Biomethane for Energy and Fuel

OK. I admit it. I am writing this article from a Summit about cow poop. No, this isn’t a joke to get 8-year olds rolling on the floor with laughter. This is serious.

I am reporting from the inaugural National Biomethane Summit, in Sacramento, California, where over 300 attendees including elected officials, government agencies, farmers, ranchers, landfill owners, facility owners and operators, technology leaders, researchers, regional planners, and carbon trading experts.

Biomethane is renewable natural gas because it is from biological sources. In some areas, biomethane is called renewable gas. Biomethane is a low carbon fuel – CH4. John Boesel, President of CALSTART, calls biomethane “Our lowest carbon fuel.” Just like the fossil fuel version of natural gas, biomethane can be converted into electricity or fuel.

Making money from meadow muffins is helping dairy farmers stay in business. Among the Western United Dairymen, 18 projects that capture biomethane from manure are generating 4.425 MW of electricity. Hilarides Dairy also converts enough biomethane into fuel to power two of its heavy-duty and five pick-up trucks. Michael Marsh, CEO of the Western United Dairymen quipped, “This smells like an opportunity.”

Dallas Tonsager, Undersecretary, U.S. Department of Agriculture (USDA), is a former dairyman who sees big economic opportunity in methane from manure. Since 2003, USDA has helped 121 projects with co-funding and/or loan guarantees. These projects have generated 449 GW hours/year of electricity, reducing emissions 384,664 metric tons of CO2e and displacing 8 million gallons of oil.

The 121 projects include WI 24, PA 18, CA 14, NY 14, and VT 7. There are opportunities in every state. USDA is encouraging the growth of biomethane for energy and fuel. This is definitely a “shovel ready” opportunity to create green jobs.

Across the nation, ranchers, farmers, landfill operators, and all that generate agricultural waste, forest residue, and municipal waste can increasingly become energy independent. Through anaerobic digestion much of their biological waste can be converted into biogas which can run electrical generators, turbines, or fuel cells to generate electricity. Biogas can also be converted to cleaner biomethane for cleaner electricity and renewable fuel. These operations can generate their own electricity and fuel their own vehicles. Increasingly, excess electricity and fuel can be sold as added revenue streams.

A growing number of our nation’s buses, refuse trucks, delivery vans, airport and port equipment has been converted from diesel to natural gas. Michael Gallagher, CEO of Westport Innovations (WPRT), has already sold 20,000 engines for such applications. He estimates that 20 percent of our nation’s diesel vehicles could be running on biomethane produced in the United States.

Nations like Russia and Iran that control the largest reserves of natural gas may not like this trend of making our own natural gas, but if we want energy independence then we need to follow W.C. Field’s advice, “Take the bull by the tail and face the situation.”

Before our growing population with its output of waste puts us hip deep in this slop, we want to do something useful like make money converting all this waste into energy and fuel. Currently, as the waste decomposes, a greenhouse gas twenty times more destructive than carbon dioxide – methane – goes into the stratosphere, putting our future in a pressure cooker. The whole thing stinks.

There is a climate payoff as well as help with energy independence. California with its Low Carbon Fuel Standard (LCFS) has put teams of scientists to work calculating well-to-wheels, or in this case waste-to-wheels, lifecycle emissions using the newly developed GREET 1.8 model. Biomethane has 4 times less lifecycle emissions than gasoline in the LCFS analysis. Because biomethane avoids release of the destructive greenhouse gas, biomethane into an internal combustion engine vehicle shows fewer emissions than electricity into a far more efficient electric vehicle.

In transportation, we will see the growing use of renewable electricity powering everything from city light-rail to city cars. We will also see the growing use of biomethane powering buses and the vehicles used by the biomethane producers. In Orange Country, California, where thousands of electric vehicles are used, there are also several hundred refuse trucks and public transit buses using biomethane from the nearby Bowerman Landfill where biogas is converted into liquid natural gas (LNG).

The Orange County Sanitation District is bringing online a combined heat and power plant developed by Air Products (APD) and Fuel Cell Energy (FCEL) that converts municipal waste into electricity, heat, and hydrogen fuel. In the county, hydrogen vehicles are in use by city fleets such as Santa Ana, the University of California, Irvine, the South Coast Air Quality Management District, and even individuals that drive Honda (HMC) Clarities and GM Fuel Cell Equinoxes. This breakthrough innovation results in record toilet-to-tank efficiency. Orange County Register Article

Texas, of course, thinks bigger than California. In Dallas, the McCommas Bluff Landfill will achieve 95 percent methane recovery from 30 million tons of waste. Output will scale from 35,000 gasoline gallon equivalents (GGE) per day to 122,500 GGE. Using a novel leachate recirculation process for early capture of biomethane would shrink the landfill growth by 3 feet per day, adding years of life to the landfill.

