KIUC - PacWest - G&R Deal

SUBHEAD: Without the financing and leases, there is a question whether this project will prove to be viable. By Coco Zickos on 16 October 2009 in The Garden Island -
http://www.kauaiworld.com/articles/2009/10/16/news/kauai_news/doc4ad82a3b7983e385229947.txt image above: Bulldozer in Kaumakani harvested sugarcane field. Will it rust in place? Photo by Juan Wilson.
The agreement between the Kaua‘i Island Utility Cooperative and Pacific West Energy to potentially bring a 20-megawatt biomass-to-energy project to Kauai is a “major” advancement and “something we’ve been working on for years,” but “several steps” still remain, KIUC President and CEO Randall Hee said Thursday. Obtaining 15,000 acres of land would be “optimum,” Pacific West Energy President William Maloney said Thursday, but no land commitments have been secured as of yet for the growth of sugar cane and woody biomass, though it is a “great priority,” he said. Gay & Robinson, owner of 7,500 agricultural acres, could not be reached for comment Thursday. A representative for Alexander and Baldwin, another large Westside landowner, said there is no agreement for use of the company’s land for a biomass operation. “Obtaining lands to grow is very critical,” Hee said. “We will need help from all state land agencies and private land owners.” Some residents have questioned why the transaction was announced prior to a finalized purchase power agreement and approval by KIUC’s board of directors, the Hawai‘i Public Utilities Commission and Rural Utilities Service — the “major lender,” according to Hee. “This is still just a concept. Without the financing and leases, it still remains in question as to whether this whole project will even prove to be viable,” said Brad Parsons of Kauaians for a Bright Energy Future. “The concept may be commendable, but we will be waiting for the press release after the signed PPA and PUC approval.” KIUC’s Wednesday’s press release said a PPA would be completed within 60 days. Chief Financial Officer David Bissell declined to comment on the deal’s financial terms Thursday, but said “depending on the fuel,” the “capital cost would be similar” to the proposed Kapaia Unit Two Combustion Turbine project, which has now been placed on the back burner. “A renewable plant was always our preference,” said Bissell, adding that KIUC will be “keeping the Kapaia project around ... in case biomass does not succeed.” Expecting a 1.5 to 2 percent increase in energy capacity per year and a “problem around 2012 to 2015,” this new project would help maintain about 30 percent of the island’s annual electrical use and would do so with cleaner, renewable energy, Bissell said. Rather than “predominantly” rely on fossil fuels, the production of biofuels would increase the island’s self-sufficiency and “decouple us from petroleum pricing,” he said. “We would be exporting less of our dollars and keeping what we spend for fuel on the islands,” Hee said, adding that it could create jobs for displaced sugar workers even though the “timing is not quite right.” Maloney predicts some 300 jobs would be produced, but does not expect crop planting to begin until at least April 2010. The first conversion of biomass to energy would not take place for at least another year after that. “It depends upon permitting and the commitments on land and the PUC approval of the power purchase agreement,” he said. “We hope to begin construction by September 2010 and then begin processing nine to ten months later.” If the “fast-track plan” comes to fruition, approximately five years down the line, around $40 million a year could remain in the island’s economy “as opposed to being exported as diesel,” Maloney said. “It would have a huge economic effect to the island,” he said. Clean energy? “Biomass power equals green power,” Maloney said. Sugar cane absorbs carbon dioxide as it grows and releases carbon dioxide as it is burned, “theoretically” canceling each other out, said Bissell, adding that biomass is considered “neutral” as far as green house gas emissions are concerned. The ultimate goal would be to reuse the carbon dioxide released as feedstock for the construction of algae, which would in turn be converted to a renewable diesel product, Maloney said. “This is something that needs to happen, but I question the figures and the reality of it,” said Kekaha resident and community activist Bruce Pleas regarding the agreement. “I fully support it, but I would like these entities proposing projects to put out a conceptual design of the plant that would give an idea of the lands they’re going to use to support the facility.” KIUC has signed multiple renewable energy purchase power agreements over the years, according to KIUC spokeswoman Shelley Paik. A 20-year purchase power agreement with Green Energy Team was signed in March 2007 for a 6.4 mega-watt biomass-to-energy facility. Another purchase power agreement was signed this year with Green Energy Hydro to produce 130 kilowatts, which KIUC has been receiving “in the past couple of months.” The PacWest deal could be considerably larger than either of those arrangements. “This is a big project. It’s got positives and it’s got negatives like any big project,” said first-year KIUC Director Ben Sullivan Thursday, adding that he’s eager to deliberate with the rest of the board to arrive at a decision that is “in the best interest of our members.” “I’m happy to hear that they feel they have taken the next step,” said Sullivan, who earned the most votes in the March election after campaigning on a platform of renewable energy. “There are definitely questions I’m waiting to ask, but I’ll save those for my fellow directors.” The agreement also earned the praise of the chief executive of KIUC’s largest customer: the county government. “This project is extremely important to Kauai for the renewable energy it can produce and the agricultural and ‘green’ jobs it can create,” wrote Mayor Bernard Carvalho Jr. in an e-mail Thursday. “I met just two weeks ago with representatives from PacWest and Gay & Robinson to see how the county can support this project. It was a very positive discussion and I’m hopeful that all of the pieces of the puzzle will come together soon so we can truly get this partnership off the ground.” image above: Gay & Robinson's Kaumakani Sugar Mill in operation October 2009. Photo by Juan Wilson. Pacific West Kauai Project "Our primary goal is to become the leading producer and marketer of renewable energy in our target niche markets, such as Hawaii."
