Monday, April 30, 2012

What Nasa Launch talks about when it talks about waste

Nasa Launch earlier this month kicked started its Beyond Waste initiative designed to identify 10 “game changing” innovations "that have the potential to transform the current waste management systems and practices to ones focused on minimizing waste."
Also funded by USAID, the US State Department and Nike, the entries may well have a bias for developing world solutions as last year's list for energy innovations suggests.
There's nothing wrong with this overseas perspective - the financing for the initiative after all comes from departments with a foreign policy focus.
And let's face it, when it comes to making disruptive changes to energy infrastructure (or lack of), a high impact is most easily achieved outside of the United States, even if the overall impact on energy use/carbon emissions is small. In the developing world, simple solutions can have profoundly positive impacts and are worthwhile even if they will never mitigate resource profligacy and carbon emissions in rich or advanced developed countries.
This year's theme could look closer to home for innovations to deal with the 250m tonnes of junk, discarded clothes, food scraps and waste sewage - the annual byproducts of the daily lives of 312m million Americans.
But the waste industry seems as resistant to change than parts of the energy sector in the US. 
I'm told that Americans have a cultural aversion to closed loop life cycles that recover the nutrients from human waste. British people, it would seem, don't really care and the London Olympic park's greenery is fertilised in part by human waste recovered from a Thames Water anaerobic digestion plant.
Americans, however, are reluctant to talk rubbish when it comes to turning trash into cash, but they certainly don't want to talk crap.
In Europe, Asia and Canada, waste-to-energy (WTE) facilities have caught on in recent years using established technologies such as combustion, gasification, pyrolization, anaerobic digestion, and landfill gas (LFG) recovery. But in the US, the GWh produced by WTE from municipal solid waste has actually decreased over the last decade. No one wants to advocate for polluting old-school incinerators, but the US creates more municipal waste than any other country in the world and could do more to get more from its landfills.
Most of the 86 municipal solid waste (MSW) plants with energy recovery are located in the north-east, a region which already has serious issues over the criterion pollutants from coal fired power plants. But no new plants have been built in the US since 1995, as if the industry has been waiting for cleaner technologies to emerge.
There are also serious policy headwinds against WTE - surprisingly so in California where last month, the state's energy commissioners voted unanimously to suspend the Renewable Portfolio Standard (RPS) eligibility for power plants generating electricity using biomethane. Commissioners were concerned about the verification of biomethane injected into natural gas pipelines.
San Francisco City takes any chance it can get to show off its green credentials. But even its water authority, the San Francisco Public Utilities Commission, flushes out 65m gallons of wastewater into the SF Bay each day - much of that originating as pristine mountain water from Yosemite National Park.
SFPUC's post-treatment water is reportedly clean enough to drink, but as far as I can tell, the plant in Hunter's Point siphons off biogas to run the sewage works without recovering phosphates - in short supply around the world and used in fertilisers which are the most energy intensive aspect of the agribusiness.
The US water delivery and sanitation industry is still dominated by public ownership and hampered with all the usual legacy drag of industrial sectors  dominated by unchallenged monopolies. That the waste industry is a sector bursting to be privatised is not lost on investors in the US, either.
Trevor Hill, CEO and president of Global Water Resources noted at last month's Cleantech Forum in San Francisco that only around 15% of water & sewage treatment companies were privately owned in the US.
