R-Squared Energy Blog

Pure Energy

Rate Crimes: Impeding the Solar Tipping Point

The following guest essay was written by Paul Symanski. Paul is an electrical engineer with expertise in solar energy, and shares his views on why solar power often faces unnecessary headwinds.

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To anyone who has ever spent a day in Arizona’s Valley of the Sun, it is obvious. The sunniest state in the nation is blessed, cursed, with a fierce sun. Yet, as one explores the landscape, artifacts of the capture of solar energy are conspicuously absent. This dearth is true for solar electric, domestic hot water, passive solar design, and even for urban design. It is as if the metropolis stands in obstinate defiance against the surrounding desert and its greatest gift.

Yet, the incessant sun is a constant agitator. Even visitors happily distracted by the Valley’s many amenities will remark while lounging by the pool, drinking in the clubhouse, or enjoying a repast on a misted patio, “Why doesn’t Arizona use more solar energy?”

Solar Tipping Point

One answer to this persistent question can be found once one comprehends that Arizona is where it first occurred: where solar energy first became economical.

Around the turn of the millennium, four decades after its destiny was foretold, an investment in electricity generated by an on-site photovoltaic system became a better investment than traditional investment vehicles. Finally, solar energy had become economically transcendent. Because of its abundant solar resource, solar energy’s transcendence occurred in the center of the desert Southwest, in sunny Arizona. It may not be mere chance that this tipping point coincided with the world’s peak production of petroleum.

The concept of “grid parity” has been promulgated by an energy regime that sees the world through grid-centric eyes. A more accurate and revealing comparison is investment parity. This approach more completely – and perhaps more directly – accounts for the myriad hidden costs embedded in the economics of the world’s energy system. Both the recent economic troubles and the fact that the solar tipping point occurred during an historical low for electricity prices in Arizona reinforce the validity of economic ascendancy of solar energy.

Implicit in the concept of grid parity is an ultimate arrival where both sides rest in balance upon the fulcrum. This subtle point of terminology further invalidates the utility of the concept of “grid parity”. The balance will likely be a brief moment of hushed breath . . . before the tipping continues in favor of solar energy.

The concept of grid parity also establishes a false dichotomy that reveals the term to be an indirection. Solar energy should be one of a multitude of energy sources to be impartially and intelligently incorporated into a flexible network of energy sharing. The concept of grid parity is a creation of a hierarchical system of centralized generation and distribution. Like the system that created it, the term ‘grid parity’ should be recognized for what it is.

The concept of a tipping point is a more appropriate metaphor. It is this tipping point that those favored by the status quo vigorously resist.

Delay Tactics

It is crucial that energy costs be accurately accounted in order to establish valid policies. Yet, in any forum where energy is discussed (present company excepted), retail energy costs are typically presented as an average, or as a range of values. Even in conversations amongst economists, engineers, scientists, business leaders, policy makers, and others who help guide our energy future, superficial valuations proliferate. Blunt statements of cost nearly always exclude associated economic, competing, and externalized costs. More dangerously, such simplification disguises a complex and telling reality.

The key observation – and the linchpin of the Rate Crimes exposé – is that the avoided cost value of solar electricity and other energy management strategies has long been dramatically lower than the retail cost of electricity under particular rate plans.

The graph below plots the avoided cost value of on-site solar electricity against retail energy costs under the Arizona Public Service E-32 commercial rate schedule for the summer season. The ranges of kilowatt demand and kilowatt-hour consumption reflect those of small businesses.

The avoided cost value of solar electricity is half that of the retail cost of electricity for a great portion primarily because of the uncontrollable billing demand, and a precipitous declining block rate structure compounded by the uncontrollable billing demand being used as a multiplier for the extents of the expensive initial block.

Of the hundred largest electric utilities (by customers served), fourteen are located in the sunny Southwest (excluding the unregulated utilities in Texas).

Of these fourteen, three have commercial rate plans with structures that most defeat the value of solar energy and energy conservation measures. These utilities are: Arizona Public Service, Salt River Project, and Tucson Electric Power. All are Arizona utilities.

Conclusion

The Arizona rate schedules provide an enormous subsidy and encourage prodigal consumption by discounting energy to the largest energy consumers. This was historically a common situation in other places as well. However, Arizona is special due to its extraordinary solar resources.

