Saturday, March 28, 2009
Monday, March 23, 2009
Production Tax Credit (PTC) Status & History
Production Tax Credit for Renewable Energy
In one of the last measures taken by the 110th Congress, critical tax incentives for promoting the development of renewable energy and energy efficiency were extended. The tax incentives were set to expire on December 31, 2008, but due to the efforts of a very diverse coalition that included UCS, they were extended as part of the Emergency Economic Stabilization Act of 2008 that President Bush signed on October 3, 2008.
Companies that generate wind, geothermal, and “closed-loop” bioenergy (which is powered by dedicated energy crops) are eligible for the production tax credit (PTC), which provides a 1.9-cent per kilowatt-hour (kWh) benefit for the first ten years of a renewable energy facility's operation. Other technologies, such as "open-loop" biomass, incremental hydropower, small irrigation systems, landfill gas, and municipal solid waste (MSW), receive a lesser value tax credit.
The PTC for wind, which as the largest producer of renewable energy has the greatest impact on the budget, was extended for one year, until the end of 2009.
The PTC for incremental hydro, geothermal, and bioenergy was extended for two years, until the end of 2010. Also included in the two-year extension of the PTC are hydropower generated with irrigation water, capacity expansion at existing plants, and with generators added to existing dams. The bill also creates a new PTC for electricity produced by wave and tidal energy.
Businesses and individuals who buy solar energy systems are eligible to receive the solar energy investment tax credit. For residential purchasers, the solar ITC is capped at 30% of the cost of their system; a $2,000 cap on the ITC for residential owners was lifted.
In addition, the bill extended incentives for energy efficiency. Tax deductions for energy-efficient commercial buildings are extended through 2013. Tax deductions for energy-efficient home improvements are re-instated, with a new $300 tax credit for energy-efficient biomass fuel stoves. Tax credits for builders of new energy-efficient homes are extended through 2009 and increases and extends tax credits for manufacturers of energy-efficient appliances through 2010.
This marks just the third time that the PTC was extended by Congress before it had been allowed to expire. At the end of the 109th Congress, the PTC and ITC were extended to the end of 2008 as part of the Tax Relief and Health Care Act of 2006 (H.R. 6408). Previously, in August 2005, a two-year extension of the PTC was included in a large package of tax incentives in the Energy Policy Act of 2005 (H.R. 6); the solar ITC was created in 2005 as part of HR 6. The PTC was set to expire at the end of 2005, and its extension was one of the few bright spots for renewable energy in this energy bill.
From 1999 until 2004, the PTC had expired on three separate occasions. Originally enacted as part of the Energy Policy Act of 1992, the PTC—then targeted to support just wind and certain bioenergy resources—was first allowed to sunset on June 30, 1999. In December of 1999, again due to the efforts of UCS and other organizations, the credit was extended until December 31, 2001. The PTC expired at the end of 2001, and it was not until March 2002 that the credit was extended for another two years. Congress allowed the PTC to expire for the third time at the end of 2003. From late 2003 through most of 2004 attempts to extend and expand the PTC were held hostage to the fossil-fuel dominated comprehensive energy bill that ultimately failed to pass during the 108th Congress. In early October 2004, a one-year extension (retroactive back to January 1, 2004) of the PTC was included in a larger package of 'high priority' tax incentives for businesses signed by President George Bush. A second bill—extending the PTC through 2005 and expanding the list of eligible renewable energy technologies—was enacted just a few weeks later.
Combined with a growing number of states that have adopted renewable electricity standards, the PTC has been a major driver of wind power development over the past six years. Unfortunately, the "on-again/off-again" status that has historically been associated with the PTC contributes to a boom-bust cycle of development that plagues the wind industry (see Figure below). The cycle begins with the wind industry experiencing strong growth in development around the country during the years leading up to the PTC's expiration. Lapses in the PTC then cause a dramatic slow down in the implementation of planned wind projects. When the PTC is restored, the wind power industry takes time to regain its footing, and then experiences strong growth until the tax credits expire. And so on.
The last lapse in the PTC—at the end of 2003—came on the heels of a strong year in U.S. wind energy capacity growth. In 2003, the wind power industry added 1,687 megawatts (MW) of capacity—a 36 percent annual increase. With no PTC in place for most of 2004, U.S. wind development decreased dramatically to less than 400 MW—a five-year low. With the PTC re-instated, 2005 marked the best year ever for U.S. wind energy development with 2,431 MW of capacity installed—a 43 percent increase over the previous record year established in 2001. With the PTC firmly in place, 2006 was another near record year in the U.S. wind industry. Wind power capacity grew by 2,454 MW—a 27 percent increase. The American Wind Energy Association tallied 5,244 MW of capacity installed in 2007 and expects 2008 to be another record year.
However, without changes to the PTC and ITC, renewable energy deployment is expected to slow considerably in 2009. The economic downturn of late 2008 has left many renewable energy developers with dwindling profits. As their profits slump, renewable developers have less “appetite” for tax credits, As a result, the declining value of the PTC and ITC is expected to slow investments in renewable energy facilities. In the next congress, UCS, our allies and renewable energy developers will be working to revise the PTC and ITC to make them refundable. Refundable credits will ensure that renewable energy development will continue even when the economy slows—the very time sustained growth in renewable energy is needed most to create jobs and income.
Short term extensions of the PTC will allow the wind industry to continue building on previous years' momentum, but it is insufficient for sustaining the long-term growth of renewable energy. The planning and permitting process for new wind facilities can take up to two years or longer to complete. As a result, many renewable energy developers that depend on the PTC to improve a facility's cost effectiveness may hesitate to start a new project due to the uncertainty that the credit will still be available to them when the project is completed.
UCS is continuing to work with our coalition partners to extend and revise tax incentives for renewable energy that help boost development of clean renewable electricity, not polluting energy sources.
Wednesday, March 18, 2009
Report from the Renewable Energy World Conference
Optimism Abounds Throughout Renewable Energy Industry
Las Vegas, United States [RenewableEnergyWorld.com] Last week the editors at RenewableEnergyWorld.com and Renewable Energy World magazine traveled to Las Vegas to attend the 6th annual Renewable Energy World North America (REWNA) Conference and Expo. With almost twice the attendance of last year's event and more than double the exhibitors, the show's exponential growth in spite of a dismal economy is a testament to the strength of the renewable energy industry.
The problems for companies created by the recession are apparent. But the enthusiasm and recognition of the incredible prospects for renewables dominated the discussion.
We captured video interviews with dozens of experts in the renewable energy field on topics including energy storage and the smart grid, the American Recovery and Reinvestment Act, Hydropower, CPV, algae and much, much more. Taken together, the videos show an upbeat, enthusiastic renewable energy industry despite all of the economic turmoil surrounding it — truly the glimmer of hope that is needed today.
The editors started the week with a tour of the El Dorado thin-film solar facility (see lead photo). The 10-MW project is the largest thin-film installation in North America, covering 88 acres with 167,400 First Solar Cadmium Telluride panels.
When the conference started, editors roamed the conference floor gathering a range of video interviews with analysts and business executives on new technologies and policy developments.
