Saturday, 11 April 2009

UK too dependent on rest of world

John Vidal, environment editor
The Guardian, Saturday 11 April 2009

Britain is living beyond its environmental means and is increasingly dependent on the rest of the world for its natural resources, a thinktank study has revealed.
The recession may have slowed consumption but the New Economics Foundation (Nef) says we are now drawing deep on the cropland, pasture, forests and fisheries of other countries.
The research also shows that by tomorrow the country will have used the levels of resources it should consume in an entire year if it were to be ecologically self-sufficient.
Andrew Simms, Nef's policy director, said: "We are consuming more and more, and as our ecosystems become more stressed the day in the year on which we effectively go beyond our environmental means, and move into ecological debt, is moving ever earlier in the year. In 1961 it was 9 July, but this year it falls on Easter Sunday."
The UK's ecological debt and reliance on the rest of the world are revealed in our dependence on imports of food and energy, says Nef: "National food self-sufficiency is in long term decline, and we are increasingly dependent on imports at precisely the time when the guarantee of the rest of the world ability to provide for us is weakening."
A combination of global factors such as climate change, competition for energy resources, economic instability and changing consumption patterns are all now compromising Britain's economy. "The impact of our lifestyles is felt worldwide and solutions to problems like climate change are unlikely until greater changes are made here in the UK."
Nef argues Britain is part of a "bizarrely" wasteful system of world trade. "Virtually identical amounts of gingerbread, fresh boneless chicken, chocolate covered waffles, are imported and exported ... In 2007, the UK exported 1.8m tonnes of essential oils, perfumes and toilet preparations, while it imported 1.5m tonnes."

Failure to get connected means projects may never be turned on

The Times
April 11, 2009
Lewis Smith, Environment Reporter

Energy companies are having to shelve projects that would help Britain to meet its 2020 renewables target because they cannot connect them to the national grid.
With waits of several years, and in one case almost a decade, before connections can be built, several wind farm projects might have to be put in abeyance.
Delays for land-based turbines caused by grid connection dates are a longstanding grievance of the on-shore wind industry and now threaten to affect the off-shore sector.
To avoid a repeat of the delays on land the national grid has called for the off-shore sector to be split into regions to allow for a strategic approach.

Under the present system a tender to connect off-shore wind farms is put out for each project, which executives at National Grid plc believe puts costs up and discourages potential investors.
Dividing the off-shore developments into regions would allow for strategic planning that could consider which part of the seas to concentrate on rather than skip back and forth between individual projects hundreds of miles apart.
“There is a lack of joined-up thinking, particularly in the current economic climate,” Stewart Larque, of National Grid, said. “Having transmission regions would allow better economies of scale, which is good in the current climate for raising financing. It is generally a much better way to ensure we are best placed to meet the country’s renewables targets.”
Attempts are also under way to introduce a strategic approach on land after pressure from renewable energy companies frustrated at costly delays. Talks between National Grid, renewables companies, the Government and the regulator have identified several wind farm projects that could have their grid connection dates brought forward. Among them is a scheme by Renewable Energy Systems to build 21 wind turbines at Drummuire, Caithness, which has been given a grid connection date of 2016 despite having been given planning permission in 2005.
Richard Ford, grid connections manager for RES, is awaiting a final decision but said it appeared that some progress was being made. Nevertheless, another project that the company is planning in Scotland has been given a connection date of 2018 and it is thought likely that it will slip back to at least 2020.
Mr Ford said: “If we really believe there is no prospect of better, whether or not we get planning approaval, we have to question whether it is appropriate to put it through planning.”
National Grid is responsible for organising grid connections and for deciding when they can be put in. Delays inherent in the planning system have been among the biggest problems, with the connections being subject to the same rules as the projects, often attracting intense local opposition.
Day the UK becomes a drain on world's resources