The pricing system redirects costs from any apparent savings in the residential and industrial sectors into the small commercial sector. Small commercial ratepayers have less capital, have fewer person-hours to commit to unusual projects, have less-diverse expertise, and are often constrained from making modifications to their premises. The redirection of costs into this captive market creates a hidden tax through the higher costs of goods and services, and through the subsequently higher sales tax charges.

Furthermore, while more fortunate homeowners can avoid energy costs by investing in subsidized solar energy, renters remain a captive market.

As you may surmise, nearly the entire Arizona economic and political system is complicit. Beyond Arizona’s borders, the state’s electricity generation from coal and nuclear sources remains the West’s dirty little secret. Environmentally conscientious Californians can nod appreciatively at their Tehachapi and San Gorgonio Pass wind farms; while behind the turbines, on the eastern horizon, the cooling towers and smokestacks of Arizona keep bright their nights.

All Arizonans need to be able to gain full value for investments in energy conservation and in solar energy. Until Arizona’s repressive rate schedules are reformed, energy efficiency measures and solar energy in the nation’s sunniest state will have diminished value. This diminishment of the value of solar energy affects all of us by delaying a cleaner energy future.

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Paul Symanski is an electrical engineer, designer, human factors specialist, marketer, machinist, graphic artist, musician, LEED AP, and economist born of necessity. He is experienced with renewable energy, including expertise in solar energy both in practical application and in the laboratory. He is also a competitive masters-level bicyclist. ratecrimes [at] gmail [dot] com

http://ratecrimes.blogspot.com/

August 6, 2009 Posted by | analysis, Arizona, avoided cost, distributed energy, economics, guest post, investment, rate schedule, reader submission, smart grid, solar power | 53 Comments

Final Comments on Solar Posts

I am going to be offline for a few more days, enjoying some time with the family. In the interim, Tom Standing has sent some detailed replies to some of the comments following his posts Arizona Solar Power Project and Ambitious Solar Plans in France.

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Here is some additional material in response to a few of the comments that were submitted regarding my essays on the solar project in Arizona and the solar plan for France.

First is a general comment about my intent with the two essays. I am merely attempting to contribute some hard-edged reality to many solar proposals that do not seem to have been adequately appraised through the conceptual engineering process. The value and scale of proposals for renewable energy projects will be demonstrated through the laws of conservation of energy and thermodynamics. Rational calculations employing these laws are what I am basing my analysis on. We have at our disposal an immense database of solar insolation data on the NREL website, from which we can estimate how much energy a solar project is capable of delivering, and how the energy would be distributed with respect to time. I have also attempted to describe reasonable assumptions to fill in gaps of data or other information in order to complete the calculations. I fully realize that reasonable people will disagree with some of my assumptions, but I think that the differences will not significantly alter the conclusions.

Someone offered energy consumption by a range of vehicle size: one megajoule per mile at highway speeds for light vehicles, 2 MJ for heavier vehicles, and 10 MJ for 18-wheelers.

May I suggest we convert these numbers into units that we are familiar with, such as miles per gallon? A few key conversion factors can be used, as follows.

  • 1 joule/sec is the definition of 1 watt; therefore one kilowatt-hour is 3.6 million joules.
  • The heat equivalent of electrical energy is about 3,535 Btu per kWh (100% conversion).
  • Therefore, 1 Btu = 1,020 joules.
  • The heat value in 1 U.S. gallon of gasoline is 125,000 Btu.
  • The heat value in 1 U.S. gallon of diesel fuel is 138,000 Btu.

Working out the numbers, 1 MJ = ~ 1,000 Btu, which is 1/125 gallon of gasoline, which, according to the original comment, light vehicles could travel 125 miles/gal.

At 2 MJ/mile, SUVs would travel ~ 62 miles/gal.

The 10 MJ per mile for 18-wheelers burning diesel fuel calculates out to 13.8 miles/gal. Are these reasonable consumption rates? Most people would expect vehicular fuel consumption to be substantially higher.

The same commenter opined: “if a one square meter heterojunction panel can squeeze out 1.6 kWh = 5 MJ a day…”

Let’s estimate what the conversion of insolation to useful electricity would be for this panel, using NREL insolation data.

