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Broken Promises from Range Fuels

When I first began my career, a wise old-timer gave me a piece of advice that I took to heart. He said “When you are planning and executing a project, it is important for you to do what you say you are going to do. People are going to make investment decisions on the basis of the numbers you project. So don’t over-promise and under-deliver.”

As I began to become involved in projects, the wisdom of the advice I was given became clear. I learned to be conservative with my claims, because failing to deliver can have far-reaching impacts. Plus, a pattern of over-promising and under-delivering will ultimately destroy your credibility, and thus your ability to get anything done. (On the other hand, excessive “sand-bagging” is also poor practice, as too much money gets budgeted where it needn’t be).

Now imagine the following scenario. I go to the government and ask for $5 million to build a 10 million gallon per year ethanol plant. I announce that it is cutting edge technology, and I make various far-reaching claims. I issue press releases, and Congress invites me to give testimony in D.C. The government grants me the money I ask for, because I have had success in other ventures and I seem like a credible fellow.

Later, I go back to the government, and tell them I need another $5 million, and that unfortunately the project schedule is slipping. “By the way”, I tell them, “I will now only be producing 5 million gallons.”

As construction continues, I start to realize that the energy business is a bit more difficult than I had imagined, and things that I thought were new weren’t new. It becomes clear that I can’t even deliver on my downgraded promises because I hadn’t appreciated the challenges of scale-up. The government calls me up and asks me how it is going. “Well”, I explain to them, “I am out raising $10 million more in investor money. I am also going to only produce 1 million gallons, and it is going to be methanol instead of ethanol as I have been claiming. I am not really sure when I will produce ethanol. By the way, could you give me some more money?”

So I went from claiming $5 million for a 10 million gallon ethanol plant to $20 million for a 1 million gallon methanol plant. I still have not delivered. I am asking for more money. You still trust me, don’t you?

Range Fuels: Years of Broken Promises

I have for the most part held my tongue over Range Fuels for the past 3 years, but the scenario above essentially describes what has happened. The reason I have held my tongue is that I have heard various bits about their progress that was not public, and so I have held back on commenting. But I firmly believed they were making reckless claims from Day 1.

Now the EPA has just issued a report that gives some remarkable updates on Range Fuels, and I feel I have held my tongue long enough. Let’s walk through the timeline to show the remarkable evolution of their progress that has gone largely unreported.

October 2006 – In an interview with Wired Magazine called My Big Bet on Biofuels, Vinod Khosla gushed about E3 Biofuels (now bankrupt) and wrote about them as if they were a running, proven plant. He wrote about what they were achieving, despite the fact that they hadn’t started up (and would be out of business shortly after they started up). In the article, Khosla described his investment in Kergy (which later became Range Fuels).

IN THE CORNER of an unmarked warehouse tucked away in an industrial neighborhood north of Denver, a new company called Kergy has what is, to my knowledge, the first anaerobic thermal conversion machine (which explains why Khosla Ventures is a seed investor). It’s a 6- by 4-foot contraption that stands about 8 feet high. It looks vaguely like a souped-up potbellied stove. But it runs cleanly enough to operate indoors.

With those comments, everyone in the energy business knew Khosla was operating outside of his element. People have been gasifying biomass for decades, and there are numerous “anaerobic thermal conversion machines” out there. What happened was that Khosla wasn’t aware of this, so he thought this was all new and novel, and he invested – and then began to promote. He also went to the government telling them how wonderful it was, and that he would change the world if they would only fund him.

In that article, the inventor of the gasifier, Bud Klepper, is ominously quoted “We could double the ethanol output of the Mead facility.” I hope not. The output of the Mead facility (E3 Biofuels) is zero, so double that is…

February 2007Kergy changed its name to Range Fuels. They announced that they would build their first “cellulosic ethanol” plant in Georgia. The capacity was announced at “more than 1 billion gallons of ethanol per year” (Source.)

I had a problem with this announcement on two counts. First, this is not “cellulosic ethanol”, as I explained in Cellulosic Ethanol vs. Biomass Gasification. Further, if you are going to make an alcohol from syngas (the product of the gasifier), ethanol is a strange choice to make. Methanol is more efficient to produce, and ethanol is generally just a co-product when producing mixed alcohols (which also work well as fuel; see Standard Alcohol). It is only separated out at a great expense of energy – and then you have a lot of lower-value methanol to deal with. So this was looking like a very confused project from the start.

March 2007 – Range Fuels announced a $76 million grant from the U.S. Department of Energy.

Also during 2007, articles on Range Fuels began to appear everywhere. There were high profile pieces in The New York Times and in Forbes. In the Times’ article, the company refused to disclose how much had been invested to date.

An article in USA Today reported that the initial capacity would be 20 million gallons. The site was permitted for 100 million gallons of eventual capacity, and the cost of building a 100 million gallon per year plant was quoted at $150 million. Range said they thought they would be the first to win the “cellulosic ethanol” race (again, ignoring that the race was won a hundred years ago):

By next year [2008], the company intends to have a facility capable of creating 20 million gallons of ethanol per year. The site in Treutlen County, Ga., has received a permit to produce 100 million gallons per year, and Range Fuels expects to eventually reach that production amount, according to company CEO Mitch Mandich.

“A lot of people are talking about 2009, or 10 or 11—even Secretary of Energy (Samuel) Bodman will say cellulosic ethanol is five years away,” Mandich said. “We think by the time we enter production, we’ll be the first, so the race is on between us and some competitors.”

Well, it is 2010, and we still aren’t seeing any ethanol from the facility. Welcome to the real world.

November 2007 – To much fanfare, Range Fuels announced the groundbreaking of their Georgia facility. They continued to maintain that the first 20 million gallon phase would be completely finished in 2008. Those of us who have been involved in plant construction wondered when they would actually face the music and admit they couldn’t deliver.

March 2008 – Range announced that they had raised another $100 million to build the plant. By April this number was announced as $130 million in venture capital funding. They were still treated as media darlings – and nobody in the press was asking them critical questions. But their story was about to begin to unravel.

April 2008 – Range announced that they have received a $6 million grant from the state of Georgia.

October 2008 – In an incredibly ironic story, Discover Magazine published Anything Into Ethanol. It was incredibly ironic because in 2003 they had written Anything Into Oil, a gushing story about a company called Changing World Technologies (CWT) and their claim that they could make oil from biomass for $8-$12 a barrel. After a lot of wasted investor and taxpayer dollars, CWT declared bankruptcy when they couldn’t deliver on their claims. I did a post-mortem on CWT here. There were many more parallels here than just two nearly identical, uncritical stories from Discover Magazine.

November 2008 – Range Fuels CEO Mitch Manditch was replaced.

January 2009 – Although the plant in Georgia was still not complete, there was no explanation regarding the delay. But Range announced another $80 million loan from the U.S. Department of Agriculture. One story announced that the company had received a total of $158 million in VC funding in 2008. This story also announced that the first phase was still under construction, and production was now not expected until 2010! (This new production time frame was probably the result of getting in a new CEO who was actually experienced in the energy business, ex-Shell executive David Aldous).

May 2009 – While Range Fuels stopped issuing so many press releases, former CEO Mitch Mandich was quoted in the New York Times admitting that “The soup’s not quite cooked yet.” This was extraordinary given previous claims from him that they would produce cellulosic ethanol at less than the price of corn ethanol.

October 2009 In a New York Times’ story that warned that cellulosic ethanol was falling far short of expectations, it was announced that Range Fuels had applied for even more funding from the DOE! This time, the DOE said no.

For the most of 2009, Range went into silent mode. Again, I attribute this to a new CEO who came from the energy business, where you better do what you say you are going to do. One pattern that started to emerge was that they referred less to cellulosic ethanol and more to cellulosic biofuels. This was significant, because I had always maintained that it wouldn’t be cost-competitive for them to produce ethanol via gasification. I was just waiting for the other shoe to drop…

February 2010 – A rather extraordinary update was issued that the mainstream media has still not absorbed. The EPA released an update to the Renewable Fuel Standards Program (RFS2). In that update, they had the following report on Range Fuels (see this document). From Pages 175 and 178:

At the time of our assessment, we were also anticipating cellulosic biofuel production from Range Fuels’ first commercial-scale plant in Soperton, GA. The company received a $76 million grant from DOE to help build a 40 MGY wood-based ethanol plant and they broke ground in November 2007. In January 2009, Range was awarded an $80 million loan guarantee from USDA. With the addition of this latest capital, the company seemed well on its way to completing construction of its first 10 MGY phase by the end of 2009 and beginning production in 2010.

