Introduction to Renewable Energy and Biofuels

1. Introduction to Renewable Energy and Biofuels Timothy M. Smith Associate Professor Environmental Science, Policy & Management Department of Bioproducts & Biosystems Engineering University of Minnesota timsmith@umn.edu

2. Many reasons for the need of new sources of energy • Rising demand for energy • Increasing price of oil • Political instability within many oil-rich regions • National security • Increased global emphasis on green house gas (GHG) emissions

3. Increasing world energy demand Source: Energy Information Administration. U.S. Department of Energy. International Energy Outlook 2007.

4. National security: dependency on oil Source: The Oil Drum. http://www.theoildrum.com/tag/council_on_foreign_relations

5. Energy Prices Light Crude (NYMEX) EIA 2007 • Energy Prices: • Sept. 12, 2007 – Oil prices reach $80/barrel for first time. • Natural Gas prices up 17.5%, annually, over past 5 years.

6. Energy Prices

7. Renewable energy consumption in the U.S.A. in 2004 Source: Energy Information Administration. U.S. Department of Energy. Renewable Highlights. 2004.

8. Federal PolicyEnergy Policy Act 2005 • Federal purchase goals: 7% RE by 2012, plus: • 150 MW solar PV purchase plan • Interior to approve 10,000 MW of RE • Wind: PTC extended to 12-31-2007 • Geothermal: PTC plus increased acreage • Hydro: PTC plus re-licensing reform • Solar: 30% tax credit plus net metering • Biofuels: ethanol incentives • Financing: Clean Renewable Energy Bonds

9. Recent Energy policy developments in the U.S.A. • 2007 Presidential “20 in 10 proposal” to reduce 20% use of carbon intensive fuels in the next 10 years • 15%: Require the equivalent of 35 billion gallons of renewable and other alternative fuels in 2017 – nearly five times the 2012 target now in law • 5%: Reforming and modernizing corporate average fuel economy (CAFE) standards for cars and extending the current light truck rule reducing annual gasoline use by up to 8.5 billion gallons • On 13 June, an amendment to the broad energy bill (S.1419) was proposed by democrat Jeff Bingaman, chairman of the Senate Committee on Energy & Natural Resources that would require that renewables such as wind, solar and biomass provide 15% of U.S.A. electricity by 2020. • Minnesota’s “Next Generation Energy Act” signed May 2007 propels Minnesota into the top two states (with California) leading the way towards reducing greenhouse gas (GHG) emissions. • The bill establishes statewide GHG reduction goals of 15 percent by 2015, 30 percent by 2025, and 80 percent by 2050. Part of the Act is the 25x25 legislation, sets a renewable energy requirement of 25 percent by 2025.

10. Role of the States • Diverse regions • Geographical • Geological • Ecological • Federal regulations would be unproductive • States are more knowledgeable

11. The Challenge of Putting RE into Use- Regional Resources, Economics, and Politics - Resource Potential SOLAR ENERGY WIND POWER GEOTHERMAL BIOMASS

12. Financial incentives on renewable energy in the U.S.A Source: Database for State Incentives on Renewables & Efficiency Website, check June 2007.

13. Renewable portfolio standards * In addition to their mandatory standard, Maine has an additional goal of achieving 10 percent of non-hydroelectric renewable penetration by 2017 ** For incentive ratemaking purposes, the Iowa Utilities Board (IUB) initially interpreted the state’s RPS as “average capacity” based on kilowatt-hour output. For most of the statute’s existence, the IUB’s interpretation has mandated the payment of incentive rates for 260 MW of renewable energy, the nameplate capacity of 105 “average” MW *** The Texas statute originally set a goal of 2,280 MW by 2007, but increased the goal to 5,880 MW by 2015 Source: U.S. Department of Energy, Pew Center on Global Climate Change, DSIRE Database of Renewable Energy Incentives. Figure courtesy of Benjamin K. Sovacool and Kelly E. Siman.

14. Grants for Renewable Energy Technologies in the U.S.A. * * * * * * * * * * * D.C. * State offers at least one grant program Private, utility and/or local program Source: Database for State Incentives on Renewables & Efficiency. www.dsireusa.org May 2007.

15. Loan Program for Renewables in the U.S.A. D.C. State & utility/local programs State program Utility or local programs Source: Database for State Incentives on Renewables & Efficiency. www.dsireusa.org May 2007.

16. Energy Efficiency Programs SEPS – Sustainable Energy Portfolio Standard EERS – Energy Efficiency Resource Standard

17. Green Power MarketingUtility Green Pricing Programs Growing at a Steady 40% CAGR • Top 10 Green Pricing Programs: • Austin Energy • Portland General Electric • PacifiCorp • Sacramento • Xcel Energy • National Grid • LADWP • OG&E Electric • Puget Sound • We Energies Number of Participants +700 MW of RE Capacity Added to Support Green Pricing Programs Source; Lori Bird, NREL 2005 17

18. Renewable Energy Certificates Production of Renewable Energy REC (Environmental Benefits) Commodity Electricity • Renewable Energy Certificates (RECs) represent the contractual right to claim the environmental and other attributes associated with electricity generated from a renewable energy facility • May be traded independently of energy markets • Green Tags, Green Tickets, Renewable Credits, Renewable Certificates, Tradable Renewable Certificates (TRC), T-RECS, Renewable Energy Certificates (RECs)