California’s Mojave Desert offers the highest annual average insolation of any of the 239 monitored stations in the U.S. – 6.6 kWh/ (m2-day) for unshaded fixed panels facing south, tilted at an angle = local latitude. If the panel yields 1.6 kWh of useful electricity in a day, then the conversion factor = 1.6/6.6 = 24.2%. If that same panel were exposed to insolation in St. Louis, MO where, with the same panel orientation, average annual insolation is 4.8 kWh/ (m2-day), and yields 1.6 kWh/day, the conversion factor = 1.6/4.8 = 33.3%. That would be a pretty good panel!

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Here is my response to another comment about the French solar plan. The comment was by Bob Lynch, December 22 at 7:43 PM. He wrote: “The French though DO HAVE areas that bask (Basque?) in cloudless days, week after week. France has a strong infrastructure to deliver power far from where it is generated, so it does not have to be on millions of 17th century homes and hovels that dot the countryside.”

This, then, is my response:

If I interpret Mr. Lynch’s vision accurately, he believes that France could construct a major portion of their solar arrays in their sunniest regions, and then transmit the generated electricity to the populous regions where the climate is less favorable to collecting solar energy.

We can check the validity of such a proposal with the insolation data posted on the NREL website.

http://rredc.nrel.gov/solar/old_data/nsrdb/1961-1990/redbook/sum2/

Click the link “In alphabetical order by state and city.” Then choose any city to obtain the data in spreadsheet format.

The insolation statistics I use here are for flat-plate collectors facing south at a fixed-tilt angle equal to the latitude of the site. This orientation gives the optimum solar exposure for fixed flat plates. Most installations will not match this ideal orientation. Collectors are tilted at varying angles, may not face due south, are not always clean, and may experience shading from nearby buildings or trees. Generally, solar installations generate about 15% less electricity than is calculated from insolation data and the manufacturer’s conversion factor.

Although the NREL data covers 239 stations in the United States, we can closely approximate insolation in France with comparable locations in the U.S. based on equivalent latitude and similarities in climate. The southern-most part of France, which provides the highest insolation, is in the range of latitude 43 to 44 degrees. A comparable location where the climate features “cloudless days, week after week,” is Boise, Idaho, latitude 43.57 degrees, with a semi-arid climate. The NREL data shows powerful insolation during the 6 months April through September of 5.8, 6.2, 6.5, 7.0, 6.8, and 6.5, respectively, in units of kWh/ (m2-day). The 30-year annual average is 5.1 (same units). I think we can say that there are scant areas in France where insolation would exceed that of Boise.

The insolation that I estimated as an average for France is 4.6, which, I think, is a fair representation of the regions where solar is most apt to be developed.

An important fact that we need to keep in mind is that average annual insolation does not vary greatly over wide reaches of the U.S. Similarly, variations in Europe would be narrow. For example, Sioux Falls, South Dakota is 850 miles due east of Boise (identical latitude), but with a humid continental climate. However, the 30-year average insolation is 4.8 (same units). It’s a good bet that across the southern quarter of France, insolation would be in the 4.8 to 5.1 range, hardly a bonanza for solar development.

Some 260 miles north-northwest of Boise is Spokane, Washington, latitude 47.63, the latitude that is about 80 miles south of Paris. Summer insolation in Spokane is generous, but noticeably below that of Boise: the 6 months April – September: 5.2, 5.6, 5.9, 6.5, 6.3, and 5.7, respectively. The 30-year annual average is 4.5. Spokane’s insolation is, therefore, likely to be near that of Paris and across the northern third of France. Thus, the 11 or 12% difference of insolation in France, between the sunniest south and the north, is probably not sufficient to justify transmission of large quantities of electricity. Solar-generated electricity would best be utilized near the source.

December 29, 2008 Posted by | Arizona, France, reader submission, solar PV, solar thermal | 76 Comments

Arizona Solar Power Project, Calculations

The following guest post was written by Tom Standing, a “semi-retired, part-time civil engineer for the City of San Francisco.” In Part 1, Tom takes on the calculations for a 280 MW solar thermal plant in Arizona that I looked at back in February. My conclusion from that essay was that the electrical demands of the U.S. could in theory be met on 10,000 square miles of land. Tom peels the onion a few more layers and puts the energy production into perspective.