Interested in tracking what's happening in the broader clean tech space? Check out our conversation with RenewableEnergyWorld.com contributing writer Clint Wilder on Clean Edge's Clean Energy Trends 2009 Report, which includes the 5 key technologies to watch in clean tech as well as Wilder's comments on the state of the industry.
One of the most popular energies in the space is algae. While there weren't many algae companies at the conference, there was still a lot of talk about what role this prolific organism will play in the fuel market. Editor Jennifer Runyon spoke with Mark Braly about what experts are saying about this burgeoning industry.
Of course, finance is a big issue in the renewable energy space. Braly and Runyon also sat down to talk about the lack of project finance and what types of projects are actually getting the capital to move forward. Braly talked about utility PV projects as well, which are rapidly gaining ground. According to the Solar Electric Power Association, there are now 2,200 MW of projects being pushed forward by 10 utilities around the U.S. This made utility involvement in the solar industry a hot topic at the conference.
While interest in traditional PV is still growing, new solar technologies are sprouting up everywhere, increasing the amount of attention the industry is getting. Stephen Lacey spoke with one of the oldest players in the Concentrating PV space, Amonix, about what the increased competition means for well-established players.
Darren Kimura, CEO of Sopogy, also spoke with Lacey about the company's micro-CSP parabolic trough collectors, which are extending the solar thermal industry to a variety of meet on-site generation needs.
Sopogy is currently working on a major project in Spain — one of many solar projects being developed for the country's very hot solar market. But the 2009 cap on installations will certainly dampen the Spanish industry's growth this year, which may provide more incentive for Spain-based companies to branch out into other markets. Brian Gaylord, a market analyst for the Spanish Trade Commission, talked with Lacey about the growing international presence of Spanish companies.
This trend is certainly being felt here in the U.S. wind industry as companies from Spain and other European countries buy up and develop American wind assets. News Editor Graham Jesmer spoke with the new CEO of the American Wind Energy Association, Denise Bode, about the incredible growth in foreign and U.S. wind businesses, which put around 8,300 MW of capacity online last year.
Wind is a great resource to harvest, but there is also a need to harvest more stable forms of baseload renewables. The answer is geothermal, said Geothermal Energy Association Executive Director Karl Gawell in an interview with Jesmer.
We may see a slowdown in wind and other renewables well into this year, but the recent stimulus package, which sets aside $67 billion for clean energy, energy efficiency and smart-grid technologies may reverse that downward trend. Jesmer caught up with John McKinsey of the law firm Stoel Rives to talk about when the stimulus may have an impact. He also talked with Piper Jaffray's Chris Flannery about the details of the program and the need to create more project finance opportunities for the industry.
All in all, the conference was a great success. The problems for companies created by the recession are apparent. But the enthusiasm and recognition of the incredible prospects for renewables dominated the discussion. We hope you enjoy the interviews. We'll see you next year in Austin, Texas.
Photo Credit: David Wagman
Monday, March 16, 2009
Earth2Tech's Utility-Scale Solar Map
Solar Map: More Than 30 Utility-Scale Solar Plants in the U.S.
There are more than 30 utility-scale solar power plants, one megawatt or larger, under various stages of development in the U.S., and we decided to start mapping them out. These are solar plants that have either signed a power purchase agreement with a utility, are included in the DOE’s official list of power generation sources or have applied for state permits like from the California Energy Commission.
So check out our annotated Google map, embedded below. Like our other maps, we’ll add more info and update the map as news warrants.
There may need to be a lot of updates — potentially taking points away — as many of these projects are in peril should Congress fail to renew the investment tax credit in a timely manner. We’ve heard from utility giants and solar executives that without the ITC the future of large-scale solar is stuck in limbo.
Google’s eye-in-the-sky even lets you see some of the solar power plants if you’re looking at the satellite photos. To see more cleantech wonders via satellite images, check out our Eco-Tour of Google Earth.
Sources: Solar Energy Industries Association, California Energy Commission, DOE Energy Information Administration.
Sunday, March 15, 2009
Cap and Trade Basics From The Left
Cap and Trade 101
What Is Cap and Trade, and How Can We Implement It Successfully?
The goal: To steadily reduce carbon dioxide and other greenhouse gas emissions economy-wide in a cost-effective manner.
The cap: Each large-scale emitter, or company, will have a limit on the amount of greenhouse gas that it can emit. The firm must have an “emissions permit” for every ton of carbon dioxide it
releases into the atmosphere. These permits set an enforceable limit, or cap, on the amount of greenhouse gas pollution that the company is allowed to emit. Over time, the limits become stricter, allowing less and less pollution, until the ultimate reduction goal is met. This is similar to the cap and trade program enacted by the Clean Air Act of 1990, which reduced the sulfur emissions that cause acid rain, and it met the goals at a much lower cost than industry or government predicted.
The trade: It will be relatively cheaper or easier for some companies to reduce their emissions below their required limit than others. These more efficient companies, who emit less than their allowance, can sell their extra permits to companies that are not able to make reductions as easily. This creates a system that guarantees a set level of overall reductions, while rewarding the most efficient companies and ensuring that the cap can be met at the lowest possible cost to the economy.
The profits: If the federal government auctions the emissions permits to the companies required to reduce their emissions, it would create a large and dependable revenue stream. These financial resources could be used to achieve critical public policy objectives related to climate change mitigation and economic development. The federal government can also choose to “grandfather” allowances to the polluting firms by handing them out free based on historic or projected emissions. This would give the most benefits to those companies with higher baseline emissions that have historically done the least to reduce their pollution.
What Would a Successful Cap-and-Trade Program Look Like?
The goal: To limit the rise in global temperature to approximately 2.0 degrees Celsius (3.6 degrees Fahrenheit) above pre-industrial levels by 2050 by reducing carbon dioxide and other emissions from companies as part of a larger plan for curbing global warming.
The cap: To achieve this goal, the U.S. government should steadily tighten the cap until emissions are reduced to 80 percent below 1990 levels by 2050. Businesses would have to obtain permits entitling them to emit a certain quantity of carbon dioxide or its equivalent in other greenhouse gases. All permits would be auctioned off by the government. Emissions permits in the near term would likely fall in the range of $10 to $15 per metric ton of carbon dioxide or its equivalent.
The trade: Companies unable to meet their emissions quotas could purchase allowances from other companies that have acquired more permits than they need to account for their emissions. The cost of buying and selling these credits would be determined by the marketplace, which over time would reduce the cost of trading the credits as trading becomes more widespread and efficient.
The profits: Initial estimates by the Congressional Budget Office project that an economy-wide cap-and-trade program would generate at least $50 billion per year, but could reach up to $300 billion. Approximately 10 percent of this revenue should be allocated to help offset costs to businesses and shareholders of affected industries. Of the remaining revenue, approximately half should be devoted to help offset any energy price increases for low- and middle-income Americans that may occur as a result of the transition to more efficient energy sources. The other half of the remaining revenue should be used to invest in renewable energy, efficiency, low-carbon transportation technologies, green-collar job training, and the transition to a low-carbon economy. Some resources should also be invested in the energy, environment, and infrastructure sectors in developing nations to alleviate energy poverty with low-carbon energy systems and help these nations adapt to the inevitable effects of global warming. Revenues from the permit auction would essentially be “recycled” back into the economy to facilitate the transition to an efficient, low-carbon energy economy and ensure that consumers are not unduly burdened by potentially higher energy costs.