19. Renewable Energy Certificates

20. Renewable Energy Certificates (REC) Applications

21. Size of REC Market Source: NREL Energy Analysis Office

22. Transport fuels: Increase fuel demand

23. Biofuels “The only source of liquid transportation fuels to replace oil is biomass. Everyone is excited about hydrogen, but there are some very serious technical and infrastructure challenges. If you can stick with a liquid fuel which is compatible with our infrastructure and the vehicles we use, it is an easier transformation.” -- Nathanel Greene, Author of National Resource Defense Council’s “Growing Energy” report

24. Ethanol production capacity is increasing rapidly in U.S.A. Source: Iowa State University. Center for Agricultural and Rural Development. www.card.iastate.edu/.../bio/tools/ethanol.aspx

25. Federal and State Ethanol Policies/Incentives • Federal (blenders) tax credit of $.51 per gallon of fuel ethanol; Totaling about $1.4-2.5 billion in 2006. • 22 states have issued ethanol mandates or incentives • Minnesota • $.058 tax exemption E85 • $.20 per gallon producer credit; subject to reduction pending on state budget Producer credit applies to the first 15 million gallons per plant per year. There is a $3 million annual cap per plant. Cap is 10 years from date of plant start-up.

26. States with Ethanol Mandates Minnesota – recently enacted E20 law that will double the amount of ethanol in gasoline in Minnesota to 20% by 2013. Minnesota - SF 326 - Introduced 1/29/2001 and enacted 3/15/2002, the bill requires all diesel fuel sold in the state from July 1, 2002 through June 30, 2006 to contain at least 2.0 percent biodiesel fuel oil by volume. On and after July 1, 2006, all diesel fuel sold in the state is required to contain at least 5.0 percent biodiesel fuel oil by volume.

27. Ethanol from corn stills falls short… Source: Ethanol Expansion in the United States: How Will the Agricultural Sector Adjust?. By Paul Westcott. USDA ERS Outlook Report No. (FDS-07D-01) 20 pp, May 2007.; and U.S. Department of Agriculture, Office of the Chief Economist. USDA Agricultural Projections to 2016, OCE-2007-1, February 2007, available at: www.ers.usda.gov/publications/oce071/

28. Growing projections… (Wisner 2007)

29. Emission standards around the world (Wisner 2007)

30. U.S. Historic and Projected Fuel Ethanol Production

31. Global Biofuels Developments • Dramatic changes emerging in global agriculture • Rapid expansion of ethanol – in US, Brazil, and EU • About 90% of global ethanol from US and Brazil • EU leading in biodiesel use • Rapid growth of palm oil production for biodiesel • MAJOR CONSTRAINT: Cropland availability • Complex global forces will determine size of industry (Wisner 2007)

32. Ethanol subsidies and trade barriers Source: Statistic.com based on Statastic research; Environmental Working Group - Farm Subsidy Database; and the trade model is based on scenario 2 from the following paper: “Removal of U.S. Ethanol Domestic and Trade Distortions: Impact on U.S. and Brazilian Ethanol Markets,” Amani Elobeid and Simla Tokgoz, Working Paper 06-WP 427, August 2006, Center for Agricultural and Rural Development, Iowa State University

33. Ethanol subsidies and trade barriers Source: Statistic.com based on Statastic research; Environmental Working Group - Farm Subsidy Database; and the trade model is based on scenario 2 from the following paper: “Removal of U.S. Ethanol Domestic and Trade Distortions: Impact on U.S. and Brazilian Ethanol Markets,” Amani Elobeid and Simla Tokgoz, Working Paper 06-WP 427, August 2006, Center for Agricultural and Rural Development, Iowa State University

34. Availability of arable land Source: Economic Commission for Latin America and the Caribbean (ECLAC) and the Food and Agriculture Organization of the United Nations (FAO). Opportunities and risks arising from the use of bioenergy for food security in Latin America. May 2007. • “Sugar cane cultivation uses only 1% of [of our arable land]. Soya bean uses only 4% and cattle raising 29%. So the issue is not land, and it's not even about the rainforest because the Amazon is not a good area for sugar cane production” . • Luiz Inacio Lula da Silva, President of Brazil • BBC News: Monday, 4 June 2007

35. International Impacts • Just the US ethanol plants UNDER CONSTRUCTION: • 58 mil. Tons of corn (double current use) • 3.5 times the volume of Japan imports of US corn • 130% of 2006 EU corn crop • 70% of global corn exports • US imposes a 2.5% ad valorem tariff (product value), plus $.54 per gallon secondary duty on non-FTA imports. • Other countries are expanding … • Strong negative impact on animal agriculture • Higher food costs • GHGs? (Wisner 2007)

36. Well-to-wheel GHG emissions reductions (compared to gasoline)

37. Well-to-wheel GHG emissions reductions (compared to gasoline) • Coal fired corn ethanol – indistinguishable from current gasoline GHGs. • Coal-to-liquid ethanol – 119% greater GHGs • Sugar-cane ethanol from established soils – 80% less GHGs (compared to gasoline). • Sugar-cane ethanol from cleared tropical woodland – 50% greater GHGs (compared to gasoline) (Turner et.al. 2007, Tilman & Hill 2007)

38. Green Biofuels Index (Turner et.al. 2007)

39. Conclusions • It is different this time • Renewable policies driving the market place, now more than ever • These policies tend to be flexible and market-based • We’re in for a bumpy ride…