As for the Range Fuels plant, construction of phase one in Soperton, GA, is about 85% complete, with start-up planned for mid-2010. However, there have been some changes to the scope of the project that will limit the amount of cellulosic biofuel that can be produced in 2010. The initial capacity has been reduced from 10 to 4 million gallons per year. In addition, since they plan to start up the plant using a methanol catalyst they are not expected to produce qualifying renewable fuel in 2010. During phase two of their project, currently slated for mid- 2012, Range plans to expand production at the Soperton plant and transition from a methanol to a mixed alcohol catalyst. This will allow for a greater alcohol production potential as well as a greater cellulosic biofuel production potential.

Did you catch that? Initial capacity is now slated at 4 million gallons per year and will be methanol. There will still be no qualifying “cellulosic ethanol” produced in 2010. The amount of money that we know has been poured into this – beyond Khosla and company’s initial investment – is $158 million in VC money, $76 million of DOE money, $80 million from the USDA, and $6 million from the state of Georgia. Further, they asked for more DOE money and were turned down.

So we have Khosla’s initial investment of unknown amount plus $320 million for 4 million gallons of methanol. Wow. At this point, I don’t know why anyone would care about what they say they are going to do during Phase 2, I am more interested in seeing some accountability for what has happened to date.

Let’s recap the highlights:

February 2007 – Range Fuels announced that they would build their first “cellulosic ethanol” plant in Georgia. In a story at Green Car Congress, the capacity was announced at “more than 1 billion gallons of ethanol per year.”

March 2007 – Range Fuels announced a $76 million grant from the Department of Energy.

July 2007 – In a story in USA Today, the Phase 1 capacity was announced at 20 million gallons. The full scale would be 100 million gallons at a cost of $150 million.

November 2007 – Range broke ground on the plant; announced they would be finished with Phase 1 (still 20 million gallons) by the end of 2008.

April 2008 – Range announced a $6 million grant from the state of Georgia.

January 2009 – Range received another $80 million, this time from the USDA, and announced receipt of $158 million in venture capital funding for 2008.

October 2009 – Range asked for more money. This time they were told no.

February 2010 – After investments that have been publicly announced at $320 million, the EPA announced that Range would initially produce 4 million gallons, and it would be methanol. Further, there would be no ethanol produced in 2010.

February 2010 – I write an article wondering why the mainstream media has completely missed this story.

In summary, we were given numbers of $150 million to build 100 million gallons of cellulosic ethanol capacity. What we are being told now is > $320 million to build 4 million gallons of methanol capacity. Of course they intend to do so much more, but I have a very big problem giving more taxpayer money to an organization with this history.

I don’t blame current CEO David Aldous for this. I think Range’s tendency to talk to the press every chance they got ceased once  reality started to take hold and they got an experienced energy veteran in. I think Aldous inherited a ship in which people had been in the habit of promising the moon to secure ever more funding. But I do blame a number of the original promoters of the company.

I have criticized Vinod Khosla in the past for what I said were unrealistic claims. I felt like he came into the energy industry without a very good comprehension of if, but felt that he would apply his golden touch from Silicon Valley to show the dinosaurs how Silicon Valley innovates. I also felt like he was attracted to people who made grandiose claims, but didn’t have the proper historical perspective to determine when something was truly novel (and really worked).

The thing is, the energy industry is full of very smart people who went to the same schools the people in Silicon Valley attended. There isn’t much that hasn’t been tried, and most of what is being announced to great fanfare by newcomers is being worked on in silence in numerous places around the globe.

When you step out there and make the sorts of claims that were made, you have some responsibility for your words. Failure tars an entire renewable industry as being hopelessly unrealistic. This is the reason I go after claims that I believe are unrealistic. If you promise and fail repeatedly, funding will dry up for everyone as the government and the public all become cynical. So your actions impact lots of people – and can impact the energy policy of the entire country – thus you need to be accountable for the things you say.

This has played out exactly like I thought it would. Claims that most industry insiders laughed at in private have now come to naught at great cost to taxpayers. Methanol from syngas? Oh, that technology has only been with us since 1923. Congratulations on reinventing the wheel and burning through taxpayer money in the process.

In summary, I will point out that the two primary sources of cellulosic production being counted on by the EPA for 2010 were Range Fuels and Cello Energy. Both are Vinod Khosla ventures, and neither has come remotely close to delivering despite lots of funding and taxpayer assistance. I don’t think these are isolated cases. I think they are a symptom of things to come. We have gotten a lot of overpromises, because face it, that has worked to secure funding. But what this leads to are completely unrealistic expectations regarding our energy policy, and numerous bad decisions regarding where tax dollars should be spent.

Finally, I want to make one thing crystal clear. I am not criticizing failure here. That is normal and expected. Failure is a part of what it takes to learn and move forward. What I am criticizing is the nature of the failure; that it was primarily because inexperienced people were making claims they shouldn’t have made, and taxpayers are going to get stuck with the bills. Personally, I have a problem with my tax dollars being squandered away by smooth-talking salesmen.

February 23, 2010 Posted by | Cello, energy policy, EPA, politics, range fuels, Vinod Khosla | 1 Comment

Answering Questions on OTEC – Part II

This is the second installment responding to reader questions and comments on ocean thermal energy conversion (OTEC) by Dr. Robert Cohen. Dr. Cohen’s previous entries are:

Ocean Thermal Energy Conversion

Potential Markets and Benefits from Ocean Thermal Energy

Answering Questions on OTEC – Part I

RESPONSE TO COMMENTS RE OCEAN THERMAL ENERGY POSTED ON THE R-SQUARED ENERGY BLOG

Robert Cohen, February 16, 2010

Environmental, Operational, and CO2 Issues

Since the operation of an ocean thermal plant requires the circulation through the plant of a veritable “river of water”, careful design consideration must be given to minimizing effects on the local and downstream temperature distribution with depth. Hence a lot will depend upon how the effluent seawater is discharged following passage of the warm and cold seawater inputs through the evaporators and condensers. Fortunately there is a disincentive for the plant operator to perturb the pre-existing local temperature distribution, since plant economics are greatly improved by maintaining the largest practical temperature difference between the warm seawater and the cold seawater at depth.

Design of the discharge process—i.e., how to discharge the cooled warm water and warmed cold water effluents—can be handled in various ways. For example, by discharging the cooled warm water at a depth corresponding to its new temperature, and by discharging the warmed cold water below the sunlight-affected (phototropic) zone, to prevent formation of algae blooms within that nutrient-rich cold seawater. One of the functions of the pilot plant is to monitor the discharge plumes, compare them to modeling predictions, and allow environmental scientists to assess how the plant interacts with its surroundings.

During the heyday of the federal ocean thermal R&D program, in the 70s and early 80s (prior to public concerns about CO2), a key environmental goal of the federal R&D program on ocean thermal energy was to avoid perturbing the thermal environment of the plant. Accordingly, contracts were awarded to groups at MIT and Cornell to conduct fluid-dynamical modeling studies of water circulation.

Those studies led to another likely way of satisfactorily discharging the seawater effluents to avoid significantly perturbing the thermal environment; namely, to mix the cooled warm water and warmed cold water effluents, then to discharge the mixture at a depth within the thermocline where the ambient temperature matches the resulting temperature of the mixture.

In those modeling studies, global warming and the fate of the CO2 dissolved in the upwelled cold water were not issues of significant concern. But nowadays, avoiding liberation of CO2 to the atmosphere must also be a goal in plant operation, hence future modeling of seawater circulation in connection with the design of ocean thermal plants and plantships will need to consider both temperature and CO2 parameters.

Another important design factor in avoiding CO2 emissions is proper design and operation of the ocean thermal power cycle. According to a study by Green and Guenther (1990), proper use of the “closed” power cycle would probably suppress CO2 emissions, but if the “open” cycle is used to co-produce fresh water, special care must be taken, in the course of degasifying the warm seawater, to avoid liberating CO2 to the atmosphere. It appears that most serious plant designs for multi-megawatt offshore plants are choosing the closed cycle, because the turbines needed for open-cycle operations are too large for those applications.

