Monday, August 4, 2014

The Project Developer and the Statistician: A Lesson in Probabilities

As the green energy movement advances and more project developers are join the hunt for the perfect combination of feedstock, location and technology that can tame the wild west of waste-to-energy, it’s easy to get swept up in the excitement. Developers can fall in love quickly when they see the dollar signs emanating from a new opportunities and oftentimes dedicate years of their lives trying to make it work. But just like a person’s first love that burns brightly with promises of forever and then languishes on far too long as both parties cling desperately to a fizzling romance, Better BTU has seen far too many project developers hold on to dying projects long after numbers show they don’t work. We advise developers remove the rose-colored glasses and take a look at projects with a statisticians’ eye.

One of our members likes to illustrate the phenomena of developers being blinded by the potential dollar signs they see in a project through a story about a project developer and his wife, a statistician.

One day, the project developer comes home from a long day at work bursting with good news from his wife.

“I’ve almost got this project nailed down!” the developer boasts to his wife, thinking she’d be giddy with the lap of luxury lifestyle they would almost certainly be leading once this project was secured.

“Oh, really?” she asks nonchalantly while beginning to prepare dinner. She’s hopeful for her husband but she’s seem him get excited before.

“It’s practically a done deal,” he assures her. “I’ve got a 90% chance of getting the PPA signed and a 90% chance that I’ve secured the feedstock, a 90% chance the county will approve the land I’ve selected for the facility and a 90% chance that the funding will come through. I’m about 90% sure the technology I’ve selected will work with the feedstock and about 90% sure that I can get an air permit for it,” the project developer beams. “Shall we go out and celebrate tonight?”

The statistician wife puts the casserole in the oven and pulls out a piece of paper.

“Honey, I love you,” she says, “but math has never been your strong suit.” She writes out each of the factors he listed along with the probability they would get accomplished. After listing six factors, she writes 54% at the top of the page and circles it.

“In statistics, you multiply the probabilities of success,” she reminds him. “If each of these things have a 90% chance of happening, then you’ve only got a 54% chance that ALL of them happen.”

The purpose of this story isn’t to discourage developers, but instead to caution them against getting too attached to any one project. Sometimes, developers will run into a problem on a certain facet of the project, and not wanting to scrap the project altogether, they move on to another area with plans to solve problems later.

This is frequently the case when it comes to funding. Finding funding is oftentimes the hardest aspect of a project, and one that gets kicked further down the road. Securing a site and getting a PPA are important steps but can easily make one feel like they are farther down the road than they are. Better BTU recommends project developers order their objectives and push funding and emissions (air permitting) towards the front of the list. We suggest finding out the criteria for a successful project in a region and then working multiple opportunities in that region. And like you eventually did with your first love, if the project doesn’t work in one area, move on. You’ll be heartbroken at first, but it will save you valuable time and effort (not to mention money) in the long run. 

Tuesday, June 24, 2014

We’re Back – and Brighter Than Ever!

After a year-long sabbatical, Better BTU is back!

When our blog writer left for a new position, the Better BTU fell to the backburner, as many of us were busy with other projects. With so many interesting and exciting developments in the field of waste-to-energy, we have decided to bring back the main blog under the umbrella of her new company.

Since objective analysis has always been a primary goal of ours, Better BTU will discontinue the project and technology blogs, as commenting on a competing technology would present a conflict of interest for our main writer. Our writer will report on her company’s technology and affiliated projects once the technology reaches the market, as The ReNewable Gas Company (RNG) will become official sponsors of this site. At that time, we will publicly acknowledge a connection with RNG and provide links to the company’s website in order to promote transparency.

Our main blog, which addresses issues and emerging trends in the field of biomass waste-to-energy, will continue to report as it has before. Look for continued reporting on include national and international legislation, economics of projects and spotlights on those advancing the field of waste-to-energy.

We hope you’ll continue down the path to green energy with us and we want to thank you for reading Better BTU – we’ve missed you all!

Thursday, February 28, 2013

Chicken or the Egg: Project Development from Feedstock to Output

Developers have to juggle at least a dozen issues in order to turn a project into a reality. They need an offtake agreement, a feedstock agreement, land for the facility, air permit, financing, etc. It’s enough to make anyone’s head swim and frequently begs the question “what do you concentrate on first?”

Like the timeless question of which came first, the chicken or the egg, you can make a similar query with regard to biomass projects. Do you determine the output and then try to find the feedstock and technology to fit or do acquire feedstock first and then focus on finding the best technology to process it and suitable applications?

