House Concurrent Resolution 195 Lena Hansen 0 0 House Concurrent Resolution 195 Purpose: to encourage Hawaii's landowners, investors, county governments, and regulated electric utilities to pursue the development of fuel crop and the conversion of fuel crops to generate electricity Requests recommendations on: 1. Most suitable locations for biomass projects 2. Options for leasing state land for fuel crop development 3. Opportunities to secure federal grants 4. Feasibility of a revolving fund 5. Financial incentives that may be necessary 1 1 1
The biofuels opportunity* E2020 Ethanol and Biodiesel Economic Demand Ethanol and Biodiesel Production Capacity* *data shown for constrained supply scenario 2 2 The biomass opportunity* Costs to Run Power Plants Installed in 2012 on Oahu $/MWH Capacity Factor 60% 83% 60% 65% 39% 83% 95% Capacity 120 30 20 180 30 10 25 *data shown for constrained supply scenario 3 3 2
Universal barriers across the biofuels value chain Agricultural Production Conversion Distribution & Storage End Use Physical Constraints Markets / Production Geographic Mismatch Logistical Infrastructure Bottlenecks Legal and Environmental Permit Time and Complexity Financial Risks Oil-Biofuels Spreads vs. Investment Cost Recovery R&D Knowledge Gaps Stability and Duration of Government Policies & Incentives 4 4 Specific value chain barriers Physical Constraints Legal and Environmental Agricultural Production Conversion Contiguous land at Impact to refinery minimum balances efficiency scale Moving product to market Water availability and cost Environmental emissions/effluents Facility zoning on ag lands Distribution & Storage Limited port, terminal, storage capacity Need for new infrastructure if E85 Lead time to market Import Parity Security of feedstock Recovery of Long-term offtake/ Financial supply & cost infrastructure minimum price floor Risks Duration of off-take investment Labor cost/availability agreements High investment for infrastructure Crop R&D End Use Availability, cost and consumer demand for flex fuel vehicles OEM warranties Air emissions impacts Reliability of biofuels supply vs. obligation to serve Prudence of long-term fixed price fuel contracts Impact on rates when biofuels > oil 5 5 3
Key potential solutions identified by Hawaii Biofuels Summit participants Streamline permitting and secure county cooperation Bolster research & development Coordinate across the value chain Provide incentives for in-state production Clarify the water access issue Support infrastructure development 6 6 HCR 195 Recommendations 7 4
1. Suitable locations for biomass projects Siting factors Distance from feedstock Distance from load centers Transmission & distribution constraints Location of landfills/transfer stations 8 8 2. Options for leasing state lands HI Department of Land and Natural Resources can: Lease state land to renewable energy producers 65 year lease duration No public auction Biomass is included as renewable energy Process is case-by-case, with no published rent prices Should be expanded to include leasing land for biofuels/biomass infrastructure 9 9 5
3. Federal grants Agency Type of Funding Amount of Funding Description US DOE Loan guarantee $2B for first solicitation Projects include bioenergy and biofuels production, distribution, infrastructure US DOE Grant $36M for 360 awards Grants for small businesses for use of cellulosic biomass to produce biofuels US DOE Cooperative agreement $250M for 2 awards GTL bioenergy research centers USDA Grant & loan guarantee $177M for loan guarantees, $11M for grants Purchase of renewable energy systems and energy improvements for agricultural producers and small rural businesses USDA Grant $181M Imprrovement/development of cellulosic feedstocks; ; improved production of high-value biobased products and biofuels 10 10 4. Revolving Fund Definition: A fund established to carry out a specific activity that, in turn, generates payments to the fund for use in carrying out more of the same activities Lack of credit-worthiness often prevents financing for small or new producers Loan revolving fund could support agricultural cooperatives and biodiesel production Several examples from around the country, and in Hawaii 11 11 6
5. Financial incentives Based on input from biomass/biofuels producers, converters, distributors, and end users Needed financial incentives include: Two-pronged sliding scale incentive to support in-state feedstock development and protect against potential drops in oil prices Agricultural irrigation infrastructure investment incentive Distribution infrastructure investment incentive Research and development incentive 12 12 5a. Two-pronged sliding scale incentive: Prong 1 Link fuel detaxation to percent of in-state feedstocks used Takes effect once there are 40 Mmgal of ethanol capacity and 4 Mmgal of biodiesel capacity Current state detaxation: $0.136/gal for ethanol $0.12/gal for biodiesel Detaxation directly proportional to percent of in-state feedstock As an example, a plant running on 80% in-state feedstocks 10% imported molasses 10% imported ethanol from Brazil Detaxation = 80% * $0.136/gal = $0.109/gal 13 13 7
5a. Two-pronged sliding scale incentive: Prong 2* Protect biofuels against potential drops in fossil fuel prices Relationship between Diesel/Soy Ratio and Tax Credit Relationship between Gas/Corn Ratio and Tax Credit Tax Credit ($/gal biodiesel) 2.50 2.00 1.50 1.00 0.50 Tax Credit ($/gal ethanol) 1.40 1.20 1.00 0.80 0.60 0.40 0.20 0.00 0.0 0.5 1.0 1.5 2.0 2.5-0.20 0.00 0.00 0.50 1.00 1.50 Ratio Diesel Prices to Soy Oil Prices ($/gal diesel eqiv.) -0.40-0.60-0.80 Ratio of Gas Prices to Corn prices ($/gal gas equiv) Tax Credit = O&M Cost + Feedstock Cost + Levelized CapEx - Biofuel Selling Price *for illustrative purposes only; Hawaii application still under development 14 14 5b. Agricultural irrigation infrastructure investment incentive Expensive upgrades needed to existing irrigation systems to provide reliable access to water System Kokee Ditch Kekaha Ditch Molokai Waiahole Ditch East Kauai Lower Hamakua Ditch ML&P/Pioneer Mill Total Cost $1,712,000 $6,790,000 $17,776,000 $10,668,000 $10,387,000 $9,586,000 $8,912,000 Potential acres served 3519 6566 9885 6270 5922 4765 3533 $/gal ethanol produced $0.05 $0.10 $0.17 $0.17 $0.18 $0.20 $0.25 Incentive options: Investment tax credit for to cover all or a portion of total investment HDOA Important Ag Lands incentives to be announced this week IAL incentive for ag infrastructure should be extended for all bioenergy needs 15 15 8
5c. Distribution infrastructure investment incentive Distribution is a key constraint, but very different for ethanol/biodiesel and transportation/power Recommendations: State-funded Biofuels/Biomass Logistics Master Plan Investment tax credit for needed infrastructure Make state lands available for bioenergy distribution infrastructure Investment tax credit or grant for retail station installation/conversion to E85/B100 16 16 5d. Research and development funding Hawaii-specific R&D is needed on: New crop cultivars (cellulosic( and biodiesel feedstocks) Improved sugarcane varieties New harvesting techniques Byproduct utilization State should provide funding and coordinate research organizations Possible funding mechanism: ~$0.05/barrel tax on imported oil 17 17 9
Next Steps Step Draft HCR 195 report sent to HEPF and DBEDT HEPF and DBEDT comments submitted to RMI Final report submitted to DBEDT for approval and submission to legislature Deadline Wednesday, October 25 Wednesday, November 1 Wednesday, November 15 Submit comments to: Sharon Miyashiro sharonmi@hawaii.edu 18 18 Thank you Questions? 19 10