There is a conjectural possibility that ocean thermal plants and plantships could—in addition to their normal operation, and for a fee—take on the additional task, if feasible, of removing CO2 from the atmosphere and sequestering it in the deep ocean. But the incremental cost of achieving such sequestration would have to be considered and internalized into the plant economics.

Accordingly, one can safely make the qualified assertion that, when and if deep-sea sequestration of CO2 extracted from the atmosphere becomes technically and economically viable, then fleets of ocean thermal plants and plantships will be well-positioned for conducting that additional function, assuming that the incremental cost of doing so can be dealt with. If such sequestration were to become a realistic option, then ocean thermal technology may be in a position to win the Branson Virgin Earth Challenge Prize for removing CO2 from the atmosphere.

There has long been interest in using for mariculture (of plants or animals) the artificial, nutrient-laden, cold-water upwelling associated with the operation of ocean thermal plants. Such mariculture would utilize for fertilizer the nutrients (phosphates, nitrates, and CO2) dissolved in the upwelled cold water. But nowadays the potential viability of this co-product application would need to be reexamined, in view of the possibility that an open-ocean mariculture operation, as an adjunct to normal plant operation, could result in liberating some of the CO2 contained in the cold water into the atmosphere. Furthermore, although kelp plants, for example, fare well in a cold-water environment, conducting an open-ocean mariculture operation near the surface could result in reducing the temperature of the warm surface water fueling the ocean thermal plant, hence make the two activities incompatible.

Besides the above thermal and CO2 considerations, there are many other environmental aspects of operating ocean thermal plants and plantships. Numerous studies have been conducted regarding possible environmental impacts of ocean thermal power plants, such as: impingement and entrainment of marine organisms; possible discharges of CO2, biocides, corrosion products and working fluids; and artificial reef, nesting, and migration aspects. Those studies indicated that such potential impacts can be satisfactorily dealt with. For example, see a 1990 report by Green and Guenther, and a 1986 study report by Myers et al. The latter, conducted by researchers at NOAA and Argonne National Laboratory for the National Marine Fisheries Service (NMFS) of NOAA, is available at this URL.

Those studies probably need updating today, in view of growing concerns about global warming. In particular, further R&D will be desirable on how to avoid liberating CO2 from ocean thermal plants, and for modeling various environmental aspects of operating a fleet of ocean thermal power plants and plantships.

Despite the absence of updated studies in these areas, conjectures are being made, often without much basis, as to what environmental effects might occur as a consequence of large-scale implementation of ocean thermal energy extraction. For example, forecasts are being made regarding how much electrical power can ultimately be extracted from the vast available ocean thermal resource. It is my contention that—in the absence of hard data resulting from significant operational experience with commercial ocean thermal plants—it is currently premature to forecast likely environmental impacts or make valid quantitative forecasts of total recoverable power.

As deployment of this technology proceeds, it will be important for the environmental community to develop the modeling tools needed to forecast possible environmental effects. The adaptation of existing finite-element modeling tools is underway for applying them to the pilot plant. As part of the procedures for satisfying the NOAA licensing requirements for siting, building, and operating the pilot plant, there will probably be a year of preliminary environmental monitoring at the proposed site off Hawaii, followed by a second year to validate those measurements, compare them with modeling results, and exclude any anomalies.

The next step will be to model an array of commercial plants located around markets such as Hawaii, Puerto Rico, and Florida. Finally, as more plants are placed in operation, global models will be needed to assess any concerns about large global ocean currents. As a fleet of ocean thermal plants and plantships emerges, data will become available to validate models and assumptions, and the parameters needed for such forecasting will start becoming available.

Much will depend upon how these plants and plantships are developed, deployed, and operated—such as how their effluent seawater is discharged—and upon the degree of implementation of this technology. Those details will evolve with time and are presently rather unpredictable, since there are too many parameters, imponderables, and unknowns to reach valid conclusions in these areas.

The evolution of ocean thermal technology from a concept to a commercial reality will probably proceed cautiously and gradually at first, then accelerate. During the initial phases of that process—sort of a shakedown cruise—much will be learned operationally about how to properly handle the seawater intakes and effluents, among other environmental aspects. And, during that gradual commercial introduction of the technology, licensing requirements ought to cautiously ensure that these early plants be operated responsibly.

By the time fleets of plants and plantships are deployed, operational experience will inform their environmental design and operation. Public Law 96-310 assigned to NOAA the responsibility for licensing the operation of ocean thermal plants and plantships. Presumably EPA will also participate in this process. Recently there have been numerous meetings between the NOAA licensing team and the LM engineering team regarding licensing, and it was NOAA that initiated the technology-readiness workshop cited above. NOAA is planning another such workshop, focused on addressing environmental issues, for the summer of 2010.

Engineering Requirements and Challenges

There are various technical requirements for constructing and operating ocean thermal power plant systems, some of which pose significant engineering challenges that must be surmounted in order to achieve the commercial viability of ocean thermal systems. System requirements include ocean engineering of the platform and its external attachments, and power engineering internal to the platform. And the system solutions to all technical and environmental requirements must be achievable at a reasonable total capital cost for the system, so that, when amortized over the plant’s lifetime, the system will provide products whose costs can be competitive in the marketplace.

One of the reasons why the successful operation of a multi-megawatt pilot plant will be a critically important step in making the transition to a first-of-a-kind commercial power plant is that it will provide a capability to assess the impacts of seawater circulation and to validate analytical circulation-modeling studies.

Building and testing a pilot plant prior to designing and constructing a commercial plant is a standard, prudent industrial practice aimed at reducing risks when making the transition from any engineering concept to a commercial reality. In the case of ocean thermal, assembling the components and subsystems into a pilot-plant working system prior to making a major investment in a commercial plant can build confidence in the viability of the concept by demonstrating that it is practical at a multi-megawatt scale and by solving any unanticipated problems that emerge. Operational data and experience obtained from successful operation of a pilot plant will provide invaluable cost, environmental, and engineering-design Inputs for moving to a commercial-size plant.

Ocean engineering requirements and challenges that must be successfully surmounted in achieving commercially viable ocean thermal power plants include:

• Designing and deploying large-diameter, kilometer-long cold water pipes (CWPs)
• Flexible, detachable coupling of the CWP to the platform
• Tolerance of the CWP to vibrations caused by vortex shedding
• Detachable mooring (or dynamic positioning) of ocean thermal power plants for stationkeeping in depths equaling or exceeding a kilometer
• Operability in storms, and survivability in severe storms and hurricanes

Similarly, means must be developed for satisfactorily connecting submarine electrical cables to ocean thermal power plants, and those cables will need to be durable and capable of transmitting power to shore from large distances at a reasonable cost and with minimal power attenuation. For plantships grazing on the high seas, the stationkeeping requirement is relaxed compared to the stationkeeping requirement—usually mooring—for plants cabling electricity to shore.

Some CWP failures during deployment have historically occurred in the course of ocean thermal experiments, yet many CWPs have been deployed successfully in the past forty years. However, the CWP diameters required for large, multi-megawatt ocean thermal plants will considerably exceed those of similar pipes that have been successfully deployed at sub-megawatt power levels, largely as intakes for seawater-cooling or lake-water-cooling installations.

In 2008 DOE awarded LM a cost-shared, multi-year R&D coöperative agreement aimed at demonstrating technology for designing and deploying a CWP made of composite material. The LM technique is to fabricate sections of the CWP aboard the platform, then to assemble and deploy them as they are manufactured. LM is developing approaches for coupling the CWP to the ocean platform, as part of the NAVFAC contract mentioned here earlier.

To meet power-engineering requirements, design of the heat exchangers must address biofouling, the buildup of a layer of ocean organisms on surfaces exposed to seawater. Formation of such a slime film on the heat exchanger surfaces inhibits heat transfer, hence prevention or removal of biofouling deposits is required.

Similarly, the corrosion of the heat exchanger surfaces would inhibit heat transfer and must be avoided. In view of their lower costs and greater availability, aluminum alloys that can resist seawater corrosion are attractive candidate materials in comparison to titanium alloys.

