Monday 11 November 2013

Address on Energy Crops to Teagasc Bioenergy Conference

(Extract from speech delivered at the Teagasc National Bioenergy Conference 8th November 2013, Dublin)
It would be fair to say the energy crop sector is not in a great place. There are about 3,000 ha planted at the minute. It is a major challenge to get new growers. There is strong competition for agricultural land enterprises. This combined with the poor experience of some early growers has understandably set a negative impression for potential growers.

The author has been a member of a Teagasc tillage committee for the last few years. During 2012, this group took on the task of creating a Development Plan for the tillage sector (pdf). The plan identified potential for expansion in lots of areas. Additional market opportunities were identified, with potential increases in the area of cereals, oilseeds, sugar beet and energy crops.

Altogether looking at individual crops, a potential to increase the tillage area by 221,000 ha was identified, which would represent an increase by over 50% in the area under crops. This poses a whole other set of questions, as all these crop enterprises would be competing for the same land area. A whole separate work stream has evolved in response to the problems of gaining access to land for productive agriculture – the challenges of an ageing farmer profile, high land price, very high conacre prices, farm fragmentation, farm management deficiencies combine to make changes in our farm structure and land-use pattern very difficult.

Anyhow that is a separate group’s work – the tillage plan identified a potential market expansion for 67,000 ha of energy crops by 2020. I was asked to then chair a group convened specifically to consider energy crop market development. This group comprised 13 individuals from across the different parts of the energy crop supply chain – growers, planting contractors, harvesters, large end-users as well as the department of agriculture and energy.

So why is this group motivated to engage in this body of work on energy crops just now if it appears the goose is half-cooked? If crops are being ploughed in, in favour of tillage crops with better margins at present? The simple answer is that the major market drivers for energy crops remain in place.


Emerging Endusers for Biomass

There are strong policy signals in place supporting the growth of renewable energy and bioenergy. Our national and European renewable energy targets remain in place and are based on substantial growth in bioenergy by 2020. Looking beyond 2020, we have to anticipate deeper carbon cuts and an accelerated shift to sustainable sources of energy as we approach 2030 or even 2050.

Apart from the existing biomass boilers around the country and boilers still to be installed, there are many other existing and potential new users of woody biomass.
Timber Stocks ready for grading
at ECC sawmill
  • There are 3 panel board mills remaining in Ireland, 2 of them operated by Coillte. They have a continuous demand for pulp wood, both for their production raw material, but also as feedstock for onsite boilers. Some of these board mills are presently considering biomass CHP, which could impact on supply/demand balance of pulp wood in future.
  • There are 3 large peat fired power plants, which in a previous energy white paper were planned to start co-firing 30% biomass by 2015. In reality, only the Bord na Mona power plant is co-firing, and recently the two ESB-owned plants have been put up for sale.
  • A number of new stand-alone Biomass CHP plants are proposed around the country. REFIT3 allows for up to 100 MWe of these in the current framework.
  • There are a number of large sawmills. All generate significant quantities of sawdust and other residues. Nearly all of them use biomass boilers on-site for kiln drying of timber. Some have installed CHP units and others are considering same. Some have installed pellet manufacturing lines for surplus sawdust.
Any one of these plants could shift the dynamic of the regional and national biomass supply. Mainly due to new energy requirements, we are potentially seeing a 4-fold increase in demand for woody biomass. And this is based only on the sectors we know about. Perhaps new manufacturing facilities will require woody biomass for processing into advanced biomaterials – to make plastics, chemicals, transport fuel or other higher value materials. We could potentially see cement kilns using biomass, or even waste to energy plants seeking biomass feedstocks. So if we require lots of additional biomass where will it come from? This topic has been considered by COFORD, SEAI, DCENR and others in different supply modelling exercises. They all come to the same stark conclusion – that there is a gap between supply and demand.

Their conclusion is that just over half the requirement would be met by either imported biomass or from purpose-grown energy crops.