Published Date: 11 April 2009

TOMORROW is the day the UK will go into "ecological debt", having used up all the natural resources it can provide for the year, research will show today.
Calculations from the New Economics Foundation (NEF) reveal that because of rising consumption of products such as food and energy from abroad, we start "living off" the rest of the world less than a third of the way through the year.The day the UK effectively starts living beyond its means gets earlier each year. In 1961, it was 9 July and by 1981 it was 14 May. This year it is 12 April.The calculation is based on the UK's ecological footprint – the quantity of natural resources it has compared with how much it uses and the amount of waste, such as greenhouse gases, it produces.Consumption and waste are far outstripping what the country can naturally sustain.The think-tank said the UK relies increasingly on imports as economic instability, climate change, competition for resources and growing consumption elsewhere mean the chances of the rest of the world providing for us are lessening.According to a new edition of Andrew Simms' book Ecological Debt, countries such as the UK run up huge environmental debts.Mr Simms said: "Uncontrolled growth of financial debt is laying waste to large parts of the global economy. An explosion of ecological debt looks set to do the same to a biosphere friendly to human civilisation."The difference is, nature doesn't do bail-outs."In responding to the financial crisis, the government assessed the scale and nature of response needed to prevent the collapse of the banking system. Now they need to assess the scale and nature of the climate crisis and respond accordingly."

Ice loss sparks new climate change fears

By Fiona Harvey in Bonn
Published: April 10 2009 17:47

Evidence of ice loss from both poles this week has sparked fresh fears that global warming is progressing faster than scientists had predicted.
Arctic ice has thinned dramatically, as well as shrinking in area, according to US research. Thin seasonal ice, which melts and refreezes each year, now makes up about 70 per cent of the Arctic winter ice, up from about 40 to 50 per cent in the 1980s and 1990s, leaving far less of the older, thicker ice that is harder to melt.

In the Antarctic, an ice bridge connecting an island to the Wilkins ice shelf – a sheet of ice about the size of Northern Ireland – shattered as scientists monitored it through satellite observations.
“What we’re seeing is very dramatic,” said Andrew Fleming, remote sensing manager at the British Antarctic Survey. “It’s very worrying.”
Scientists believed the effects were linked to the “very strong warming” at the poles, he said. The Antarctic peninsula has warmed by more than 3ÂșC in the past 50 years. “That’s a staggering rate of warming, and it’s still going up,” said Mr Fleming.
Ice shelves take centuries to form, but when they start to break up it can be sudden. The bridge at the Wilkins ice shelf was a 40km strand of ice, at its narrowest point a few hundred metres wide, connecting the shelf to Charcot and Latady islands.
Amount Antarctic peninsula has warmed in 50 years
7 metres
Amount sea level will rise if Greenland’s ice sheet melts
70 metres
Rise if both east and west Antarctic ice sheets melt
‘What we’re seeing is very dramatic. It’s very worrying’
Andrew Fleming, British Antarctic Survey
‘We have no time to lose in tackling this crisis’
Hillary Clinton, US secretary of state
Last year, scientists from the BAS landed on it in an aircraft to examine the ice. They had known for some time it was under strain, but it remained intact until at the end of last week satellite images showed new cracks appearing.
The next day, the ice sheet had “exploded from the centre outwards”, said Mr Fleming, who was monitoring the break-up through satellite images from the European Space Agency.
“It was very fast, very dramatic,” he said. “It’s now completely shattered.”
The break-up of the ice bridge alarms scientists because it could accelerate the break-up of the rest of the Wilkins shelf. This was at least the 10th shelf to start disintegrating quickly in recent years, said Mr Fleming, and several more were in danger.
Rapid melting of polar sea ice is of particular concern for two reasons: disappearing ice leaves areas of open sea that are dark, and – unlike the reflective ice – absorb the sun’s heat, accelerating the warming process; the break-up of ice shelves exposes glaciers that then begin to move faster to the sea.
The Arctic and some of the Antarctic float on the sea. Ice takes up more space than water, and when this floating ice melts, it does not directly raise sea levels, in the same way that the melting of ice cubes in a full glass of water would not cause the glass to overflow.
However, the glaciers of the Antarctic peninsula are on land, so when they tumble into the sea, they contribute directly to rising sea levels. In the north, the Greenland ice sheet is also on land, and its glaciers are flowing faster to the sea.
If Greenland’s ice sheet melted, it would raise sea levels by seven metres, and if both the east and west Antarctic ice sheets went, the figure would be 10 times higher. That would take hundreds of years, according to the Intergovernmental Panel on Climate Change.
Long before the land ice disappeared, however, sea levels would rise significantly – a 1 per cent loss of the Antarctic land ice would probably raise levels by 65cm, estimates the Norwegian Polar Institute.
Two conferences this week were addressing the problems of the poles and climate change. At a joint meeting of the Antarctic Treaty and the Arctic Council in the US, Hillary Clinton, US secretary of state, said the news of the Wilkins ice shelf showed “global warming has already had enormous effects on our planet, and we have no time to lose in tackling this crisis”.
In Bonn, governments met for the first meeting to thrash out the details of a successor to the Kyoto protocol on climate change.
One factor that could help to slow the melting of the Arctic, but which has not yet received serious consideration internationally, would be to cut the amount of “black carbon” – soot – that we spew into the air. Black carbon darkens ice when it falls, causing it to absorb more heat, and may be responsible for half of the warming effect in the Arctic, according to research. Cutting soot would not only remove large amounts of air pollution, but, say some scientists, could be quicker and easier than cutting carbon dioxide emissions.
Copyright The Financial Times Limited 2009