There is no right way to approach a project and developers tend to begin with one of three angles: the feedstock, the output or the site. While it makes sense that end users would look at output first (an example would be a factory looking to use biomass to make steam), a third-party developer has more freedom with where to begin. Since there are several project developers with a background in commercial real estate, we see that as a popular starting point.

The purpose of this blog post is to discuss the importance of feedstock and encourage project developers to pay more attention to it earlier in the process.  We’ve seen too many examples of entrepreneurs becoming excited by an offtake agreement, only to find several years down the road that it can’t deliver because they can’t secure a large enough feedstock agreement at an economical price.

 Determining the quality of gas you can produce and the application of your output are crucial factors in project planning. For example, if you want to put the gas in a genset, you would ideally try to use MSW, end-of-life plastics or shredded tires. While still possible, woody biomass and agricultural waste produce a lower BTU gas regardless of the technology used to process it and is better suited for use in a boiler.

Loose pile of chopped material next to bales of biomass
feedstock to be used for bioenergy projects.
Courtesy: U.S. Department of Energy
Feedstock is extremely important for three reasons:

1. You can’t get a project financed without a feedstock agreement.
2. The chemistry of the feedstock should affect the technology you choose.
3. The economics of a feedstock can determine feasibility of an entire project.

Now let us tell you the story of Joe*, a developer attempting to start a second career:

Joe is a project developer who learned the importance of feedstock the hard way. After more than 20 years at a manufacturing plant, Joe lost his job when the recession forced the plant to close. Joe has lived in the same town his whole life and through his connections he learned that another facility 50 miles away was looking to become involved in a sustainable energy project.

After doing some research and crunching numbers, Joe worked up a proposal for the plant. He suggested using the agricultural waste that was readily available from nearby farms to make a syngas that could be put in a genset. The facility signed an offtake agreement for 1 MW of electricity as well as any heat waste that was created in the process.

Joe spent the next year touring the country to check out prospective technologies, filing permits and drafting formal feedstock and power purchase agreements. It wasn’t until the engineering firm that he hired to help with the design pointed out that the gas produced wouldn’t be of high enough quality to use in a genset that Joe realized he had a problem. He tried to alter his plans to incorporate a boiler and use steam to make electricity but found the project was too small to be economically viable for a steam system.

Joe spent another year trying to find additional customers for his output so he could increase the size of the project and make it economically feasible. He found he wasn’t able to secure the additional feedstock needed and the entire project fell through, but not before it took half of Joe’s savings.

Joe’s predicament isn’t an unusual one and it could have been prevented had he done a more thorough feedstock analysis at the beginning. A feasibility study and full feedstock analysis in addition to a mass and energy balance at the beginning will save time and money as it determines the likelihood of the project succeeding.

*Name has been changed to protect the embarrassed former developer, who now serves fries at the local McDonalds.

One great place for determining the best regions for biomass resources as well as the location of existing biopower and biofuels plants is the interactive map on the National Renewable Energy Laboratory’s website.  Check it out here.

Monday, December 3, 2012

Global Climate Change Summit Brings Questions of America’s Role in Reversing Carbon Trends

Those who have read the recent reports by PricewaterhouseCoopers, the United Nations and World Bank on the state of global warming may be feeling a little grinchy this holiday season and it isn’t because of the fruitcake. The latest round of global climate talks among roughly 200 nations were held in Doha, Qatar last week and that got us thinking at the Better BTU: what should America’s role in the climate change crisis be?

While the situation may not be as dire as doomsayers who predict the end of the world based on an Aztec calendar, the picture painted by reputable sources is bleak, nonetheless. PwC’s report shows that the global community’s efforts to improve carbon emissions by 5.1% each year in order to avoid a two degree Celsius increase in global temperature has fallen drastically short. The improvement in 2011 was just 0.7% despite a global economic slowdown. Since it is highly unlikely that the international community could jump to the target 5.1% improvement rate in just one or two years, the decarbonization percentage needed to stop permanent damage will only continue to rise along with water levels.

The state of global carbon emissions was one of the topics of the most recent round of climate talks in Doha, Qatar last week. Also on the table was the Green Climate Fund, which exists to assist poorer countries adapt to the changing climate.