While solar calculations are by no means second nature to me, I see no obvious errors in Tom’s calculations. But I consider peer review to be a very useful component of my blog, and I know that Tom would appreciate any constructive criticisms. Part II will delve into France’s solar ambitions.

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Hello Robert,

You and I met at the Sacramento Peak Oil conference. Your presentations and discussions were most enlightening. I was heartened by your analysis of cellulosic ethanol. I have always been deeply skeptical of the notion that the U.S. might displace a meaningful portion of transportation fuel with biofuels from cellulose. I could give you some of my thoughts on this subject, but you have already covered the territory thoroughly.

I want to comment on your calculations you posted in TOD in February, regarding the proposed 280 MW solar thermal plant in Arizona. First, a bit about my background. I started my career as a chemical engineer, first in refinery operations, and then chemical processing design. But that was only about 4 years. Most of my career has been as a registered civil engineer in a variety of disciplines for the City and County of San Francisco. Over the years, I have become interested, maybe even fascinated about the prospect of utility-scale generation of electricity from qualified renewable sources.

Throughout North America and Europe, many people have focused on renewable energy as a means of reducing dependence on Middle East oil and reducing CO2 emissions. They see renewable energy as an important element to achieve emissions targets of the Kyoto Protocol. In the U.S., renewable energy from wind, solar, and biofuels appears to be a keystone for energy policy in the Obama Administration. In Texas, T. Boone Pickens is campaigning for a new American energy policy centered on major input from wind-generated energy to displace electricity generated from gas-fired power plants. Natural gas would then be redirected as CNG to power autos and trucks. In California, Governor Schwarzenegger sees his “Million Solar Roofs” program as leading other states to do likewise, thereby reducing CO2 emissions. California utilities are mandated to supply 20% of electricity from qualified renewable sources (wind, solar, bio/waste, geothermal, and small hydro) by 2015. Contributions from these sources have been stuck in the range of 10-11% since 2000. The 20% mandate appears to be a major challenge, maybe unrealistic.

Many questions come to mind in looking at the proposed Arizona plant. What precisely does the 280 MW refer to? Is it the plant’s output at capacity? Is it an annual average output? How much electricity will it generate annually? How will output vary during the day, or by season? How will output be affected by clouds?

There is important data available and a few fundamental design features that will answer these questions. Costs for construction, however, are not my strong suit. Other analysts will have much better information on costs. Cost of the plant will not change the results of my analysis.

1. Insolation Data

Reliable data for site-specific solar radiation (insolation) is critical to estimating solar capabilities. Fortunately, a massive database for insolation is posted on the National Renewable Energy Laboratory (NREL) website. In 2000, an engineer who designed solar facilities directed me to the site; I was utterly amazed at what was there. I had to be extremely selective to get the most useful data. I settled on 30-year (1961-1990) average insolation for 239 U.S. cities: monthly and annual average insolation in kWh per square meter per day. Readings for all 239 stations are given for all possible orientations of solar collectors, either fixed or tracking systems. Amazingly, insolation data is also tabulated for averages of each hour during the 30 years for all 239 stations (kW/m2), enough data to make your head spin! Data is also tabulated for insolation of all collector orientations at 239 locations above Earth’s atmosphere! For reference, I eventually copied pages that filled a binder weighing 10 lbs.

2. Site Coverage with Solar Collectors

A rough approximation for coverage of the 1,900-acre site with solar collectors is 50%. Space is needed for maintenance and control centers, electrical converter units, towers for power lines, and maybe a backup power facility fired by gas or oil. Proposed facilities to store electricity for release at night will also consume land.

In 2001, I toured a solar thermal plant at Kramer Junction in California’s Mojave Desert.

http://www.solargenix.com/pdf/CSPDOEJUNE2003.pdf

At one square mile, it is about 1/3 the size of the Arizona plant. I would say that close to half of the site is taken up by gravel roads for maintenance vehicles. At least weekly, wash trucks at night clean the collectors of dust that frequently blows around. The roads also provide necessary space between rows of collectors to prevent shading. Collectors tilted upward to gather more sunlight cast shadows at low sun angles. If the designers in Arizona are really stingy with land use, they may be able to cover 50% of the site with collectors, including facilities for power storage.