- Download this document (pdf)
Cap and Trade - The Conservative Stance
March 10, 2009
by Dan Holler of The Heritage Foundation
Ratcheting down carbon emissions, as President Obama campaigned on and outlined in his budget, produces a windfall for the government.
Over eight years (2012-2019), the government will raise $646 billion by auctioning off carbon dioxide emissions permits But that's only the beginning. The administration's own budget blueprint acknowledges that revenues may far surpass those projections. Constraining carbon is, quite simply, shaping up to be a very large tax.
Over the past 12 years, America's elected officials have been quite clear that reducing affordable energy is not in America's best interest. In 1998, the Senate rejected the Kyoto Protocol. In 2003, the Senate rejected "cap-and-trade" legislation sponsored by Sens. John McCain and Joseph Lieberman. In 2008, the Senate rejected another "cap-and-trade" bill sponsored by Lieberman and Sen. John Warner (R-Va.).
A Heritage Foundation analysis of last year's relatively modest Lieberman-Warner legislation revealed devastating economic results. In the first 20 years alone it would have:
* Resulted in aggregate real GDP losses (adjusted for inflation) of nearly $5 trillion -- equivalent to the economic damage done by more than 600 hurricanes.
* Destroyed between 400,000 and 800,000 jobs.
* Caused nearly 3 million job losses in the manufacturing sector by 2029.
* Caused some manufacturing sectors (e.g., paper, chemical and plastics) to shed over 50% of their jobs.
* Brought about significantly lower levels of employment, economic growth and lower family consumption.
The facts haven't changed, but the rhetoric is. This week, Rep. Chris Van Hollen (D-Md.) will introduce a so-called "cap-and-dividend" legislation. Conservatives may be attracted to the word "dividend," but they must recognize that the "cap" would harm the economy.
The intellectual architects of the "cap-and-dividend" plan acknowledge "higher energy prices that would result from an emissions cap." However, they believe that harm can be mostly mitigated by returning "much of the cost of a carbon cap to consumers." That calculation leaves businesses to absorb the cost of higher energy prices, which they will do by raising prices, cutting costs or just closing shop.
Last year, Americans saw their rebate checks devoured by soaring energy prices. The same will be true under a "cap-and-dividend" plan. Our country cannot afford more self-inflicted pain.
Bad Spending Habits
In his inaugural address, President Obama said that "those of us who manage the public's dollars will be held to account -- to spend wisely, reform bad habits and do our business in the light of day -- because only then can we restore the vital trust between a people and their government." The new administration and Congress has failed to honor that pledge on their $1.1 trillion "stimulus" plan. It took two grand bargains for that bill to become law, and both were brokered behind closed doors with little minority input.
The bloated $410 billion omnibus spending bill is shaping up the same way. The House of Representatives rushed the bill through two weeks ago, but things bogged down in the Senate. Late last week, Senate Majority Leader Harry Reid announced he lacked the votes to cut off debate. The American taxpayer should be wondering what grand bargain was struck over the weekend.
Besides the lack of transparency, tax dollars are certainly not being spent. The bill contains nearly 9,000 earmarks worth $7.7 billion and double-funds dozens of agencies and accounts that received money from the $1.1 trillion "stimulus" plan. Americans are cutting back on basic necessities, and lawmakers need to do likewise. When will Obama hold Congress accountable?
Saturday, March 14, 2009
Renewable Energy Primer - European Union
Monday, March 9, 2009
ACORE - American Counsel on Renewable Energy - 2009 Stimulus Plan Summary
American Recovery and Reinvestment Act of 2009
The Congress has passed and the President has signed the American Recovery and Reinvestment Act of 2009 into law. This massive $800 billion spending bill, being truly unprecedented in modern times, will drive new national strategies in renewable energy, smart grid, transmission, advanced vehicles, energy efficiency, and many other aspects of energy, environment, climate and sustainability that were at the heart of the 2008 Presidential election. This memorandum provides ACORE members with a summary of the new program.
The full text of the tax provisions in the stimulus package can be found here.
http://thomas.loc.gov/home/h1/Recovery_Bill_Div_B.pdf
The full text of the appropriation provisions in the stimulus package can be found here.
http://thomas.loc.gov/home/h1/Recovery_Bill_Div_A.pdf
Tax Incentives
Three-Year Extension of PTC: The bill provides a three-year extension of the Production Tax Credit (PTC) for electricity derived from wind facilities placed in service by December 31, 2012, as well as for geothermal, biomass, hydropower, landfill gas, waste-to-energy and marine facilities placed in service by December 31, 2013.
Investment Tax Credit (ITC) Accessible to All Renewable Energy: The bill provides project developers of wind, geothermal, biomass and other technologies eligible for the PTC, the option of instead utilizing the 30% ITC that previously only applied to solar and other clean technology projects.
Repeals Subsidized Energy Financing Limitation on ITC: The bill would allow businesses and individuals to qualify for the full amount of the ITC, even if their property is financed with industrial development bonds or other subsidized energy financing.
Grant Program in Lieu of Tax Credits: The bill allows project developers to apply for a grant from the Treasury Department in lieu of the ITC. The grant will be equal to 30% of the cost of eligible projects that start construction in 2009 or 2010. It will be issued within sixty days of the facility being placed in service or, if later, within sixty days of receiving a grant application.
Increases Credit for Alternative Fuel Pumps: The bill increases the size of credits for
installing alternative fuel pumps at gas stations from 30 to 50% ($30,000 to $50,000) for taxable years 2009-2010.
Advanced Energy Manufacturing Credits: The bill provides $2 billion worth of energy related manufacturing investment credits at a 30% rate. These credits apply to projects creating or retooling manufacturing facilities to make components used to generate renewable energy, storage systems for use in electric or hybrid-electric cars, power grid components supporting addition of renewable sources, and equipment for carbon capture and storage (CCS).
Plug-in
Five Year Carry-Back Provision for Operating Losses of Small Businesses: The bill would extend the carry-back period for net operating losses (NOL) from two to five years for tax years 2008 and 2009. An eligible NOL includes the NOL for any taxable year ending in 2008 or if the taxpayer chooses, any taxable year beginning in 2008. An election under this provision may only be taken for one taxable year.
Extends Bonus Depreciation: The bill extends, through 2009, the temporary increase of bonus depreciation to 50% that Congress enacted last year. These write offs can be applied to capital expenditures ranging from $250,000 to a newly increased threshold of $800,000.
Direct Spending Total Direct Spending for Renewable Energy and Energy Efficiency: The bill provides $16.8 billion in direct spending for renewable energy and energy efficiency programs over the next ten years.
Grid Development: The bill provides $11 billion to modernize the nation's electricity grid with smart grid technology. This includes $4.5 billion for the DOE Office of Electricity Delivery and Energy Reliability for activities to modernize the nation's electrical grid, integrate demand response equipment and implement smart grid technologies. In addition, $6.5 billion is provided for two federal power marketing administrations to assist with financing the construction, acquisition, and replacement of their transmission systems. The bill also increases federal matching grants for the Smart Grid Investment Program from 20% to 50%.
R&D, Demonstration Projects: The bill provides $2.5 billion for renewable energy and energy efficiency R&D, demonstration and deployment activities.