Earlier reports that wealthier countries like the United States had nearly reached its $30 billion pledge are now being adjusted as individual entities Oxfam and the International Institute for Environment and Development (IIED) show that very little of the aid has been in the form of cash but has come in the form of loans or diverted funds from existing aid budgets.

The European Union is currently the only governing body that has said it will sign another binding agreement like the Kyoto Protocol and unfortunately, it only accounts for about 14% of the world’s carbon emissions. Unless the larger carbon emitters like China, India and the U.S. get on board, a new agreement isn’t likely to produce results.

At Better BTU, we support the idea of assisting smaller countries, especially those in the Pacific region who will be swallowed up by a rise in water levels, but wonder if the Green Climate Fund is the best way America can contribute.

The documentary film The Island President shows how a rise in two degrees Celsius will completely wipe out countries like The Maldives. But what exactly are these funds doing to help these countries adapt?

The United States has built its reputation in the global community as a pioneer in technology. We are the nation that introduced the telephone, the airplane and the computer to the world. And so it might make sense that our path to contributing to the global climate crisis should go through technology.

Several companies in the U.S. have made significant advancements in gasification technology, in addition to being the leader in wind energy and among the top nations in solar energy. Americans have built upon the contributions made by European countries but the industry remains stalled due to an economic recession and a public that has not yet embraced the technology.

At one time the idea of putting a man on the moon seemed beyond ridiculous. President Kennedy stood in front of millions to declare that his administration would achieve that feat and a space race between nations was born. Now it’s time for Americans to re-engage with that same energy not for exploring new worlds, but for saving our own.

Tuesday, November 6, 2012

China and U.S. Waste Strategy: More Similar Than You Think

Most of our readers are already familiar with the state of waste management in China, where officials are literally digging the country out from under a pile of trash. The waste management system has been unable to keep pace with the booming economic development and urban growth that has resulted in The Middle Kingdom’s current problem.

China produced 221 million tons of MSW in 2010, more than 35% of which is untreated and left on street corners or dumped in unsanctioned landfills. The lack of foresight on China’s part means that one of the fastest-growing nations in the world now has to overspend in order to play catch up. The Chinese government has pledged to spend $42 billion over a five-year period on waste management. While it has set aside a goal of doubling its meager 3 percent recycling rate and will also invest in food source separation, the majority of the money will go to building waste-to-energy plants.
Garbage landfill in Changchun, China. Courtesy: MSNBC.

China hopes to increase its waste-to-energy capacity to 35% of all discarded materials by 2015. The country has added 66 incinerators in the last two years and plans to have a total of 600 by 2020.

The United States has always been ahead of the curve in terms of waste management and have been able to avoid many of the problems our fellow superpower is experiencing. Here’s how the U.S. and China’s history of waste management and philosophy differ:

1. Historically, the U.S. developed its consumer-driven culture at a slower pace, allowing our waste management infrastructure to grow along with it.

2. China has previously ignored the waste hierarchy and has effectively been without any sort of established recycling program in place. It has historically been left to poor citizens who rely on salvaging recyclables from the garbage and selling it back to facilities as way of earning a meager living.

By contrast, Baltimore first began curbside recycling in 1874. By 1965, Congress had passed the Solid Waste Disposal Act, which was billed as a national research and development program to assist state and local governments with its disposal programs. Recycling is not mandatory in most of the U.S. and so the state and local governments oversee recycling and waste disposal efforts.

3. The size and quality of landfills vary widely in China. While the best ones are equipped with the technology to control emissions, hundreds more are unsanctioned dumping sites that have sprung up outside of cities and throughout the countryside as a result of economic growth. Without the proper number of public facilities, people began dumping trash anywhere without regard or understanding of the environmental and health consequences.

The U.S. solved this problem with the Federal Resource Conservation and Recovery Act of 1976, which mandated tighter monitoring of landfills and established a hazardous waste management program.

But before Americans pat themselves on the back, they should consider how their current philosophy of choosing the cheapest method of trash disposal affects them long term.  There has been progress in the development of clean waste-to-energy technologies but landfilling remains the most popular option because of its economical nature. The U.S. has over 1,900 active MSW landfills in the nation, down from nearly 3,000 a decade ago. As these landfills reach maximum capacity, tipping fees rise exponentially, which is why states in the Northeast and California are on the forefront of exploration into alternative methods. Despite these advances, a tough economy and difficult permitting has stalled the implementation of new technologies and municipalities continue to return to standard practices of landfilling – relieving the short term cost burden but heightening the long term damage.