So this is the real reason why energy crops are important – we are faced with a choice between substituting imported fossil fuel with imported biomass – or developing indigenous biomass from energy crops or other new sources.


Energy Crop Stakeholder Recommendations

There is a huge gap between the 3,000 ha in the ground today and the 67,000 ha expansion goal. The purpose of the energy crop group was to put some policy ideas together to accelerate the pace of development. We came up with some low cost, practical ideas and some ambitious policy ideas which would support this goal. They are in the stakeholders report which will be available on the Teagasc website.

The main priority for all stakeholders was to ensure the investments already made in energy crop establishment are not wasted – and where no market is evident, new markets be urgently opened up to these early adopters. In some cases new infrastructure is required for harvesting, handling and drying of the product. A dedicated grant scheme for energy crops infrastructure is required.
Established Miscanthus Crop
at Oak Park

New local markets for energy crops would develop with the introduction of any kind of renewable heat support. Since the removal of all capital grants for boilers, there have been few new projects to stimulate demand.

A simple change to the definition of willow would facilitate additional revenue from sewage sludge disposal – at the moment there are significant permitting costs associated with this.

A number of changes were suggested to the current Bioenergy Scheme, which provides establishment grants. The market needs certainty over supply. On the demand side there is a 15-year offtake agreement, but energy crop planting grants are renewed on a very short term basis. A multi-year commitment is required to ensure the effort is sustained and that entrepreneurs developing their business and developing parts of the energy crop supply chain have some visibility over where their sector is going. A standardised grant payment amount was proposed which would simplify the grant process at no additional cost. The current upper limit of 30ha on plantings should be increased or removed – how can we get 1,000s of has planted with this limit in place?

A major factor in future energy crop plantings is cashflow – there are no comparable crops where a farmer has to wait at least 3 years before seeing any revenue, and a few more years before reaching the point of breakeven on the original investment. The ideal model is something akin to forestry premia payable for the first 3 years. It was recognised by the stakeholder group that this is not possible through the current EU funding sources, but alternate models must be considered.

Apart from having a critical role in meeting our energy targets, energy crops can and will deliver significant job creation and new investment into our economy. There are many other social and environmental benefits to promoting an Irish energy crop sector which are outlined in the energy crop sector report.

Thursday 9 May 2013

Iowa - Corn and Ethanol Capital of the World

(The following article appeared in the Irish Farmers Journal. My trip to Iowa was funded by a US State Department programme run out of the Boston College Irish Institute)

Corn Silos at Lincolnway Energy
Much of Iowa is covered in corn. Apart from corn, Iowa’s most famous exports are John Wayne and President Herbert Hoover. This predominantly farm state is very different to other parts of the US. Like farmers in most places, they tend towards a long-term and conservative view on life, business and politics which is a world away from the rollercoaster ride approach to life in places like Silicon Valley.

The fortunes of Iowa are so linked to corn (and now ethanol) that the local land tax is based on something called the CSR, the Corn Suitability Ratio of your farm. The existence of a land tax was a (somewhat unpleasant) surprise to us, and seems to be a well accepted principle. Public coffers are now heavily dependent on land values and by extension corn profitability. The land tax has promoted farm consolidation and encouraged productive use of land. The average farm size is 333 acres, but about 65% of farmed land is conacre, so in practice farm units are much larger.

2012 was a poor year for corn production with severe droughts, but Iowa with 1.9 billion bushels remained the biggest corn state in the US, with Illinois a distant second. In times past a lot of corn was exported by barge or by rail to feed lots in Texas or poultry lots in Arkansas, but these days about half the crop is converted into ethanol and distillers grains. There has been an increase in local cattle and hog production which has grown the market for in-state use of wet and dry distillers grains.