Unfortunately, there were no representatives from the SFPUC at the roundtable ahead of the Beyond Waste Big Think session last month held in San Francisco where there's no shortage of waste of human life - much of it resorting to scavenging discarded bottles, cans and food.
But I asked a representative of San Francisco's leading refuse collection company to give some perspective on why established technologies such as WTE had failed to gain momentum in the US.
Low prices of electricity made the costs of technologies like anaerobic digestion on sewage plants or landfill sites uneconomical unlike in Europe, he said. That's true. In the UK, for example, some 66% of sewage sludge is treated with AD which can also recover nutrients for use in agriculture. But electricity prices are high - probably the equivalent of 25c/kwh.
But that economic argument only holds true in states like Arizona where the price of electricity is 8c/kwh. Many other states that have much higher electricity rates.
He said that he gets calls every week from European companies wanting to offer their services. I'll bet he does. Even from Europe, the steaming heap of waste in the US glistens like a gold mine across the Atlantic.
He also added that the US didn't really need to worry about finding land to fill with garbage…
To overlook municipal and sewage as resources is a wasted opportunity.
But thankfully there are other drivers for innovations in "waste" and nowhere more so than in the biofuels sector.
Enerkem is one such company taking bold steps to capture the potential energy sitting idle in north American landfills. It has three plants under construction in Canada, and another in Mississippi. Enerkem has a 25-year feedstock supply agreement with the City of Edmonton to produce around 38m litres of ethanol annually.
But the company was given significant assistance with $20m from the City of Edmonton and Alberta Innovates as part of the city's municipal waste-to-biofuels initiative.
Last week I went to visit Nasa's OMEGA project based at a sewage treatment works in south San Francisco. The OMEGA project siphons off some of its treated water for a pilot demonstration and uses it as feedstock to produce algal biofuels.
Dr Jonathan Trent's project was derived from closed loop systems required in space. Sending a single pound of coffee to the space station costs around $10,000, after all.
OMEGA is a neat concept and unlike the many advanced biofuels startups, it uses a non-genetically modified freshwater algae with the intention that the technology they develop can be used as an "open source platform" for private companies to develop.
It's also a shrewd move to look to feedstocks that are readily available and don't depend on land, food crops or even any other biomass waste.
Not too far from Nasa's OMEGA project, Solazyme runs its R&D facilities on Brazilian sugar cane. The company plays down concerns about using a land-based feedstock but to scale to any significant level to compete with traditional petrochemicals it's difficult to see how their technology wouldn't become a landuse issue at some point.
After the use of corn to produce ethanol resulted in food riots in 2007, it's all too easy to imagine a developing world landgrab as cheap commodities become more valuable through emerging "waste markets".
There are other policy drivers in the US, which could help accelerate the use of waste. Advanced biofuels producers are also being incentivised by the Renewable Fuel Standard 2 which requires 36bn gallons of advanced biofuels by 2022. Many of the feedstocks are expected come from biomass "waste", eg woodchips.
The downside is that in the commodification of waste, there will always be and winners and losers… something that is cheaply or freely available now will rapidly acquire a price that reflects its value.
For those who argue that such federally funded initiatives to find over-engineered solution are a waste of space - after all Nasa's zillion-dollar, zero-gravity space pen may not have made the world a better place - should be reassured that the agency is turning to more earthly missions.