Similarly, China has opted to go with a solution that serves short term needs best. The country settled on mass burn incinerators because it contends that it is the best temporary solution to reducing the massive amounts of trash lying across the landscape and to generating energy to meet its rapidly growing needs. Unfortunately, it is unlikely that after building almost 500 new WTE facilities, China is going to be willing to invest in newer, cleaner technology once it gets ahead of its current problem.

As two of the largest countries in the world in terms of people and economic influence, it is imperative that China and the United States put the good of the environment ahead of the almighty dollar to avoid finding us in a mess similar to the one China is dealing with now somewhere down the road. 

Wednesday, October 3, 2012

Myths About Recycling and WTE: Why Towns Shouldn’t Fear WTE Will Hurt Recycling

As more communities consider waste-to-energy projects as an alternative to landfilling, we at the Better BTU have noticed a pattern. Frequently, early on in the process, a local news outlet reports council members fearing that the proposed project will hurt local recycling efforts. Usually these council members are later educated as to how recycling and waste-to-energy plants work together, but since it seems to be a recurring theme, we’d like to devote some time to clearing up the myths about recycling and waste-to-energy facilities, particularly those using some form of gasification.

Myth: Residents will lose enthusiasm for recycling if we have a WTE facility.

This was a reported concern of Councilmember Diane Holmes of Ottawa, who felt the facility would send the wrong message to residents since it converts trash to a syngas that can be used to produce electricity and/or heat. She said she feared recycling would seem “redundant”.

Recycling is close to the top of the environmental hierarchy of solid waste management. Experts across the spectrum agree that recycling is the best form of waste management since it takes less energy to manufacture something from recycled material than virgin materials. For example, it takes 95% less energy to make a can from 41% recycled aluminum than it does to create one from virgin bauxite ore.  Educating the public on the importance of recycling, regardless of where the rest of the trash goes, should be a goal of all communities. 

Myth: Our city/county/state already does a good job recycling so there is no need for a WTE facility.

While the amount of recycled materials has grown steadily since 1990, the U.S. recycling rate remains consistent at 27-33% of waste. The EPA reports 55% of all trash still winds up in a landfill and David Steiner, CEO of Waste Management, estimates close to $20 billion in valuable resources get buried in landfills every year.

Individual communities have set impressive goals and made great progress in diverting trash from landfills. We chronicled San Jose’s efforts to achieve zero landfill status (San Jose Sets the Emerald Standard for Green Cities) and the city reports that it is currently diverting 71% of its trash away from landfills. As a whole, the state of California diverts 58% of its trash from landfills, while Minnesota has reach 40% and South Carolina sits at a 28% diversion rate. Unfortunately, for every San Jose, there are dozens of major metropolitan areas reporting single-digit diversion rates and 11 states still fall below 10% in recycling.

A waste-to-energy facility is able to take material that normally would sit in a landfill and convert it to a renewable gas. Several large landfills are slated to reach capacity in the next 20 years and a WTE facility can prolong the life while also creating a renewable energy source.

Myth: Waste-to-Energy companies don’t care about recycling.

Too many people conjure up images of the old mass incinerators that ate everything in its path and emitted clouds of black smoke into the sky. Today’s developers are interested in sorting the recyclables from the trash for the same reason large companies are – it’s a moneymaker. Commodity prices are too high to let recyclables stay in the waste stream. Unlike larger incinerators and gasifiers (think Covanta or Thermoselect), the majority of gasifiers coming to market need to have the trash shredded in order to process it. Since developers are already having to invest in front-end processing, they might as well pull out the recyclables while they are at it.
Workers pick out the recyclables in San Jose, Calif.
(Courtesy: KGO-TV San Francisco.)

There are several studies that suggest that recycling rates might actually increase in cities with waste-to-energy facilities since the plant will catch materials that might have otherwise ended up in the landfill.

Myth: WTE facilities will end up having to process recyclables because of the large volume needed to keep the plant operational.

As mentioned above, today’s gasifiers are not the large mass incinerators of old. Advancements in technology have made smaller facilities more economical and the trend is to have a larger number of smaller plants rather than one large facility that handles an entire region’s trash.

Smaller facilities help the environment in several ways. First, it reduces the amount of trucking needed for the trash, saving money and reducing greenhouse gases. Secondly, smaller plants don’t require the same high volumes of trash to keep it economical and operational.  Additionally, companies take into account a certain amount of recyclables being pulled when calculating how much trash a town can provide.

