Shell Exits Algae as it Commences a "Year of Choices"

Miami, FL, USA -- Last year, Shell's chief technology officer, Gerald Schotman, told Reuters that the company will narrow its research paths in advanced biofuels from 10 advanced technologies to five in 2011, and described 2011 as "the year of choices."

Last week, after previously exiting an investment in Choren, a Fischer-Tropsch technology based in Germany, Shell announced that it will will exit its shareholding inCellana, a joint venture between Shell and HR Biopetroleum. Today, HRBP will become the sole owner of Cellana, including its six-acre demonstration facility in Kona, Hawaii.

To support the transition, Shell has agreed to provide short-term funding to advance and focus the algae technology development program, which is supported by stakeholders like the University of Hawaii, Hawaiian Electric Company, Maui Electric Company, the National Alliance for Advanced Biofuels and Bioproducts consortium, and the DOE.

[Note: In 2007, HRBP and Royal Dutch Shell had formed Cellana as a separate joint venture to build and operate a demonstration facility to grow marine algae and produce vegetable oil for conversion into biofuel].

HR BioPetroleum’s view:

Ed Shonsey, HRBP CEO, said, “We will continue to operate Cellana’s Kona demonstration facility and to continuously improve the economics for growing marine algae using HRBP’s patented process. Based on HRBP’s and Cellana’s results to date, we believe this technology holds great potential for the economical production of algae and algae-derived products for applications within the aquaculture and animal feed markets, as well as for the production of algal oil for conversion into biofuels.” Shonsey added that the venture has acquired all its permits and aims to commence producing algal biofuels “in two to thre years."

Shell’s view?

“In keeping with Shell’s portfolio approach to the research, development and commercialisation of advanced biofuels, this decision will allow Shell to focus on other options that have shown a better fit with Shell’s biofuels portfolio and strategy.”

So, Shell is out of the algae race, for the time present. And what does this mean for future investment? Let’s start with some background on how oil majors like Shell manage, communicate about, and think upon their biofuels investments.

The Shell Backstory

Last spring, we wrote:

“Though the biofuels industry should, and generally does, react with excitement when oil industry majors invest in biofuels ventures — such as Shell’s investment in cellulosic ethanol pioneer Iogen and in algal fuels pioneer Cellana — it is hardly the case that they have entered some Nirvana of strategic investment where money is no object and scale is a certainty.

“In fact, the oil company investment committee process is a trial by fire that the designers of the medieval Inquisition might well have taken some notes on. Even after initial investment decisions are taken.

“You are up against, to give an example, a $400 million internal upgrade to an off-shore platform that is using known technology to produce a known return, for the production of oil and gas that the company is entirely comfortable with,” an industry executive recently told the Digest, requesting confidentiality. “Even if you pass through that, investment is on a stage-gate process, and they are really, really serious about internal controls and hurdles.”

“The stages and gates, according to other executives who discussed the process with the Digest, are highly disciplined, and woe betide the biofuels venture that comes short of them, no matter how understandable the reasons that generally stem from the technical uncertainties of producing new fuels from new feedstocks using new processes.”
At the same time, we have this to go on: Shell exited its wind and solar businesses in recent years, and said that it will focus its attention entirely on biofuels as an alternative energy platform.

So, background aside, where exactly are we with Shell and its biofuels babies?

Shell’s Biofuels Portfolio

Cosan

Shell’s view: “In Brazil, Shell signed a binding agreement to form a joint venture (Shell share 50%) with Cosan for the production of ethanol, sugar and power, and the supply, distribution and retail of transportation fuels. The transaction is subject to regulatory approvals, which it is essentially at this date cleared.”

The Digest’s take: Unlike BP, we have a pretty good idea what Shell is going to do in Brazil, thanks to its monster merger of its bio-based business with Cosan. The company will have its hands full just absorbing and energizing its new JV. But Shell isn’t in Brazil for the joys of the sugar business, not ultimately as solely a renewables play in the ethanol space. Ethanol is an affordable, sustainable route to increasing domination of an important fuel market (Brazil), with tempting M&A economics caused by huge debt loads in the sugar/ethanol sector.