Advanced
Defense Energy and Efficiency Programs: The bill provides $300 million to the DOD for the purpose of research, testing and evaluation of projects to energy generation, transmission and efficiency. The bill provides an additional $100 million for Navy and Marine Corps facilities to fund energy efficiency and alternative energy projects.
Study of Electric Transmission Congestion: The bill requires the Secretary of Energy to include a study of the transmission issues facing renewable energy in the pending study of electric transmission congestion that is due to be issued in August 2009.
Bond and Loan Programs
Clean Energy Renewable Bonds (CREBs): The bill provides $1.6 billion of new clean energy renewable bonds to finance wind, closed-loop biomass, open-loop biomass, geothermal, small irrigation, hydropower, landfill gas, marine renewable, and trash combustion facilities. One third of the authorized funding will be available for qualifying projects of state/local/tribal governments, one-third for public power providers and one-third for electric cooperatives.
Renewable Energy Loan Guarantee Program: The bill provides $6 billion for a temporary loan guarantee program for renewable energy power generation and transmission projects that begin construction by September 30, 2011. Up to $500 million of the overall $6 billion can be used for the development of leading edge biofuels that have been demonstrated and have commercial promise to substantially reduce greenhouse gas emissions.
Solar Perspective Video
Video compliments of Renewable Energy World.
Cleantech in San Diego
Wind Market's Biggest Players
A Look at Wind's Key Players: What's Next in Wind...
Photo Credit: First Wind
As a maturing industry, the wind power sector has emerged as dynamic and vibrant. A number of strong players are now coming to the fore by demonstrating the longevity, technology and capacity needed to make a major impact on the global market. Here, David Appleyard looks at just a few of those key players and what they are saying.
‘We are now in a position enabling us to bid for a larger number of more challenging projects’Jens Frederik Hansen, CEO of A2SEA
A2SEA A/S: Offshore wind installation and access
A leader the field in offshore installation, with new vessels it is expanding both capacity and capabilities
A2SEA was established in 2000 with transport, installation and servicing of offshore wind farms as its core business. Subsequently it has installed more than 70% of all existing offshore wind turbines.
Capabilities include foundation and turbine installation and other associated offshore work using jack-up barges with heavy lift capability and self-elevating crane vessels. The company also provides turbine maintenance services.
A2SEA owns and operate two vessels, M/V Sea Energy and M/V Sea Power. Both were originally feeder-type container ships but were converted by A2SEA in 2001 into self elevating crane ships, specifically designed to meet the requirements of the offshore market. Sea Energy was further upgraded with longer legs and an improved jacking system to enable it to operate in water depths of up to 27 metres. The group also owns Sea Worker, which it acquired in September 2008 from Dutch company Jack-up Barge B.V. for an undisclosed price. This vessel is a jack-up barge built to operate in the offshore oil and gas sector and is especially suited for deep water sites due to it 73 metre-long legs, enabling it to work on water depths of up to 40 metres. It joins Sea Jack, the company’s first jack-up (acquired from Mammoet Van Oord in 2007) and both are capable of installing monopiles, transition pieces and offshore wind turbine Top Heads.
Sea Power is fully booked for this year, employed with service works and installation of 91 offshore machines at Horns Rev 2 where the rig Sea Jack is currently working on the foundation installation.
Based in Fredericia, Denmark, in total the company has 200 employees. A2SEA says its turnover is expected to have grown significantly in 2008, reaching more than DKK 400 million (US$ 70 million).
‘In response to the core challenges, wind energy can already provide answers now that will stand the test of time’
Aloys Wobben, Founder and Managing Director of Enercon
Enercon GmBh: Turbine and renewable energy technology manufacturer
Novel techhnology and a strong engineering heritage keep this company in the leading pack of turbine manufacturers
Turbine manufacturer Enercon offers some of the most technologically advanced machines available. Graduate engineer Aloys Wobben founded the privately held company in 1984, when a small team developed the first wind turbine, the 55 kW E-15/16. Initially featuring a gearbox, gearless technology was introduced in 1992 with the first Enercon E-40, a 500 kW machine. The company’s current flagship model is the new 6 MW wind turbine, the E-126, featuring segmented rotor blades and a 127-metre rotor diameter. Enercon is currently installing E-126 turbines in Germany and Belgium, where a total of 11 of the machines are anticipated to be in service by the end of the year. The company says it will be also testing several types of storage systems in combination with the turbines.
The longstanding leader in the German market, where it has installed more than 6900 turbines, equivalent to more than 8 GW, there are more than 13,000 Enercon machines installed worldwide in over 30 countries, with a combined capacity of more than 15 GW. It now has a 14% share of the global market, according to BTM Consult ApS. In 2008/2009, Enercon reached an export share of more than 60% of its manufacturing capacity, a proportion which it intends to gradually increase over the coming years. Indeed, rotor blade manufacture for its big volume E-82 machine is due to commence in 2010 at its new site in northern Portugal. The plant is next to the company’s mechatronics facility in Lanheses where the production of E-modules and generators for E-82 turbines is also due to start in early this year. Today, the company say, directly or indirectly, it employs more than 11,000 people worldwide. More recently, the company launched another example of its innovative approach to renewable energy with its so-called E-Ship1. Propulsion for the vessel will be partly supplied by four sailing rotors – large, rotating, vertical metal cylinders, 25 metres tall.
‘We have completed our exit from non-core activities ... Gamesa Corporación Tecnológica is concentrating fully on wind energy’
Guillermo Ulacia Arnaiz, Chairman and CEO of Gamesa
Gamesa Corporación Tecnológica: Wind turbine manufacturer, project developer and operator
With a new focus on installing and operating wind capacity, gamesa has emerged as a player with massive wind development portfolio
Formerly a diversified technology company with a large solar division, Spanish major Gamesa is now completely focused on wind power. It is the market leader in Spain and in 2007 claimed a share of the more than 15% of the global wind turbine manufacturing sector.
To date, the company has installed over 13 GW of its main turbine products across 20 countries and has a development portfolio of more than 21 GW of wind in Europe, America and Asia. According to its latest results, published late October, it has supply chain of more than 3600 MW of capacity, and has maintained its order portfolio above 11,500 MW to 2012. Turnover grew by 40% compared to the first nine months of 2007, to reach €2.89 billion. Tripling overall net profit – to reach €288 million in the first nine months of 2008 – profit from both the Wind Turbine Generator and Wind Farm Units rose by a more modest but still perfectly healthy 67%. A good part of the additional cash came from the sale of its solar unit to a private equity group early in 2008 for a total of €261 million.
The company currently has 32 production centres located in Spain, China and the United States, with an international workforce of over 7000 employees. Of the close to 3 GW of turbine capacity sold over the first three quarters of 2008, 90% were sold in Gamesa’s three strategic markets of Europe, the USA and China.
Recent technology highlights include the on-going development of its new 4.5 MW machine, the Gamesa G10x.
‘We believe wind power is becoming a mainstream power source’
Victor Abate, Vice President of Renewables for GE Energy
GE Energy: Turbine and renewable technology manufacturer, project operator, service provider
Manufacturers of the world’s best selling turbine, GE brings big business credentials to the wind sector
GE first entered the wind sector in 2002 and has, by any standards, achieved remarkable results. Late last year the company announced the shipment of its 10,000th 1.5 MW wind turbine. Collectively these machines have now accumulated more than 130 million operating hours, an industry milestone, and produced more than 78 TWh, GE says.