Better BTU Take: Waste-to-energy and recycling are a match. Although the almighty buck does have a lot of say, at the end of the day many developers in the business have more progressive views than traditional waste companies. They recognize the value of recycling and don’t want to see it compromised by their technology. If larger, traditionally conservative companies like Covanta and Waste Management have come around on recycling, you can bet the little guys support it as well.

Recommended Reading:
Councillor Fears Plasco Will Curb Recycling – By Jon Willing, Ottawa Sun (Dec. 15, 2011). 

Thursday, September 13, 2012

All-Of-The-Above: One Policy, Two Different Takes on Threat of Global Warming

Once the grandstands have been taken down in Charlotte and Tampa and we’ve heard from candidates and celebrities alike, it’s time to examine the platforms of each political candidate under a microscope. While both candidates subscribe to the All-of-the-Above Energy Policy, they plan to execute them in traditionally partisan ways.  Deciding which candidate to support ultimately comes down to one question: how big an issue is global warming?

Romney supports renewable energy but doesn't view it
as being at a critical juncture yet. He feels it is important
to keep the cost of electricity down in this economy by
continuing to drill for oil and natural gas. (Courtesy: NPR). 
As one would expect from a business titan who built his fortune in the free market, Romney plans to approach energy policy with a more hands-off approach. At the beginning of his chapter on America’s Natural Resources he declares that under his administration the government “will not pick winners and losers in the energy marketplace. Instead, we will let the free market and the public’s preferences determine the industry outcomes.”

Republicans love to point to the half-million loan guarantee now-bankrupt Solyndra received from the current administration as an example of mismanaged government funds. He says that his party “encourages the cost-effective development of renewable energy, but the taxpayers should not serve as venture capitalists for risky endeavors.” Instead of grants and incentives for new technologies, Romney says that he will focus government spending on research and development through organizations like the Advanced Research Projects Agency for Energy, a subset of the Department of Energy.

What this means is that loan guarantees and grants like the Renewable Energy Grant 1603, which expired late last year, will continue to disappear. This could be bad news for technologies that are not capable of being economical without government subsidies, such as the majority of solar and wind projects. Although this will deal a heavy blow to the biomass industry as well, it may actually help the field in the long run. With solar and wind spending down, biomass projects which are more economical, may have a better chance of getting funding.

Romney also plans to rely on coal and natural gas more heavily than Obama has by encouraging the Keystone XL Pipeline and allowing states to regulate the use of hydraulic fracturing. At a time when unemployment has hit eight percent for 42 months in a row, the U.S. should be not shutting down the coal industry, eliminating thousands of jobs and raise the price of energy, according to Romney. Images of Europe, who is well ahead of the U.S. in renewable energy but is paying almost twice the amount for electricity during a deep recession, comes to mind.

The Republican platform signifies a party that acknowledges the issue of global warming, but is not yet sure it is necessary to radically change policy. Democrats, on the other hand, see climate change as an issue in need of decisive action now. Democrats acknowledge the financial risk in supporting emerging technologies but feel that if one technology can succeed on a large scale, it will be well worth the investment. Erin Voegele of Biomass Magazine says that like venture capital firms, the government has budgeted for some projects to fail and claims that “agencies that offer loan guarantee programs have often experience lower-than-expected failure rates for projects. She takes this as a sign that the government could in fact take MORE risks in these programs.

President Obama sees global warming as an
imminent threat, requiring immediate
action. (Courtesy: White House)
Obama claims to have created more than 225, 000 green jobs through governmental incentives and tax credits. His position is that if the government gives tax breaks and subsidies to the oil industry, it should at least offer them to an industry that is trying to save the planet. Obama feels that continued investment in alternative energy practices as well as regulations such as fuel economy standards are necessary to reach his goal of having 80% of America’s electricity come from clean energy by 2035. 

For the average voter this all boils down to how big an issue you believe global warming is right now. During World War II, the U.S. misspent millions as it fought a two-front war. No one would have dared grumble about the way tax dollars were spent at the time because it was absolutely necessary; bickering over the best way to spend military dollars while Nazis and Communists crept closer to our borders just wasn’t an option. Today voters are asked to gauge the threat of climate change and the effect the U.S. can have on an international problem.