Though they have contributed their investment in Iogen into the mix here, we look at the fact that Shell has placed this venture into its Downstream business unit as a sign that their initial focus is, primarily, about distributing sugarcane-based ethanol and gasoline to the vibrant Brazilian market. But we think something else is brewing here, which we’ll discuss later in this article in “The Bottom Line.”

Iogen

Shell’s view: “We are working with Iogen Energy, a Canadian company, to develop the processing technology that enables ethanol to be made from straw using enzymes. Iogen opened a demonstration plant in Ottawa, Canada, in 2004. A Shell service station in Ottawa sold petrol containing 10% cellulosic ethanol from the demonstration plant for one month in 2009.”

The Digest’s take: An investment in transition. A new CEO, Duncan Macleod, arrived from Shell last July as COO and rapidly moved up to the CEO chair in September. Shell has re-signed its joint development agreement with Iogen, taking that collaboration through at least mid-2012. Macleod recently signaled at a biofuels gathering that the company will be converting its front end systems and will “redefine its process,” according to an attendee.

We are not entirely sure, nearly seven years into a pilot production program, that Shell would not have bailed on this investment.

Codexis

Shell’s view: “We have a joint technology program with Codexis to develop more powerful enzymes for faster conversion of biomass to ethanol and other fuels.”

The Digest’s Take: Last April, Codexis (CDXS) raised $78 million in its IPO, selling 6 million shares at $13 each. The $13 price was at the bottom end of the $13-$15 range targeted by the company and gives the company a $509 million market capitalization, and the company’s stock dipped into the $8 range for some time, but has recovered to $9.17 this week after some time last fall in the $10-$11 range.

It was the first renewables investment by an oil major in some time to manage an IPO, so definitely chalk this one as a winner, although we continue to hear from analysts that the value on Codexis is depressed by the fact that it is so dependent on Shell’s strategy and (to date) the future of the investment in Iogen, neither of which have come entirely clear.

A bright note for Codexis: The company has started to develop opportunities in renewable chemicals, independent of its relationship with Shell, and is proceeding rapidly in that direction. That could provide some upside regardless of what Shell decides to do.

Virent

Shell’s view: “With Virent Energy Systems we also have a joint technology development program to convert plant sugars directly into a range of high performance liquid transport fuels. In 2010 Virent opened a demonstration plant to convert plant sugars directly into petrol.”

The Digest’s take: Last March, Virent and Shell announced the successful startup of the Virent “Eagle” demonstration plant, producing 10,000 gallons per year of biogasoline, a drop-in renewable fuel, and shortly afterwards Shell announced that it had taken an equity stake in Virent and begun a joint technology program.

Under the program, part of a $46.4 million third round of funding in which Shell and Cargill deepened their commitment to Virent’s technology platform, the companies agreed to expand R&D beyond biogasoline to include diesel fuel. With its equity stake, Shell also gained a seat on Virent’s board.

Shell’s equity stake says just about everything. Cargill’s increased investment says the rest. Demonstration-scale data is just coming in now; but if Virent goes to 1 Mgy, it will go far. Along with Cosan, this looks like the most vibrant portion of the Shell biofuels portfolio.

Research Agreements

The company has a wide range of biofuels R&D agreements signed in 2008 with the Massachusetts Institute of Technology (MIT); the University of Campinas (Unicamp) in Brazil; the Institute of Microbiology, Chinese Academy of Sciences (IMCAS) in Bejing, China; the Qingdao Institute of Bioenergy and Bioprocess Technology, Chinese Academy of Sciences (QIBEBT) in Qingdao, China; the Centre of Excellence for Biocatalysis, Biotransformations and Biocatalytic Manufacture (CoEBio3) based at Manchester University, UK; and the School of BioSciences Exeter University, UK.

Last October, the company upped its ante with an agreement to fund $25 million in energy R&D with MIT’s Energy Initiative over a five-year period. The research collaboration will fund a suite of projects at $5 million per year for the coming five years, focusing on advanced modeling, earth science, biofuels, nanotechnology and carbon management.

More on the R&D agreements.

Overall, at Shell

Credit Suisse recently said that it expected Shell to record 42 percent cash flow growth through 2015, compared to an industry benchmark of 27 percent, and upgraded the stock from neutral to outperform.