As with Kramer Junction, the entire site will be dedicated to industrial use, fenced off and completely secure. Areas covered by collectors are denuded of vegetation, graded, and compacted. There is hardly space for a rodent or a bird to live. Collectors are supported by steel columns embedded in reinforced concrete foundations designed to resist maximum wind forces upon the considerable surfaces of the collectors. These are real-world features that solar advocates overlook when they envision hundreds of square miles devoted to solar power.

3. Calculate Collector Area

We calculate the area of solar collectors in square meters to utilize NREL insolation data.

The 1,900 acres converts to 7.7 million sq m. With 50% for collectors, 3.8 million sq m are on the site.

4. Model the Collection Array

The Arizona plant is to be a concentrating system that tracks the sun. Surprisingly, NREL data shows that concentrating systems collect less sunlight per sq m than systems consisting of flat plates, one-axis tracking, tilted at an angle = to latitude of site. Thus to be generous, I will calculate the output based on flat plates, 1-axis tracking, tilt = latitude.

For Phoenix, NREL data gives average annual insolation for our model as 8.6 kWh per sq m per day (i.e. all days averaged for 30 years). For Tucson, insolation under our model is 8.7, with slight differences for each month.

5. Calculate Insolation Striking the Collectors

Here we convert solar energy striking collectors during one day, to the average rate during the day. Thus, for Phoenix (the nearest station with NREL data to the plant):

The average annual rate of solar power striking collectors

= [8.6 kWh/ (m2-day)] [one day/24 h]

= 358 watts/m2, say 360 watts/m2

Scaling up this power for the entire plant, average daily solar power striking all collectors

= (360 W/m2) (3.8 million m2)

= 1,370 megawatts

6. Assume 15% Conversion of Insolation to Useful Electricity

The solar thermal plant at Kramer Junction converts about 15% of insolation striking the collectors into electricity. Therefore, a decent assumption for the Arizona plant that would be consistent with our other assumptions is 15% conversion.

Average electrical power generated by the plant over the entire year

= (0.15) (1,370 MW)

= 205 MW

This power output is, of course, highly variable, depending on time of day, season, and cloud cover. To get an idea for seasonal changes, the NREL data tells us that plant output would average 257 MW for an average day in June, to 138 MW for an average day in December.

7. Maximum Electrical Power Output

What might be the maximum electrical power output of the plant? It would correspond to maximum insolation, which is roughly 1,000 watts/m2. Fifteen percent conversion gives a plant output of 150 W/m2, times 3.8 million m2, so maximum electricity generation = 570 MW.

According to NREL data for the desert, maximum insolation duration is about two hours a day under cloudless skies from late spring through early summer. The duration of maximum shortens with increasing time away from June 21. In early spring and late summer, maximum insolation slips below 1,000 W/m2.

Clouds have a widely variable effect, from a 10 or 15% reduction from thin cirrus clouds, to a 50-70% reduction from dense cumulus clouds (thunderheads). At Kramer Junction, operators adjust flows of the heat transfer fluid whenever a cloud drifts over the array. I seem to remember that operators engage small electric pumps to keep the fluid flowing in portions of the array that experience cooling. The Arizona array, with three times more area, will experience more frequent effects of cloud shadows.

8. Annual Energy Generated

One final simple calculation gives us the average annual electrical energy that the Arizona plant will generate. It is the product of four factors:

Insolation, average day (NREL data) = 8.6 kWh/ (m2-day)

15% conversion of insolation to electricity

Area of solar collectors = 3.8 million m2

365 days/year

Thus the 1,900-acre Arizona plant will generate roughly 1.8 billion kWh per year.

Let’s give this quantity some perspective. EIA statistics for renewable energy in 2007 show that wind-generated energy in Texas was 8.1 billion kWh. Thus it would take four and one-half plants the size of the Arizona plant to match Texas wind energy for 2007.

A more telling comparison is with the recent growth of electrical consumption in the U.S. EIA statistics show that the U.S. consumed 2,885 billion kWh of electricity in 1992; in 2002 consumption was 3,660 kWh. Average growth, then, was 77 billion kWh per year over the 10 years. Thus the electrical energy that would be generated by the Arizona plant would supply only 2.3% (1.8/77) of one year’s growth of U.S. electrical consumption. I do not have electrical consumption broken down by state, but I would guess that Arizona could build a solar plant of equal size every year, and they would barely cover their own growth in electrical consumption.