Summit attendees had mixed reactions about the idea of using biomethane as a vehicle fuel instead of the more common approach of making electricity by running biogas in large ICE gensets. Renewable electricity is in big demand as utilities across the nation struggle to meet renewable portfolio standards (RPS). Natural gas prices, however, are down 70 percent from their peak, making biomethane for fuel a losing proposition unless there is government funding or carbon credits to sell at a significant price.

But new ICE gensets increasingly cannot be permitted. Regulators have greatly tightened standards on emission of health damaging criteria pollutants and greenhouse gases. In California, air quality regulations are forcing farmers, landfill, and waste operators to spend more on clean-up of biogas. Turbines, fuel cells, and conversion to fuel are becoming more promising options. Regulators are also helping with selective co-funding of some projects.

Biofuels have gathered significant opposition in much of the world. Biomethane has avoided the food for fuels controversy associated with ethanol from corn and biodiesel from soy and palm oil. Biomethane is normally processed from waste. Biomethane has over four times the energy production than corn ethanol from an acre of land. Clean Fleet Biofuels Reports

These challenges are also opportunities for Waste Management Inc (WMI). Of their 370 landfills, 33 percent already produce methane for energy, the rest flare the gas due to economics or regulatory difficulty in using ICE gensets to produce electricity. About 1,000 of Waste Management’s fleet of trucks run on either LNG or CNG creating the opportunity to produce their own fuel. 2,500 trucks run on diesel with WMI plans to hybridize.

Waste Management landfills contain significant organic waste which is suited for anaerobic digestion. WMI also captures significant waste that is lignin which is appropriate for its waste-to-energy plants. In the long-term it may be economical to convert the lignin to biofuel in a gasification process.

Can biomethane scale to a size that will impact United States needs for energy and fuel? Yes. Sweden has been an early leader in using biomethane. Over half of their natural gas for transportation vehicles such as buses and cars comes from biomethane sources such as municipal waste and agricultural waste. Biomethane is part of Sweden’s strategy to be petroleum free.

In 1970, 77 percent of Sweden’s energy came from oil, but by 2003 that figure had fallen to 32 percent. In 2006, about 40 million cubic meters of renewable biomethane, “enough to support 1,000 buses and refuse trucks and 9,000 light duty vehicles.” In Sweden, light-duty vehicles cost an average of 70 percent of the cost of a petrol fueled vehicle. The opposite occurs in the United States, with the Honda Civic CNG being the only available CNG passenger car.

Biomethane is also important to Sweden being energy independent. Russia has famously flexed its political muscle by temporarily cutting-off the natural gas pipeline supply that is critical to Europe’s energy and heating. Sweden already has 230 biomethane plants build including 138 from sewage waste water and 60 from landfills. Some Swedish dairy farmers are making more money from manure than from milk.

A decade from now, cost effective large-scale plants have the potential to produce multiple outputs include electricity, heat, natural gas transportation fuel, algal fuel utilizing CO2, biofuels from lignin, biomaterials, and fertilizer. Production could be accelerated if cap-and-trade carbon credits are produced.

This potential is part of the reason that Summit attendance is double what was expected and that this became an international summit with delegates from Sweden, UK, Spain, Canada and other countries. We do not need to dispose ever increasing quantities of waste. We do not need bigger landfills. The vision is a zero-waste society where anything no longer used is converted into something valuable, be it recycled paper, building materials, electricity, heat, fuel, etc.

We can achieve energy independence and avoid a climate crisis with a portfolio of solutions leading us to a near zero-emission future. Yes, the Prius, solar power, and eating tofu make a difference. Energy efficient buildings, transportation, and sustainable living make bigger differences. Now, we must put on our boots and roll-up our sleeves and give a whole new meaning to the mantra “reduce, reuse, and recycle.”

<!– By John Addison, Jun 24th, 2009. Learn about the future of cars and transportation in John’s new book – Save Gas, Save the Planet.–> By John Addison. John Addison publishes the Clean Fleet Report and speaks at conferences. He is the author of the new book – Save Gas, Save the Planet – now selling at Amazon and other booksellers.

Only Renewables Gain (Week Ending 4/25) + Solar ETFs

Author: Mark Henwood

Broad market indices were mixed this week and so were Camino’s PurePlay™ indices.