The Bottom Line

No one appointed us chief-visionary-of-all-things-Shell, but here’s our prognosis:

We think Shell is vitally interested in the junction between the Virent technology – producing diesel and biogasoline from sugar — and its considerable assets in Brazil as feedstock source and deployment point. If Virent nails its technology to a viable performance point, Shell has the feedstock, management, local presence and the downstream scale to completely dominate the growth opportunities in the Brazilian market.

Even Amyris, which has been moving at light speed, would be hard pressed to compete in Brazil, even with its investor Total commanding an estimable presence in the region through Total Brasil.

Long-term, we sure like the Codexis investment as a means to liberate cellulosic sugars from pre-treated bagasse and vinasse (saccharification), and potentially to produce up to eight-carbon alcohols (octanol) from bagasse.

We see Iogen, contributed as it is now to the Cosan JV, as a technology that could advanced that story by giving Shell options to produce cellulosic ethanol as a supplement to sugarcane ethanol.

Total-Amyris vs Virent-Shell, for control of the Brazilian advanced biofuels market, and the edge in dominating the fast-growing Brazilian fuel market? Game on.

ADB to Provide Loan for India Hydropower Projects

Manila, Philippines India and the Asian Development Bank have signed a loan agreement for $208 million, which is the third tranche of an ADB loan for the Himachal Pradesh Clean Energy Development Investment Program.

India also signed an agreement with ADB for a $89.7 million loan for the Assam Power Sector Enhancement Program (Tranche-II), as part of an overall facility of $200 million.

The government is setting up four run-of-the -river hydropower projects totaling 856 MW in Himachal Pradesh, with funding of around $800 million from the ADB.

The ADB loan provides partial funding for the 195-MW stages II & III of the integrated Kashang hydroelectric project located in the district of Kinnaur and for the 100-MW Sainj hydroelectric project located in Kullu district, an official release said.

Hydropower capacity in India is set to double by 2017, mainly due to start up of new hydro projects, according to a recently-released research report titled "Indian Power Sector Analysis."

India's hydropower generation potential is 300,000 MW, out of which only 145,000 MW can be exploited, RNCOS, a global market research and information analysis firm, reported.

The GreenWheel Team

GreenWheel is the name of the team from the Education Institute IES Francisco de Goya, situated in Molina de Segura, Murcia, Spain. The team is dedicated to designing and constructing a prototype car which is ecological and based on an electric engine. The team is made of both teachers and students as well as an ample group of technical assessors that are interested in this project. While the team is assembled as stated there is also am Industrial Engineer, a Telecommunications Engineer, an Informatics Engineer and many Electrical Technicians, a Molding Technician and many other entrepreneurs and universities.

The Transmission Imperative for Renewables

It's an interesting time to be involved with electricity. The power industry is on the verge of the biggest changes since the days of Thomas Edison and George Westinghouse. Recent breakthroughs around the world in power transmission systems have made it imperative for the U.S. to develop a more intelligent, flexible, long-haul transmission network that can carry renewable energy from remote locations to major population centers.

RPS Driving Build Out 

Today in the U.S., 33 out of 50 states have some kind of renewable standard. These renewable portfolio standards (RPS), and their corresponding deadlines for compliance, have significantly impacted generation spending.

Proposed goals for a national renewable portfolio standard vary from 12 to 25 percent. If the government enacts a national standard, experts estimate that incremental capacity additions of more than 300 GW will be needed. Transmission capacity for this new and mostly remote generation, however, does not exist. With an average construction schedule of 60 months to 72 months for a 500 MW, 345 kV transmission line, it could take well beyond 2025 to build the needed transmission lines.

The North American Electric Reliability Corp.’s (NERC’s) October 2009 publication, “2009 Long Term Reliability Assessment 2009 – 2018,” notes that although existing reserve margins are adequate across the U.S. for the next few years, the first priority must be to expand the grid and increase transmission capacity to handle expected renewable generation growth.

The report concludes by saying: “More than 11,000 miles (or 35 percent) of transmission above 200 kV proposed and projected in this report must be developed on time to ensure reliability over the next five years.” NERC strongly believes that construction siting is the most urgent issue for the electric power industry, now and well into the future. 

