Tag Archives: Impending World Energy Mess

Is HECO Seriously Damaging Its Credibility?

A proposed biofuels project that Hawaiian Electric Company (HECO) supports is going through PUC approval process right now.

HECO’s public relations people say that as a result of this new project going through, the average Hawai‘i rate payer’s electricity bill would increase by only about $1 per month.

But let’s look at that in a little more depth. HECO is seeking approval to pay Aina Koa Pono (AKP) $200/barrel for the biofuel it produces on the Big Island at Ka‘ū, and would pass on any extra cost (beyond what oil actually costs at the time) to its rate payers, both on the Big Island and on O‘ahu.

HECO has kept that $200/barrel price secret – they are still keeping it secret – but the Big Island Community Coalition folks figured out the price, and how the “$1/month rate increase” was determined.

Using the Energy Information Agency’s (EIA) Annual Energy Outlook (AEO-2012), one can see that HECO is using the highest price scenario, which projects an oil price close to $180/barrel in 2015. In the AKP discussion, it was said that the price of oil would exceed the actual price projected at the end of the period.

We can see that the line hits $200/barrel in 2035. Since they assume that oil will be $180 in 2015, they can therefore say that the difference (between the actual and projected price) would be very small: Hence, an increase of only perhaps $1/month for the average rate payer.

However, it follows that if the actual price of oil is much lower than $180/barrel, rate payers will be paying the difference between that amount and $200. What if the actual cost of oil in 2015 is $120/barrel? That would cause rates to go up much more than $1/month – especially for high-power users.

I cannot help but think that HECO is damaging its credibility immensely by pushing this project. HECO is spending hundreds of
thousands of dollars on public relations to convince us that it is trying to lower people’s rates – when, in secret, it appears to be doing exactly the opposite.

By the way, HECO says the hundreds of thousands of dollars it spends on PR comes from its shareholders. How can rate payers tell when HECO is speaking on behalf of its shareholders, and when it’s speaking on behalf of its customers?

This Aina Koa Pono project needs to be rejected because it will make our electricity rates rise. Rising electricity rates act like a giant regressive tax, because as folks who are able to leave get off the grid, those who cannot afford to are left to pay for the grid.

This results in farmers and other business folks having higher operating costs. For everyone else, it takes away discretionary income. And we know that two-thirds of our economy is made up of consumer spending.

There are also problems with the project itself. Fuel has never actually been produced using the process and feedstock that Aina Koa Pono proposes. AKP does not know what it is going to grow. So far, the feedstock it is testing experimentally is white pine. The Micro Dee technology that AKP wants to use is still experimental.

There is also a risk that this process might use more energy than it generates. Generating electricity is generally about boiling water and making steam that turns a turbine. It is cheapest to burn the stuff, boil water and make steam.

But Aina Koa Pono’s proposed process is extremely energy-intensive and expensive: It would make electricity to make microwaves to vaporize the cellulose to get the liquid and then take the pyrolysis oil, refine it to make it burnable, and then haul it down to Keahole in tanker trucks to make steam. Why should the rate payer pay for all that?

Cellulosic biofuels are not yet a cost-effective technology. On the mainland, in the middle of last year, the Environmental Protection Agency drastically decreased its 2011 estimate for cellulosic biofuel from 250 million gallons to a paltry 6 million gallons.

In 2010, cellulosic biofuel companies on the mainland needed to buy their feedstock for $45/ton. But because farmers were earning $100/ton for hay, the biofuel firms received a $45/ton subsidy.

I asked how much AKP expected to pay for feedstock, and the AECOM Technology Corporation consultant said between $55 and $65/ton. The problem there is that Hawai‘i farmers have been earning $200/ton for hay for 10 years now.

There is an agricultural production risk, as well. Palm oil is the only industrial-scale biofuel that can compete with petroleum oil. AKP has 12,000 acres and it says it will produce 18 million gallons of biofuel annually, and another 6 million gallons of drop-in diesel. So it will produce 24 million gallons using 12,000 acres. That is 2,000 gallons per acre, and that is four times the production of palm oil. More likely they would need at least four times as much land, or 48,000 acres. But where?

Consider too that Ka‘ū Sugar relied on natural rainfall, and it was one of the least productive of the sugar companies. There is a drought right now. And at 22 degrees N latitude, the area has less sun energy than the palm oil producers located on the equator.

According to Energy Expert Robert Hirsch, in his book The Impending World Energy Mess, the best model for biofuel production is a circular one, where processing is done in the
center of a field (which does not exceed a radius of 50 miles) consisting of flat land and deep fertile soil with irrigation and lots of sun energy. This situation exists in Central Maui, where Hawaiian Commercial & Sugar Company (HC&S) is located. It explains exactly why HC&S is the sole surviving Hawai‘i sugar plantation.

To compete heads up in the world market would require the best possible combination of production factors. These are not them.