The Solar index followed last week’s 7.0% gain with a small 0.2% decline. The index members were also mixed with 15 stocks increasing and 19 stocks declining. Most notable in the group was Centrosolar (C3O.DE) which gained 26.2% for the week. The stock jumped on the 23rd after the company announced provisional results that were above expectations. Sales for the quarter were up 86% over the previous year and EBITDA almost tripled. One analyst suggested the stock was undervalued.

Camino’s Renewable Electricity index managed a small 0.1% increase with 8 stocks climbing and 15 retreating.

Biofuels reversed last week’s 1.5% gain with a 1.9% loss. There were 7 advancing stocks to 8 stocks falling. Several of the ethanol stocks (AVR, PEIX, VSE) seemed to benefit from coverage by Oppenheimer whose analyst believes that overcapacity in the sector will resolve itself in the next 12 to 18 months.

Fuel Cells slumped 5.1% on 1 stock advancing and 6 stocks declining. FuelCell Energy (FCEL) reported a sale to Posco which was well received by the market resulting in a 11% price increase for the week. The sale involved delivering 25.6 MW at a contact value of USD 70 million, or over USD 2,700 / kW. Analysts believe this number is below cost but will help the company reduce its cost. After years of losses FuelCell needs to get it right and get its costs down so it can compete in a very competitive natural gas fired electric generation market.

Solar ETFs It came as no surprise that solar ETFs have been launched by Claymore (TAN) and VanEck (KWT). These two providers worked hard to differentiate their products by using slightly different company selections and weighting schemes. Unfortunately they didn’t decide to compete on cost coming out at an identical 65 basis points.

The result is indices that have a 74% overlap in their 27 constituents. Between the two indices the only company not included in Camino’s Solar index (34 constituents) is MEMC Electronics (WFR). By our computation in 2007 at most MEMC has a 25% exposure to solar so we’re not sure why Claymore included them. We don’t think they currently belong in our PurePlay™ index.

Going forward we expect these ETFs will have comparable performance and very high volatility. We routinely calculate Sharp ratios for our indices in an effort to assess the risk/reward profile of the sector. Over the last 365 days our solar index’s Sharpe ratio was 0.8 and over the last two years the ratio was 0.48, both periods measured against the 13wk T-Bill. Traditional fund managers would probably not find these values attractive particularly considering their high beta. That said, we think there are plenty of opportunities in the sustainable energy sector.

Mark is the founder of Camino Energy, an information provider specializing in globally traded sustainable energy stocks. He also is an investor in sustainable energy stocks. Mark has no positions in solar.

Solar Again Leads Sustainable Energy Stocks (Week Ending 4/4)

Author: Mark Henwood

Sustainable energy stocks rewarded investors again this week. All of the Camino indices advanced, one significantly.

The Solar index followed last week’s 19.6% gain with another big advance of 14.5% paring the YTD decline for the sector to –24.6%. 28 stocks increased and 4 decreased. The index increased 7.1% on Friday alone, apparently responding to the introduction of the Clean Energy Stimulus Act in the US Senate. LDK Solar (LDK) led the way with a 25.6% rise. On Friday LDK announced is had sold 83 MW of wafers and lined up supply agreements for much of the order period…….two-thirds of the weekly price increase occurred Friday. Yingli (YGE), the second largest gainer at 24.8%, also reported sales contracts covering 3.3 MW of modules to Korea. For Yingli that comes out to about USD 100 million of market cap increase per 1 MW of sales.

In the Renewable Electricity sector Camino’s index advanced 0.9% with 13 stocks climbing and 5 retreating. The index was weighed down by Goldwind’s (002202.SZ) 22% decline culminating a 71% price decrease from its February 21 peak. The Shenzhen Exchange reports a P/E figure for the company that even after these declines is still a lofty 65. In our view this price level may now be sustainable if the company is able to maintain strong growth.

Biofuels gained 1.1% with 10 stocks rising and 5 stocks falling. Gushan (GU) held on to last week’s huge increase with a gain of 2.9%. The sector leader was CropEnergies (CE2.DE) with a 10.3% gain. The company issued a statement expressing its view that the regulatory environment continued to be generally supportive and reporting on its capacity plans.

Fuel Cells also had a positive week with the index increasing 2.3% on 4 stocks advancing and 3 stocks declining. FuelCell Energy (FCEL) led the group with a 16.6% gain. We scoured the news but didn’t see any information that would drive this increase. We also looked a variety of analyst recommendations and didn’t see any significant company specific news this week. Maybe the company will have some information at the 2008 Green CA Summit where I’m moderating a panel on the Green Gold Rush: California’s New Economy.