Future of energy is a gas when you harness the help of hydrogen

Published Date: 11 April 2009
By Charles Henderson

FIFE'S industrial heyday in the 19th century was fuelled largely by its rich coal seams. Now, in view of a defunct coal-fired power station in Methil, a new hydrogen-fuelled office is helping the region show us the future of energy.
The office will soon form the centrepiece of a world-leading hydrogen energy hub, and the new headquarters for 20 renewable energy experts, including St Andrews Fuel Cells Ltd.On first appearances, the Hydrogen Office seems unremarkable. A three
storey grey cube, without the wooden cladding, grass roof or solar panels common to many "green" buildings, it could be overlooked by a passerby. But its outward ordinariness may turn out to be one of its greatest strengths. The centre has been deliberately designed to test hydrogen power in as normal a construction context as possible.Derek Mitchell, director of the Hydrogen Office project, explains: "We are demonstrating a number of innovations for developers. They can pick and choose the components, which are most appropriate to their office. What we are doing will be replicable in many buildings. We are just showing it is possible."A great deal of the design is common sense. This starts with a reduction in energy needs as much as possible. Insulation levels are very high and windows are well-sealed and double glazed. Natural ventilation removes the need for air conditioning and natural light is maximised through the careful layout. Necessary lighting, in the hallway, is provided by LEDs (light emitting diodes). As with much clean technology in buildings, many of the other innovations are barely visible. Heat, stored in the surrounding ground, is captured, and pumped in to warm the office. Four boreholes have been sunk adjacent to the office 100 metres deep and the heat is transferred via a series of copper pipes.In-wall heating, another innovation, is being used in the fabric of the building. This requires lower power than standard radiators to work efficiently. It also avoids interference with cabling and other piping.But the exciting widgets are to be found in the energy centre building, where the hydrogen equipment is being installed. This includes a ten-kilowatt fuel cell, an electrolyser and a test room for prototypes. A hydrogen fuel cell, about the size of a fridge, is based on a very simple idea. It is a battery that exploits the energy in the bonds between hydrogen and oxygen. When these two elements are introduced, electricity is produced, with heat and water as a by-product.With this device, a supply of hydrogen and oxygen becomes an electricity source. Conversely, when electricity is applied to an electrolyser, the process is reversed, and hydrogen and oxygen are generated.The office's large white fuel tank, clearly marked "hydrogen", sits in a protected open area adjoining the energy centre. Its 340 cubic metres of hydrogen will be enough to power the office for a week. A common misconception about hydrogen is the danger of explosion. Mr Mitchell explains the reality, and how these risks are minimised: "Hydrogen would need to build up to a concentration of about four per cent in a confined space, to pose a risk of explosion. As the lightest substance known to man, hydrogen will seek out any means of escape from a room, and can even diffuse through brickwork, so this is very improbable. "We have also installed vents in the roof of every room of the energy centre. As an extra precaution, our management system is linked to hydrogen sensors, and programmed to shut down the flow of gas should there be any risk."A 55-metre wind turbine will produce electricity and keep the hydrogen tank topped up. It will be installed on the harbour wall opposite the office later this year. Ironically, getting hold of a wind turbine, these days proved to be more difficult than buying hi-tech hydrogen gadgetry. "We needed a 750 kilowatt turbine, which is medium sized, and relatively unusual, by today's standards," says Mr Mitchell. "Most manufacturers make bigger turbines, and also expect buyers to make bulk orders. It's taken us four years to find this one."On a windy day, the turbine will power the whole of the energy park, split water to hydrogen and oxygen, and export to the grid. When the wind stops blowing, the automated building management system will switch automatically to the fuel cell. Hydrogen will flow, the cell will generate power, and electricity will be sent to the building. Heat will be captured and used to warm the space.The scheme first emerged on the drawing board five years ago. It was awarded £1 million through the East of Scotland European Partnership. Initially planned for Midlothian, it then became a victim of restructure and funding cuts. But the delay proved to be timely, and it is what brought the office to Fife. With its "energy park" concept already conceived, Scottish Enterprise Fife decided to fit one of the three offices out as a hydrogen demonstrator. After a couple of frustrating years, the office secured the rest of its funding, a further £2 million from Scottish Enterprise Fife and private sector developer Alsherra Investments Ltd. The wind turbine will cost a further £1million or so, which is close to being secured. The Hydrogen Office is run through a not-for-profit organisation, and revenue raised by exporting electricity to the grid is being used to fund education, demonstration, research and development. In the office's meeting rooms, its story will be brought to life and explained to visitors. Up-to-the-minute displays will show energy consumption, power generated by the turbine and how the fuel cell is functioning. And what of the bigger picture, how hydrogen may become a fuel of Scotland's energy future? Mr Mitchell says: "We are facing constraints and shortages as global energy needs rise and fossil fuel supplies dwindle. With more power due to generated from wind and marine power, a storage system is needed to cope with intermittency. Traditional solid batteries are expensive and cumbersome".He continues: "In hydrogen, we have a technologically flexible, environmentally favourable and safe storage fuel. It is appropriate for remote communities in the Highlands and Islands, by plugging the energy gap and allowing these communities to go off grid."So, with his brainchild opening after five years of hard work, what does Mr Mitchell plan next? "Once our wind turbine is up and running, and the office running smoothly, we are considering a tidal head project in the harbour adjacent to the office. We are also thinking about transport. Perhaps a hydrogen vehicle demonstrator," he says.When the office opens for business and shows visitors the clean efficiency of its fuel and energy system, we may expect more hydrogen-powered buildings to be appearing in our towns and cities soon, too.

