The Sietch Blog

Feb 19
State Of The Energy

Written by Rt

The ag industry (I used to watch “The Ag Report”, or whatever it was called, it was a morning show) is realizing they are probably atop a price bubble due to the creation of so many ethanol plants..

There is no denying that the ethanol industry is growing a ‘bubble’ which could burst. On average, one new ethanol plant now comes online in the U.S. each week, further expanding industry ethanol production capacity. That will continue for at least the next eighteen months as plants now under construction are completed. Approximately 300 more ethanol plants have been announced.

Here is a major cause of concern. By the end of 2007, the U.S. ethanol industry will have the capacity to produce approximately 9.5 billion gallons of ethanol per year. That will far exceed the Renewable Fuel Standards program 2012 mandate of 7.5 billion gallons of ethanol inclusion in gasoline. The excess ethanol will have to compete as a direct substitute for gasoline instead of as a mandated additive. The wholesale price of gasoline is currently in the $1.60 to $1.70 range. Because ethanol contains only two-thirds of the energy of gasoline, ethanol price would need to fall to about $1.10 in order to compete. Ethanol price that low would bring on the industry collapse many fear.

However, the major underlying reason for producing renewable fuels and energy from non-petroleum sources such as wind, solar, geothermal, and nuclear is national security.

What, global warming isn’t the main reason? Some day I need to write a post on why RE is desirable on so many levels. Meanwhile, the expose of corn as an ethanol feedstock (better for food) continues. The double subsidy for corn is only fueling the aforementioned price bubble.

Ethanol from corn is unlikely to do much for U.S. dependence on oil and the Brazilian ethanol model may not work well in the United States, a new study says.

“Advocates of biofuel subsidies and mandates frequently cite Brazil’s experience with sugarcane-based biomass ethanol as a success story and model for increasing energy security,” wrote Marcus Renato S. Xavier, a Brazilian economist. But “even in Brazil, where climate and labor market conditions favor ethanol production, ethanol is cost-competitive with gasoline only during periods when oil prices are high.”

The CEI study notes, and critics of corn ethanol have pointed out, many flaws in ethanol from corn. Corn ethanol receives a 51 cent per gallon federal subsidy and the study calls this a double subsidy because corn farmers already receive crop subsidies.

Questions remain, however, on how far along is cellulosic ethanol to match many of the expectations placed upon it.

Not too good on the ethanol front, eh? My hope is they use these corn-to-ethanol processes as test beds to move to other feedstocks. It seems the chief of the U.S. foreign agriculture service hasn’t gotten the word. He is out preaching high grain prices to other countries.

Michael Yost, chief of the U.S. foreign agriculture service, said African and American farmers both stood to profit from the growing demand for grains that can be converted to ethanol or biodiesel, two clean burning substitutes for gasoline and normal diesel fuel.

Kenya’s minister for trade, Mukhisa Kituyi was aware of the impact to the poor population.

“The fact that there is now an insatiable market in converting cereals into biodiesel not only escalates the prices of cereals around the world, but threatens to take food out of vulnerable mouths,” he said. “A new opportunity has been created.”

But the US is there to promote business.

Some U.S. agricultural companies already do business in Africa, Yost said, but that investment stood to grow in the years to come and that was why the mission, which included 15 U.S. companies, was in Kenya.

Yost said in less than a year the U.S. government has been able to drop all trade-distorting subsidies for grains and oil seeds because of the increased demand for biofuels.

Interesting, he doesn’t mention sugar. Brazil is basically locked out of our sugar and ethanol markets due to high tariffs. Of course there is the big banana row with Europe but that is normal tariff fighting, and perhaps old news - not energy related.

“We’ve had discussion today with different African agribusiness’s and they are looking for technology, they are looking for know-how,” he said. “With the rising demand for renewable energy, I see it raising prices and raising interest, raising the investment potential around the world, everywhere.”

Hey Yost, don’t tell them about how much money we are investing in cellulosic ethanol - it might spoil the mood.

The oceans are coming along nicely (here and here) but no real results yet. Same thing with algae - nice press but no results.

Wind is still going at full gale force. Even at the conversion of 25% from rated output (capacity) to produced output (actual electricity) there are a lot of megawatts being installed. My hope is they too will learn as they go, and improve the integration of the wind power with the grid. My optimal solution would be storage (hydrogen or otherwise), so the turbines are off grid - creating a reservoir, as it were. Compressed air is one technique, cold, and heat as well.

Solar PV is also shining brightly. I am curious as to how much of our PV output is exported. None the less, locally and globally there is no lack of desire for solar PV. Solar heat is a disappointing story. Perhaps the EU can breathe some life into it. It seems better suited for residential applications but I certainly can’t explain why.

I’m waiting for the big story in conservation. Big business has tried to help but perhaps bad press dissuades them from sharing their progress. Even so, there is good news on several fronts. LED lighting is making progress and graduated scales of electricity rates should have an affect.

The top tier rate for California utilities is set very high to strongly discourage consumption at those levels. For example, Pacific Gas & Electric’s (PG&E) standard residential rate E-1 has four tiers above the baseline, with the top tier rate of $0.37/kWh applying to all electricity usage over 300% of the baseline

Industry specific news is encouraging. The natural gas industry is trying to make its pipeline more efficient.

The geothermal front is promising, but the lack of subsidies means it will look for profitable venues. This is not a bad thing. Ocean-thermal appears to be out.

Certainly the political front has changed but that is difficult to quantify and usually results in more show than go.

We, the users, have the biggest impact - certainly in the short term. If you were desperate to conserve energy what would you do?