Price of Oil -- What to do?

Unbelievable but true. You've heard there is no such thing as a guaranteed profit. Think again.

Contango is a term used to describe the situation when the future price of a commodity is greater than the current price plus the cost of storing that commodity. 

That means you can buy on the market today, sell a future and lock in a GUARANTEED profit. 

Shell Oil is doing just that right now.  They are storing  oil in unused tankers. By selling a future (vs. an option) they have pre-sold what they have just bought on the open market an locked in a profit.

This can only happen when the hedgies don't have access to capital, or are too risk adverse-- because otherwise they would close the gap via arbitrage trades.

Does this mean oil prices will go up.  Likely yes.  Should you hedge the price of gas or oil if you are an industrial consumer? That answer is less obvious because the COST of the hedge is high right now (because the future price of oil is high relative to the current price).

The smartest industrial fuel hedge we've seen is putting in a biomass boiler (or a gas/biomass dual boiler).  While oil and natural gas trade within a band, the price of wood chips is not very highly correlated to oil.  When prices of natural gas goes up, industrial customers can switch to green chips, wood pellets or better yet torrefied wood.

In aggregate, the cost of a biomass boiler is much less than the cost of a financial hedge right now.

Two Serious Bets on BioMass

Duke Energy announced plans to build 12 biomass power plants by 2014.  That's huge.  

The $ 4 Million per MW seems high to us, and the price tag doesn't help stimulate the market but this is a huge vote of confidence on the part of Duke.   Read more...

Earlier, the Southern Company announced plans to build 2 100 MW plants to also come online in 2014. Read more...

Looks like these two run the same math (and watch each others moves pretty carefully).

These are just announcements, so they can change them later but I suspect that this is a 'get ahead of the cap-and-trade' wave.  Caps will be determined between now and 2014 and if biomass, coupled with replanting, gets scored at somewhere near carbon neutral then the utilities can utilize these plants to meet demand growth and avoid having to pay market prices for carbon credits.

All in all, a very sensible solution.  

Bio Coal Shows More Promise

Bio Coal is the name some use for Torrefied Biomass.  The problem with biomass is the MASS.  The energy value is typcially low, and the cost to harvest, move, and process the mass is high.

Torrefaction addresses these issues.  It is a process which 'concentrates' the energy value of biomass through heating the material in a process similar to making charcoal.  It is a low emission, carbon neutral alternative. (Think of how much smaller and lighter the dehydrated food hikers carry is).

Energy Density is one of the principles that alternative energy providers sometimes avoid at their own economic peril.  

We've struggled to find a true, all in, no subsidy, no massive leaps of faith, equivalent cost of energy for this technology.  Round one of our work is completed and we think that the comparable cost of energy is...

$ 80 to $85 per ton of coal

On a comparitive basis of other renewable, carbon neutral or better energy sources that's pretty darn good.

Next we're going to look at feedstock pricing elasticity.  We want to truely measure the "ethanol effect" where industry development drives up feedstock prices to the point of choking off the crush spread.

We're also going to try and get an idea of emissions data. Since most of the volitiles are burned off proponents are suggesting that emissions should be favorable.  However I have not yet found any real bag test results. Particulate matter could be a problem, however particulate filters exist today which may solve the problem.  Stay tuned

We'll call the equivalent issue in Torrefaction the "Burn Spread", ie the difference in value between the input feedstock (think wood chips) and the economic value of the output (Bio Coal).

So at 11,000 BTU/lb coal on the east coast at $ 120 per ton the "Burn Spread" is $ 40 per ton.

Clearing the first hurdle.

Before we get too excited, we have some more work to do but 80% of the stuff we look at has hit a dead end at this point in the process.  At least we've cleared the first hurdle.

Track our work on Bio Torrefaction.

Huge positive impact through proper Tire Pressure

No Kidding folks, there is something simple that we can do that would have as LARGE a POSITIVE impact on CO2 emissions as all the Wind Energy currently sited in the US -- and at a fraction of the cost (not that we're against wind).

The numbers on the impact of improper tire pressure are STAGGERING, and verifiable.

Several firms offer valve caps that turn color or light up if tire pressure is low. An easy solution.

These should replace pizza's and candy bars as fundraisers, they should be provided for free, or made part of the auto registration or inspcection process.

Very low cost. Surprisingly high impact.

If 20% of the improperly inflated tires in the US were corrected, the impact would be a savings of 1.7 Trillion Gallons of Gasoline per year, and 6.5 Trillion dollars saved. Want to confirm/dispute our calculations -- please debate the numbers.

http://spreadsheets.google.com/pub?key=plY2Q4hDAUmg4C2f_r9ALIQ

Congress knows this because they have tried to mandate tire pressure monitoring in all new vehicles. But there 240 Million cars in service today that could benefit from this simple improvement.

Torrefacted Plant Material -- One Worth Watching

Through all the noise out there right now, we look for ideas that could truly make a difference. Our criteria is:

1) The technology must be at least 35% Carbon Positive

2) The potential scale of operation must be large enough to deliver 10% of the current US Demand for electricity

3) The cost, post inflection point, must be 20 cents per kWH or less Without subsidies and tax credits (because the government can't afford to subsidize a large part of our consumption).

