 $3,000
Loss of tax deduction -$328      
Fund Expenses   -$505 -$559 -$612
Taxes owed when money will be withdrawn   -$1,911 -$2,349 -$2,787
Net value to Susan $8,880 $6,584 $8,092 $9,601

If Susan opens the SEP, it will look like she has more money in all but the worst scenario above, when the stock market loses 10% over two years.  As we know, a 10% loss over two years is very possible; many mutual funds lost 30% to 70% between 2000 and 2002.  Even the moderate gain of +10% over two years is wiped out if you consider the fact that money in a retirement account is taxable when withdrawn, not even considering the penalty if it is withdrawn early.  

Paying back loans is the best investment most of us can make.  Only if the interest rate on the loan is very low (how low depends on how much risk tolerance you have) does it make sense to invest in the stock market before you pay back debt. 

If you are considering putting money in a CD or bond fund, the comparison looks even worse, because the relatively stable returns of these types of investments usually look like the second scenario above, where the market went up a moderate amount. 

An added bonus for Susan: She knows her money is socially responsible, because it is helping a small, progressive business owner who makes eco-friendly products.   Social responsibility starts at home.

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Should there be a tariff on foreign biofuel?

Apparently, the consensus of the 25x’25 biofuels working goup I spoke of over the weekend was an illusion based on the fact that the opponents had not spoken up and we had moved on to other subjects.  We’re currently discussing the subject over email, and I thought my rationale for opposing a tariff was worth posting here:

1. Why a tariff on foreign biofuel would not be effective at raising the price for domestic biofuel:
The primary competition for domestic biofuels is not foreign biofuels: it is petroleum.  Petroleum will remain the primary competitor in a 25x’25 world (after all, it will have around a 75% market share.)  The price of both foreign and domestic biofuels will be set in competition with gas and diesel, the most commonly available substitutes.  To raise the price of domestic biofuels, a tariff would have to be placed on foreign oil, not just foreign biofuels.

2. Why a tariff on foreign biofuel would be counter to the 25x’25 goal:
Potential builders of distribution infrastructure for biofuels (pipelines, retail pumps, Flex Fuel Vehicles, etc) want to know that there will be a reliable supply before they build distribution.  While some might argue that a tariff would not impact supply (an argument which, if true, would re-enforce point #1), it is very difficult to argue that it would not negatively impact the perception of the availability of reliable supply.  It is the perception of reliable supply that will help get the distribution infrastructure we need built.

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