Over the last 100 days Solar has maintained the highest beta (.95) of all the Camino indices (which ranged from 0.18 to 0.55). Solar has now regained about one-half of the declines from its peak on December 27 to its low on March 10. While some of the gain is driven by broader market gains and enthusiasm about legislation in the US, I’m sure investor’s will be starting to assess whether the growth news can support further price gains.

Mark is the founder of Camino Energy, an information provider specializing in globally traded sustainable energy stocks. He also is an investor in sustainable energy stocks

The week in sustainable energy stocks (ending 3/7/08) ….

By Mark Henwood

Continuing concerns with economic conditions drove all the broad stock indicators into negative territory for the week. With one expectation our sustainable energy indices followed suit with three indices retreating and one, Renewable Electricity, advancing.

The Solar index suffered another large drop of 5.9% bringing the YTD decline for the sector to –42.5%. In perspective, even with this large YTD decline the index has 46% to give up before it losses all of the huge gains in 2007. LDK Solar Co. LTD (LDK) led the move downward falling 21.3% and closing below its IPO price. Apparently there remains some lingering angst over inventory issues. Overall the sector had 4 stocks climbing and 29 stocks falling.

Biofuels suffered a significant 12.5% decline with all 16 stocks falling and 5 falling more than 20%. It looks like concerns about rising corn prices and reduced margins affected the ethanol producers. Gushon (GU) reported a Q4 loss and, despite management explaining the loss was due to a large non-cash charge, the stock declined 24.9%

In the Renewable Electricity sector our index advanced 0.9% with 10 stocks climbing and 9 retreating. Suzlon (SUZON.NS) is a big component of the index and was down 13.1% percent after reporting a turbine blade replacement program for 1,251 blades. This represents a market cap decline of more than USD 1 million per blade against management’s estimated cost of USD 24,000 per blade.

Fuel Cells had a down week with the index decreasing 6.3% on 1 stock advancing and 6 stocks declining. FuelCell Energy Inc. (FCEL) led the movement downward with its stock price falling 14.3% for the week. Most of the loss came after their earnings call on March 6.

What did I learn this week? Oil prices hit record highs and sustainable stocks fall sharply with the broader market. Given the relatively high beta of the Solar, Fuel Cell, and Biofuels indices, their stock performance seems to be weakly correlated to oil prices and much more strongly influenced by broad market trends. Renewable Electricity, with its lower beta, may offer some portfolio diversification benefit.

Mark is the founder of Camino Energy, a information provider specializing in globally traded sustainable energy stocks. He also is an investor in sustainable energy stocks. Mark doen’t hold a position in any of the specifically mentioned stocks.

The week in sustainable energy stocks….

Neal asked me if I would comment on the markets for sustainable energy stocks in the last week. It’s an area I follow closely so he hopes I will occasionally stumble across some nuggets.

Let me start by saying I believe there is potential for good returns in sustainable energy stocks over time. In the short term though, it was a tough week. Sustainable energy stocks in all four of Camino’s sectors declined. In contrast, broader indicators such as the S&P, EAFA, and emerging markets were all positive for the week.

The Solar index, comprised of 33 companies, suffered the largest decline with a 5.3% drop bringing the YTD decline for the sector to -35.5%. Suntech (NYSE:STP) was hardest hit with a 20.3% price decline after it reported earnings and revenue below expectations, driven in part by silicon supply issues. If other producers report similar problems I would expect to see further declines in the sector as prices adjust to lower growth expectations.

In Biofuels Aventine (NYSE:AVR) was off 17.4% after it reported Thursday it had liquidity issues stemming from its $211.5 million invested in auction-rate securities. This issue may delay plant development. I expect analysts are reviewing the balance sheets of other sustainable energy companies to see if they have “cash equivalents” that aren’t exactly equivalent to cash. If you don’t understand what you’re investing in don’t invest in it.

In the Renewable Electricity sector Solar Millenium (FRA:S2M) declined 10.1% . The company announced a rights issue on Feb 19 that may have triggered concerns about dilution. Overall 8 stocks advanced and 11 declined resulting in relatively modest decline of 1.1% in the index.

In Fuel Cells all of our companies reported price declines with Fuel Cell Energy (NASDAQ:FCEL) falling the most at -6.3%. The company presented at the PiperJaffray conference on February 20, 2008 and didn’t highlight any items of concern that I noted.

What did I learn this week? Apparently growth constraints are still a factor in the high growth solar sector. I also relearned that unexpected risks occur when broader markets are having problems. Are there more surprises from the credit markets waiting to be revealed in sustainable energy companies?

Mark is the founder of Camino Energy, a information provider specializing in globally traded sustainable energy stocks. He also is an investor in sustainable energy stocks.