Open-ocean testing of the biofouling of candidate heat exchangers rated at 1 MWe was conducted aboard OTEC-1, the test facility for ocean thermal system components. As part of those tests, biofouling was controlled (Gavin & Kuzay, 1981) primarily by chlorination; i.e., injection of chlorine into the evaporator and condenser. The rate of intermittent injection was 0.4 mg per liter during one hour out of each 24-hour period that the seawater systems were in operation.

Even with stringent environmental regulations, it is anticipated that chlorination levels in the discharge can be designed so as to comply with those regulations. Indeed, use of intermittent chlorination within EPA standards has already proved successful in controlling biofouling in the condensers used in conventional coastal power plants, hence that technique is a likely means for performing the same function in ocean thermal plants.

Fortunately, during the 28-year lapse since DOE ocean-thermal R&D funding began to be curtailed in 1981, the offshore oil industry has made some remarkable technological advancements in designing and operating ocean structures, much of which will be relevant to the above technical requirements for ocean thermal systems. Consequently, many of the perceived and actual risks of moving forward today have been considerably reduced, thanks to the innovations and experience of that industry. At the annual Offshore Technology Conference held in Houston in 2009, a panel session reviewing the status of ocean thermal technology was attended by some key people from the offshore oil industry.

These events were foreshadowed years ago by Derrington, 1979; Clare, 1981; and Wortman, 1981, who observed that much of the technology developed for the offshore petroleum industry will be transferable to the construction, deployment, and operation of ocean thermal systems.

Efficiency and Cost Considerations for Generating Electricity

There is a basic question as to whether the above engineering requirements for ocean thermal power systems can be achieved at a system capital cost that will provide baseload power that is cost-competitive with other sources of electricity. For ocean thermal power systems, it is clear that, because of the low net conversion efficiency, lots of capital equipment will be required to circulate a “river of water” past extensive expanses of heat exchanger surfaces.

Practical realization of an ocean thermal plant requires a physical configuration of heat exchangers, turbines, generators, pumps, and other hardware, such as a startup engine. The plant will probably be comprised of multiple power modules, whose condensers are served by a single cold water pipe.

Engineers familiar with conventional power systems that generate electricity by the combustion of fossil fuels are accustomed to dealing with conversion efficiencies of at least 30%. Hence they find it difficult to grasp that an ocean thermal power system can be viable at a net efficiency much smaller than that.

For ocean thermal power plants, typical operating ∆T’s project theoretical (Carnot) efficiencies of about 6 or 7%, while their achievable net efficiency will be about one-third of theoretical. There are two reasons for this reduction:

1) The gross power generated will be less than the theoretical target because there is some loss of temperature across the walls of the extensive areas of heat exchangers.

2) The net power output from the plant will be less than the gross power generated because there is a need for operational “housekeeping” power, mainly used to power the pumps that circulate these large volumes of seawater.

The considerable pumping power required will be used for 1) pushing seawater against the drag experienced when it flows through the heat exchangers, and 2) for moving seawater through the cold water pipe, the warm water pipe, and the seawater-effluent pipes. Some pumping power will be used to move the ammonia working fluid from the condensers to the evaporators.

The pumping power required to lift the water through the kilometer-long cold water pipe is lower than what one might anticipate. That is because, thanks to buoyancy, the pumping power actually required for that purpose is only that needed to accelerate the cold seawater, compensate for its density gradient, and counter the drag experienced alongside the CWP’s walls.

To minimize drag losses alongside the CWP walls, it is evidently desirable to employ a single CWP rather than to have multiple CWPs. One can also draw the conclusion that the CWP is a plant component amenable to an economy of scale (up to a point) as plant size and the diameter of the CWP are increased.

Granted that it will be important for ocean thermal power systems to operate at maximum/optimum efficiency, there are two reasons why focusing solely on efficiency can be diversionary or misleading when it comes to analyzing and comparing power-plant economics:

1) Net conversion efficiency is not the economic bottom line, which is energy cost, the cost of the plant’s output electricity per kWh.

2) The life-cycle energy cost of a power plant is the sum of three components: the plant’s fuel cost, O&M cost, and amortized capital cost.

For power generation from renewable energy sources, the fuel cost is zero, but the capital cost of those systems tends to be relatively high compared to a fuel-consuming plant. For power plants that burn oil, the fuel-cost component nowadays tends to be high, and is likely to increase, while their capital cost continues to be relatively low compared to that of power plants employing renewable energy.

References

Clare, R., 1981, in Proceedings, Eighth Ocean Energy Conference (ed. E.M. MacCutcheon)

Derrington, J., 1979, in Proceedings, Sixth Ocean Energy Conference (ed. G.L. Dugger)

Gavin, A. P. & T. M. Kuzay, 1981, 0TEC-1 power system test program: biofouling and corrosion monitoring on 0TEC-1. Argonne National Laboratory

Green, H.J. and P.R. Guenther, 1990, Carbon dioxide release from OTEC cycles, Solar Energy Research Institute report TP-253-3594

Myers, E.P. et al., 1986, The potential impact of ocean thermal energy conversion (0TEC) on fisheries, NOAA Technical Report NMFS 40—Available at URL http://spo.nwr.noaa.gov/tr40opt.pdf

Wortman, E.J., 1981, in Proceedings, Eighth Ocean Energy Conference (ed. E.M. MacCutcheon)

February 22, 2010 Posted by | global warming, guest post, ocean thermal energy conversion, otec, Robert Cohen | Comments Off on Answering Questions on OTEC – Part II

Answering Questions on OTEC – Part I

Dr. Robert Cohen has been involved in ocean thermal energy conversion (OTEC) since the early 1970’s. He has posted two guest essays here previously:

Ocean Thermal Energy Conversion

Potential Markets and Benefits from Ocean Thermal Energy

Following both essays, a number of questions and concerns were raised, so I asked Dr. Cohen if he would respond. He has written me a thoughtful and detailed response, and I will present it here in two parts.

Dr. Cohen also has a website with more information on OTEC. His contact information is available there. Part I is a general commentary on history, current status, and the projections for cost and a market-entry outlook. Part II will delve deeper into the engineering and environmental questions that were raised.

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RESPONSE TO COMMENTS RE OCEAN THERMAL ENERGY POSTED ON THE R-SQUARED ENERGY BLOG

Robert Cohen, February 16, 2010

Introduction

Numerous comments were posted on this blog in response to my two previous postings here regarding ocean thermal energy. Those comments raised various issues and concerns regarding the implementation of ocean thermal energy technology. This posting is an effort to provide some perspective on the status of ocean thermal technology, written with the intention of addressing the points people raised in their comments.

The postings by viewers tended to fall into several categories, which I shall group as follows:

  • Possible environmental impacts of plant operation on the ocean, including those on parameters such as temperature and CO2-concentrations
  • Technical and economic requirements, challenges, and hurdles for ocean thermal technology to become a commercial reality
  • System conversion efficiency and system energy costs

My Perspectives on Ocean Thermal Energy Technology

Since being assigned by NSF in 1973 to serve as the first ocean thermal program manager, charged with organizing and conducting a concerted federal R&D program on ocean thermal energy, my tentative outlook has been, and continues to be, that of a cautiously optimistic advocate of this technology. Informed by my experience since then, I have yet to encounter a demonstrable or foreseeable “show-stopper” in the technical, environmental, or economic areas that would preclude the achievement of economically/technically viable and environmentally acceptable technology for harnessing ocean thermal energy.

In the mid-1970s my outlook was first bolstered by two federally sponsored industrial studies that resulted from contracts awarded to Lockheed and TRW. After conducting an engineering evaluation, both firms independently concluded that ocean thermal technology had good prospects for achieving technical and economic viability. By “economic viability” I believe that we all mean that baseload ocean thermal power systems could become cost-competitive, at least versus oil-derived electricity.

Now, some 35 years later, both Lockheed Martin (LM) and the U.S. Navy seem to have reached similar tentative conclusions about today’s outlook for this technology.

Starting around 2007, LM began rebuilding its ocean thermal engineering team by annually investing millions of dollars of its own discretionary internal R&D funds, and is continuing to make such investments. The LM team’s effort is focused on developing the design of a multi-megawatt power plant for operation off Hawaii, successful operation of which can lead to prompt design and construction of a first-of-a-kind 100 MWe commercial plant. LM regards the latter as likely to be cost-competitive in markets like Hawaii that presently rely on oil-derived electricity. Some company perspective on LM’s effort is stated at this URL.

