Viewing posts tagged: "Feedstock"

The Morning Feedstock: June 17, 2008

Daniel Englander: June 17, 2008, 3:00 AM
The State of New York draws ever closer to shooting itself in the foot, as chances for success begin to run out for the planned $4.5 billion acquisition of Energy East by Spain's Iberdrola. State judge Rafael Epstein ruled Tuesday the acquisition should be blocked because of its potential to raise electricity rates across the state, echoing an earlier administrative ruling by the New York State Public Service Commission's board. Epstein did say he would approve the acquisition if Iberdrola capitulated on the PSC' request to provide $650 million in ratepayer subsidies. Iberdrola has said it would be more than willing to take its business elsewhere. So why, in light of the fact that the acquisition as been greenlighted (ha!) by the other three states involved in the deal, is the PSC continuing to hold out? In May we pointed out that the intense lobbying pressure from other utilities and industrial manufacturers in the state, who submitted a lengthy intervenor's brief to the PSC arguing on behalf of Joe Ratepayer. Problem is, most of these companies generate their own power, or have mid-term electricity contracts, so that the acquisition would do little to impact their variable cost structures. So now you're probably tempted to say, c'mon guys, a little competition never hurt anyone. Well, right. But maybe there's something a little indirect going on here. The producer price index, the composite price paid for finished goods made by domestic producers, rose 1.4 percent last month and moved up 7.2 percent on the year. The increase was borne largely on the back increasing food and energy cost. We know this because the core PPI, which discounts food and energy costs, rose only 0.2 percent - actually shrinking by half the rate in the previous month. While this can mean the average selling price for domestic finished goods is declining, it could also mean the amount of domestic finished goods being sold is going down. In other words, cash outlays are shifting disproportionately to compensate for food and energy costs - or goods that require high amounts of food or energy products to manufacture. Capital efficient goods - those with lower natural margins - are getting squeezed out or offshored, while prices for capital intensive goods are moving up and up. This brings me back to the point in the first paragraph - is renewable energy bad for industrial production? Intuitively you'd think it's not. But over the long term it reduces the number of places one could hide a margin increase not related to productivity gains or layoffs. But back to the Spanish for a bit. Spain's government will raise electricity rates in July by an average of 5.6 percent. The new rate structure falls above the country's inflation rate, while also moving ahead of the Prime Minister Jose Luis Zapatero's plan to have rate increases match the rise in consumer prices. The proposal, which is likely to receive approval from the PM's cabinet, would result in a total increase for the year of 9.9 percent, which takes into account a 3.3 percent increase in January. So, here we have two cases of rate increases - one endorsed by a government, another blocked at the expense of a multibillion dollar acquisition and promise of future investment. The Spanish government is raising rates to promote energy efficiency and conservation. Under the proposal, the first 12.5 kWh consumed by a household would be free - this represents about 10 percent of average monthly consumption for a house in Spain. After that the rates would increase on a stepwise basis, acting essentially as a penalty against increasing consumption. But, of course, Spain's emissions goal are binding, while New York's are laughable.

The Morning Feedstock: June 9, 2008

Daniel Englander: June 9, 2008, 1:05 AM
British Energy's board is set to recommend a £10 billion take over offer from Électricité de France, say reports from inside London's financial district. Analysts covering the deal say rival bids from Iberdrola and RWE were unlikely to match EDF's, though the bid size was far from the only reason for its success. The British Government owns 35 percent of British Energy, the UK's largest nuclear power operator, and has sought a quick sale to inject some fast cash into Britain's public finances. EDF's 680 pence per share offer is likely hard to turn down. So is the French operator's nuclear expertise - it is the largest nuclear power company in the world, and operates 58 reactors that generate roughly 22 percent of the electricity consumed in the EU. Britain announced in January plans to completely overhaul its nuclear power sector, removing old plants and building at least 10 new reactors by 2020 (ed. - that's awfully fast). Anne Lauvergeon, CEO of French nuclear design and construction firm Areva, was overjoyed with the EDF news, calling Britain "the most exciting place in Europe." Those word haven't been uttered since William the Conqueror landed at Hastings in 1066. Though, it's possible the British have picked their horse, and its name is nuclear. Stuart Haszeldine from the University of Edinburgh's Scottish Centre for Carbon Storage has accused the British Government of "incoherence and timidity" in its approach to carbon capture and storage. Specifically, Haszeldine has leveled his criticism against the British plan to hold a competition for building the country's first demonstration CCS plant by 2014. He has argued that the competition plan is "clumsy," reserving special criticism for the technology prime minister Gordon Brown has said he plans to favor in the deployment. The competition has focused on post-combustion CCS, essentially the scrubbing of chemicals from flue gas once it's been burned. Haszeldine thinks more focus should be put on pre-combustion CO2 elimination, either through gasification or sequestration. "It's micromanaging it, which is a very Gordon Brown approach," he said. During a wide-ranging conversation the other night, the subject (of course...) settled on energy. The consensus was that we were at a crossroads, and that it was both exciting and discomforting. Over the weekend, BP's CEO Tony Hayward put words that weird emotion - not unlike something you'd feel at a middle school dance - by declaring that the era of cheap energy is over. Hayward argued that years of low prices resulted in low investment, which have had the effect of stretching out the oil and gas supply chain almost to its breaking point. While oil companies are set to invest record amounts in oil field exploration, still little is moving into the construction of refining capacity, which is what Hayward was referring to. So, it's interesting that Hayward would pointedly criticize his industry for underinvesting in infrastructure, but then take the higher margins built into the current commodity atmosphere and use those to justify continued exploration. But there's something else, something more curious than this. Despite record oil prices, demand is increasing in developing countries at a rate high enough to offset declining demand in the West, though these countries lack the refining capacity to meet that demand - hence the rising gas prices at your friendly corner gas station.