Are electric cars the answer to Britain's environmental problems?

By Michael McCarthy
Friday, 10 April 2009

Why are we asking this now?

Because Gordon Brown is promising, as part of his forthcoming Budget, steps towards the mass introduction of electric cars on to Britain's roads. This would be part of a "green recovery" from the recession, which could help make Britain a world leader in manufacture and export of electric, and hybrid electric/petrol driven vehicles.
Why does Mr Brown want to do that?
Not only because it might well be a terrific business opportunity, but even more, because tailpipe emissions of carbon dioxide from motor vehicles are a major contributor to the greenhouse gases responsible for global warming. Road transport emits about 25 per cent of Britain's total CO2, with passenger cars alone accounting for nearly half that figure – and car use is continually growing, all over the world. Britain alone now has a fleet of 27 million cars.
So is this revolutionary thought on Mr Brown's part?
Well, to make a major move on it would be something of a political coup, but the idea is not new at all. It is recognised globally that the internal combustion engine is a very big part of the climate change problem, and that transport will have to be "decarbonised" as part of the worldwide move to cut greenhouse gas emissions. Britain in particular has agreed to cut its CO2 by a huge 80 per cent by 2050, and in December, the Government's new Climate Change Committee recommended in its first report that there should be an initial 42 per cent cut by 2020 (the Government still has to accept this). The committee chairman, Lord Turner of Ecchinswell (who as Adair Turner was director-general of the Confederation of British Industry) said that if this goal was to be realised, in no more than 12 years from now, 40 per cent of all the vehicles on Britain's roads would have to be electric powered (or hybrid).
Is that a very practical idea?
The Government seems to think so. In 2007, when Mr Brown was Chancellor, he asked Professor Julia King, Vice-Chancellor of Aston University, to carry out a special review of low carbon cars, and the King report, published with the Budget last year, offered 40 recommendations for reducing vehicle emissions. Professor King said: "There is huge potential for CO2 savings, with a role for vehicle manufacturers, fuel companies, consumers and Government."
Low-carbon cars are running already, are they not?
Yes, indeed they are, mainly using electric battery power. For the most part they don't go nearly as fast or as far as petrol vehicles, but the major manufacturers are now coming to grips with that, and over the next few years we will see hybrid, electric and possibly hydrogen-powered cars coming in that will rival their petrol-driven equivalents in performance. And of course, they produce much lower CO2 emissions (the hybrids) or zero CO2 emissions (the battery and hydrogen cars), and are already very popular with many municipalities.
So Mr Brown's scheme is a win-win? We'll be well on the way to solving our environmental problem?
Ah. Well. Perhaps not: we are going to need a great deal of extra electricity if Britain is going to adopt these plans. So they will need to be thought through fully. It's all very well if you're driving an electric car here, and a hydrogen car there. But some obvious questions emerge if everyone gets involved: what happens if you want to convert all 27 million of the vehicles on Britain's roads to battery power? Where do you find the electricity to charge those batteries? Remember, electric cars do not have a very long range on one charge – enough for tootling about the city during the day – but basically they have to be recharged every night. If you add 27 million hefty car batteries being recharged nightly to Britain's current electricity load, what will that involve?