The Renewable Energy Components of the Democratic and Republican Platforms – By Erin Voegele, Biomass Magazine (Sept. 7, 2012)

Energy Innovation Under Romney and Obama – By Kevin Bullis, MIT Technology Review (Sept. 6, 2012)

2012 WE Believe In America – Republican Platform

Moving America Forward – 2012 Democratic National Platform 

Thursday, August 30, 2012

The Bias Within: How Confirmation Bias Affects WTE

Earlier this month, The Wall Street Journal ran a three-part series on confirmation bias by Matt Ridley. The final installment, entitled “How Bias Heats Up the Warming Debate” discusses announcements of two preliminary new papers on climate by opposing schools of thought and how each uses confirmation bias to support its findings.

Courtesy: The Wall Street Journal. 
Confirmation bias is the art of “if-then modeling”- using data and models to prove what you already believe to be true. This is used in every facet of life, sometimes unknowingly. Not only does this affect our ability to accurately predict the future of global warming, but it colors our view of the present facts as well. Ridley points out that oftentimes unusually warm and wet summers in the U.S. and U.K. are interpreted as proof of a rise in global warming while overly cold winters are written off as “weather.”

Protesting a proposed wood-burning plant in Michigan.
Photo by Earth Melzer. 
Just as biases exist on both sides of the climate change issue, they are also present in arguments for and against waste-to-energy technology. The tendency among certain environmental organizations to use vocal and aggressive campaigns against prospective WTE projects is common and sometimes the speed at which these are put together begs the question of whether time has been given to adequately research the new technology and consider it with an open mind.

Representatives from the other side can be just as guilty of confirmation bias in their efforts to promote the benefits of WTE technology. While radical environmentalists like to zero in on the failures of past attempts by different technologies, proponents of WTE prefer to sweep them under the rug, assuring residents that something like that could never happen with newer technologies. While these proponents may be correct and have ample information to back their claims, it is still a form of confirmation bias.

Supporters of Biomass Projects. Courtesy:
Forbes contributor Larry Bell acknowledges his bias as an opinion writer and notes that these biases have a place in pushing discourse of controversial topics forward. He also remarks that while opinion pieces aren’t subject to the same peer review processes as research papers, “accountability for factual accuracy is a paramount priority.” In today’s world where readers are invited to share opinions through comment sections online and in print, reporting inaccuracies will be quickly and – as he notes, frequently impolitely – pointed out.

While we at the Better BTU strive to be as objective as possible when presenting arguments, we can’t ignore that we too are guilty of a confirmation bias. As steadfast believers in the biomass WTE movement, articles we pick and topics we present are often designed to illustrate our thoughts on the benefits of WTE technology as well as to create debate on highly controversial topics. We try to account for bias by also reporting on projects that don’t always have happy endings, such as the cancelled plans for a plant in Missoula, Mont. or the chaos that has ensued in Ada County as Dynamis tries to install its first commercial plant stateside.

Bias is inherent in all of us, but recognizing the bias and having multiple centers for scientific research to avoid a monopoly are the best ways to deal with it.

Further Reading:

How Bias Heats Up the Warming Debate – By Matt Ridley, The Wall Street Journal (Aug. 3, 2012).

Tuesday, August 14, 2012

State Sovereignty: Mass. Banks on Sun and Wind over Biomass

Last month we discussed New Hampshire’s bold move to grant biomass projects the same incentives as other sources of renewable energy. This month we look at a neighboring state moving in the opposite direction.

Governor Patrick signs Senate Bill 2395. Courtesy: Eric
Haynes/Governor's Office. 
On Aug. 3rd, Massachusetts Governor Deval Patrick signed Senate Bill 2395, enacting new energy legislation that has been in the works for nine months. The new law increases incentives for developing wind, solar and hydro projects and “includes provisions that aim to manage some of the drivers of energy cost increases.” (Mintz)

Utility companies will now be required to purchase seven percent of its power supply from renewable sources, up from three percent previously. Additionally, the law mandates long-term contracts of at least 10 years, which will help with project financing for renewable technologies. 

The move comes after the Bay State suspended consideration of all biomass energy applications on Dec. 3, 2011. Biomass had been a sizeable portion of the state’s renewable energy supply, reaching 49% in 2007. Massachusetts announced plans to begin its “RPS solar carve-out on Jan. 1” and many felt the Aug. 3rd signing into law was long overdue. The new legislation also establishes a clearinghouse auction for surplus SRECs until the state meets its 400 MW solar target. Massachussetts’ goal is to have 15% of its energy supply come from renewable sources by 2015, with two GW of it coming from wind.