PV Potential

I have not touched on PV, but there is much to discuss. NREL data is so extensive that there is almost no limit to analyses that could be done. For now, I should only refer you to an article that I published in the Oil and Gas Journal, June 25, 2001 issue. I graphically displayed annual insolation curves for a wide range of locations. At a glance the reader can see how insolation varies with latitude, longitude, and collector orientations. I also ran through sample calculations to see how much energy can be generated. An important finding is that insolation for most of the eastern half of the U.S. stays within a narrow range: 4.6 to 5.2 kWh/ (m2-day), with fixed collectors facing south, tilted at latitude for maximal exposure.

The above calculations are purely rational, using insolation data and general assumptions in design. Actual practice shows that solar installations typically generate 10 to 15% less energy than what the calculations show.

December 20, 2008 Posted by | Arizona, reader submission, solar power, solar thermal | 36 Comments

More Amateurs to Build Ethanol Plants

I couldn’t make this stuff up if I tried. The following was called to my attention in an e-mail earlier today after Ron Steenblik uncovered the story:

Yuma doctor hopping on board booming ethanol trend

Continuing the trend that I reported on previously, amateurs continue to jump onto the ethanol bandwagon:

Dr. Sultan Lalani doesn’t lose sleep over the biggest project he has ever done. And he said he doesn’t lose any sleep over criticism of the proposed 55-million-gallon per year ethanol plant he hopes to build near Tacna either.

With a construction cost of $125 million, this plant is serious business, but Lalani said it doesn’t overwhelm him. He wants to do the project, located at Avenue 47-1/2E and Highway 80, because he believes it will be good for the environment and good for Yuma County.

Lalani, an ear, nose and throat doctor in Yuma, said the idea to build an ethanol plant grew out of conversations with his daughter, Anita, who is a staunch environmentalist. They created Agrinext Ethanol LLC to try to make that happen.

“I come from a family that is industrial, business. Medicine is my passion, medicine is what I do, but of course, I do enjoy other challenges,” Lalani said. “I thought this was a very good challenge.”

Speaking of which, I have been thinking of getting into the ear, nose, and throat business. I enjoy a challenge, and I think I could make a lot of money. It would be a nice compliment to my other planned business ventures in raising llamas, writing software, and manufacturing pharmaceuticals.

The article continues:

Lalani was born in India and came to the U.S. in 1969. He received his medical training at St. Louis University, and in 1978, he came to Yuma to start his practice. While he says he would never leave medicine, Lalani said he had other goals, too. One is to make the ethanol plant a reality.

Because of America’s dependence on foreign oil, Lalani said, he was interested in fuels that are renewable and domestic. One of the investors for the ethanol project started a grain facility in Kenya that Lalani later joined as a partner. Lalani said that experience in the grain business combined with the Arizona location make ethanol a logical next step.

What is it with people born in India and ethanol? They certainly seem to have a special passion for it. I have written extensively about ethanol. Needless to say, the energy balance is marginal, and the further the ethanol plant is from the feedstock, the more marginal the energy balance becomes. I think it is a decent bet that the energy balance of an ethanol plant in Arizona will be less than 1.0, which means it would actually increase greenhouse gas (GHG) emissions. And of course if he proceeds with this plan:

Lalani said Agrinext hasn’t decided on a power provider but is leaning toward clean-burning coal to run the plant.

You can be pretty confident that GHGs will increase. Yep, good old clean-burning coal. Good stuff. That is also a good signal that his energy balance is not good, given that he is leaning toward cheap coal over more expensive natural gas.

There was one other funny note to this story:

“Minor” Land Use Change

In other business, the board is scheduled to hold a public hearing on a minor amendment land use change to the Dome Valley/Wellton Planning Area of the Yuma County 2010 Comprehensive Plan for the proposed Agrinext Ethanol plant. The change would be from Agriculture Rural Preservation to Heavy Industrial.

Likewise, I am thinking about a minor land use change as well. I would like to turn my home into a nuclear power plant. I hope there are no permitting issues.

