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Introduction to Renewable Energy and Biofuels Timothy M. Smith Associate Professor Environmental Science, Policy & Management Department of Bioproducts & Biosystems Engineering University of Minnesota [email protected]

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Page 1: Introduction to Renewable Energy and Biofuels Timothy M. Smith Associate Professor Environmental Science, Policy & Management Department of Bioproducts

Introduction to Renewable Energy and Biofuels

Timothy M. SmithAssociate Professor

Environmental Science, Policy & ManagementDepartment of Bioproducts & Biosystems Engineering

University of [email protected]

Page 2: Introduction to Renewable Energy and Biofuels Timothy M. Smith Associate Professor Environmental Science, Policy & Management Department of Bioproducts

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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

Page 3: Introduction to Renewable Energy and Biofuels Timothy M. Smith Associate Professor Environmental Science, Policy & Management Department of Bioproducts

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Increasing world energy demand

Source: Energy Information Administration. U.S. Department of Energy. International Energy Outlook 2007.

Page 4: Introduction to Renewable Energy and Biofuels Timothy M. Smith Associate Professor Environmental Science, Policy & Management Department of Bioproducts

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National security: dependency on oil

Source: The Oil Drum. http://www.theoildrum.com/tag/council_on_foreign_relations

Page 5: Introduction to Renewable Energy and Biofuels Timothy M. Smith Associate Professor Environmental Science, Policy & Management Department of Bioproducts

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.

Energy Prices

Page 6: Introduction to Renewable Energy and Biofuels Timothy M. Smith Associate Professor Environmental Science, Policy & Management Department of Bioproducts

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Energy Prices

Page 7: Introduction to Renewable Energy and Biofuels Timothy M. Smith Associate Professor Environmental Science, Policy & Management Department of Bioproducts

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Renewable energy consumption in the U.S.A. in 2004

Source: Energy Information Administration. U.S. Department of Energy. Renewable Highlights. 2004.

Page 8: Introduction to Renewable Energy and Biofuels Timothy M. Smith Associate Professor Environmental Science, Policy & Management Department of Bioproducts

Federal PolicyEnergy Policy Act 2005

Federal purchase goals: 7% RE by 2012, plus:150 MW solar PV purchase planInterior 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

Page 9: Introduction to Renewable Energy and Biofuels Timothy M. Smith Associate Professor Environmental Science, Policy & Management Department of Bioproducts

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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.

Page 10: Introduction to Renewable Energy and Biofuels Timothy M. Smith Associate Professor Environmental Science, Policy & Management Department of Bioproducts

Role of the States

Diverse regionsGeographical GeologicalEcological

Federal regulations would be unproductive

States are more knowledgeable

Page 11: Introduction to Renewable Energy and Biofuels Timothy M. Smith Associate Professor Environmental Science, Policy & Management Department of Bioproducts

The Challenge of Putting RE into Use- Regional Resources, Economics, and Politics -

Resource Potential

SOLAR ENERGY WIND POWER

GEOTHERMAL BIOMASS

Page 12: Introduction to Renewable Energy and Biofuels Timothy M. Smith Associate Professor Environmental Science, Policy & Management Department of Bioproducts

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Financial incentives on renewable energy in the U.S.A

Source: Database for State Incentives on Renewables & Efficiency Website, check June 2007.

State/Territory Personal Tax

Corporate Tax

Sales Tax

Property Tax

Rebates Grants Loans Industry Recruit.

Bonds Production Incentive*

Alabama 1-S 4-U 1-S 1-S, 1-U 1-U Alaska 2-S 1-U Arizona 3-S 1-S 1-S 1-S 6-U 1-U Arkansas California 1-S 1-S 3-S, 19-U, 1-L 1-L 1-U, 1-S 1-S Colorado 1-S 2-S 4-U, 1-L 1-L 3-U, 1-L Connecticut 1-S 1-S 5-S 3-S 2-P Delaware 1-S 2-S Florida 2-S 1-S 1-S, 4-U 1-S 1-U Georgia 1-S 3-U 4-U 1-U Hawaii 1-S 1-S 3-U 2-U, 1-L 1-S 1-L Idaho 1-S 1-S 2-P 1-S 1-S 1-P Illinois 1-S 1-S 1-P Indiana 1-S 4-U Iowa 1-S 1-S 1-S 3-S 4-U 1-S 2-S Kansas 1-S Kentucky 6-U 1-P, 3-U 1-U Louisiana 1-S 1-S Maine 1-S 1-S Maryland 2-S 2-S 1-S 2-S 1-S, 1-L 2-S Massachusetts 3-S 5-S 1-S 1-S 1-S, 1-U 3-S 1-S, 1-U 1-S 1-S, 1-P Michigan 1-S 1-U 4-S 2-S Minnesota 2-S 1-S 1-S, 18-U 3-U 3-S, 1-U 1-S, 3-U Mississippi 3-U 1-S 1-U Missouri 1-S 3-U 1-S, 1-U Montana 2-S 1-S 3-S 1-U 2-P, 1-U 1-S 1-P Nebraska 1-S 3-U 1-S Nevada 3-S 1-S 1-S New Hampshire 1-S 2-U 1-S New Jersey 1-S 2-S 1-S 1-S 1-S New Mexico 1-S 1-S 1-S 1-S 1-U New York 2-S 1-S 1-S 2-S 4-S, 2-U 1-S 2-S 1-S North Carolina 1-S 1-S 1-S 1-S 1-U, 1-P North Dakota 1-S 1-S 1-S 2-S Ohio 1-S 1-S 1-S 2-S 2-S 1-S Oklahoma 1-S 1-S Oregon 1-S 1-S 1-S 2-S , 10-U 2-P, 1-S 1-S, 7-U 1-P Pennsylvania 1-S 3-S, 4-L 2-S, 5-L, 1-U Rhode Island 1-S 1-S 1-S 1-S, 1-U 1-P South Carolina 1-S 2-S 1-S, 2-U 5-U South Dakota 2-S Tennessee 1-S 1-S 1-S 1-U Texas 1-S 1-S 6-U 1-S Utah 1-S 1-S 1-S 1-U Vermont 1-S 1-S 1-U 1-U Virginia 1-S 1-S 1-U