Monty Shaw CEO of Iowa RFA
We had the privilege to meet Monty Shaw, Executive Director of the Iowa Renewable Fuel Association (IRFA). Monty is a forthright character with informed opinions on farming and the biofuels sector rooted in common sense. He describes himself as a farm-kid, though he has worked in Washington for the ethanol lobby for several years and now runs a well-organised and funded ethanol lobby group in Iowa. Iowa accounts for 26% of US bioethanol production across 40 factories based in this sparsely populated state of just 3 million people. The majority of these factories are less than 10 years old. One plant, Plymouth energy LLC operates near Sioux City, Iowa backed by an Irish management team and investors. The CEO of the company Eamonn Byrne, is also a board member of the IRFA.

A few choice “Montyisms” on farming and biofuels are shared with you here. Responding to several environmental questions he stated “Farmers, believe it or not, are generally aligned with environmental objectives. Things that force you to improve yields and reduce inputs generally improve the bottom line.”

“No-one gives a hoot about greenhouse gases from nitrogen application but it is a huge input cost so there’s a big imperative to reduce it.” There is a huge challenge to resolve the nitrogen run-off from crop fertilisers. The capital of Iowa, Des Moines, is home to the worlds largest water denitrification plant. The Missouri and Missisipi rivers flank the East and West boundaries of Iowa, and carry mountains of soil, nitrogen and other nutrients over 1,000 miles down to the Gulf of Mexico. This creates a dead zone which now extends out into the ocean. There is very heavy regulatory pressure coming on Iowa and other farm states to clean up – they have been served notice by the EPA to self-regulate or face radical federal measures to address this water quality issue.

There is also a great need to conserve soil and soil quality. Iowa is blessed in some parts with 30 feet of glacial topsoil, but soil quality is under threat. The clear message from Monty here is to maintain farm livelihoods and the prospects for the environment improve “Economic despair causes bad farm stewardship.”

In Iowa, as is the case around the world, farm commodities provide a fickle income and a boom-bust type commodity production cycle. High prices tend to accelerate that cycle. As Monty put it “(Iowa) farmers have a habit of producing ourselves out of prosperity and history shows this will happen again.” Most Iowa farmers take out crop insurance, which is a government-backed scheme to guarantee a yield equivalent to the previous 5-year average. It can be taken out on some or all of your production, and guarantees yield, but not price. Farmers will typically enter into forward supply agreements to control price risks. One typical 3,000 ac farmer in Iowa informed us they use a marketing consultant to advise on grain sales.

When asked about the food vs fuel debate we heard “There is a big urban rural divide among our politicians. City folk forget where their food comes from… Our intern thought corn came out of a can until we hired him.” This is a worldwide issue where consumers become more distant from farmers. In a democratic political system that uses headcount as the basis for political representation, there is a real risk of marginalisation of the agricultural community.

The US senate has a significant role in supporting agriculture and biofuels. Each state gets 2 Senators regardless of population, so a low-population state like Iowa gets a strong voice in the upper house, and generally Iowan Senators are strong supporters of the agriculture industry, and now also the ethanol industry. It is perhaps unsurprising that the US Secretary of Agriculture Tom Vilsack is a former Iowa State Senator and former Governor of Iowa.

Ethanol has been blamed for higher food prices. According to the IRFA the ethanol sector are a convenient scapegoat when justifying grocery price increases to consumers. The ethanol industry response is that high oil prices, packaging and marketing are behind food price increases. In Monty’s words “We pay more for the ink to print a rooster on a box of corn flakes than a farmer gets for the corn inside.”

It is a bit of a tall story to say that half the corn in the USA is going into ethanol factories. While strictly speaking this is the case, 40% of the corn comes out the other end as distillers grains and goes straight back into the food chain as animal feed.

A key message from Monty to actors involved in the biofuels sector in Ireland is “The oil companies are both our customers and our competitors. We have been too nice; they do not want us eating their lunch.” The US petroleum industry is blamed by the ethanol sector for the abolition of ethanol tax credits which ran from 1978 to 2011.