With six wind manufacturing and assembly facilities in Germany, Spain, China, Canada and the United States, the company offers wind turbines rated from 1.5–2.5 MW, support services, operations and maintenance.
Part of the giant GE Energy – in the nine months to September 2008 GE’s Energy Infrastructure division recorded revenues of over US$27 billion – the wind technology arm of the company is headed by Victor Abate.
GE Energy’s latest commercial wind turbine is the 2.5xl, the company’s largest available for onshore applications with a 100 metre rotor diameter. In October, it announced an expansion of its manufacturing facility in Salzbergen, Germany, to allow serial production of the 2.5xl, a move focused on meeting the strong demand for wind energy in Europe, where customers generally prefer larger multi-megawatt class turbine models.
Also last year GE Drivetrain Technologies – part of the company’s Transportation division – unveiled a novel hybrid gearbox and generator for its 1.5 MW workhorse machine and those of other manufacturers. The drivetrain concept, named IntegraDrive, is significantly smaller than current designs and saves an estimated 2 tonnes of gearbox mass.
In recent deals, GE will supply Invenergy with 750 MW of wind turbines for North American projects to be constructed in 2010. In January 2008, it announced a similar agreement to provide 600 MW to Invenergy.
‘Iberdrola has a strategy that ensures sustainable growth and a solid balance sheet’
Ignacio Galán, Chairman of Iberdrola
Iberdrola Renovables S.A: Developer, owner and operator
One of Europe’s largest generators of renewable capacity, Iberdrola plans to double its capacity to 18 GW by 2012
Iberdrola is one of the world’s largest utilities and is also a major developer of renewable energy through its Valencia-based Iberdrola Renovables.
Concerned with the development, construction and operation of renewable power plants – mostly wind but with some small hydro, solar and others – it also manages the sale of the electric power produced.
The company reported an installed capacity of 8488 MW at the end of the third quarter 2008, representing year-on-year growth of more than 70%. Of this, 8146 MW was wind capacity and the group is the top-ranked wind player in Spain and Greece, as well as second in the US and UK – following its acquisition of utility group ScottishPower.
Iberdrola Renovables claims both the largest base of operational renewable assets – producing more than 12 TWh over the nine-month period – and the largest portfolio of future projects in the world, with more than 54 GW in the pipeline. The current portfolio reveals its top three markets, with 4450 MW operating in Spain, 2318 MW in the US and 617 MW in the UK. Operating in a total of 20 countries, the rest of the world includes 761 MW of wind and overall 44% of the company’s installed capacity is located outside of Spain.
The company’s strategic plan for 2008–2012 envisages investment of more than €18 billion over the next five years in order to more than double its installed renewable capacity to 18 GW. This is from an initial renewables capacity of little more than 1 GW in 2001.
Net profit in the third quarter of 2008 was close to five times that of the previous year’s equivalent quarter and, at €230 million, more than the total for 2007. In addition to a 4.5 GW deal with Gamesa, other recent financial highlights include the placement of a €1 billion bond issue in January 2009.
‘It is important to prepare for post-2009 growth precisely at this time’
Thomas Richterich, Nordex AG founder and CEO
Nordex AG: Wind turbine manufacturer
Focused on larger machines, this manufacturer continues to invest in new production assets in readiness or a post-downturn boom
Nordex offers a range of multi-megawatt wind turbine products from 1.5 to 2.5 MW, including a turbine suited for offshore applications. Aiming to benefit from the global trend towards larger machines, the group also offers three different rotor sizes – up to a diameter of 100 metres – for its 2.5 MW turbine to suit a range of applications.
To date Nordex has produced some 1000 machines in this class and has installed a total of around 3500 turbines with a combined capacity of close to 4330 MW.
With exports accounting for over 90% of its business, the company has offices and subsidiaries in 18 countries and currently employs a workforce of more than 2000 worldwide, an increase of around 39% over 2007.
In its latest results, published for the nine months to September 2008, sales had climbed by 58% since January to more that €781 million. Around 95% of this revenue was generated outside Germany, although order intake slowed substantially in the third quarter of 2008.
Earnings increased by 60% to €37.3 million in the first nine months. However, the cost of materials increased, chiefly as a result of provisions set aside to cover the cost of reinforcements for rotor sets. Orders are valued at €796 million, a slight decrease compared to the previous year, though for the year as a whole, Nordex is projecting sales of €1.1 billion.
Production rose considerably. Turbine assembly output surged by 47% to 764 MW compared to the previous year’s 520 MW, while rotor blade production was up by as much as 69%, rising from 250 to 422 MW. Nordex is also busy expanding manufacturing capacity in China and the USA. For example, in October Nordex announced plans to invest $100 million in a 750 MW annual capacity US manufacturing facility in Jonesboro, in Arkansas.
Turning to 2009, the company expects slower growth for the sector as some customers find it more difficult to obtain finance for their wind farm projects in the wake of the financial crisis. While there is a risk of projects being postponed, Nordex nonetheless projects sales growth of 10%–15% in 2009.
CEO Thomas Richterich says: ‘Now of all times, it would be negligent not to prepare ourselves for years of strong growth after the possible temporary lull in 2009.’
‘The future of wind energy in Europe will be found to a large extent on the open seas’
Per Hornung Pedersen, CEO of REpower Systems
REpower Systems AG
Developer of 2–3.3 MW onshore turbines and a large offshore machine, this major manufacturer is majority held by fellow wind turbine player suzlon
REpower is one of the leading turbine producers in the German wind energy sector where it is the third largest manufacturer.
Founded in 2001, the REpower product range includes turbines between 2 MW–5 MW and to date, its machines have been installed at more than 1500 wind projects. The REpower 5M 5 MW turbine – currently one of the largest in the world with a rotor diameter of 126 metres – has been designed primarily for offshore wind farms and the company is currently installing three of its new 6 MW 6M turbines onshore in Germany. In December 2008 the company completed the assembly of these first three prototype turbines in Bremerhaven.
With approximately 1600 employees, REpower has offices in Germany along with subsidiaries and associated companies in France, Spain, the UK, Greece, Australia, China, Portugal, Italy and elsewhere and the company is actively pursuing an internationalization strategy.
However, due to an expected slow-down of the wind energy market in 2009 – which might be reflected in a stagnating or even slightly declining number of new installations – REpower has adjusted its sales growth forecast for 2009-2010 from the previous estimated 40%–50% to 30%–35%.
According to its results to 30 September 2008, the company’s order backlog amounted to 683 turbines with a total rated power of more than 1434 MW, corresponding to around €1.5 billion, (up from €1.2 billion on the previous year’s figures). For the current fiscal year REpower is expecting an increase in sales to €1.1 billion and an earnings margin of 5.5%–6.5%. Sales in the current reporting period stands at €529.8 million, compared with €275.3 million to the corresponding period in 2007. Net profit rose from €5.0 million to €14.4 million.
REpower expects further strong growth on the global wind energy market in the next years, initiated primarily from Europe and America, Furthermore, the company expects its offshore business to grow, citing 1500 MW installed by 2011 as ‘reasonable’.