Friday, April 20, 2012

US utilities urged not to bet the trillion-dollar farm on natural gas

Natural gas prices are predicted to remain low over the next two decades, albeit not as low as today's price just under $2MMBtu, while the only way is up for electricity retail prices. 

You'd think that gas-fired power plants would be a no-brainer for investors looking to put long-term dollars to work in the power generation sector - even if the US introduces a price on carbon by the 12th of never, natural gas is far cleaner and less of a risk than coal.
But betting on natural gas as a non-volatile commodity is a high-risk strategy, according to a new report published this week by Ceres, which did a lot of work last year to lobby for even more stringent CAFE standards for vehicle fuel economy.
Practicing risk-aware electricity generation: what every state regulator needs to know sets out the challenges facing the energy industry in the US. Unlike other sectors, it is regulated to balance the needs of investors who want returns, utilities who want to make money for their shareholders and consumers who need to be protected from price shocks in electricity prices.
 These interests compete with each other in a context where the US has huge imbalances in the power sector: the country already has a legacy of overcapacity in gas-fired power generation in some regions thanks to a build-out campaign in the last decade (see figure above); coal-fired power plants in the rustbelt east are already likely to be phased out in favour of more gas generation thanks to EPA regulations; nuclear power plants around the country are approaching the end of their licence periods; and renewables are becoming disproportionately expensive compared with cheap natural gas-generated electricity.
"These challenges call for new utility business models and new regulatory paradigms. Both regulators and utilities need to evolve beyond historical practice," says the report. "About 70 percent of US electric generating capacity is at least 30 years old," says the report. "Much of this older capacity is coal-based generation subject to significant pressure from the Clean Air Act (CAA) because of its emissions of traditional pollutants such as nitrous oxides, sulfur dioxides, mercury and particulates."
Investment in transmission has also failed to keep pace with demand and technology, with some U.S. transmission facilities approaching 100 years old, it says.
Utility investment in transmission facilities slowed significantly from 1975 to 1998. In recent years, especially after the creation of deregulated generation markets in about half of the U.S., it has become clear that the transmission deficit will have to be filled.
One of the questions posed by Ceres in this report is: does the US want to bet the farm on yet more gas-fired generation? Clearly the answer is no.
Ron Binz, report co-author, president of Public Policy Consulting and former Chairman of the Colorado Public Utilities Commission, said: "Utilities, regulators and customers are entering what's going to be the most uncertain, complex and risky period in the history of the electric power industry.
"We have relatively flat load growth and that's predicted to continue for quite a while that makes capital to the utility system a lot more important to rates there's going to be a lot of upward pressure on rates and all of the intended effects that that creates in the economy and the politics around regulation."
The report estimates that the net asset value of the plant in service for all U.S. electric utilities in 2010 was about $1.1 trillion, broken down as $765 billion for IOUs, about $200 billion for municipal (publicly-owned) utilities (or “munis”), and $112 billion for rural electric cooperatives (or “co-ops”).
It cites the Brattle Group report in 2009 which predicted that total industry-wide capital expenditures from 2010 to 2030 would amount to between $1.5 trillion and $2.0 trillion.
"If the U.S. utility industry adds $100 billion each year between 2010 and 2030, the net value of utility plant in service will grow from today’s $1.1 trillion to more than $2.0 trillion— a doubling of net invested capital," the report says.
But utilities will struggle to raise large volumes of capital required as their balance sheets droop because of flat demand and the erosion of their creditworthiness since the 1970s and 1980s - there are now no triple A rated utilities in the USA.
"The financial metrics of the utilities going into this build cycle are much weaker than they were when the last build cycle occurred," said Binz. "We had some triple A rated utilities and a lot of double A and single A utilities back in the 70s and 80s the average rating was in the range of a this time around it's around the B triple B range, two or three clicks lower than it was before. That puts the utilities much closer to the boundary of non-investment grade ratings."

Denise Furey, report co-author, and principal of Regent Square Advisors, said that a diversified fuel mix is a credit positive for a utility.
"A sizeable negative event will have an impact on the utilities credit ratings and the market appetite for its bonds which will result in turn in an increase in the cost of capital.
"The problem with natural gas and anything that is commodity based like this is that the price of it is a short-term price and we can't hedge very far out.
"A portfolio with diversified fuel mix reduces risk the sector is looking to build new generation assets currently the price of natural gas makes gas-fired generation look optimal. However, gas power plants have long lives and conversely the price of natural gas used constantly relying on current natural gas prices as predicted in long-term trends is pure folly. A mix of asset types including renewables is really optimal.
But beyond the regulators attempts to rein in rates for consumers, the social contract in the energy industry extends much further. Some 65% of utility equities and fixed income securities are owned by institutional investors such as insurance companies, mutual funds and pension plans while most retail investors own utility stock and bonds indirectly through mutual funds and 401k plans.
More than any other industrial sector, if utilities do well, everyone is a winner from the investment fund managers to the pensioners who have the potential to win twice on regulated rates and a comfortable retirement.
The utility industry is not yet being dismantled one residential rooftop solar panel at a time, but managers, utilities and regulators know that business models cannot stay the same over the next 20 years.
Regulators will play an essential role in playing referee in the long game to come in the energy sector.
Sue Tierney, managing principal at the Analysis Group and former Massachusetts Public Utilities Commissioner, said:
"What signals do regulators and policy makers send to private decision makers about what matters? Regulators often inject other measures of what matters in utility investment decisions.
"As we look across the US there are parts of the country that are in competitive markets where investors in new power generation technology are merging or competitive players and they are not making decisions based on guidance from regulators about what they may or may not invest in. In those markets we're highly likely to see gas generation dominate.
But west of the Rocky Mountains the regulated energy markets could look very different, she said: "Those are the parts of the country that are being addressed in this report where regulators can put a different non-market orientation onto the decisions at utilities managers where to invest."
"There is likely to be a different role for diversification, hedging for fuel risk … so those decisions are being made by shareholders and managers of merchant companies."