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Saturday, April 28, 2012

What is the least bad RE?

On Thursday I started my course on renewable energy at San Jose State. As far as I know this is the first time EE/RE has been covered in the College of Business, and is the net result of the SJSU Solar Workforce Project (July 2010 - June 2012) funded by the state of California and the Green Innovation Challenge.

One of the questions I asked students was: which renewable energy is least bad? For “bad” I meant expensive, less useful, technically infeasible or other issues. (We didn’t bother to do this with coal and other fossil fuels because I’d already covered those issues in the opening lecture).

Everyone had a preferred energy source, but then the others in the room shot holes in it.

First up was biofuels. Biofuels are scalable, but they tend to divert agricultural land from food production (or divert food from eating to energy production) and thus increase the price of food. They also deplete the soil.

Next up was solar. It’s a great way to produce RE, but the most capital intensive energy generation approach available. It also ties up land (in some parts of the country, at least) that has other valuable use. And if the panels are made with CdTe or other toxic chemicals, you have to do something with them.

Wind — like solar — has a storage problem. Like utility scale solar, and coal, there are often transmission line costs and losses from the location where the wind exists (e.g. from the Midwest back to the Northeast). Its time of day generation is unpredictable. It also has its problems obstructing the views of locals and killing birds.

To me, hydro seemed like the no brainer — it's the lowest capital cost of any RE, with a proven technology. Unlike solar and wind, it allows generation when power is needed rather than when the energy is available. However, as a student from Pakistan pointed out, installing a dam by definition floods existing lands, and can displace farmers and villagers from their existing locations. (She also note that as with other water claims, the upstream choices for hydro generation impacts the hydro generating options downstream).

I don’t know why I forgot about the environmental impact of dams. The most notorious case in California is the Hetch Hetchy Valley in Yosemite National Park. Some 90 years ago, John Muir (and now the Sierra Club) fought unsuccessfully to keep San Francisco from flooding the Sierra mountain valley that Muir argued was every bit as beautiful as the Yosemite Valley.

At first glance, this might be a depressing conclusion. But the reality is that unless we want to go back to the horse and buggy, our economy requires energy. Life is full of tradeoffs, and a key theme of the course is using tools of economic analysis to optimize the allocation of scarce public or private resources to achieve environmental (or other) goals.

Sunday, April 22, 2012

All-star biofuels panel May 8

On May 8, I will be emcee for an all-star biofuels panel that I’ve been working for the past 5 months to organize. We will have under one roof the top execs of four of the Bay Area’s leading biofuels companies, at a panel discussion sponsored by the MIT Club of Northern California and its “Energy & Clean Tech Series.”

In alphabetical order, we have confirmed:
  • Noubar Afeyan – Chairman and co-founder, LS9
  • Bob Mayer – CEO and Chairman, Cobalt Technologies
  • John Melo – CEO, Amyris
  • Jonathan Wolfson - CEO and co-founder, Solazyme
These represent three of the five top companies in the Biofuels Digest Top 50 list of US biofuels companies: Solazyme (#1), Amyris (#2), LS9 (#5). The first two of these companies are among 13 publicly traded firms in the Biofuels Digest Index.

Meanwhile, Wolfson, Melo and Mayer are among the Biofuels Digest “Top 100 People in Bioenergy.” Wolfson and Melo are #5 and #6 on the list, after the secretary of agriculture, two BP execs, a Brazilian CEO and the CEO of Sioux Falls-based Poet. Both Melo and Mayer have decades of oil and chemical industry experience, with BP (Melo) and Danisco (Mayer).

Noubary Afeyan is different from the others: rather than an operating role at LS9, he is the managing partner (and founder) of Flagship Ventures. Based in Boston, he lists co-founding roles for 24 life science and technology startups.

I had lots of help from Jim Lane, editor of Biofuels Digest, who thought it an impressive panel when we only had three names. This will be the first opportunity for most Bay Area cleantech investors, employees and aficionados to see all these executives under one roof. Given the technology overlaps between biotech and biofuels, we’re also hoping to attract employees (and MIT alumni) from local biotech firms.

The event is hosted by Orrick, Herrington & Sutcliffe, and our moderator is Don Keller, a senior partner and a member of the firm’s board of directors. As organizer, I will provide a brief background on the industry and then turn it over to Don to introduce our panelists and moderate the discussion and audience Q&A.

The event (which includes dinner and networking) runs from 6:00-9:00 p.m. at Orrick’s Silicon Valley offices in Menlo Park. Advance registration is requested.