+++++++++++++++++++++++++++++++++++++++++++++++++++

One that has real potential is Torrefied Plant Material. New work out of NC State is showing some interesting numbers for a unit which converts plant material into a powdery charcoal like material in the field.

The numbers look promising, because the cost of material handling is significantly reduced. In most waste-to-energy applications, the cost to move and handle low BTU material creates the barrier to economic viability.

Furthermore, the resulting fuel (think charcoal chips and powder) can theoritically co-burned with coal in existing power plants. This is what makes it exciting. A power producer could have a renewable fuel which could be added based on the relative cost of delivered Torrefied BioMass to Coal.

Two 'test burns' are scheduled for 2008. We'll be monitoring this space. Check back or contact us for updates.

If current Torrefied Pine Wood can be utilized in a coal fired plant, the next step to viability would be developing plant species for BTU value vs Food or Fiber Strenght value. The feedstocks are the kind that grow on marginal land, avoiding the current ethanol "Fuel at the expense of Food" debate.

Something we can and should do TODAY!

So much money being spent trying to reduce carbon emissions.

So little progress.

Could it be because words seem to prevail over numbers?
The math behind the economic viability of SE2 (Sustainable Environment and Energy) projects is not arbitrary or even that difficult.

And like a consumer underwater or credit cards, every month we fail to embrace pragmatic small steps we can take today only compounds the hole we have to dig ourselves out of later. (More on painfully obvious mis-guided policy expenditures in future blogs). But for now, lets ask the question: What can be done today to slow the size of our future problem?

While not sexy, sensible conservation is the right answer for today. The greenest kWH is the one we didn't need to create.

Which brings us to commercial and industrial lighting retrofits. They make economic sense today, and they use 20% to 25% less energy for the same light output.

An industrial customer with a 24X7 operation and 10 cent electricity will have a 13 month payback on installing efficient high bay flourescent lighting.

A commercial customer with 60 hours of operation a week and a 12 foot ceiling or less, and 10 cent electricity will have a 18 month payback.

Finance these projects and they cash flow from day 1.

These are great economic returns that deliver at least 20% reduction in carbon emissions. Rapidly retrofiting industrial and commercial lighting to efficient flourescents would have a larger impact than all the solar and wind energy in the United States today. Write us if you want a copy of our calculations.

OESX is a public company in this market. We think its the wrong company in the right market segment.

What about LED's. -- They are not in the "Viability Zone" yet. http://www.usmicrogrid.com/aboutus_viabilityzone.html . We think they will fall in the viability zone before broadscale Solar PV does, so they are worth watching. Track NASDAQ: CREE as a pretty good proxy on the general LED Market.

Why are John, Hillary, and Barack not shouting about this Environmental Opportunity Right in Front of Our Noses?

What can we do to promote awareness? What programs can we put together?

ENOC and CRM -- déjà vu?

ENOC and CRM -- Two Birds of a Feather

By: Van Morris posted Feb 28, 2008, 8:09am

Enernoc stock finished off its recent slide with a thump, driven by a conviction to invest for the opportunity.

The sound byte was an earnings miss, which eclipsed a deeper story of fantastic growth and a ballooning backlog. Lag times from sales expenses to revenue recognition are greatest in the congested PJM Region which currently has some of the juciest prices for capacity and energy.

What do ENOC and CRM have in common? From an inside view, they can calculate the Net Present Value of a newly acquired customer, and they can track renewal rates.

I’m reminded of the multiple “you’re spending too much for growth” pullbacks that have occurred in Salesforce.com’s stock history – including the one that came within the first public year.

The risks are different, but the calculus is quite similar, and guide rational internal investment decisions.

The company was on sale at a discount to their IPO price today.

Disclosure: I am now long the stock. Readers should know that our position could change without disclosure or updating this blog.

Revenue Neutral Carbon Tax: A good idea, but a risky implementation.

Could we ever trust Congress to pass a TRULY REVENUE NEUTRAL tax? If so, a Carbon Tax would be the single most powerful policy initiative to get this country on the right path towards energy independence.

Lets be clear here, we're not talking about using the enviornmental issue to raise taxes.

A REVENUE NEUTRAL carbon tax would mean that energy would be taxed based on its carbon footprint, and any and all dollars collected would be returned as cash to the people.

Here's how it would work, and what the impact would be.

Suppose for a second, that electricity was taxed, and that every citizen who was current on their tax return filings got a quarterly rebate from the government.

If Electricity prices went up enough, consumption behavior would change (as it has in Europe). The economics of conservation would improve, and some of the alternative energy solutions would get closer to economic viability. The persuasive power of the market would be put to work.

A Carbon Tax would be a progressive energy tax. For example an appartment dweller would get the same amount of refund as a large homeowner, even though their energy usage was less. Individuals and consumers that managed electricity would profit at the expense of the wasteful.

But the biggest question is not IF a Carbon Tax would work, but whether or not we can trust Congress to ever pass a tax that is truly REVENUE NEUTRAL. If not, then the envirnonmental benefits it deliver would come via a a path of economic destruction and a lower standard of living.

We support a REVENUE NEUTRAL Carbon Tax but oppose all other forms of Carbon Taxes.

Properly administered, the cost of adminsitration would be a small portion of the grants we're miss-spending trying to achieve the same objective.