Well, what will that involve?
Professor Julia King thought it would add about 16 per cent to Britain's electricity demand. That's quite a lot of extra electricity to find, but we can probably find it. However, the pressure group the Campaign for Better Transport points out that the 16 per cent figure refers to the charging of all 27 million cars being averaged out over the course of a 24-hour electricity production period, when in reality it's not like that. Virtually all the cars would be charged just in the six-hour period from midnight to 6am – and remember, the National Grid cannot store electricity, we can only use what is being produced at a given moment.
So what are the implications of all this?
Analysis the Campaign for Better Transport commissioned from Keith Buchan of the Metropolitan Transport Research Unit suggested this would trigger an increase in UK electricity demand that was absolutely enormous. Mr Buchan calculated that the UK's 27m cars, using 50 kilowatt hours each per day, would need about 1,350 gigawatt hours. He reported: "Over 24 hours, the existing capacity could almost cope with this demand, but nothing else. In fact, most studies suggest off-peak charging (midnight to 6 am). This immediately has the effect of inflating the impact of car charging fourfold. The six-hour capacity of the system is 330 gigawatt hours, less than a quarter of what is required." So to accommodate Gordon Brown's all-electric car vision, Britain's electricity capacity would have to quadruple.
Where would all this electricity come from?
That's the point. If you think all that new electricity can be produced from renewable energy, from wind power and solar arrays, fine. But in reality, to get such an enormous new amount, you would probably have to build more coal-fired power stations and produce enormous new amounts of CO2. The Campaign For Better Transport's Richard George points out: "You're not solving the CO2 problem at all. You're just shifting it somewhere else."
So green, electrically-powered cars are not really greener?
Well, anything that really does reduce CO2 emissions – like 20 people taking one bus instead of 20 people each driving an individual car – is worth doing. But the attractions of green cars may not be quite what they seem. Richard George says that if you drive an average amount in an average car, it is probably not even worth changing to a lower-emissions vehicle, because the amount of CO2 that will have been produced in making the new car will exceed the emissions that you will save.
What about the scheme to scrap your car and buy a greener new one?
The Government is thought to be considering this – paying people to scrap their old bangers and buy better vehicles – and according to Richard George, this will do more for the car industry than for the environment, because the new cars you can buy to qualify will not necessarily be very environmentally-friendly. His own solution is a public transport boost. "There is a such a thing as greener transport," he says, "but there isn't really greener motoring."
Will Gordon Brown's plans for green motoring really be greener?
*Greenhouse gas emissions from motor vehicles are one of the major contributors to climate change
*Anything that cuts down tailpipe emissions of greenhouse gases is to be welcomed
*Electric and hydrogen powered vehicles produce no tailpipe CO2 whatsoever
*The electricity you need to power big fleets of electric cars may itself involve enormous emissions of CO2
*Hydrogen-powered cars will need lots of electricity to make hydrogen, which may involve big CO2 emissions
*Co2 savings in a lower emissions vehicle may be exceeded by the carbon expended in making it