In November, REpower and Deutsche Offshore Testfeld und Infrastrukturgesellschaft mbH & Co. KG (DOTI) signed a contract for the supply and installation of six 5M wind turbines for the Alpha Ventus project. The installation of the turbines is expected to begin in the middle of July.
‘RES and the renewable industry stand ready to supply the sustainable solutions necessary to secure our energy supplies as well as our climate’
Dr Ian Mays MBE, CEO of RES
Renewable Energy Systems Ltd: Renewable energy developer, constructor and operator
An independent project developer, the bulk of this company’s developments are in the US. RES is also looking to expand its offshore portfolio
Part of the privately held Sir Robert McAlpine Group, a major UK construction and civil engineering company, core activity at Renewable Energy Systems (RES) is the development, design, construction, financing and operation of wind farm projects worldwide. Since its first wind installation in 1992 the company has completed a portfolio of more than 3600 MW of wind capacity and has several thousand megawatts in development. RES is also an independent power producer, owning and operating more than 300 MW of wind capacity worldwide.
Current developments are led by North America and the Caribbean, where RES has built 3071 MW of wind capacity and has a further 382 MW under construction. In Scandinavia and Europe RES has built 558 MW of wind and has a further 455 MW under construction, while in Australia and New Zealand a further 436 MW are in development.
With around 600 employees globally and offices in seven countries, recent highlights include the January announcement that its US arm has completed the 166 MW $350 million Hackberry wind project in Texas. In the offshore wind sector, RES has taken a positive long term view on its potential and has a dedicated team of development, engineering and offshore construction specialists. In last October the company received consent for its 250 MW Lincs wind farm off the UK and completed major construction work on the adjacent Lynn and Inner Dowsing projects.
‘The launch of RWE Innogy is another significant part of our plans to deliver a lower carbon future’
Prof. Fritz Vahrenholt, CEO of RWE Innogy
RWE Innogy GmbH: Renewable energy developers, owners and operators
Newly emerged from the German giant RWE, the company is looking to invest at least €1 billion annually on renewable energy in Europe
RWE Innogy is the renewables development arm of the mighty RWE AG, one of Europe’s top flight utilities. Created at the beginning of last year, the new business group took over the majority of the installed renewables generation capacity from RWE Power, RWE npower and RWE Energy.
The company plans, builds and operates renewable facilities, and aims to vigorously grow its capacity in its core market of Europe with a focus on mature technologies such as wind.
Especially strong in the home market of Germany and in the UK, the company started with 1100 MW of capacity. Currently the renewables group is operating approximately 620 MW of wind, including 60 MW offshore, the North Hoyle project off the coast of Wales (UK). A further 90 MW offshore is currently being commissioned at Rhyl Flats – also off Wales – RWE Innogy has also acquired a 50% stake in the UK’s 140 turbine 500 MW Greater Gabbard project.
The expansion of onshore and offshore wind power capacities will remain the driver for RWE Innogy’s growth in the future, they say, revealing plans to more than quadruple production to some 4500 MW by 2012 and to more than 10 GW by 2020. Construction is planned of 4 GW of wind with a focus on organic growth and the company is busy securing turbines and components through framework contracts, for instance a pending deal with REpower for 250 of its 5M and 6M wind turbines for offshore wind farms. Another two hundred 2 MW-class onshore wind turbines will be added to this from 2010. Similar agreements are currently being negotiated with other turbine manufacturers, RWE Innogy says.
‘We believe the 3 MW and 5 MW systems we will jointly develop with Windtec will allow Sinovel to grow its market share and position us as a technology leader in the industry’
Junliang Han, Chairman and General Manager of Sinovel
Sinovel Wind Corporation Limited
This emerging powerhouse is already among the world’s top ten largest turbine manufacturers and is poised to take advantage of massive growth in its home market
The leading manufacturer of large-scale wind turbines in China, Sinovel Wind has made remarkable progress since its formation in 2005, already clocking up a top ten place in the global wind turbine manufacturing hierarchy, partly on the back of a number of licensed development deals with AMSC.
With the backing of the Chinese government, the company manufactures wind turbines and was the first company to introduce 1.5 MW machines into the country.
To date Sinovel, with around 200 employees, has produced more than 1000 units of its 1.5 MW machine and has a production capacity of more than 800 units per year. Its manufacturing base is currently located in Dahlia, China, although it is in the process of commissioning new manufacturing plants in Inner Mongolia and Jiangsu. Once completed, the company will have an estimated annual manufacturing capacity of 2000 turbines. It currently sources around 90% of the requirements for its self-developed 1.5 MW machine domestically.
In March 2007, AMSC announced that it had signed a multi-million dollar deal with Sinovel to jointly develop 3 MW and 5 MW wind turbines for both on and offshore applications. Series production of the 3 MW machine is anticipated to begin this year with production of the 5 MW device planned for 2010.
‘We are today in the midst of navigating through a challenging economic landscape’
Tulsi R. Tanti, Chairman and Managing Director of Suzlon Energy Ltd.
Suzlon Energy Limited: Turbine manufacturer, developer
Already at the top table for turbine manufacturers, Suzlon has consolidated by acquiring a majority holding in fellow turbine company REpower
With 10.5% of the global market share for turbines, according BTM Consult ApS, Suzlon ranks as the world’s fifth largest manufacturer in the sector. Operating in 20 countries the company has 13 manufacturing facilities in India, Belgium, China and the USA. The company was established in 1995 with 20 people and has now grown to have a workforce of over 13,000. The market leader in India, where it has developed more than 3 GW, Suzlon has installed more than 8 GW of capacity since its inception, which emerged from the Tanti textiles business. Suzlon has grown more than 100% annually and registered a 108% growth in the financial year ended 2007, the company says.
As part of the company’s business development strategy it has set about reverse-engineering a supply chain, acquiring gearbox company Hansen Transmissions International NV in 2006 – selling on 10% to investment firm Ecofin at the beginning of 2009 – and, more recently, attempting to build on its majority holding in turbine manufacturer REpower Systems AG.
Suzlon’s current product range includes wind turbine generators 350 kW – 2.1 MW in customized versions for installation in a variety of climates though to date the company has no offshore installations. Last year Suzlon announced a retrofit programme on 417 sets of blades for its S-88 2.1 MW machine in order to resolve blade cracking issues discovered on some of its units in the United States. The total estimated cost of the retrofit programme is estimated US$25 million.
Currently with a combined manufacturing base of 2700 MW of annual capacity, it is planning to expand this by 3000 MW to 5700 MW of capacity in the 2008-2009 financial year, although in response to the current conditions it has also cancelled planned expenditure on a tower manufacturing facility in India.
In its latest results, the half year to 30 September, the company reported sales growth of more than 35% on the previous year’s corresponding figures. Consolidated revenues, excluding the contributions from Hansen and REpower, came in at of Rs 6268 crore ($1.25 billion), the combined consolidated order book stood at more than $3 billion, while profit after tax stood at Rs 123 crore ($24.6 million).
In recent developments, this January the company announced the signing of a Memorandum of Understanding with the government of Gujarat and a subsidiary to develop wind power projects of up to 1500 MW in the Kutch-Saurashtra region of the state.