Biomass escaped having some limiting regulations that were proposed by the Massachusetts Department of Energy Resources (DOER) included in the final text, but the message is clear: biomass project developers should move over state lines to New Hampshire.

We can certainly understand Massachusetts legislators’ thought process: solar and wind produces zero emissions; it’s clearly the greenest way to go. So why not spend our money on the cleanest technology out there?

Courtesy: The Wall Street Journal, Associated Press. 
We support wind and solar as viable alternatives to landfilling but believe it is only part of the solution. Both solar and wind are intermittent power sources while biomass is a baseload power source. Additionally, wind and solar are still more expensive than biomass (excluding subsidies) and the cost of transmission lines from the oftentimes remote locations to more urban areas is not usually factored in. The proposed Cape Cod wind farm, which would consist of a series of turbines in a 25-square mile area in the shallow part of the sound, comes with a $2 billion price tag. While producing 468 MW of energy would be an impressive feat for the country’s first wind farm, it would only provide approximately 3.5% of the 13,300 MW used in Massachusetts.

We support the growth of other renewable source industries but hate to see it come at the price of excluding biomass projects. As the world continues to work to find the right combination of renewable sources to keep the light on, we think any legislation that excludes an entire section of industry does a great disservice.

The good news for Bay State biomass developers? New Hampshire is right next door.

Further Reading:

United States: New Massachusetts Law Boosts Wind and Solar Energy – By David L. O’Connor, Jeffrey J. McCourt, Amarynth Sichel and James Sasso, Power Engineering (Aug. 6, 2012).

Renewable Power & Energy Efficiency Market: Renewable Portfolio Standards – By Federal Energy Regulatory Commission (May 3, 2011).

Cape Cod Wind Farm Tiptoes Ahead By Jennifer Levitz, The Wall Street Journal (Aug. 11, 2012). 

Sunday, August 5, 2012

Industry Spotlight: John May

When we think of leaders of the renewable energy field we frequently picture engineers and scientists tinkering with machines or lobbyists fighting for emissions controls and government programs that foster green energy development. But there is another element, behind the scenes, that must develop in order to make the rest possible: the financial element.

John M. May, Managing Director
Courtesy: Stern Brothers & Co. 
It is for that reason that Managing Director of Stern Brothers & Co. John May is considered a pioneer in the movement, a leader in the financial frontier. May heads up the firm’s renewable energy practice and has built a reputation as one of the top environmental bankers, focusing primarily on biofuels and biomass.

May’s most significant contribution has been navigating the use of bonds as a form of financing for alternative energy projects. With the economy in a fragile state, banks and other traditional sources of capital have become even more hesitant to take risks - a bad sign for the entire renewable energy market. May points out that even experienced European banks, which have financed alternative energy projects in the past, are shrinking its involvement in the arena.

“A key advantage the bond market provides developers is a broader and deeper pool of available capital,” said May in an article he co-authored for the April issue of Renewable Energy from Waste. “Bond buyers include insurance companies, pension funds, mutual funds, hedge funds, private equity funds, and other strategic investors. Bonds can be the sole source of debt for projects or can provide a complement to bank debt.”

May underwrote the country’s first tax-exempt bond issue to fund a landfill gas-to-electricity project in 2003. Since that time he has developed one of the first tax-exempt bond structures sold to major U.S. institutional investors to fund ethanol projects. He secured a $15 million full faith and credit guarantee from the state of Illinois for a biodiesel project in 2006. He also created the bond finance structure adopted by the USDA in its Bio-Refinery Loan Guarantee Program, resulting in the agency’s adoption of a new Interim Final Rule for the program in 2011.

Developing an industry takes contributions from competent professionals in a variety of capacities. In addition to entrepreneurs, the field needs project developers, attorneys specializing in utility and environmental law as well as savvy investment bankers and financial analysts.

May’s specialties have helped finance large-scale projects and Stern Brothers & Co. is one of the most recognized firms in the financing of biofuels of U.S. The firm represents companies we’ve written about in our technology blog, including ICM and Rentech.

Financing continues to be a hurdle for smaller-scale biomass projects. We can only hope for a “John May” to come along with similarly innovative approaches to help get projects financed and push the industry forward.

For More on John May:

Healthy Support - An Investment Outlook by John May, James Dack and Adam Pierce, Renewable Energy from Waste (Apr. 23, 2012)

Alternative Energy Financing  - Brochure by Stern Brothers & Co.