Washington 1-S 11-U 2-P 8-U 1-S 3-U, 1-S, 1-P West Virginia 1-S 1-S Wisconsin 1-S 1-S, 3-U 1-S, 1-U 1-U 2-U Wyoming 1-S 1-S, 1-U D.C. 1-S

Totals 24 27 20 40 154 52 81 10 3 34

Page 13: Introduction to Renewable Energy and Biofuels Timothy M. Smith Associate Professor Environmental Science, Policy & Management Department of Bioproducts

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Renewable portfolio standards

* In addition to their mandatory standard, Maine has an additional goal of achieving 10 percent of non-hydroelectric renewablepenetration by 2017** For incentive ratemaking purposes, the Iowa Utilities Board (IUB) initially interpreted the state’s RPS as “average capacity” based onkilowatt-hour output. For most of the statute’s existence, the IUB’s interpretation has mandated the payment of incentive rates for 260MW 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 2015Source: U.S. Department of Energy, Pew Center on Global Climate Change, DSIRE Database of Renewable Energy Incentives. Figurecourtesy of Benjamin K. Sovacool and Kelly E. Siman.

Page 14: Introduction to Renewable Energy and Biofuels Timothy M. Smith Associate Professor Environmental Science, Policy & Management Department of Bioproducts

Private, utility and/or local program

State offers at least one grant program

**

**

**

*

D.C.

*

*

*

*

*

Grants for Renewable Energy Technologies in the U.S.A.

Source: Database for State Incentives on Renewables & Efficiency. www.dsireusa.org May 2007.

Page 15: Introduction to Renewable Energy and Biofuels Timothy M. Smith Associate Professor Environmental Science, Policy & Management Department of Bioproducts

Loan Program for Renewables in the U.S.A.

Source: Database for State Incentives on Renewables & Efficiency. www.dsireusa.org May 2007.

State & utility/local programs

State program

Utility or local programs

D.C.

Page 16: Introduction to Renewable Energy and Biofuels Timothy M. Smith Associate Professor Environmental Science, Policy & Management Department of Bioproducts

Energy Efficiency Programs

SEPS – Sustainable Energy Portfolio StandardEERS – Energy Efficiency Resource Standard

Page 17: Introduction to Renewable Energy and Biofuels Timothy M. Smith Associate Professor Environmental Science, Policy & Management Department of Bioproducts

Green Power MarketingUtility Green Pricing Programs

17

Growing at a Steady 40% CAGR

-

100,000

200,000

300,000

400,000

500,000

1999 2001 2003 2005E

Top 10 Green Pricing Programs:

Austin Energy Portland General Electric PacifiCorp Sacramento Xcel Energy National Grid LADWP OG&E Electric Puget Sound We Energies

Source; Lori Bird, NREL 2005

Number of Participants

+700 MW of RE Capacity Added to Support Green Pricing Programs

Page 18: Introduction to Renewable Energy and Biofuels Timothy M. Smith Associate Professor Environmental Science, Policy & Management Department of Bioproducts

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 marketsGreen Tags, Green Tickets, Renewable Credits,

Renewable Certificates, Tradable Renewable Certificates (TRC), T-RECS, Renewable Energy Certificates (RECs)

Page 19: Introduction to Renewable Energy and Biofuels Timothy M. Smith Associate Professor Environmental Science, Policy & Management Department of Bioproducts

Renewable Energy Certificates

Page 20: Introduction to Renewable Energy and Biofuels Timothy M. Smith Associate Professor Environmental Science, Policy & Management Department of Bioproducts