I will say again: When a commodity has such incredibly low barriers to entry, it is only a matter of time before capacity is overbuilt and the price crashes. That’s why I expect ethanol producers to continue lobbying congress to increase the amount of mandated ethanol usage and to accelerate the timeline. Otherwise, a lot of ethanol producers will struggle to stay in business in the next few years as their increased demand for corn continues to increase the price, while all the new ethanol capacity is flooding the market. Profit margins will evaporate (although corn farmers should earn a windfall). What we may see is a bail out reminiscent of the Savings and Loan debacle of the 1980’s.

March 8, 2007 Posted by | Arizona, ethanol, ethanol subsidies | 6 Comments

More Amateurs to Build Ethanol Plants

I couldn’t make this stuff up if I tried. The following was called to my attention in an e-mail earlier today after Ron Steenblik uncovered the story:

Yuma doctor hopping on board booming ethanol trend

Continuing the trend that I reported on previously, amateurs continue to jump onto the ethanol bandwagon:

Dr. Sultan Lalani doesn’t lose sleep over the biggest project he has ever done. And he said he doesn’t lose any sleep over criticism of the proposed 55-million-gallon per year ethanol plant he hopes to build near Tacna either.

With a construction cost of $125 million, this plant is serious business, but Lalani said it doesn’t overwhelm him. He wants to do the project, located at Avenue 47-1/2E and Highway 80, because he believes it will be good for the environment and good for Yuma County.

Lalani, an ear, nose and throat doctor in Yuma, said the idea to build an ethanol plant grew out of conversations with his daughter, Anita, who is a staunch environmentalist. They created Agrinext Ethanol LLC to try to make that happen.

“I come from a family that is industrial, business. Medicine is my passion, medicine is what I do, but of course, I do enjoy other challenges,” Lalani said. “I thought this was a very good challenge.”

Speaking of which, I have been thinking of getting into the ear, nose, and throat business. I enjoy a challenge, and I think I could make a lot of money. It would be a nice compliment to my other planned business ventures in raising llamas, writing software, and manufacturing pharmaceuticals.

The article continues:

Lalani was born in India and came to the U.S. in 1969. He received his medical training at St. Louis University, and in 1978, he came to Yuma to start his practice. While he says he would never leave medicine, Lalani said he had other goals, too. One is to make the ethanol plant a reality.

Because of America’s dependence on foreign oil, Lalani said, he was interested in fuels that are renewable and domestic. One of the investors for the ethanol project started a grain facility in Kenya that Lalani later joined as a partner. Lalani said that experience in the grain business combined with the Arizona location make ethanol a logical next step.

What is it with people born in India and ethanol? They certainly seem to have a special passion for it. I have written extensively about ethanol. Needless to say, the energy balance is marginal, and the further the ethanol plant is from the feedstock, the more marginal the energy balance becomes. I think it is a decent bet that the energy balance of an ethanol plant in Arizona will be less than 1.0, which means it would actually increase greenhouse gas (GHG) emissions. And of course if he proceeds with this plan:

Lalani said Agrinext hasn’t decided on a power provider but is leaning toward clean-burning coal to run the plant.

You can be pretty confident that GHGs will increase. Yep, good old clean-burning coal. Good stuff. That is also a good signal that his energy balance is not good, given that he is leaning toward cheap coal over more expensive natural gas.

There was one other funny note to this story:

“Minor” Land Use Change

In other business, the board is scheduled to hold a public hearing on a minor amendment land use change to the Dome Valley/Wellton Planning Area of the Yuma County 2010 Comprehensive Plan for the proposed Agrinext Ethanol plant. The change would be from Agriculture Rural Preservation to Heavy Industrial.

Likewise, I am thinking about a minor land use change as well. I would like to turn my home into a nuclear power plant. I hope there are no permitting issues.

I will say again: When a commodity has such incredibly low barriers to entry, it is only a matter of time before capacity is overbuilt and the price crashes. That’s why I expect ethanol producers to continue lobbying congress to increase the amount of mandated ethanol usage and to accelerate the timeline. Otherwise, a lot of ethanol producers will struggle to stay in business in the next few years as their increased demand for corn continues to increase the price, while all the new ethanol capacity is flooding the market. Profit margins will evaporate (although corn farmers should earn a windfall). What we may see is a bail out reminiscent of the Savings and Loan debacle of the 1980’s.

March 8, 2007 Posted by | Arizona, ethanol, ethanol subsidies | 3 Comments