Friday, April 6, 2012

Oil and biofuel companies as 'frenemies'

Reuters highlights the cooperative and competing interests of biofuels companies and traditional oil companies in an article entitled “Oil, biofuel companies evolve into uneasy ‘frenemies’.”

The term is attributed to my friend Jim Lane, the biofuel industry’s most influential journalist:
“They're kind of ‘frenemies,’” said Jim Lane, publisher of the Biofuels Digest, noting the two sides have worked together at times and been at odds on other occasions.
The friend part is easy: oil companies are buying and partnering with bioufels companies and also making their internal investments. The article mentions acquisitions by BP, partnership by Chevron and internal investments by Exxon. This is what we in b-schools call a natural complementarity: oil companies have distribution and capital, while biofuels companies have a new product that may become more desirable than the existing one. Big Pharma and biotech companies have enjoyed the benefits of such complementarities for almost 30 years.

Jim Lane highlighted another example of such collaboration in his report Thursday from the Advanced Biofuels Leadership Conference, on a talk by Philip New, head of BP Biofuels:
Even for long-time observers or supporters of alternative energy, it is a startling thing to hear a division head at an oil major, presiding over a duchy consisting of upstream energy assets in the UK, US and Brazil and having 4,000 employees in his care – talking in terms of becoming an owner-operator of energy assets in Brazil. Making the decision to take on agricultural risk and operate beyond proxies like joint ventures.

And, most startling of all, leading the call for the preservation of the US Renewable Fuels Standard, or RFS2.

Weren’t the opponents of RFS2 supposed to include the incumbent oil majors? Weren’t they the forces of “drill, baby, drill”?
Meanwhile, some of the “enemy” claims by the Reuters author are just silly:
Oil companies have long been skeptical of the economics of corn-based ethanol, once derided by Exxon Mobil CEO Rex Tillerson as "moonshine," as well as federal rules that called for the fuel to make up as much as 10 percent of the gasoline supply.
In other words, widespread reporting about the impacts of corn ethanol upon food prices are a plot by Big Oil to sabotage the biofuels industry. By this definition, Bill Clinton and Al Gore are part of some vast right wing conspiracy.

Other aspects of the “enemy” perception are populist attempts to create an enemy:
"You're faced with a very well-financed group of people who don't necessarily want this industry," Agriculture Secretary Tom Vilsack told the Advanced Biofuels Leadership Conference this week.
In other words, the difficulties of the biofuels industry are not due to unproven technologies and difficulties competing with inexpensive and proven commodities, but due to some conspiracy by evil Big Oil. (About what you’d expect from a small town lawyer and politician.)

True, the American Petroleum Institute did sue last month to block the cellulosic fuel mandate in the Renewable Fuel Standard.
“EPA’s standard is divorced from reality and forces refiners to purchase credits for cellulosic fuels that do not exist,” said API Director of Downstream and Industry Operations Bob Greco. “EPA’s unrealistic mandate is effectively a tax on manufacturers of gasoline that could ultimately burden consumers.”
The online magazine Ethanol Producer helpfully explained:
API filed requests with the EPA in 2011 and in early 2012 asking it to reconsider the cellulosic biofuel volume mandate. According to API, the EPA has not responded to either request which is why the group has elected to file a lawsuit on the matter. Ultimately, the group would prefer a cellulosic volume mandate that is based on two months of proven production rather than on anticipated production levels. The EPA has repeatedly stated in its final rules on cellulosic volumes, however, that it believes it should be optimistic when determining cellulosic volume requirements in order to provide incentive for growth in an emerging industry.
Unfortunately, the energy industry faces a chicken-and-egg problem: the problem of scaling to produce cost-effective substitutes for traditional energy requires massive investments in R&D and capital, which are too risky to be made without a subsidy or mandate. As Philip New noted, Brazil’s efforts to shift energy supply took more than 20 years. (The alternative is to wait for oil to hit $200/barrel and then spend decades trying to address the problem).

Still, the country would be far better served by having a technology-neutral RFS policy that incentivized any approach that didn’t displace farmland for fuel. As in the renewable electricity mandates (e.g., California’s Renewable Portfolio Standard), the government should harness the market to encourage investment in the most promising and cost-effective technologies. Or as a Purdue professor wrote in a 2010 critique of US biofuels policy:
A technology- and feedstock-neutral policy is clearly preferred to one in which”the government weighs in heavily on technology choice.
A centrist president might be able to initiate a policy that encouraged scaling up biofuels production without subsidizing any specific technology. That would include modifying RFS to be more technology-neutral, to allow algae and other feedstocks that can be grown on barren land in the Southwest and Southeast.