On the issue of GMO, Monty opined “Thank God you guys ignore GMO. I’d hate for us to be competing with Ukraine if they used GMO.” Needless to say, GMO is widely adopted in corn growing in Iowa. The main varieties are round-up ready plants and corn-bore resistant plants.

Thursday 28 February 2013

Address to the Irish Bioenergy Association

I had the pleasure to deliver my last address as President to the members and guests of the Irish Bioenergy Association annual conference in Kilkenny on 21st February.

Fergus O’Dowd TD, Des O’Toole & Bill Stanley (Coillte), Tom Bruton (IRBEA President)

I was asked to speak about the state of the bioenergy industry in Ireland. It would be all too easy to adopt a pessimistic outlook and list the myriad of challenges faced by the sector. There’s no disputing those challenges and the difficult economic backdrop we face in Ireland. Indeed there have been some prominent business closures during the last year. Nevertheless there are many opportunities and several reasons to be positive for the future of the industry.


Our chronic energy security situation has not gone away

Despite some oil and gas finds, we continue to import 89% of our energy. A Eurostat survey released last week put us behind 23 other EU countries, with only Malta, Cyprus and Luxembourg importing more energy than Ireland.
The effects of climate change continue to manifest themselves. There has been a marked increase in extreme weather events over the last few years. There is a growing body of evidence and consensus that these are linked to climate change.
Bioenergy has a key role to play in halting and reversing the negative effects of climate change. Our national and European renewable energy targets remain in place and are based on substantial growth in bioenergy by 2020.
We continue to strive for a level playing field with fossil fuels. I’m convinced the best way to promote renewable energy is through recognition of the cost to our society of carbon emissions. To give credit, Ireland is one of only four countries in the EU to introduce a carbon tax so far, and there is no doubting the political challenges of introducing a carbon tax. Nevertheless I contend that we need to move from €20/t C towards €100/t to make bioenergy competitive and have a material impact on consumer behaviour.


The importance of biomass in renewable heating cannot be overstated

We will require hard work, a coherent industry, political commitment and enlightened policy to reach our renewable heat targets. We have to go from 5% to 12% fossil fuel displacement in a few short years.  We can perhaps learn from the success of the Renewable Heat Incentive scheme in the UK where 171MW of boilers were installed during the first year of the schemes operation. This scheme is also now operational in Northern Ireland.
IrBEA continues to develop and promote the Wood Fuel Quality Assurance scheme. This is an important tool for consumer confidence in wood fuel products.
Through a European project IrBEA will send a delegation to Austria next month to visit a number of biomass heating projects. This will be an opportunity to learn from others but also a great opportunity for our members to work more closely together to grow the biomass heating market here at home.
The Wood energy group of IrBEA has been working hard to promote public procurement of renewable heat from biomass.
The late Shane McEntee had really taken this mission on board and worked with our committee on biomass heating in public buildings. We will miss him as a lateral thinker and a champion of bioenergy.


The issue of land use - The long running food vs fuel debate continues

It is my belief that this issue keeps coming up due to the disconnect between consumers and farming. People forget how critical energy is to all aspects of our daily lives, including food production.
It requires 35 litres of oil to till an acre of wheat… or 60 litres of oil to produce 1,000 l of milk. These are farm gate figures and exclude processing, distribution and marketing. We should also keep in mind that half of our food is wasted after it leaves the farm.
At a policy level, the ambition of FH2020 is praiseworthy, but it is impossible to deliver without a sustainable and secure energy supply. We need to work closely with our colleagues in agriculture to cultivate the link between food AND fuel.


We do need to acknowledge that land and indeed water are finite resources

We need to commercialise technologies that deliver new feedstocks to the biomass and energy mix. We also need to continuously optimise the use of biomass already to hand. We should get behind our researchers, innovators and creative thinkers in pursuing this goal. I’m not just talking about the traditional state funded research, but I’m also talking about our businesses and entrepreneurs rowing in behind the effort.
I’m just back from 2 weeks in Iowa, USA where I was hugely impressed by the co-ordinated industry and academic push to commercialise biofuels from crop residues such as straw and other organic waste
Anaerobic digestion (AD) plants can also help us meet our renewable energy targets while also delivering many environmental benefits. The IrBEA AD group has developed a digestate standard. The group will also be doing more work to facilitate the certification of AD plants by the energy regulator. We need to get to a point where more biogas projects are obtaining project finance.