Bulk Transmission Capacity: A Prerequisite

If utilities are to harvest the vast renewable power potential in remote locations in the U.S., or anywhere in the world, they must be able to move it efficiently from its production point to cities and load centers where people live and work.

Bulk transmission capacity is a prerequisite for large-scale renewable generation. While many renewable power sources’ intermittent nature creates challenges for grid reliability, proven, readily-available and cost-effective transmission technologies exist to mitigate their impact. They are available now and include high voltage direct current (HVDC) and flexible AC transmission systems (FACTS).

Several key transmission projects in the U.S. focus on transmitting renewable generation:

• Southern California Edison continues to add transmission to support wind generation in the Tehachapi region.
• FPL’s NextEra Energy has completed much of its merchant transmission associated with its Horse Hollow Wind Energy Center project in Texas.
• LS Power’s Southwest Intertie will move renewable power from Wyoming and Montana to substations near Las Vegas, using AC and possibly high voltage DC transmission.
• Another LS Power project, Overland Transmission, will apply either high voltage AC or DC circuits across 560 miles to move renewables-fueled generation between eastern Wyoming and southern Idaho.
• San Diego Gas & Electric’s Sunrise PowerLink will play a major role in bringing renewable generation from the Imperial Valley into southern California, even though it was built primarily to ensure system reliability and support load growth. According to the Renewable Energy Transmission Initiative, the Imperial Valley region has potential for 6,870 MW of solar, 3,495 MW of wind and 2,000 MW of geothermal power generation.

Although multiple major transmission projects are underway or nearing construction in the U.S., they are not enough to support RPS requirements. The two key renewable power transmission capacity expansion impediments are:

• The fragmented and time consuming regulatory approval process, and
• The absence of an integrated renewable generation and transmission strategy.

A look at a couple of examples of recent transmission successes in Europe and China provide an idea of what U.S. transmission could look like.

Europe: Visionary Governments Prepare for Offshore Wind

In the North Sea, 81 miles off Germany’s coast, the world’s largest offshore wind farm is connected to the grid using advanced HVDC technology. With HVDC cables lying both underwater and underground, the project’s environmental impact is minimized and the regulatory and siting procedures have been swift. The project connects wind generators and transmits power to a new substation on Germany’s coast. The power is then connected to the existing transmission grid.

The BORWIN 1 offshore wind farm demonstrates how HVDC can effectively accumulate power generated in remote locations and transmit it to load centers. Through the use of HVDC and wind generation, Transpower, the transmission grid operator, expects to avoid 1.5 million tons of CO2 emissions per year by replacing fossil fuel generation.

This summer, an even larger project was launched off Europe’s coast. ABB is working with Transpower to supply an 800 MW power link. This project will use HVDC Light technology to transmit power from the 400 MW Borkum West II wind farm (see Figure 1) and other wind farms to be developed nearby. The wind farms will be connected to an offshore HVDC converter station that will transmit electricity to the onshore HVDC station at Dörpen, on Germany’s northwest coast, via 165 kilometers of underwater and underground DC cables. The Dörpen/West converter station will in turn feed AC power to the mainland grid. At 320 kV, this will be the highest voltage level of extruded cable ever used for HVDC. State-of-the-art transmission technologies like these are integrating renewable energy sources efficiently, ensuring grid reliability and stability and lowering environmental impact.

 China: Transmission Link Up and Running

China continues to set the example and lead the way in developing advanced transmission technologies that tap the power of renewable energies without many of the state or national obstacles faced in the U.S. or Europe. For example, ABB recently worked with the State Grid Corp. of China (SGCC) to create the world’s first ultrahigh-voltage direct current (UHVDC) transmission link for commercial operation. ABB believes this project represents the world’s longest and most powerful transmission link (see Figure 2).

The ±800 kV Xiangjiaba to Shanghai UHVDC link can transmit up to 7,200 MW of power from the Xiangjiaba hydropower plant in southwest China to Shanghai, the country’s leading industrial and commercial center, which is about 2,000 kilometers away in eastern China. The new link can meet the electricity needs of about 24 million people and sets a new benchmark in terms of voltage levels and transmission capacity, superseding the 600 kV Itaipu transmission line in Brazil, which was also developed by ABB.