‘The market continues to show its strength and commitment to renewable energy’
Ditlev Engel, President and CEO Vestas
Vestas Wind Systems A/S: Wind turbine manufacturer
A long-time leader in the wind sector, Vestas continues to expand its market reach on the back of robust long-term prospects for the sector
Vestas installed its first wind turbine in 1979 and now employs more than 19,000 people. It is currently recruiting on the back of what it describes as ‘robust long-term growth prospects.’ Claiming an anticipated market share of 25% for 2008, more than 35,500 of its machines are currently installed across 63 countries.
The company’s product portfolio comprises turbine models from 850 kW to 3 MW. In its latest results the company does anticipate a lower-than-planned rate of utilisation in 2009, with the result that a number of new employments have been postponed. These are expected to resume as soon as the present credit squeeze decreases and the earnings margin is expected to rise to 11%-13% in 2009. This compares with anticipated 2008 figures of 10%-12% on projected annual revenue of €5.7 billion. Total investments in 2009 are expected to amount to €1.2 billion, of which €1 billion will be invested in property, plant and equipment, primarily in factories in the USA, Spain and China and R&D centres in Denmark and the UK. Between the fourth quarter of 2008 and the first quarter of 2010, Vestas plans to increase its total manufacturing capacity by 3000 MW, bringing its annual potential to 10 GW. Work conducted under warranty provisions is expected to fall to 3%-4% of revenue in 2009 owing to ‘improved turbine reliability.’ This is down from an expected 4%-5% of revenue in 2008.
As well as reliability improvements, in another high point last year Vestas also managed to resolve a long-running patent dispute with Enercon GmbH and its head Aloys Wobben.
Active both on and offshore, recent contracts include a number of deals in China, where two orders with a total capacity of 100 MW are to be delivered to two wind power projects this year to an undisclosed developer. This followed a repeat order from China Guangdong Nuclear Wind Power Co. Ltd, on this occasion for 116 of its 850 kW machines, also for delivery in 2009.
The company also recently secured an order to supply 100 of its V90 3 MW turbine for the 300 MW Thanet Offshore Wind Farm in the UK’s Thames Estuary. Vestas has also received an order for delivery of 67 x V90-3.0 MW wind turbines for Romania from S.C. Ewind S.R.L and S.C. Wind Power Park S.R.L., Romania.
L.A. Solar Deal Not Dead
Shine on
L.A. solar not dead, regardless of final vote on ballot measure
Posted by Adam Browning (Guest Contributor) at 10:44 AM on 06 Mar 2009
Despite rumors to the contrary, solar is not dead in Los Angeles. Not only is the outcome of Measure B still undecided, but Measure B is only a third of the larger L.A. solar plan [PDF]. And, frankly, the vote is irrelevant. On Wednesday, L.A. Mayor Antonio Villaraigosa said:
I can tell you, regardless of what happens, we're moving ahead on our solar initiative.
It's clear from listening to the discussion of Measure B that both supporters and opponents support solar power. This was not a referendum on solar, this was a referendum on process. People were pissed about how the measure got on the ballot. Some unions were rightfully pissed that the measure cut them out in favor of other unions. And so on.
It seems that there was no real reason to put this on the ballot in the first place, especially with so much process-related political baggage. From his comments on Wednesday, it appears that the mayor will now do what mayors normally do: establish ambitious goals, work out all the details with stakeholders through established oversight processes, and make it happen.
Sunday, March 8, 2009
Renewable Identification Number Credits and the Valero VeraSun Ethanol Deal
RIN Credits, Ethanol Blending and the 800-pound Gorilla
Renewable energy credit prices are on the rise as ethanol blend economics remain poor and the year-end reporting date looms. EPM talks with Clayton McMartin, president of Clean Fuels Clearinghouse, about renewable identification number credits, industry consolidation, and the oil industry’s 800-pound gorilla, Valero Energy Corp., which can no longer be ignored.
The 800-pound gorilla in the room finally announced itself in early February. For months, speculators have been trying to figure out which ethanol companies will buy out which ethanol plants during this period of crushing economic recession and potential ethanol industry consolidation. Aside from food companies, what other industry made record profits in 2008 and could logically purchase distressed ethanol production facilities? The oil refiners—they who are obligated to blend ethanol into their supplies as mandated under the federal renewable fuels standard (RFS). On Friday, Feb. 6, VeraSun Energy Corp. “took out the trash”—that’s public relations lingo for releasing bad news on a Friday, with the understanding that there will be little coverage of it until at least Monday. The same day, VeraSun issued a press release titled, “VeraSun Energy Obtains ‘Stalking Horse’ Bid From Valero for Five Facilities; Files Motion Seeking Authority to Sell Substantially All Assets by March.”
According to Bill Day, corporate spokesman for Valero Energy Corp., the oil refiner’s 2008 overall production averaged 1.19 million barrels per day of “gasoline and related blend stocks” equaling roughly 18.2 billion gallons a year. The U.S. EPA has declared that this year’s RFS is 11.1 billion gallons, which equals 10.21 percent volume ethanol blend requirement for each of the obligated parties. Assuming Valero’s 2009 gasoline production projections are similar to its 2008 production its share of the 10.21 percent would come to about 1.9 billion gallons of ethanol blending in 2009.
Valero could purchase renewable identification number (RIN) credits to satisfy its obligation. If the oil refiner were to only purchase RINs to satisfy its RFS obligation and blended zero ethanol into its supplies—an unrealistic scenario but interesting to entertain, nevertheless—figuring a historically high RIN credit price of 15 cents per credit, the oil refiner could pay $285 million in RIN credit accumulations to satisfy its obligation for 2009. Instead, Valero proposes to pay $280 million for capital assets that, year after year, will continue to help it internally meet obligations under the RFS. It is also interesting to note that the five VeraSun plants in question have a cumulative nameplate capacity of 560 MMgy, which could satisfy between a quarter and a third of Valero’s ethanol blending obligations for 2009. The five ethanol plants at $280 million with a 560 MMgy cumulative production capacity could amount to the oil company paying only 50 cents per installed gallon of production capacity.
The RFS, RINs and Ethanol Industry Consolidation
There are some important things to remember about the RFS before getting into RINs, or the government’s mechanism to keep track of how much renewable fuel is being blended into U.S. fuel supplies for domestic consumption to meet the RFS, and the state of U.S. ethanol production. First, the RFS is a floor, not a ceiling—it’s the minimum volume obligated parties must blend into U.S. gasoline supplies. During spells of weak economics, however, that floor may act as a ceiling. Second, there is a distinction between U.S. installed capacity, actual U.S. production and consumption by obligated parties to satisfy the federal mandate.
Installed capacity will always be greater than or, at best, equal to actual production. As far as the RFS is concerned, consumption by obligated parties to satisfy the mandate includes consumption of domestic product produced, plus net imports of ethanol, or the delta between exports and imports, plus the change in ethanol stocks at the end of a given period. According to data gathered by BBI International’s Staff Writer and Plant List Manager Bryan Sims, 32 U.S. ethanol plants representing 2.02 billion gallons of annual production capacity are currently idled. This phenomenon, coupled with poor ethanol blend margins—meaning the price of ethanol and the price of gasoline are so close that any economical benefit blenders would see by blending the cheaper ethanol have been minimized—along with the 2008 year-end reporting deadline approaching quickly on Feb. 28, 2009, have together caused RIN prices to skyrocket.