The Morning Feedstock: June 6, 2008

Daniel Englander: June 6, 2008, 12:06 AM
The International Energy Association released a report yesterday calling on governments to start a $45 trillion "energy technology revolution", arguing it's the only way to halve CO2 emissions by 2050. This is equivalent to transferring 1.1 percent of global GDP towards green technology over the next 40 years. However, IEA director Nobuo Tanaka argues the spending would be "a re-direction of economic activity and employment, and not necessarily a reduction in GDP." The 643 page report, which the G8 commissioned in 2005, is nothing if not ambitious in its proposals. For example, in order to cut carbon emission by 50 percent, 17,500 wind turbines and 32 nuclear plants will need to built every year, while 35 coal fired power plants will require CCS technology, and one billion EVs and FCVs will need to find their way to the road. To incentivize this this level of technology development, global carbon prices would need to rise from their $42 per ton level to somewhere between $200 and $500. Go Hibinho, a manager at Mizuho Information & Research said, "carbon emissions must be cut. Costs of about 1 percent of GDP are not outrageous, so this target is realistic." As UN member countries gather in Germany this week to hash out details for an extension of the Kyoto Protocols, they will no doubt look to this report for guidance. And they will find more support from this stack of paper than from the whole of the United State Congress. On Wednesday Senate Republicans pushed ahead with a procedural stalling tactic to have the entire Warner-Lieberman climate change bill read aloud on the Senate floor, killing debate on the bill. Senate Democrats are expected to attempt to end debate on the bill and bring the legislation to a vote this morning. Despite some of the bill's failings, including its proposal to give away emissions credits, that it now appears Democrats overstated the amount of support the climate change would receive. While expectations for passage were low, and a veto expected, the failure to commence with substantive debate on the bill is pathetic. That Republicans apparently used the opportunity to get back at Democrats for stalling on judicial nominations is embarrassing. That Duke Energy and other power companies failed to support this bill is hypocritical. That the Wall Street Journal editorial page continues to take a stance based in economic fiction instead of economic fact against substantive climate change legislation is shameful. Spanish utility Iberdrola has launched an ad campaign aimed at convincing New Yorkers that letting it buy Energy East, a local utility, for $4.5 billion is a good idea. Included in the $4.5 billion would be a $2 billion investment aimed at developing wind turbine capacity in the state. The windy commitment is part of a larger strategy to convince the New York State Public Service Commission to approve the sale. The PSC has stalled for months on approving the deal, despite it receiving approval from FERC and regulators in other states. It appears Iberdrola's is committed to seeing the deal through. At the heart of the fight is the PSC's demand that Iberdrola divest ownership of the bundled power system - generation, transmission, and distribution - it would acquire through the purchase. The PSC claims this violates New York State law on vertically integrated power companies, a law that was enacted during widespread deregulation in the 1990s. Sen. Charles Schumer disagrees with this request, saying unbundling has not helped to reduce electricity prices. Regardless, Iberdrola has committed to subsidizing rate payer increases by more than $200 million. The PSC has asked Iberdrola to up this commitment to $644 million, and then also to see how many times it can punch its fist into the wall before it bleeds.