Recently the Naval Facilities Engineering Command (NAVFAC), which is responsible for naval-base infrastructure, competitively awarded an $8.1 M contract to the LM team. That award is for technical activities aimed at reducing overall system and developmental risks for critical subsystems and components, and at maturing a pilot-plant design. The Navy has a long-term interest in helping foster the commercialization of ocean thermal technology, achievement of which would enable it to purchase, at cost-effective rates, ocean-thermal-derived electricity and fresh water from privately developed facilities at U.S. military bases located in places like Hawaii, Guam, and Diego García.

In an effort to help call attention to what harnessing ocean thermal energy can do to help mitigate global warming, I posted some information on the Copenhagen Climate Council Web site, which can be accessed via URL here. A set of slides addressing various facets of ocean thermal energy can be downloaded there. Those slides summarize many of the technical, economic, and environmental aspects of the issues raised here.

A November 2009 workshop was convened and hosted by the NOAA people who are charged under U.S. law with licensing ocean thermal plants. That workshop was specifically aimed at exploring the technical readiness of ocean thermal energy technology, and it is my understanding that the technology received high grades there. The workshop is summarized on this Web page. [Note that the Web page is replete with hot buttons, i.e., Web links, each leading to detailed information about various technical aspects of ocean thermal that were examined at the workshop. Most, but not all, of the items that are in bold face are Web links.]

Cost and Market-entry Outlooks

The largest ocean thermal power system heretofore operated (by DOE contractors in 1980) was OTEC-1, a floating test facility designed to test candidate ocean thermal components and subsystems, such as heat exchangers, rated at 1 MWe. Lacking a turbine-generator set, that facility fell short of being a complete power system. Two complete closed-cycle ocean thermal power systems of sub-megawatt size have been successfully demonstrated. They were the 50 KWe (15 kWe net power) floating facility operated off Hawaii in 1979, which was developed by a private consortium led by Lockheed, and the 100 kWe (34 kWe net power) land-based facility operated in 1981 on the island of Nauru, which was developed by the Tokyo Electric Power Services Co.

To bridge the gap to multi-megawatt commercial plants, the LM team is designing a 5/10 MWe ocean thermal pilot plant—initially containing the first of two 5 MWe power modules—to be sited off Pearl Harbor, Hawaii. Operation of the pilot plant will provide performance, cost, and environmental data preparatory to designing and constructing a 100 MWe “commercial” plant for Hawaii’s oil-driven market.

Extrapolating pilot-plant cost estimates to what the commercial plant might cost, the LM team believes that a first-of-a-kind 100 MWe commercial plant can be built at a capital cost enabling it to compete in Hawaii’s oil-driven electricity market; i.e., to produce electricity at an avoided-cost target close to what busbar electricity is currently worth there.

Assuming that LM can achieve that energy-cost target—a busbar cost of electrical energy of roughly 20¢/kWh—then, if I work backward from that energy cost, using reasonable assumptions regarding interest rate and plant-amortization lifetime, including an additional cost of ca. 2¢/kWh for O&M, I estimate that that energy cost for a first-of-a-kind 100 MWe baseload power plant would roughly correspond to a plant capital cost target of about $1 B, or $10 per watt. If one assumes that federal tax credits are available to serve as an incentive/subsidy, then the tolerable capital cost for this first-of-a-kind commercial power plant could perhaps be about 50% higher, around $1.5 B.

In contrast, the 5/10 MWe pilot plant that LM is designing—since piloting of a technology at small scale increases the cost per unit output—will probably cost roughly several hundred million dollars, corresponding to an energy cost perhaps ranging from 40 to 60¢/kWh, making that large an investment sub-economic. Hence the pilot plant will require some subsidization, the hurdle-cost for launching this new ocean industry.

But the subsidy required sounds like peanuts nowadays. Note that during its heyday—the late 70s and early 80s—the DOE ocean thermal R&D program was being funded at about $40 M annually, equivalent to $100 M/year in today’s dollars. It may well be that Recovery Act funds or DoD will provide that subsidy, but it would be reassuring if the Obama Administration and the Congress would soon explicitly embrace ocean thermal and commit to rapidly advancing it into the marketplace, as was happening during the Nixon, Ford, and Carter Administrations.

Once the pilot plant is successfully operated, the design data and cost estimates for the first 100 MWe commercial plant will become much clearer. There are various options for funding that commercial plant. For example, about 80% of its capital investment could be federally loan-guaranteed; the remainder, roughly $200 to 300 M or so, would be venture capital, and investment tax credits would offer an additional incentive.

A comparison—albeit crude—can be made between the above $10 capital cost per watt, for baseload (continuous, 24/7) ocean thermal power capacity, versus the capital costs per watt for intermittent wind and photovoltaic power. Let’s assume wind and photovoltaic power systems that cost $4 and $7 per watt, respectively, and that they generate power about one-third of the time. Then, for purposes of making a rough comparison with the capital cost of a baseload source like ocean thermal, the intermittent wind and photovoltaic capital costs can be multiplied by three, yielding $12 and $21 per watt, respectively, compared to roughly $10 to $15/watt for a first-of-a-kind, 24/7 ocean thermal plant.

References

Clare, R., 1981, in Proceedings, Eighth Ocean Energy Conference (ed. E.M. MacCutcheon)

Derrington, J., 1979, in Proceedings, Sixth Ocean Energy Conference (ed. G.L. Dugger)

Gavin, A. P. & T. M. Kuzay, 1981, 0TEC-1 power system test program: biofouling and corrosion monitoring on 0TEC-1. Argonne National Laboratory

Green, H.J. and P.R. Guenther, 1990, Carbon dioxide release from OTEC cycles, Solar Energy Research Institute report TP-253-3594

Myers, E.P. et al., 1986, The potential impact of ocean thermal energy conversion (0TEC) on fisheries, NOAA Technical Report NMFS 40—Available at URL http://spo.nwr.noaa.gov/tr40opt.pdf

Wortman, E.J., 1981, in Proceedings, Eighth Ocean Energy Conference (ed. E.M. MacCutcheon)

February 21, 2010 Posted by | global warming, guest post, ocean thermal energy conversion, otec, Robert Cohen | Comments Off on Answering Questions on OTEC – Part I

Another Response to the DARPA Claim

Many of my essays here are reprinted at The Energy Collective. Following a reprint of my recent essay examining DARPA’s extraordinary claim on the cost of algal fuel, a reader named Durwood Dugger (this gentleman, I presume) posted some very interesting comments that are worth reproducing here. His original comment can be found here.

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I was at the AIAA (American Institute of Aeronautics and Astronautics) meeting in Orlando in February and participated in the biofuel for aviation workshop round-table discussion at the invitation of NASA. I have been producing algae (not for fuel) for commercial purposes for the last 38 years. None of the presentations or the discussions in round table discussion in which I participated leads me to believe that DARPA is going to reach their $2/gal. algae goals and especially not anytime soon.

So, is DARPA just trying to protect it’s current research contractors after several studies have shown algae is neither cost efficient, nor environmentally friendly as a net carbon reducing primary energy source at the near term prices of petroleum? If you look at 2008 DARPA there is nothing more in the PR release than a restatement of their original goals and projections. As someone who is very familiar with the research in this field, I can see no factual evidence given in this current PR or other published data that provides a credible basis that anyone is anywhere near obtaining those $1-2 gallons cost/price goals. No current researchers have produced and published audited and credible results anywhere close $2/gal costs. NREL and several private developers can’t get algae oil production costs below $18 gallon. (See NREL’s Road Map For Biofuel Development).

As you so well pointed out, most of the algae oil costs are energy costs in extraction, separation, drying and stabilization. It isn’t probable that DARPA is any closer because of improbable cost differences between current research and what McQuiston is claiming for DARPA.

I know several DARPA research contractors and they certainly aren’t anywhere close to $2/gallon in their cost estimations. Algae production and extraction technologies are not new – they have been around for 80 years or more. This makes the probability of sudden scientific breakthroughs that also seemingly violate the laws of thermodynamics – even more improbable.