The high-capacity power link comprises a single overhead line and occupies less space than the existing system. Moreover, transmission losses on the new line are less than 7 percent; considerably less than the existing 500 kV system. The electricity saved is equivalent to the power needs of around one million people in China.

UHVDC transmission is a new and expanded development of HVDC. It is particularly suitable for vast countries like China and India, where consumption centers are often located far from power sources, including renewables.

Overcoming U.S. Obstacles

While in other parts of the world, governments, regulators, utilities and industries are working toward common goals, many transmission projects in the U.S. have not yet overcome regulatory hurdles.

The good news is there is proof that things can be done differently. In Texas, utilities, multiple regulatory agencies, generation companies and reliability councils are working together to execute a Public Utility Commission (PUC) order effectively, timely and fairly. Hallmark to this activity is the PUC-driven coordination between transmission and generation stakeholders. When completed by the end of 2013, this Texas CREZ (Competitive Renewable Energy Zones) initiative should result in incremental addition of more than 5,000 miles of high voltage AC transmission, allowing 18 GW of renewable generation to be reliably moved from west Texas into Dallas, San Antonio and Austin.

ERCOT consulted other regional transmission organizations, independent organizations, independent system operators and utilities while studying and developing multiple scenarios. The Texas Department of Wildlife provided impact analysis. Based on ERCOT recommendations, the PUC chose one of four CREZ scenarios and ordered its development.

The PUC provided stakeholders with guidelines and protocols, assuring them that neither generation nor transmission investment will be “stranded.” This was done to provide generation stakeholders the assurance they need before building new wind generation.

To comply, wind generators have been busy. Nearly 11 GW of wind power are installed, 450 MW of new wind power are under construction and nearly 13 GW of wind are in development.

The bottom line in Texas is that these projects got off the ground in a matter of years, not decades.

Swift regulatory and siting procedures, fair cost allocation and political courage to execute are needed to resolve key obstacles delaying renewable energy and related transmission build out across the U.S. and other nations grappling with this issue.

A progressive PUC, like the Texas PUC, and cooperation between the various regulatory agencies that have agreed on common goals and executed the reviews and permits needed to keep schedules on track, can lead to success.

Idaho Gov. C.L. Otter recently said, “The recent economic recession has slowed the growth in demand for electricity, but we cannot squander this opportunity to address future needs. It is clear that coordination among states, the federal government, all segments of the industry and non-governmental organizations is essential for the region to meet its clean energy needs.”

The Texas CREZ is an excellent example of how things can get done in the U.S. A visionary PUC with political support, a coordinated regulatory process, and the courage by everyone involved combines for a favorable environment for sustainable renewable power growth. This model can, and hopefully soon will be, applied across the U.S. as it is elsewhere.

Solar Takes Wind in Test

Blustery gusts keep a wind turbine spinning at Inland Power and Light's corporate headquarters on the West Plains, but solar panels are the real powerhouse at the utility's alternative energy pilot project.

The solar panels have produced about five times as much electricity as the wind turbine over the past 14 months. The sun’s ability to generate more electricity than the wind – even during short winter days – has surprised the utility’s engineers.

“Solar,” said Richard Damiano, the utility’s chief engineer, “is trouncing wind.”

Inland Power set up the experiment to help the utility customers compare alternative-energy options for their homes. Each year, the utility fields from 50 to 60 calls from people interested in producing some of their own electricity. Initially, most think they want a wind turbine, Damiano said.

To help customers with the analysis, Inland Power officials decided to collect their own data.

The utility bought a 35-foot wind turbine and a bank of solar panels. The systems are representative of technology scaled to individual homeowner use, Damiano said. Each cost from $22,000 to $24,000 to install.

Conventional thinking suggested that wind turbines would outperform solar panels, particularly on gray winter days.

“It’s the West Plains, so there’s a perception that the wind is always blowing,” Damiano said.

But wind is more erratic than people realize, he said. The wind dies down, for instance, during hot weather and cold spells. Inland Power’s turbine is similar to the larger ones installed in the Columbia River Gorge. It needs a stiff breeze of around 12 miles per hour to start producing electricity.

Solar panels, on the other hand, generate a certain amount of electricity even on cloudy days.

During the first 13 days of January, Inland Power’s solar panels produced 35 kilowatt-hours of electricity, compared with 10 kilowatt-hours from wind generation.