Renewable Energy Certificates (REC) Applications

Page 21: Introduction to Renewable Energy and Biofuels Timothy M. Smith Associate Professor Environmental Science, Policy & Management Department of Bioproducts

Source: NREL Energy Analysis Office

2004 REC Market Size

(Million MWhs)

2004 REC Market Value($ Millions)

2010 REC Market Size

(Million MWhs)

2010 REC Market Value($ Millions)

Compliance Market

8-13 $140 45 $600

Voluntary Market

3 $15 - $45 20 $100 - $300

Total 11-16 $155 - $185 65 $700 - $900

Size of REC Market

Page 22: Introduction to Renewable Energy and Biofuels Timothy M. Smith Associate Professor Environmental Science, Policy & Management Department of Bioproducts

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Transport fuels: Increase fuel demand

Page 23: Introduction to Renewable Energy and Biofuels Timothy M. Smith Associate Professor Environmental Science, Policy & Management Department of Bioproducts

“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

Biofuels

Page 24: Introduction to Renewable Energy and Biofuels Timothy M. Smith Associate Professor Environmental Science, Policy & Management Department of Bioproducts

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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

Page 25: Introduction to Renewable Energy and Biofuels Timothy M. Smith Associate Professor Environmental Science, Policy & Management Department of Bioproducts

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 incentivesMinnesota

$.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.

Federal and State Ethanol Policies/Incentives

Page 26: Introduction to Renewable Energy and Biofuels Timothy M. Smith Associate Professor Environmental Science, Policy & Management Department of Bioproducts

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.

Page 27: Introduction to Renewable Energy and Biofuels Timothy M. Smith Associate Professor Environmental Science, Policy & Management Department of Bioproducts

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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/

Page 28: Introduction to Renewable Energy and Biofuels Timothy M. Smith Associate Professor Environmental Science, Policy & Management Department of Bioproducts

(Wisner 2007)

Growing projections…

Page 29: Introduction to Renewable Energy and Biofuels Timothy M. Smith Associate Professor Environmental Science, Policy & Management Department of Bioproducts

(Wisner 2007)

Emission standards around the world

Page 30: Introduction to Renewable Energy and Biofuels Timothy M. Smith Associate Professor Environmental Science, Policy & Management Department of Bioproducts

U.S. Historic and Projected Fuel Ethanol Production

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

1980 1985 1990 1995 2000 2005 2010 2015 2020

Mill

ion

s o

f G

all

on

s

2007 State of the Union Message

U.S. Historic and Projected Fuel Ethanol Production

Page 31: Introduction to Renewable Energy and Biofuels Timothy M. Smith Associate Professor Environmental Science, Policy & Management Department of Bioproducts

Dramatic changes emerging in global agricultureRapid expansion of ethanol – in US, Brazil, and EUAbout 90% of global ethanol from US and BrazilEU leading in biodiesel useRapid growth of palm oil production for biodieselMAJOR CONSTRAINT: Cropland availabilityComplex global forces will determine size of industry

(Wisner 2007)

Global Biofuels Developments

Page 32: Introduction to Renewable Energy and Biofuels Timothy M. Smith Associate Professor Environmental Science, Policy & Management Department of Bioproducts

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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

Page 33: Introduction to Renewable Energy and Biofuels Timothy M. Smith Associate Professor Environmental Science, Policy & Management Department of Bioproducts

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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

Page 34: Introduction to Renewable Energy and Biofuels Timothy M. Smith Associate Professor Environmental Science, Policy & Management Department of Bioproducts

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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

Page 35: Introduction to Renewable Energy and Biofuels Timothy M. Smith Associate Professor Environmental Science, Policy & Management Department of Bioproducts

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 corn130% of 2006 EU corn crop70% 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 agricultureHigher food costsGHGs?

(Wisner 2007)

International Impacts

Page 36: Introduction to Renewable Energy and Biofuels Timothy M. Smith Associate Professor Environmental Science, Policy & Management Department of Bioproducts

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

Page 37: Introduction to Renewable Energy and Biofuels Timothy M. Smith Associate Professor Environmental Science, Policy & Management Department of Bioproducts

Coal fired corn ethanol – indistinguishable from current gasoline GHGs.

Coal-to-liquid ethanol – 119% greater GHGsSugar-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)

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

Page 38: Introduction to Renewable Energy and Biofuels Timothy M. Smith Associate Professor Environmental Science, Policy & Management Department of Bioproducts

(Turner et.al. 2007)

Green Biofuels Index

Page 39: Introduction to Renewable Energy and Biofuels Timothy M. Smith Associate Professor Environmental Science, Policy & Management Department of Bioproducts

It is different this timeRenewable policies driving the market place, now more

than everThese policies tend to be flexible and market-basedWe’re in for a bumpy ride…

Conclusions