It’s also important to consider that locking ourselves into a 20-year contract now would preclude lower cost alternatives. Geothermal, for example, is the equivalent of oil at $57/barrel. Ocean thermal has the possibility of being significantly lower in price than $200/barrel oil.  LNG is on the radar and so is biomass gasification. Who knows what else would come up in 20 years?

Paul Brewbaker and Carl Bonham, both highly respected Council of Revenue members, have said, very emphatically and for a while now, that low energy cost is critical. We should listen to them.

The International Monetary Fund team modeled different oil supply scenarios and did a presentation at the Association for the Study of Peak Oil (ASPO) conference a month and a half ago. They could not model a constant $200/barrel oil. Those would be uncharted waters; and ones, by the way, that would devastate Hawai‘i’s tourist industry. Why should we start paying $200/barrel for oil in 2015 if we don’t have to?

Five people from Hawai‘i attended this year’s ASPO conference. Notably, Kamehameha Schools sent two high-level people. Next year, Hawai‘i should send 20 people to learn what’s happening with oil prices and energy.

In the meantime, the amount of risk involved in the AKP biofuels proposal is just far too great. In the investment world, reward is generally commensurate with risk. Except for protection from $200/barrel oil in later years, the AKP project would provide little reward for all the risk we rate payers would assume.

This is a very, very bad deal for consumers.

Big Island electricity rates have been 25 percent higher than O‘ahu’s for as long as anyone can remember. This probably adds to the reason why the Big Island has the lowest median family income in the state, as well as the social ills that go with it. We need lower rates, not higher rates!

Although this is not an official Big Island Community Coalition (BICC) communication, I would like to point out that the BICC has been very instrumental in getting lots of people to stand up and say, “Enough is enough.”

The BICC is a bare-bones, grass roots citizen group with some of the most recognizable names on the Big Island on its steering committee: Dave DeLuz Jr., John E K Dill, Rockne Freitas, Michelle Galimba, Richard Ha, Wallace Ishibashi Sr., Ku‘ulei Kealoha Cooper, D. Noelani Kalipi, Ka‘iu Kimura, Robert Lindsey, H M Monty Richards, Marcia Sakai, Kumu Lehua Veincent and William Walter.

The Big ‘Aina Koa Pono’ Risk

Richard Ha writes:

Hawaiian Electric Company (HECO) and Hawaii Electric Light
Company (HELCO) are asking for PUC approval to pay Aina Koa Pono $200/barrel for biofuel, and they are asking for approval to pass the cost straight through to the rate payers (us).

Should we rate payers accept the risk and provide the
subsidy? No!

We need to attend the upcoming PUC hearings and testify against assuming the $200/barrel cost of biofuels. Please consider attending. The hearings are:

East Hawai‘i:

  • Monday, Oct. 29th, 6 p.m. at the Hilo High School cafeteria

West Hawai‘i:

  • Tuesday, Oct. 30th, 6 p.m. at the Kealakehe High School
    cafeteria

O‘ahu:

  • Thursday, Nov. 1st, 6 p.m. at Farrington High School

Should we rate payers pay for biodiesel that costs $200/barrel, starting in 2015 and lasting until 2035? There is a great risk that the price of oil will not follow the Annual Energy Outlook 2012 ‘high price forecast’, and if that’s the case, we will be paying more for electricity than we would be otherwise.

Very risky.

There is also a technology risk. Fuel has not yet ever been produced using the feedstock that Aina Koa Pono proposes to grow. So far, the feedstock being used experimentally is white pine. The Micro Dee technology Aina Koa Pono wants to use is still experimental.

Risky.

There is a risk that this process might use more energy than it generates. Generating electricity is generally about boiling water and making steam that turns a turbine. It’s cheaper to burn the product to boil water. Aina Koa Pono’s proposed process – making electricity to make microwaves to vaporize the cellulose to get the liquid and then refine it to make it burnable, and haul it down to Keahole in tanker trucks to make steam – is extremely energy intensive.

Very risky.

Mid-year last year, on the mainland, the EPA drastically decreased its 2011 estimate for cellulosic biofuel from 250 million gallons to a paltry 6 million gallons. Almost all the cellulosic biofuel companies went bankrupt.

This makes this project risky as well.

In 2010, cellulosic biofuel companies needed to buy their feedstock for $45/ton. But because farmers were making $100/ton for hay, the biofuel firms got a $45/ton subsidy. I asked how much Aina Koa Pono expected to pay for feedstock, and the AECOM Technology Corporation consultant said between $55 and $65/ton. The problem there is that Hawai‘i farmers have been earning $200/ton for hay for 10 years now.

The supply of feedstock is a risk.