The Morning Feedstock: June 5, 2008

Daniel Englander: June 4, 2008, 11:42 PM
Agriculture giant Monsanto will develop seeds that promise to double the output of crops like cotton, corn, and soy by 2030. Importantly, the Sustainable Yield Initiative, as the company is calling its latest effort, will also reduce the number of inputs required to grow the crops, such as water and chemical fertilizer, by more than 30 percent. Monsanto's Chairman and CEO Hugh Grant said the company has worked on this project for more than a year, before the extent of the current global food crisis became apparent, as a response to increases in the price and decreases in the supply of fuel for rural farmers in developing countries. Grant said, "we had an energy crisis before we had a food crisis. One of the key drivers to food prices is fuel prices. It's shortsighted to sacrifice one for the other right now." Monsanto has come under criticism in the past for its championing of genetically modified food, which are largely rejected in Europe, and for the patents it holds on certain traditionally grown crops like Basmati rice. There's one more acronym to keep track of. Électricité de France and its renewables subsidiary EDF Energies Nouvelles have announced the creation of a joint venture, EDF Energy Renewables, to expand renewables capacity in the UK. Under the JV's terms, parent company EDF will all the electricity created through EDF Energy Renewables's projects under extended power purchase agreements. The EDF Group plans to develop 1,000 MW of renewables capacity in the UK by 2020, the majority of which will be come from wind power. EDF currently has 250 MW of renewables capacity under management, while subsidiary EDF Energies Nouvelles has a 2,500 MW portfolio. The creation of EDF Energy Renewables will let the company bring its disparate renewables portfolios under single company control while limiting the number of outside contracts the company would have to purchase otherwise. EDF's UK renewables expansion comes as the company slogs through an ongoing bidding war for nuclear giant British Energy. On Monday the markets were buzzing after Iberdrola reportedly lodged a 885 pence per share bid for the state power company, blowing away estimates on EDF's previous bid that many thought hovered around 680 pence per share. Dow Chemical has partnered with Brazil's Crystsalsev to produce polyethylene from sugar cane-based ethanol. Polyethylene, which Dow markets as Dowlex, is a hydrocarbon-based plastic that is becoming increasingly expensive to produce because of the high price of oil. Dow has purchased farmland in Brazil sufficient to produce 8 million tons of sugarcane, which will let the company make close to 350,000 tons of Dowlex beginning in 2011. This will be the company's first plastics-based operation in Brazil. Dow Corning already operates a solar grade metallurgical silicon plant at the company's Solar Solutions Group division in Brazil. Brazil was also in the news this morning for the announcement that the country's Sugar Cane Technology Center will begin work on a commercial-scale cellulosic ethanol plant using sugar cane bagasse as feedstock. The SCTC plans to have the refinery online within three to five years.

The Morning Feedstock: June 2, 2008

Daniel Englander: June 1, 2008, 11:18 PM
Over the weekend, 191 signatory countries to the UN Convention on Biological Diversity voted to institute a moratorium on ocean fertilization. The vote impacts the ongoing work of companies like Climos and the Ocean Nourishment Corporation, both of which were attempting to spur ocean-based algae growth in a bid to sequester CO2 and sell offset credits. I fail to see why anyone is really surprised by this. In 2007, an international group of scientists published research in the Journal of Geophysical Research questioning the validity and viability of ocean fertilization. The research was approved by both the Woods Hole Oceanographic Institute and the International Maritime Organization. International law expert Prof. Rosemary Rayfuse of the University of New South Wales said that selling offsets from ocean seeding operations would be fraudulent and that "there is no point in trying to ameliorate the effects of climate change by destroying the oceans." Planktos, an early Climos rival, claims this research was what caused the company to fold back in February. While Climos is waiting for a final decision by the UNCBD, it is likely the ongoing scientific opposition will damage the company's ability to raise further venture rounds. Another Elon Musk failure? Debate begins today in the U.S. Senate on the Warner-Lieberman Climate Security Act. The bill calls for emissions reductions of 66 percent by 2050, backed by a mixed cap-and-trade system. Congress would give away credits initially, about 50 percent to the power and transportation sectors, though with some allowances for state governments and agriculture. However, over time Congress would raise the price on emissions credits in a move similar to what the EU did in 2005. When that happened, the bottom fell out of the emissions credit market, damaging its viability and functionality until EU regulators stepped in to reallocate credits under an auction. Armed with the threats of rising fuel and electricity prices, oil companies and coal-heavy utilities like Duke Energy have come out against the bill, claiming it will negatively impact consumers. For all its failings, the Warner-Lieberman bill has been successful in making energy companies care about their consumers. For the first time. Ever. Oh, and also protecting the climate from terrorists. EDP Renovaveis will price its IPO at €8 a share when its begins its listing on the Lisbon Euronext on Wednesday. The renewables arm of Energies de Portugal hopes to follow in the footsteps of EDF Energies Nouvelles and Iberdrola Renovables, both successful spin outs from European energy giants, in topping more than €1 billion from its IPO. EDP Renovaveis will offer 225.43 million shares, or about 25 percent of the company's overall value. Strong demand for the company's offering has lifted up the number of shares EDP was set to offer. Investing in industrial greentech represents a less-risky play than moving money into some of the startups moving into the exit market. Well, in theory anyway. One First Solar does not an industry make.