What isn’t being broadly recognized is that for algae to contribute to our energy needs in any significant way, algae cultivation will require chemical fertilizers (again I’ve been doing this for a while.). This dependent relationship between biofuel production and petroleum based fertilizers are being ignored, denied and or dismissed by many government grantor’s who are either too ignorant or too self-servingly corrupt to address this obvious contradiction of logic in pursuing biofuels in a declining petroleum/fertilizer environment producing rapidly increase costs of the same.

The use of petroleum based fertilizer is of no small consequence. As petroleum prices rise – necessarily so do fertilizer prices and consequently so do the costs of the biofuels that are produced with them. More than 85% of the world’s food supply is produced with petroleum based fertilizers – 95% of world foods are petroleum dependent in transportation to market and consumers. Peak oil – no matter when it inevitably occurs – does not bode well for for biofuel economic feasibility, or for that matter – the global human food supply.

Photosynthesized biofuels incorporate two forms of energy – solar and chemical. The solar comes from an off planet sun and the chemical energy comes from an on planet and therefore finite petroleum supply. The net energy to be derived from photosynthesis is essentially from the solar energy coming from off Earth. Photosynthesis is less than 20% efficient (not to mention the processing energy algae oil requires) so it takes a lot of sunlit area to make much biofuel energy. Then combine the need for finite petroleum based fertilizers and biofuels literally have an uphill battle in cost efficiency over time – and one which they cannot win under the current technological criteria.

Clearly, if there were biofuels that could be produced for $2/gallon we would all be driving on this fuel. The petroleum companies would be selling off their drilling rigs. Instead we are not using biofuels and petroleum companies are expanding there drilling rig fleets as we discuss this and greatly – check it out on the web. Since oil platforms cost billions and have a 30 year life, you can tell where the petroleum producers are putting their money and it’s not in algae oil.

Everyone – about this time is saying, “Oh, but we can use waste to grow algae.” Using waste water as a nutrient source turns out to be problematic because most waste sources are not in areas with sufficient space to allow commercial scale algae production. Looking at all waste water sources that are feasibly located, you end up with a very, very small fraction of the amount space required to significantly impact energy requirements – probably less than 3%. Waste from humans and CAFO’s could be a significant source of nutrient for algae production, but only if we re-configure the nations waste treatment and CAFO infrastructure systems to use if effectively. This is something that isn’t going to happen in our current economic environment – where the nation’s tax revenues are being used almost exclusively to wage wars for… wait to guarantee middle eastern oil field access and to prop up it’s failed greed corrupted banking system and related stock market financial instrument sales systems.

It would seem more logical economically – in the face of declining petroleum reserves to invest in primarily in photovoltaic solar, wind, tide, and wave energy which is less reliant (only uses petroleum energy and products in initial fabrication) in the long term on petroleum than any biofuels. If we used our remaining petroleum reserves just for lubricants, fertilizer, special chemicals and even plastics, but not for transportation fuel – it would last us a much longer time. Perhaps enough time to bridge the technological gap between petroleum and the next most economically and environmentally efficient (really the same thing) source of energy.

Poorly phrased and misleading PR from DARPA’s hapless McQuiston only compounds our energy problems and even further reduces the publics confidence in our government and it’s faith in science and technology. Not exactly what is needed in the face of the problems that face us.

February 19, 2010 Posted by | algae, algal biodiesel, DARPA | Comments Off on Another Response to the DARPA Claim

Looks Like I Struck a Nerve

I started to notice a trend in the comments following my latest Forbes essay about the redundant nature of ethanol subsidies now that mandates via the Renewable Fuel Standard (RFS) are in place. Several comments in a row seemed to be regurgitated talking points that were just red herrings with respect to the point I was making. I knew that meant that somewhere a call had gone out to ethanol supporters to speak out against me. I now know the source, and at the end of this essay, I offer a debate challenge to the organization that issued the talking points.

To review, my point is simple. Someone said that it would be great if I could reduce it to a talking point, so here it is: Mandating ethanol while also subsidizing it is like paying people to obey speed limits.

If that isn’t self-explanatory, here is the logic behind the analogy. We have laws that govern the speed limits on our roadways. You can be penalized if you violate these limits, thus there is an enforcement mechanism in place that compels people to obey the law.

This is the same as the ethanol mandate. We have a law in place that directs refiners to blend a certain percentage of ethanol into their fuel. There are penalties for failing to meet those mandates, thus there is an enforcement mechanism in place.

Now would anyone think it was a good idea if we started using tax dollars to pull people over and pay them for complying with speed limits? I think most people would agree that this would qualify as a stupid idea and a waste of taxpayer money – especially when you consider that some government agency would have to run and audit the program for compliance. It would certainly be redundant given that there are already penalties in place for failure to obey.

With the ethanol subsidies, we are paying people to obey the speed limit. And the ethanol lobby was a little concerned that I had called attention to that fact. Turns out that Growth Energy, the ethanol lobbying organization whose co-chairman is General Wesley Clark, issued the following talking points to their members and asked them to rise up in a groundswell of opposition.

An excerpt from the e-mail they sent out (courtesy of this link):

Here are some points to consider, and remember to use these in your own words:

* What Rapier is suggesting boils down to a tax increase on an innovative, domestic energy industry. Does Forbes really endorse raising taxes in this tough economic climate? Does Rapier really think raising taxes on an emerging industry is smart?

* With domestic, green energy the likely source of hundreds of thousands of new jobs in the United States, why would Forbes and Rapier force a job-killing tax increase on ethanol?

* If Rapier is so eager to tax American energy companies, why not end the massive tax subsidies and tax breaks that Big Oil and gas companies get? By some estimates, the oil and gas industry will get around $29 billion in tax breaks from 2008 to 2013. That’s an enormous handout to an industry that sends a billion dollars a day overseas – often to countries that are hostile to the United States.

* If the choice were to give a tax credit that helps an American farmer and an American engineer in an American ethanol plant, or giving a tax break to an oil man who is doing business in the Middle East, I’d rather the tax credit stay here on American shores..

* The VEETC has reduced farm payments and increased tax revenue that completely offsets whatever the cost of that tax credit is – and in fact generates additional revenue for the federal treasury. In 2007, the $3.3 billion VEETC costs saw farm payments reduced by $8 billion, and generated $8 billion in tax revenue, according to an Iowa State University study.

That is absolutely priceless. None of those talking points actually address my argument. But apparently they were counting on some of their members not being able to think for themselves and just go out and repeat the talking points. So, a few showed up at Forbes and did just that. I answered each one of them – pointing out the obvious flaws in their thinking –  and of course none of them responded because they didn’t have anyone telling them what to say. 

But hey, I am a big boy. I can take the heat. Let’s take their talking points and address them, just to show how silly they are.

Point 1: What Rapier is suggesting boils down to a tax increase on an innovative, domestic energy industry.

Response: Right. Taking a tax credit away that is collected by the oil companies – which last year amounted to about $5 billion – and giving it back to taxpayers is a tax increase. That’s straight out of Lobbying 101, where up is down and green is red if that’s what your client wants.

I would love for someone to walk me through just how this amounts to a tax increase on this “innovative, domestic energy industry.” Anyone? Remember, the oil companies are still mandated to blend the same amount of fuel, whether they collect a subsidy or not. Point 1 – as silly as it was – refuted.

Point 2: With domestic, green energy the likely source of hundreds of thousands of new jobs in the United States, why would Forbes and Rapier force a job-killing tax increase on ethanol?

Response: Repeat the “tax increase” canard, and hope it begins to take hold with their members (and hopefully the public). “This guy wants to raise our taxes!” Remember, at issue here is $5 billion (and rising) of taxpayer money that is being paid out in unneeded subsidies. Eliminating that is a tax increase in their world? There are no words.

Point 3: If Rapier is so eager to tax American energy companies, why not end the massive tax subsidies and tax breaks that Big Oil and gas companies get?

Response: This one is a beauty. First, the point is completely irrelevant, given that the oil companies would still be under mandate to buy the product. Whether they are being subsidized by a trillion dollars a year has no bearing at all on this argument, as it doesn’t impact how much ethanol they are mandated to buy. It is just one more red herring.

But the really funny part about this point is the oil companies are the ones receiving the subsidy in this case. The ethanol industry has told us that many times. If Growth Energy is suggesting we get rid of oil company subsidies, aren’t they just making my point for me?