More to be done to develop green energy and secure supplies

Published Date: 11 April 2009
By Euan McVicar

QUIETLY, and without many people noticing, some important changes in UK energy law took effect this week. The UK government has made the changes to increase certainty in key areas affecting the development of green energy and security of supply.
At the same time, research and comment has questioned whether the UK is diverting enough of its economic stimulus package to improving energy infrastructure. The consensus view is that, in both funding and policy, more could yet be done.Newly in-force provisions of the Energy Act 2008 create, for the first time, a regulatory framework for the storage of . Without this framework there would be little chance of developing UK projects for the development of carbon storage and sequestration projects (CCS). CCS, where from electricity generation is captured and stored to prevent emission, is thought to be vital to the future viability of coal– fired power stations in the UK.New coal-fired stations, such as that proposed by Eon at Kingsnorth in Kent have attracted the ire of environmental groups – CCS plans notwithstanding. But, under planned environmental curbs, CCS is the only way to allow existing coal-fired power stations (of which there are several in the UK) to continue to generate in an environmentally friendly way. Much of Scotland's electricity generation comes from the coal-fired Longannet Power Station in Fife, which could benefit from this technology. Regulation of it is welcomed, but industry commentators have been waiting for the next steps in a government competition to build a demonstration CCS scheme in the UK. This has now been delayed for many months, leaving many to question the UK's commitment.More positively, the new provisions also simplify the regime for gas storage projects that would reduce the UK's short-term dependence on imported gas, and help utilities to avoid gas price "spikes". The provisions provide for the creation of a gas importation and storage zone (GISZ) extending out into the sea 188 nautical miles. This should assist the creation of new gas storage projects in disused oil and gas fields or in natural features such as salt caverns or saline aquifers.The Energy Act now also allows for major changes to be made to the Renewables Obligation – the major support mechanism for renewable energy schemes. These changes will allow varying levels of support to be given to different technologies with developments such as biomass and offshore wind set to gain. The market has had a mixed response to these proposals.Some have argued that by "tinkering" with the Renewables Obligation (which is a market based mechanism) in this way, volatility and instability result. Others have said the reforms do not go far enough and further support is required for capital intensive projects such as offshore windfarms. Centrica have recently been reported as saying offshore projects require twice the support that on-shore wind farms receive.While overall these changes (and others) are to be welcomed, the question remains – is enough being done to promote the energy sector in the UK? Last week research published by HSBC, ranking countries by how "green" their economic stimulus packages were, showed the UK allocating seven per cent to spend on green measures. This compared badly with the 12 per cent in the US and 34 per cent in China. Other commentators put the percentage of actual new spend even lower, at just 0.6 per cent. In light of these figures it is perhaps no surprise there has been a downturn in spending on energy infrastructure in recent months – notwithstanding that energy projects are still regarded as something of a safe haven in current markets – and some large players (such as Shell) indicate they no longer see UK renewable energy as a preferred market for investment. If green jobs are to play a role in stimulating the UK's economy then more direct intervention may be required.• Euan McVicar is a partner of McGrigors LLP

Firm with designs on bottled energy

Published Date: 11 April 2009

ONE of the Scottish businesses planning to become a founder member of the "hydrogen hub" at the Methil Energy Park is St Andrews Fuel Cells.

It has patented a spiral solid oxide fuel cell, which is more durable and offers more efficient electricity generation. Although its technology is still at prototype stage, the business employs six full-time staff and in 2007 attracted £1.5 million investment from renewable venture capitalist, Sigma Capital Group and government agency, the Carbon Trust. It hopes to raise further finance in the next year. Clive Dyson, chief executive of St Andrews Fuel Cells, explains the first application for his technology: "With a bottle of hydrogen as fuel, our cells will provide a viable alternative to transportable power sources, for example diesel generators. "Each could provide up to one kilowatt of silent, clean energy. We hope to have this cell ready in two to three years."Another application of the fuel cells will be combined heat and power (CHP). A home of the future may have a fuel cell to provide its electricity. Heat, produced as a by-product, may also be used for space heating and hot water. This system is far more efficient than the centralised energy production common to most countries.Another advantage of fuel cells is they may be attached in series, like standard batteries. This makes them suitable for larger-scale applications. Mr Dyson hopes his cells may be used this way: "A bank of 1,000 cells could be used to produce a megawatt of electricity, enough to power 500 efficient homes," he said. Fuel cell CHP is a system becoming more widely used abroad. Japan offers manufacturers an incentive of £10,000 for every home fitted with a fuel cell system.

