The state of renewable energy industries

Source: Dan Piller, Des Moines Register • Posted: Monday, June 18, 2012

Like a proud college graduate, Iowa’s youthful renewable energy industry has set out into the real world just in time to learn how tough the energy business can be.

 Ethanol

Ethanol voluntarily gave up its 45-cent-per-gallon tax credit at the end of 2011. Since then, the industry has flipped from solid profitability to red ink. The price of ethanol has plunged by 30 percent in the last six months.

Even the 50-cent-per-gallon drop in gasoline prices since March contains a hint of bad news for ethanol, since the lower price in part reflects a 6 percent drop in gasoline demand since 2007. Less gasoline sold means less ethanol blended.

Biodiesel

Biodiesel, once thought to be the salvation of Iowa’s soybean growers, struggled through a difficult 2010, when most of Iowa’s 13 plants closed after biodiesel lost its $1-per-gallon tax credit.

The credit was restored last year, and biodiesel seemingly recovered, but the credit expires at the end of this year. Biodiesel interests are pleading with Congress, so far without success, to restore the credit.

A measure of the financial markets’ doubts about biodiesel lies in the stock performance of Renewable Energy Group of Ames, which owns or operates biodiesel plants in Iowa, Minnesota, Illinois, Kansas, Texas and Louisiana. REG went public at $10 per share in the first week of January, but the stock has settled below $6.50 per share this month.

Wind

Wind energy faces big head winds: In the marketplace, cheap natural gas is tempting utilities to turn to gas rather than wind as they scramble to replace coal-burning generators to meet clean air standards.

The price of natural gas, which unlike crude oil is purely a domestic market not shaken by world geopolitical forces, has fallen from $10 per thousand cubic feet in 2009 to a 10-year low barely above $2 per thousand cubic feet this month.

“Natural gas priced anywhere below $4 per thousand cubic feet makes wind uncompetitive,” said John Bear, chief executive officer of Midwest Independent System Operators, which runs the electricity grid stretching from Ohio through Iowa to Manitoba.

The natural gas bounty has emboldened opponents of the renewal of the 2.2-cent-per-kilowatt-hour production tax credit for wind projects.

Warren Buffett-backed MidAmerican Energy is completing a multibillion-dollar wind investment in Iowa. Wind interests warn that future projects not blessed with Buffett’s bountiful checkbook will have difficulty finding financing without the tax credit. That will endanger the jobs of more than 4,000 workers and support personnel at Iowa’s wind manufacturing plants.

Natural gas enjoys two distinct advantages over wind. It already has a pipeline system in place, and it can be stored. Wind is famously intermittent, and its power can’t be stored in tanks or underground caverns.

“Natural gas has become a very tough competitor for wind,” concedes Denise Bode, president of the American Wind Energy Association.

 Crude Oil

Petroleum, which seemed so 20th-century old-school back in the heady days when Congress passed the Renewable Fuel Standard in 2007, has staged a comeback that threatens renewable energy sources just as they seemed ready to emerge as full-fledged players.

For the first time since the early 1970s, U.S. crude oil production is increasing thanks largely to the new Bakken Field in North Dakota and the reopening of old fields in the U.S. Southwest.

That new oil, plus more oil coming from Alberta in Canada, has reduced U.S. dependence on Middle Eastern oil and enabled oil interests to argue that U.S. energy security no longer depends on home-brew biofuels as it appeared a half-decade ago.

Rick Brehm of Lincolnway Energy hears the excited chatter over the surge in domestic oil coming from the Bakken Field. But he asks, “Has all that new oil from North Dakota lowered the price of gasoline very much?”