It wasn’t so long ago that Brian Jennings, the executive vice president of the American Coalition for Ethanol – a fellow ethanol lobbying organization (there seem to be quite a few) – said matter-of-factly that the blender’s credit does not benefit ethanol producers, that “it is actually an incentive the petroleum industry receives for blending ethanol into gasoline.” Vinod Khosla has made the same argument. Here he is on this issue:

Ethanol has a subsidy, but the farmer doesn’t get any of that. What I heard, is that well past midnight when this was being debated in the conference committee, the oil companies inserted 2 words into the language, calling this subsidy a blender’s credit. So the person who is blending it with gasoline gets it. All $2 billion of it last year [2005] was collected by the oil companies. Like they needed more money.

So which is it, ethanol lobby? How exactly is a credit received by the oil industry for complying with a law to blend more ethanol supposed to benefit the ethanol industry? Are you afraid the oil company wouldn’t blend the ethanol if the subsidy wasn’t there? I know I am repeating myself, but you don’t seem to get it: They are compelled to do so by law regardless. Finally, why do you wish to protect the subsidy when members of the ethanol lobby have pointed out that it is really an oil company subsidy?

Point 4: If the choice were to give a tax credit that helps an American farmer and an American engineer in an American ethanol plant, or giving a tax break to an oil man who is doing business in the Middle East, I’d rather the tax credit stay here on American shores.

Response: But doesn’t the “oil man” get this tax credit? You guys are talking out of both sides of your mouth, and it isn’t a pretty picture. I think you have set a record for red herrings in a response.

Point 5: The VEETC has reduced farm payments and increased tax revenue that completely offsets whatever the cost of that tax credit is…

Response: Irrelevant even if true, because once more I remind you that the blender still has to buy the ethanol. So if it really had the offsets you claim, that won’t change by eliminating the subsidy.

If that’s the best you have, then I can safely conclude that the emperor has no clothes. You didn’t address my arguments at all, because you know you can’t. Of course people might be curious as to why you have responded in such a way, but I know why you did. The last thing you want is for people to confront the costs of ethanol at the pump, where they might start to think that our ethanol policy isn’t such a good idea after all. That is what you truly fear.

In conclusion, I would like to issue a debate challenge to Growth Energy. Instead of hiding behind e-mail messages to their members, I challenge them to take up a three-round written debate on the matter. I propose the following:

Resolved: Implementation of the RFS negates the need for the tax credit.

If you are up to it, pick the best person from your organization. Better bring your “A-Game”, though. Or, if that e-mail represents your “A-Game”, you might as well forfeit now.

February 18, 2010 Posted by | energy policy, ethanol mandate, ethanol subsidies, farm policy, Growth Energy, politics | Comments Off on Looks Like I Struck a Nerve

Algal Oil for $2 a Gallon?

By now I have had at least a dozen people send me the link or ask me to comment on the recent DARPA announcement that they can produce algal oil for $2 a gallon. My fellow blogger Lou Grinzo has already made a few comments, and I share his skepticism. It is an extraordinary claim, to me ranking up there with “We have invented time travel.” Then again, if you invented the Internet, I suppose people tend to cut you a lot of slack.

But it is true that extraordinary claims require extraordinary evidence, and in this case I find the latter to be lacking. First, the claim:

US military to make jet fuel from algae

Scientists at the Defense Advanced Research Projects Agency (DARPA) have already successfully extracted oil from algal ponds, and is now about to begin large-scale refining of the oil.

My son and I successfully extracted oil from algae as part of his 8th grade science project. Extracting oil is not particularly technically challenging. But here is where it gets interesting:

Special assistant for energy with DARPA, Barbara McQuiston, said unrefined oil produced from algae currently costs $2 per gallon, but the cost is projected to reduce to around $1. The refined and processed jet fuel is expected to cost under $3 per gallon.

My friend John Benemann once said to me that whenever people make claims like this, offer to buy all of the oil they have to sell. What you quickly find out is that they have no oil to sell. So that would be my question to Barbara McQuiston. If you can produce it for $2 a gallon, would you sign a contract to deliver it to me in volume for $3 a gallon? I suspect I already know the answer to that. It’s like the guy whose sign advertises the cheapest gasoline in town, but when you stop in his tanks are empty.

Perhaps McQuiston was misquoted. But anyone who has ever done a major project knows that unless construction is well underway, the claimed time schedule is completely unrealistic:

The refining operation would produce 50 million gallons of oil derived from algae each year and is expected to begin full-scale operations in 2011. Each acre of algal farm pond can produce 1,000 gallons of oil. The projects are run by private companies General Atomics and SAIC.

Digging a little deeper, I found this, which puts things in a bit more perspective:

SAIC Awarded $25 Million Contract by Defense Advanced Research Projects Agency

Under this contract, SAIC will lead a team of industrial and academic organizations to develop an integrated process for producing JP-8 from algae at a cost target of $3/gal. SAIC and its team will develop technologies and processes to help achieve DARPA’s goal including integrating algae strain selection, water and nutrient sourcing, farming, harvesting, separation, triglyceride purification, algal oil processing, and economic modeling and analysis.

Hmm. That refers to ambitious goals rather than targets that have actually been achieved.

SAIC’s work on the contract will happen in two phases. Phase 1 will concentrate on technology selection and development, pilot plant site analyses, system integration, and economic modeling and analysis, culminating in a lab-scale production capability, preliminary production facility design, and the delivery of samples for testing. SAIC will also develop detailed commercialization and qualification plans showing a path to commercial and military systems viability. Phase 2 will focus on the final design, integration and operation of a pre-pilot scale production facility.

Those statements – from 3 weeks ago – don’t mesh at all with the claims from McQuiston. In Phase 2 they will build a “pre-pilot” facility? How on earth then could they have any idea of how much it is going to cost them to produce the oil? 

No, I don’t believe they can produce algal oil for $2/gallon. I don’t believe anyone can, particularly if they are growing the algae in open ponds. I think back to my Interview with an Algae CEO, and his comment “Boy, you should see my electric bill.” The entire chain of algal oil production is energy and water intensive. So my suspicion is that McQuiston didn’t really mean that they can produce oil for that price. She may have stated that as a goal, and that got turned into a claim.

The other possibility is that because DARPA is a branch of the U.S. government, and government agencies need funding, maybe they are being a bit liberal with their claims in order to ensure funding.

I suspect that in a couple of years we will be doing the post-mortem on this one when we find that there is no $2 algal oil to be found anywhere.

February 17, 2010 Posted by | algae, algal biodiesel, DARPA | Comments Off on Algal Oil for $2 a Gallon?

A Redundant Subsidy

My latest is up at Forbes right now. It is about the redundant nature of our current ethanol subsidy:

A Redundant Subsidy

An excerpt:

As many ethanol producers have argued – the gasoline blender and not the ethanol producer receives the subsidy anyway. The gasoline blender – ExxonMobil for instance – buys ethanol for $1.70 per gallon (currently), receives a tax credit worth $0.45 per gallon (the credit was reduced to that level in 2009), and then blends it into gasoline that is presently wholesaling at approximately $1.90 per gallon. With the tax credit, the current price of ethanol on an energy equivalent basis to gasoline is just about equal to the $1.90 wholesale price of gasoline. So the tax credit compensates the gasoline blender for blending in a higher cost feedstock.

But what if the tax credit was not there? Would ExxonMobil blend less ethanol? No, they are mandated to blend a certain amount, and if they fail to do so they are penalized. So in the event that they did not get the tax credit, then the energy equivalent price they would pay for ethanol would be about $2.50 per gallon (based on ethanol’s current spot price). At a 10% blend, this would mean that at current prices the price charged for a gallon of ethanol-blended-gasoline would need to rise about six cents to keep the gasoline blender’s costs equivalent to the cost they currently have with the tax credit in place. The only difference would be that the cost would then be borne directly by drivers in proportion to the number of miles they drive.

I also walk through the history of U.S. ethanol subsidies. If they haven’t served their purpose by now, they never will.