Valero bets on ethanol production

By Sheila McNulty in Houston
Published: April 10 2009 20:05

Valero, the US’s biggest refiner, is making a big bet on ethanol production in spite a sharp drop in demand that has left 21 per cent of US ethanol capacity idle and a rash of bankruptcies in the sector.
The company recently snapped up ethanol assets that have been hammered by the rapid decline in fuel prices that began last autumn. Though the near-term outlook for ethanol remains weak, the company is positioning itself for a rebound in demand that would accompany an uptick in the economy.

Further, the Obama administration appears committed to ethanol, which is required by federal mandates to be blended into the US gasoline supply.
“The mandate is definitely here to stay, definitely through 2020,’’ said Rick Gilmore, chief executive of GIC group, an agribusiness consulting and investment advisory firm.
There is also new money in President Barack Obama’s proposed budget for second and third-generation biofuel plants. But there are risks to Valero’s strategy. It will have to ride out the overcapacity and high feedstock costs that have crippled ethanol groups since gasoline prices began to fall in October.
Yet Valero is seeking to turn those companies’ weaknesses to its advantage. In March, it won a bankruptcy auction for seven VeraSun Energy plants and one development site for $477m, which valued the assets at about 40 per cent of replacement cost.
The assets are among the most competitive ethanol production facilities in the US, in terms of location, scale and efficiency, said Nathan Schaffer, a director at PFC Energy, a consultancy. Mr Schaffer thought Valero’s strategy made sense, though he cautioned that the company would need to learn to manage corn supply costs, a chronic challenge for ethanol producers. “Its real value comes from expanding Valero’s depth in the supply chain at a low price,’’ he said. The low fixed costs of the new subsidiary would give it an edge in navigating an unforgiving ethanol market.
That will enable Valero to produce its own ethanol instead of paying others for it, potentially reducing its Renewable Fuel Standard fulfilment costs by up to $15m annually, Mr Schaffer said.
Valero produced roughly 1.1m barrels of gasoline per day in the US in 2008. Assuming a similar production volume this year, it would incur a 1.7bn gallon ethanol blending requirement. Of this, up to 45 per cent could be met by Valero’s new ethanol production, although the ratio could even be higher if the US gasoline market remains weak.
The poor outlook for ethanol over the next 18 months, combined with the varying or lower quality of other facilities likely to come up for sale, may discourage other refiners from making similar bets on ethanol producers, Mr Schaffer said. But other companies may be tempted by the low asset price set by the transaction.
Analysts caution that it may take time for Valero’s ethanol investment to pay off. Not only has demand for gasoline dropped, but refineries are likely to be hit hard by climate-change legislation proposed by the Obama administration.
“Valero, like all of the refiners, is undergoing a tsunami of change,’’ said Roger Ihne, the energy client portfolio leader for Mid-America at Deloitte Consulting. Some, he suspects, may not be able to make the necessary adjustments to meet impending legislation while remaining competitive.
Yet, in buying the ethanol production facilities, Valero is preparing itself for an increase in renewable mandates in coming years. It also can upgrade the facilities to handle the next-generation cellulosic ethanol once it is developed and other high-grade biofuel blends. “We have the ability to bolt on new technology,’’ said Bill Day, Valero spokesman. In the interim, Valero will suffer from higher regulatory costs and the drop in demand.
“The US refining industry is headed into its Dark Ages and 2009 will likely see refinery closures and bankruptcies,’’ said Mark Flannery, analyst at Credit Suisse Global Energy. “Valero will be a survivor of this period, but getting through it will not be pleasant.’’
Copyright The Financial Times Limited 2009

Green energy feels the chill in harsh economic climate

The Times
April 11, 2009
As companies make big cuts to investments in renewable energy, time is running out for Britain to take action to meet its targets on reducing carbon emissions

Robin Pagnamenta, Energy and Environmental Editor

Britain’s wind energy industry increased its call for state aid yesterday, after new figures showed that investment in the sector has collapsed by nearly 80 per cent.
The amount invested in British renewable energy schemes, including wind, solar and wave power, fell from £377 million during the first three months of last year to £79 million during the same period this year, according to figures from New Energy Finance, a research group that monitors industry trends. The figures have raised fresh questions over the Government’s ability to fulfil its pledge to slash Britain’s carbon emissions and produce more than one third of the country’s electricity from green energy by 2020.
Adam Bruce, the chairman of the British Wind Energy Association, (BWEA), said that the figures reflected the need for the Chancellor to introduce new measures to support the industry, which is struggling to secure finance because of the credit crunch. It is also suffering from the weak pound, which has driven up the cost of turbines and other equipment — most of which is produced outside Britain — and the falling price of coal, oil and gas.
There were signs yesterday that the Government was considering the inclusion of measures in the April 22 Budget to prevent the cancellation of large projects such as the London Array, a £3 billion scheme to build the world’s largest offshore wind farm in the Thames Estuary, which Gordon Brown has backed.