There is agriculture production risk, as well. Palm oil is the only industrial-scale biofuel that can compete with petroleum oil. In the tropics, it produces 600 gallons of biodiesel per acre of production. Say Aina Koa Pono can produce 500 gallons of bodiesel, since we are located 22 degrees north of the equator. To produce 16 million gallons a year at 500 gallons per acre would require 32,000 acres of productive land. Add 10 percent more for roads and unusable land and you would need 35,200 acres. But we only have 12,000 acres to use. Is the feedstock throughput adequate to cover the capital costs? We don’t know. They have not decided on a feedstock yet.

Risky.

Imagine the 12,000 available acres could produce 16 million gallons. Then each acre would need to produce 1,333 gallons to get the required throughput.

This would be twice as productive as the best biofuel producers in the world.

It’s a risky assumption.

Ka’u Sugar relied on natural rainfall. Depending on natural rainfall makes achieving optimum production very risky, due to the very real possibility/probability of occasional drought.

According to Energy Expert Robert Hirsch, in his book The
Impending World Energy Mess
, the best model is a circular one, where processing is done in the center of a field (which does not exceed a radius of 50 miles) that consists of flat land, deep fertile soil with irrigation and lots of sun energy. This situation exists in Central Maui, where Hawaiian Commericial & Sugar Company (HC&S) is located. That is exactly why HC&S is the sole surviving Hawai‘i sugar plantation.

If Aina Koa Pono is supposed to serve as an example from which to expand, then there is very limited suitable land on the Big Island
that meets the criteria. To compete heads up on the world market will require the best possible combination of production factors. These are not them.

Locking into a 20-year contract would preclude lower cost alternatives. Geothermal, for example, is the equivalent of oil at $57/barrel. Oceanthermal has the possibility of being significantly lower in price than $200 oil. Water-to-liquid fuel is a possibility, too.

The amount of risk involved is just far too great. In the investment world, the reward is generally commensurate with risk. Except for protection from $200 per barrel oil in the later years, there is little reward for all the risk we would assume.

This is a very bad deal for consumers.

2011 Peak Oil Conference, Part 2: Impressions From the Conference

This is my fourth Association for the Study of Peak Oil conference. Here are some highlights and some of my impressions:

Robert Hirsch pointed out that what we have is a liquid fuel problem, not an energy problem. Sixty percent of the world oil supply comes from a few giant oilfields. And giant oilfields decline naturally. The problem is that we have been using twice as much oil as we have been finding for 20 to 30 years.

There is some near-term potential: gas to liquids, coal to liquids, heavy oil refining, enhanced oil recovery and energy efficiency. He points out that in the long term we must implement much more electricity use. Robert Hirsch always makes common sense to me. His book The Impending World Energy Mess is well worth reading.

Robert Rapier pointed out that the U.S. uses 23 barrels of oil per person per year, while China uses only two barrels per person. At present oil prices, China’s economy is growing while ours is barely staying above water.

This is a zero sum game – they want to improve their standard of living, and we cannot afford to pay more, so our per barrel use must shrink. It looks to me that the Chinese cannot wait to jump into their cars and drive to McDonalds. I’m thinking, too, that we in Hawai‘i should be trying to implement lower cost energy as a top priority as we move toward renewables. Like geothermal?

Jeff Rubin: Two thirds of our economy is consumer spending. Peak Oil is not about how much oil there is, it’s about how much we can afford to pay for it. To grow the economy, we need cheaper oil. Market clearing prices do not seem to be compatible with economic growth.Transporting goods uses liquid fuels and the longer the distance the more the cost. Debt means borrowing on our future. We have done a lot of that. I wonder, will there be growth so we can pay it back?

There are links to both Jeff Rubin’s and Robert Rapier’s blogs in our sidebar, at right.

From the first ASPO conference that I attended, in Houston in 2007, it was immediately apparent to me that we needed to implement geothermal sooner rather than later.

I also learned a lot on the trip to Iceland that Ro Marth and I took. Iceland had the biggest economic collapse in the history of the world. The banks had been privatized a few years earlier and they just went crazy lending money to anyone without worrying about payback ability.

When the banks could not pay their obligations, the Icelanders let the banks collapse and they are now prosecuting the bankers for fraud. The big story behind all this is that Iceland is pulling themselves out of the hole. And that is exactly what I went to see for myself.

I saw that cheap energy is what saved them. And in Hawaii, we can do the same – with geothermal in the short term and with all the other renewables we have in abundance in the longer term.

Hawaii and Iceland, with a combined population of 2 million people, have the best geothermal resource in the world.

Our Big Island will be over the “hot spot” for the next 500,000 to a million years.

Our two million people, out of the 7 billion people in the world, are so lucky.

More commentary to come….

In the meantime, here are some pictures from Washington, D.C. This is Helen Davis, an energy staff member for Rep. Hirono. I’m so happy to see Hawai‘i’s people represented at the conference.

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Occupying the Capitol. There are rows of tents, all neatly organized. More than 50. I understand there is another Occupy encampment, too.

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When I was walking toward the Capitol, I saw this monument in a park.

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Read Part 3 of this series.

Go back to Part 1.