The Morning Feedstock

Daniel Englander: May 30, 2008, 12:30 AM
Crude oil prices settled down $4.41 to close the day at $126.62 in New York trading. This is lowest price level since May 16, and the largest single day drop in the price of light sweet crude since March 31. The drop came in only after a sharp spike in morning trading following the release of a Department of Energy report that found U.S. crude supplies had fallen down 8.8 million barrels to 313 million, surprising analysts who thought supplies had moved up. But those analysts, they're a silly sort. By mid day yesterday most analysts had decided that part of the shortfall was artificial, resulting from fog at U.S. oil terminals that prevented supply unloading. Most of the missing barrels were in fact sitting offshore. Prices moved down accordingly. However, at about the same time the Commodity Futures Trading Commission made public their six month long investigation into market manipulation of oil derivatives and futures contracts. The CFTC also announced they would partner with Britain's Financial Services Authority to conduct trans Atlantic oversight of oil futures trading, including those fog-delayed freighters. Some of the problems associated with oil speculation may be spilling over into other energy trading markets. The European power markets are roiling, with German electricity contracts for current delivery up 12 percent this year, following a 12 percent rise in year off delivery contracts last year as well. Contracts for 2009 delivery are already up 20 percent, on the back of a price doubling for South African coal and a tripling for British natural gas. But, while revenues are up, margins are way down from the combined effect of input price increases and an 18 percent in the cost of emissions permits. Average profits from running a coal power plant in Europe are down 66 percent on the year, to only about €4/MWh. Across the board price increases have driven many industrial buyers to begin picking up contracts on the international power markets, whose volume is up across the seven largest exchanges to a third record year in a row. Rising power demand combined with high commodity prices and margins below the value necessary to incentive new plant construction (in the U.S., margins need to be around $30/MWh in order for a new gas plant running 16 hours a day to be considered economical), may cut into the power plant construction boom. This is probably a good thing, considering the impact of rising research and construction costs on the development clean coal technology. However dubious this technology may be, it is widely assumed that carbon dioxide sequestration will be one of the ways in which we reduce the impact of anthropogenic gases on the atmosphere. The current fear is that the risks associated with incorporating IGCC technology into new plant construction will raise the costs precipitously, while failing to do so will bring public and regulatory scrutiny, as well as causing investors to baulk. Clean coal has a kind of chicken and egg problem - the technology costs are high because it hasn't been done on a wide enough scale, while it hasn't been done on a wide scale because technology costs are extremely high. Versions of the technology that create additional energy streams may prove useful in addressing the scale and cost problems, but so would an accepted price for carbon and globalized emissions markets to match the globalized energy markets.

Abu Dhabi’s Masdar to get into solar with help from Applied Materials

Michael Kanellos: May 29, 2008, 1:57 AM

Abu Dhabi is shopping its way into the solar industry.

Masdar PV, the solar subsidiary of the multibillion-dollar cleantech effort, will invest approximately $2 billion into thin film silicon solar plants. The first plant, in Erfurt, Germany, will be open by the third quarter of next year. A second facility in Abu Dhabi will be open by the second quarter of 2010. The two plants will have a production capacity of 210 megawatts.

 Masdar PV wants to have 1 gigawatt of capacity by 2014, which would make it one of the largest manufacturers in the world relatively quickly. The world will have approximately 10.2 gigawatts of solar manufacturing capacity in 2008 and the figure is expected to climb to 12 to 15 gigawatts by 2015, according to the Prometheus Institute. The largest manufacturers right now have just under a gigawatt. Sharp is expected to hit 1.6 gigawatts of capacity by 2010 while Q-Cells and Suntech Power Holdings will hit a gigawatt around 2010. Those are the three largest manufacturers in the world.

And how are they going to get there? With help from Applied Materials. The semiconductor equipment maker is selling Masdar three SunFab thin film lines. Think of the SunFab line as a solar factory in a box. Applied produces turnkey production lines and then sells it to well-heeled customers. Applied customers will have around 278 megawatts of capacity in the ground by the end of this year and the figure is expected to climb to 4.2 gigawatts by 2012.

Signet Solar, a solar start-up coined by ex-chip execs, just unfurled an Applied-assisted plant. It took only ten months to build. 

The lines produce thin film silicon panels. Thin film silicon isn’t as efficient as converting light into electricity as silicon solar panels, but they cost less. Thin film panels cost around $1.50 to $2.50 a watt to produce while crystalline cells cost around $2.50 to $3.75 a watt. (The figure includes the cost of manufacturing a module only and not other expenses such as installation.)

Still, Applied and its partners will need to boost efficiency over the coming years to stay competitive, said Travis Bradford of Prometheus.