Its developers are already seeking a bailout from the European Investment Bank to allow the scheme to proceed. Its 341 turbines would produce enough electricity for 750,000 homes.
Paul Golby, chief executive of E.ON UK, one of Britain’s “big six” energy companies and one of the project’s backers, told The Times he now thought that it would be impossible for the country to meet its target of generating 15 per cent of total energy from renewable sources by 2020, which amounts to 35 per cent of its electricity. The target is a key part of Britain’s promise to cut its carbon emissions by 80 per cent by 2050.
Lord Smith of Finsbury, chairman of the Environment Agency, said that it was crucial to Britain’s future in the renewables sector that more funding, including public funding, was made available. “We’ve already seen some companies pull out. We will see more of these things happening if we don’t improve the funding,” he said. “Over the past 10-15 years we have tended to come too late to the table, as a country, when it comes to the development of renewable energy.”
Although investment in renewable energy has been falling everywhere in the recession, the British decline was unusually steep. Globally, investment fell by 53 per cent to £9.1 billion in the first three months of this year, compared with £19.3 billion at the start of last year, according to New Energy Finance. Delays securing planning consent and access to the national grid have compounded the problems.
The news comes as the Institute of Public Policy Research (IPPR) prepares to publish a report next week that will warn that Britain must act now if it is to take the opportunity to build a thriving offshore wind energy industry that could employ as many as 70,000 people. The institute said that only 700 people were employed in the sector at present.
The BWEA is calling on Alistair Darling, the Chancellor, to introduce incentives and grants to support the industry in the Budget. It also urged the Government to accelerate planning decisions and reduce the cost to developers of hooking up schemes to the national grid.
Some companies, such as BP and Shell, have already left the wind industry, while others, such as Iberdrola Renovables, the world’s largest wind-farm operator, have cut their investment programmes.
The Department of Energy and Climate Change said that Mike O’Brien, the Energy Minister, was exploring options to help the industry.

Not such a cool cat

Published: April 10 2009 19:08

There is a near-heroic implausibility to the project. A once-proud Detroit giant now on its knees has joined forces with a group famed for a much-ridiculed scooter to produce a two-wheeled, two-seat electric car. The vehicle might as well bear a sign saying “Mock me”.
At this week’s New York Auto Show, General Motors and Segway unleashed the Puma on to an unsuspecting world unaware it needed yet another way to get around cities. The name stands for Personal Urban Mobility and Accessibility; its design is driverless rickshaw meets airline-seat legroom with yellow-and-black trim reminiscent of hazard tape.

The Puma can reach speeds of up to 35 miles per hour. This makes it too slow for some roads but entertainingly (or frighteningly) fast for pavements and cycle lanes. Its makers claim it will enable “creativity, fashion, fun and social networking”.
That phrase is just one part of the sunny optimism of the enterprise. Its makers say confidently that the car will be fitted with technology that should allow it to drive itself. So instead of the person in the Puma being distracted from driving, the driver – or, indeed, the non-driver – will be free to focus on essential tasks such as e-mailing friends and chatting on the mobile.
Even bolder is the assertion that the Puma will be able to avoid collisions. Its makers say this means seat belts for “comfort purposes” only, and no need for airbags. Tell that to the motor insurers.
The kerbside of history is littered with past gadgets for personal transport. Many designs moved from gee-whizz to laughing stock without ever passing through must-have. But that is no reason to give up. Some prototypes of ultimately successful inventions had serious flaws. One precursor of the bicycle, for example, lacked not only pedals but steering. Even a product such as Daimler’s tiny Smart car, now a symbol of urban chic, spent its first 10 years losing big money. GM and Segway will need all their positive thinking. Let us hope they are not taking us for a ride.
Copyright The Financial Times Limited 2009