The results don’t surprise Linda Finney, who sold the wind turbine to Inland Power. She and her husband initially installed it on a grassy hill above their home on the Palouse Highway, about 12 miles south of Spokane. After two years, they took the turbine down because it wasn’t generating the results they hoped for, and they replaced it with 16 solar panels.

At certain times of the year, “our meter runs backwards,” said Finney, executive director of Leadership Spokane. “We’re banking energy during the summer months.”

Damiano said some customers do the research and still end up with wind turbines. In areas heavily shaded by trees, for instance, wind turbines can outperform solar panels.

In the Inland Power pilot project, the solar panels produced about 15 percent of a typical household’s electric needs over the course of a year. The wind turbine produced less than 3 percent.

From a cost-benefit standpoint, erecting a wind turbine or putting in solar panels is still a reach for most homeowners, Damiano said. Those who take the plunge are making a lifestyle choice to reduce their carbon footprint, he said. Recovering the installation costs for turbines or solar panels can take years, even with the 30 percent tax subsidy available to homeowners.

“It will take you a chunk of time,” Finney acknowledged. But she encourages people to think about the long-term benefits.

“Some people spend $25,000 on a new car,” she said. “We decided this is how we wanted to live and how we wanted to spend our money.”

ReneSola Improves Cell Efficiency with New ‘Virtus Wafer’

ReneSola has recently announced that it has developed a new multicrystalline wafer, the Virtus Wafer, which improves solar cell efficiency. 

The Virtus Wafer, which has been endorsed by several leading global solar cell manufacturers, achieves an average cell conversion efficiency rate of 17.5%, more than 1% higher than the industry-standard cell conversion efficiency rate for cells using multicrystalline wafers. ReneSola intends to commence pilot production of the Virtus Wafer in the first half of 2011.

Mr. Xianshou Li, ReneSola’s chief executive officer, commented, “We are excited about our new Virtus Wafer, which is the direct result of our team’s technological innovation and hard work. The Virtus Wafer is remarkable in that it’s able to produce a conversion efficiency rate close to that of a monocrystalline wafer while maintaining the relatively low production cost of a multicrystalline wafer. We will continue to engage in R&D initiatives to stay at the forefront of solar technology and deliver high-quality, cost-effective solar wafers to leading energy companies across the globe.”

The City of Huntington Beach and SunEdison Announce Agreement to Deploy over 2 MW of Solar Capacity

Construction expected to begin spring 2011

SunEdison, a leading worldwide solar energy services provider and subsidiary of MEMC Electronic Materials, Inc. (NYSE: WFR), and the City of Huntington Beach, California, announced today that they have signed agreements pursuant to which SunEdison will deploy over 2 megawatts (MW) of solar capacity at three Huntington Beach city properties without upfront costs from the City.

Through solar Power Purchase Agreements (PPAs) between the City of Huntington Beach and SunEdison, SunEdison will finance, construct, monitor and maintain three carport canopy photovoltaic power plants at the Huntington Beach Civic Center, Central Library and City Yard. In return, the City will buy the energy produced from these solar systems to offset their demand from the grid at predictable energy rates for 20 years.

Commenting on the agreement, Mayor Cathy Green said, "Huntington Beach’s solar project is a tangible commitment to the environment and our programs in Huntington Beach." Aaron Klemm, Energy Project Manager for Huntington Beach, added, "We evaluated a number of ways to meet our municipal solar capacity goal. The Power Purchase Agreement model made the most sense for us as there are no upfront capital or maintenance requirements from the city, and we receive very competitive power prices."

"SunEdison makes solar a reality for public sector clients like the City of Huntington Beach," said Brian Jacolick, General Manager, Americas for SunEdison. "With smart solar programs, proven experience and strong financing capabilities, SunEdison is the clear choice for government solar solutions."

The U.S. Department of Energy and the Energy Efficiency and Conservation Block Grant (EECBG) Program provided the funding for the initial research and consultation for the three solar carport canopy systems.

Once completed, the three deployments are expected to produce more than 63 million kilowatt hours (kWh) of clean solar energy over 20 years, enough energy to power over 5,900 average U.S. homes for one year. SunEdison is expected to start construction in the spring of 2011.