February 16, 2010 Posted by | energy policy, ethanol mandate, ethanol subsidies, farm policy, politics | Comments Off on A Redundant Subsidy

OPEC Wants Certainty

First OPEC wanted to be compensated if climate change legislation costs them revenue, and now this:

OPEC: give us certainty to invest

You only get a small preview of the following story, but I found the bit that is accessible to be pretty humorous:

OPEC’S producers need greater certainty over long-term oil demand if they are to justify upstream investments to bring new production capacity on stream, says the group’s secretary-general. In an interview with Petroleum Economist, Abdalla El-Badri reiterated Opec’s message that greater clarity about demand is necessary if the world expects Opec’s exporters to continue investing in new output capacity.

Uncertainty over demand yields a startling gap in the group’s 10-year outlook. Opec says demand for its crude in 2020 could reach 37m barrels a day (b/d) – up from 28.8m b/d now – or remain almost flat, reaching just 29m b/d.

It’s a dilemma, because the additional investment needed to meet the higher figure amounts to $250bn, says El-Badri. “We could use that money somewhere else; in our infrastructure or for the welfare of our people.

Sorry, but that’s just not the way the world works. All businesses would like some certainty about demand. If GM had some certainty about demand, they would never have had to declare bankruptcy. They could have just built the cars that would be demanded. But the best you can do is try to estimate where demand will end up, and make your decisions accordingly.

However, I will give some free advice. I don’t believe the world will be able to build out enough crude oil capacity to keep up with demand. (Even if demand remains flat, new capacity has to come online to compensate for depleting fields). I don’t believe biofuels can scale up enough to displace more than a small fraction of our oil consumption. I believe demand from China and India will continue to grow. I believe that oil production will soon peak (if it hasn’t already). And I believe that a lot of projects have already been delayed or canceled, increasing the likelihood of a return of supply/demand imbalances within a few years. If my musings are correct, upward pressure will continue to be the trend in oil prices, and countries that have export capacity will make a lot of money.

So nobody is going to give you certainty on demand (in fact, most people are likely to be appalled at the idea), but if it were me I would make the investments in capacity. Even though many countries will continue to attempt to migrate away from oil, demand for oil will remain strong for many years to come.

February 12, 2010 Posted by | crude oil, oil prices, oil production, OPEC | Comments Off on OPEC Wants Certainty

An Exxon Valdez Every Year

Sitting in a hotel room in Ottawa tonight, wondering if I will make that connection in Detroit tomorrow. Right now the airport there is at a standstill due to the snow.

As I mentioned in the previous essay, I have been keeping up with the energy headlines, flagging several stories for comment when I found some time. One of the stories I had flagged to comment on was one I spotted a few days ago:

Nature inadvertently produces its own oil spills

Probably when we think of oil spills, the Exxon Valdez comes to mind very quickly. It’s one of the big reasons many of us associate oil usage with pollution. Those images of oil covered birds tend to stick with us.

When I was reading Oil on the Brain, (a book I reviewed here) one of the surprising claims the author made was that drivers and boaters spill more oil every year than was spilled in the Exxon Valdez incident. Every year.

The story above breaks some of the relative numbers down. It says that the source of oil spilled in U.S. waters each year has been estimated as follows:

  • Petroleum exploration and extraction – 1% of the total
  • Spillage from ships – 3%
  • Land runoff (e.g., from vehicles, boats, and lawnmowers) – 31%
  • Natural seepage (e.g., the La Brea Tar Pits) – 61%

Personally, I think those numbers amount to a huge disconnect relative to the view most of us have on oil that ends up in our waterways. Of course that is not to downplay the impact of oil spills. The biggest issue with oil spills is that there is a large volume all at once. If you spill a few drops at the pump, you aren’t going to produce birds covered with oil.

But if those numbers are correct, the cumulative drops we all spill each year add up to about 10 times the oil that is spilled from ships. Amazing.

February 9, 2010 Posted by | Exxon Valdez, oil spills | Comments Off on An Exxon Valdez Every Year

Technology is Magic

I am freshly arrived back on the U.S. mainland, with a couple of stops before I head back to Hawaii. I have been reading about energy developments during my travels, and finally wrote something on the flight from Europe yesterday. What has prompted me to write was a report that was recently issued by The President’s Biofuels Interagency Working Group:

Growing America’s Fuel

As I read through this report on the status of advanced biofuels, I couldn’t help but think that this appeared to have been written by an optimistic cheerleader rather than by someone conducting a sober assessment of the situation. It contains very little of “Here is why we have fallen more than 90% short of our targets.”

Bear in mind that the advanced biofuel mandate for 2010 was 100 million gallons. The report admits that the shortfall will almost certain exceed 90% (as I have been saying it would for at least a couple of years).

Where the report does get into specifics, it makes excuses, suggesting that the technologies themselves aren’t the problem, lack of funding is. To that I say that I can make all sorts of things work “commercially” if I am willing to throw enough money at them. But they will only continue to remain “commercial” so long as I am supplementing them with outside funding.

This report would seem to have been written by people who believe that technological progress is inevitable. All barriers can be broken down by throwing enough money at them. While I am definitely a technology buff, I have a different view on technology. Generally, technological successes are built upon a great many resolved technical problems. Yet it may require only a single unresolved problem to lead to technological stagnation, or failure.

For example, consider the scale-up of a process from the laboratory. I have run laboratory reactors and distillation columns – and scaled those up – so I am familiar with some of the things that can go wrong. The scale of a laboratory process may be on the order of a few pounds a day. At that scale, things behave differently for a number of reasons. When scaling up a lab process to something like demonstration scale – say a factor of 100 times greater than the lab process – many things can go wrong. In fact, I think it is safe to say that most good ideas die in the lab when practical realities intrude upon theoretical considerations.

One of the most important aspects to manage is the heat inputs and outputs. In the laboratory, the size of the equipment is such that the heat losses from surface areas is a much greater percentage of the total than when the equipment is scaled up. What does this mean? It can mean that it is difficult to replicate the temperatures achieved in the lab. It can mean that the temperatures at scale are much hotter than desired, or it can mean that there are undesirable temperature variations within the process. In my experience, this is a frequent cause of failure when scaling up from the lab.

Each successive scale-up filters out more seemingly good ideas, and in a world in which commercial success hinges on actually being able to earn money from a project, this filter works well. In a world in which technological failures are met by optimistically throwing more money at the problem, then end result will be a massive amount of spending, and later congressional inquiries into why we wasted so much taxpayer money with so little to show for it.

So success for these projects is far from assured. Even success at one level of scale-up doesn’t assure success at full commercial scale. I can rattle off a dozen things that have gone wrong and been apparent only as projects progressed to full commercial scale. Trace contaminants that can easily be disposed of in the lab can become big headaches at scale. Corrosion is often a killer once some of these projects begin to operate at bigger volumes.

But for the technological cornucopians, these are not real problems: They just require more money and they will be solved. But then why do cancer and heart disease still kill so many people each year, or why does my laptop battery only lasts a few hours instead of a week? Why don’t we commercially fly people from London to New York in an hour? The reason is that not all problems are solved by throwing more money at them, and many solutions are only advanced an incremental step at a time.

As I have pointed out, cellulosic ethanol technology is more than 100 years old. You heard it here, and you can hold me to it: There will be no breakthrough that suddenly makes it cost-competitive to produce. On the other hand, press releases that announce big breakthroughs for small incremental steps? No end to those I am afraid, nor any retraction when they can’t replicate this outside the lab.  The impression this leaves is a steady upward march in the commercialization of cellulosic ethanol – and no setbacks that weren’t simply related to lack of funding.

Cellulosic ethanol will never be produced in large volumes for less money than corn ethanol can be produced for – and keep in mind that we are still subsidizing that after 30 years. What may happen is that it eventually can be mildly successful in certain very specific instances. But to think that a billion tons of U.S. biomass will contribute a major portion of the U.S. fuel supply via cellulosic ethanol? Hogwash from many people who have never scaled up anything. The reasons are not from lack of funding, they are fundamental based on physics, chemistry, and the nature of biomass.

Had I written the report, you can bet that I would have written it differently. It would have been a sober technical assessment, and while the conclusion would have probably been to continue funding, there would also have been a lot of planning for scenarios in which things didn’t pan out as expected. I like to have a Plan B that wasn’t cobbled together only after Plan A fell apart.

February 8, 2010 Posted by | cellulosic ethanol, energy policy, EPA, politics | Comments Off on Technology is Magic