Significant employment and economic development potential

This time last year we launched an economic study that identified significant employment and economic development potential.
Our credible independent estimates highlighted the need for €1.5billion investment and highlighted the 3,000 jobs that can be created through meeting our 2020 targets.

Friday 8 February 2013

Energy Economics and Politics with Professor Henry Lee

We had the pleasure today of a meeting with Professor Henry Lee from the Belfer Center for Science and International Affairs at Harvard. I was part of an exchange group at Boston College Irish Institute.

Professor Henry Lee at Hovey House, Boston College

Professor Lee is an expert on global energy and the geopolitics  and economics of energy.
The more interesting points I took away here (apologies in advance for any misquotes).

On Oil Prices:
  • Large oil discoveries have been found and from 2015 there could be a sustained period of lower oil prices, say something in the $60/bbl range.
  • Prices will continue to fluctuate dramatically from something like $45/bbl to $250/bbl over the next decades
  • Despite the twin influences of weak economic growth in developed economies and over-capacity in world oil supply, prices have maintained a high level at present. The main reason for this is geopolitics, in particular the Iran oil embargo.
On Climate Change:
  • Developed economies around the world have stuck their heads in the sand for the last 25 years and largely continue to do so. However pressure to act is increasing. Politicians get caught in current issues and don't have a long term horizon to arrest the effects of climate change.
  • The social and climate costs of energy are clearly not factored in. Suggests $125/t carbon equivalent would need to be added to fossil energy cost.
  • In the US there is very strong resistance to energy taxation. Tax on petrol has stayed static at $0.42/gal since 1992.
On Energy Policy Generally:
  •  Subsidising energy technologies (for example feed in tariffs for renewables) is twice as expensive as carbon taxation methods to provide market signals.
  • Best policy (according to Prof Lee) is to put a price on carbon and ratchet it up over time.
  • A sustained technical innovation effort in energy is required. Research teams need the ability to take on high-risk projects with game changing potential. Technologies can take 20 years to commercialise and a long-term view is required from funders, particularly government.
  • Energy efficiency is clearly a potential easy win on climate change, but we should not underestimate consumer reluctance to adopt energy efficiency technology. Consumers generally discount purchases at 30%. An example would be a consumer purchasing a new fridge - he/she only has a 2-3 year payback horizon on any operating costs savings from getting the most efficient fridge.
On China:
  • Chinese economic growth will slow to around 5% and drop occasionally to 1% over the coming decades. About 1/3rd of current Chinese growth of 9% is sustained by building projects.
  • China will have to invest massively in air and water quality. Already in 2013 Beijing has had air pollution above 700ppm on 8 occasions. In plain English this means you can only see a few feet around you.
  •  By 2020 we could see 80% of middle-east oil going to Asia. This will transform the politics of energy. Could we see a situation where China wishes to intervene in middle-east countries in the event of civil unrest? Literally will China send in troops?
  •  China has already become an importer of coal. Many smaller Chinese coal mines were pretty unsafe places to work and have been shut down. 

On Russia:
  • Russia generates 35% of national budget from oil. National finances are extremely exposed to a drop in oil prices. Around $100/bbl is needed to sustain this contribution to the state coffers.
On Japan:
  • Registered minus 3% economic growth in last quarter. Some of this contraction is attributable to Fukushima. Older power plants have had to be taken out of hibernation and put back in service.
  • There are few obvious solutions for Japan which has no offshore shelf to speak of, limited land and a massive population.
  •  There is some prospect of import of LNG and in more bluesky thinking, interconnection to neighbouring regions with land resource.