Totals from January 2008 to October 2008 Figures in millions of gallons
SOURCE: ENERGY INFORMATION ADMINISTRATION
“The price of RINs is going up because it’s more favorable to the obligated parties to place RINs in order to satisfy their obligations directly as opposed to the RINs they would get through blending,” says Clayton McMartin, president of Clean Fuels Clearinghouse and the renewable fuels registry, RINSTAR. In late January, RIN prices hit 16 cents per credit, up from just a couple of cents at the beginning of the year. “There are some people who are coming to the game late, and are just now starting to understand what their obligations are under the regulations,” McMartin continues. “Consequently, they’re out there scrambling trying to find RINs, but there is less ethanol being put into the marketplace right now so, as a result, the RINs that are out there are fetching a higher price.” Some of the latecomers buying up RINs in January and February 2009 are doing so to apply them to their 2008 obligations. But obligated parties can also carry a deficit forward for one year without penalty. With 32 ethanol plants idled, and some that are producing under capacity, stocks or inventories are lower. Until inventories are back up, McMartin doesn’t see RIN prices dropping.
But with 10.5 billion gallons of installed production capacity still in operation (likely producing well under nameplate capacity), and with 2.02 billion gallons of installed production capacity idled, without even considering capacity under construction there is fear that the industry is overbuilt versus the mandate. McMartin, with years of experience in the oil business, says consolidation is coming to the ethanol industry. “The first 14 years of my career—and I’ve been at this for 20 some years—was spent in the refining industry, and when I started, the oil refining industry had twice as many refineries as it has today,” he says. “And today those refineries produce more product than what was produced by twice as many refineries years ago. The ethanol industry has now entered into a period when consolidation is coming—it’s overbuilt.” From the perspective of the obligated parties that must blend ethanol or buy RINs, an overbuilt ethanol industry is desirable because ethanol and RIN prices would remain low. For ethanol producers, however, consolidation would mean stronger ethanol prices and a healthier industry long term.
“When you’re in a consolidation period, which is what the ethanol industry is now in, you’ve got hardware on the ground and ultimately it will be utilized, but it won’t be used by the same people who are on the title today,” McMartin says. “They’re going to recapitalize and we’re already seeing some of that.” He says the phenomenon of major oil companies purchasing distressed renewable fuel assets is inevitable. “This is classic consolidation and it will change the complexion of the renewable fuel industry forever,” he tells EPM. “Refiners—and especially Valero—have been in this mode for the past 25 years. Check out the history of Valero—they are the poster child of mergers, acquisitions and consolidation. They are in the energy business. And when you can buy assets for 10 cents on the dollar, it just makes sense.”
Finagling RINs: Not Just an Accounting Function
The quickest way to improve blend economics would be to raise the cost of crude oil, but hoping for higher crude oil prices seems counterintuitive. “Isn’t the objective of the RFS for us to replace crude oil in the United States with renewable fuels?” McMartin poses. “That’s happening today but it’s not being reported.” He says two major factors are driving down the cost of crude oil. “One is we’re approaching having renewables constitute 10 percent of our motor fuels use,” he says. “And the other, of course, is the downturn in the economy; but the downturn in the economy just accelerated what was intended to happen from the RFS.” Displacing petroleum means less of a demand for crude oil, so how is more crude oil put into the marketplace? By lowering the price. “So oil is going to go down, and it will continue to go down so long as renewable fuels use goes up,” he says. “If you’re a renewable fuel producer you do one of two things. You learn to compete at a lower margin—and like I said, the ethanol industry is going through a consolidation period now—or you somehow figure out how to monetize the asset that you’re generating. And that asset that you as an ethanol producer are generating is the renewable fuel credit known as a RIN. Most producers just haven’t recognized that.”
The RIN-Master as McMartin is sometimes referred to, says he is seeing an active market for RINs forming right now. “I’m talking about RINs with fuel and RINs without fuel,” he says. “We’re starting to see premiums placed in the marketplace on fuel with RINs versus fuel without RINs.”
For each gallon of ethanol produced domestically or imported into the United States, a RIN is generated. “EPA wanted to ensure the RIN moved through the supply chain and then, when it got to the end just at the point before the consumer took it and put it in for consumption, the RIN becomes a tradable credit known as a separated RIN,” he says. Assigned RINs are different in that they follow the fuel all the way from the point of production through the supply chain to consumption; for assigned RINs, the credit is not moved independently from the fuel.
“What’s not very well understood is that fuel can move without RINs, so a gallon of ethanol can move with zero RINs and up to 2.5 RINs,” he says. “So if I have a customer who wants to take two RINs and is willing to pay me more for them than the customer who I end up selling zero RINs to, I keep my RINs moving to the individual in the marketplace who’s willing to pay me more for them. That’s what producers should give real serious consideration to doing—but they don’t. Because they move them one for one, they produce them and they move them.”
The general manager for Commonwealth Agri-Energy in Hopkinsville, Ky., Mick Henderson, tells EPM, “We feel that RINs are always bought with the ethanol,” he says. “Even the smallest jobbers have figured out the value of RINs. If they did consider the idea [of moving ethanol with or without RINs], they would undoubtedly bid the ethanol down to a price that would negate the sales value separate anyway. Therefore we don’t see any positive impact for our business, RINs or without.” McMartin says a lot of ethanol plants look at RINs this way, a point of view he says is shortsighted. “You can lead a horse to water but you can’t make it drink,” he says. “If an ethanol producer is going to take control of their product in the marketplace, then this is where they would do it.”
The ability to move from zero to 2.5 RINs per gallon of ethanol gives producers latitude in commercial consideration, which EPA intended all along. “As long as the RIN moves through the system, EPA doesn’t care how it goes,” McMartin says. “They want it to go where economics drive it.”
Valero’s director of regulatory compliance, John Braeutigam, tells EPM that, while he can’t talk about the VeraSun deal or Valero’s business strategy, he says that he doesn’t view the RFS or RINs as necessary evils. “We’re just following requirements set out in regulations,” Braeutigam says. EPM asked him how a refinery would maximize its ownership of ethanol production facilities. “If a company is just an ethanol producer, then there are limited circumstances where they can sell ethanol without RINs,” he says. “Refiners or importers can separate RINs from fuel, and rack blenders can also separate. If an oil refiner had more ethanol plants than they needed and generated more RINs than they needed as an obligated refiner, they would have to sell the rest.”
McMartin speculates as to how Valero might best utilize in-house ethanol production. “It depends on a lot of things, such as how it handles the entity—will it be part of Valero or a separate wholly owned company,” he says. “Also it depends on other ethanol supplied to Valero, since there are limitations under the regulations as to what an obligated party can do with its own production. In the end though, Valero will maximize the assets within the confines of the regulations. You can bet your last dollar that Valero will have ethanol for sale both with and without RINs.”
With 32 ethanol plants idled and some producing under capacity, McMartin says ethanol stocks are being reduced and, until inventories are replenished, he doesn’t expect RIN prices to let up.
Ron Kotrba is an Ethanol Producer Magazine senior writer. Reach him at rkotrba@bbiinternational.com or (701) 738-4942.
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