From Pacific West Energy website on 16 October 2009 - http://pacificwestenergy.com/KauaiProject.aspx
Overview
Pacific West Energy, through its subsidiary Gay & Robinson Ag-Energy LLC ("Ag-Energy"), is currently developing the first sugarcane-based integrated power and ethanol plant in the United States modeled on similar successful operations in Brazil and Central and South America. Ag-Energy will convert the Gay & Robinson sugar factory on the island of Kaua'i into an energy facility by constructing a new powerplant (approximately 25-megawatts), a 12-million gallon per year ethanol plant, and additional electrical generation facilities based on a variety of sources and technologies, including solar, hydroelectric, biodiesel and municipal solid waste. Hawaiian electricity and ethanol prices are consistently among the highest in the United States. The new power plant will include significantly increased boiler and electricity generator capacity. Near-term profitability is expected to be increased by augmenting the pressure capability of the existing boiler, allowing it to burn fuel more efficiently. Ag-Energy is also considering an additional boiler for which it already holds a permit to generate additional electricity sales during the period before a significantly larger facility comes online. The ethanol plant will be the first to be developed in Hawaii. Ag-Energy intends to serve the in-state market for motor fuel ethanol by constructing multiple plants, utilizing the Hawai'i Ethanol Facility Tax Credit, a strong incentive put in place by the Hawaii State Government to promote the production and use of ethanol. Unlike mainland corn-based ethanol producers, Ag-Energy intends to control a large percentage of its own feedstock for the ethanol plant and a similar large percentage of the fuel for its power plant through the lease of existing sugar cane lands and the expansion into former cane lands on Kaua'i. Cane juice processed from the island’s sugarcane will provide feedstock for the ethanol plant while bagasse, the sugarcane fiber remaining after water and sugar is eliminated in the mill, will provide fuel for the powerplant. Ag-Energy intends to sell the electricity generated under a Power Purchase Agreement (PPA) being negotiated with the Kaua'i Island Utility Cooperative (KIUC). Two State of Hawai'i mandates serve to enhance the market opportunity for Ag-Energy: (1) a mandate for a 10% blend of ethanol into gasoline that has created a local market of approximately 45 million gallons of ethanol per year and (2) the new Hawai'i Renewable Portfolio Standard that requires all utilities to generate at least 20% of their electricity sales from renewable sources by 2020. Production of raw sugar will continue on at least an interim basis. The Company has been funding its development of the Kauai project from existing investors in the Company. The Company is currently in the process of seeking significant third-party investment to fund the next stages of the Kaua'i project, including construction. Commercial Partners
Ag-Energy will lease and acquire the sugar mill and related assets from Gay & Robinson, Inc. ("G&R"). G&R has operated its sugar plantation on Kaua'i for over 100 years. The sugar mill will be leased to Ag-Energy for an initial term expected to be 40 years, with an expected 20-year extension option. The Company's management and directors have extensive experience in developing, owning and operating sugar plantations and ethanol production facilities. ED&F, the world’s largest trader of sugar and molasses and one of the largest traders of ethanol, is also a strategic partner of Pacific West Energy and the Kaua'i project. The Company has also developed a number of additional strategic partnerships to enhance the Kaua'i project.
Competitive Advantages
Power – The island of Kaua'i is unique in its ability to provide sizeable amounts of locally-sourced renewable power to KIUC. A number of former Kaua'i sugar mills have been dismantled and their cane lands have either been developed for other uses or lie fallow. To try to construct a new mill, re-cultivate cane lands and source hundreds of workers would be subject to significant obstacles. The operational status and location of the G&R sugar mill provide unique and favorable opportunities to integrate cultivation from Kaua'i cane lands into the single sugar mill and the location also provides the opportunity to produce solar and wind and other green energy, such as from biodiesel and garbage sources, in an integrated manner. Ag-Energy believes that it is uniquely positioned to provide KIUC with a renewable power source that is less expensive than it can otherwise source, including internally. Ethanol – Unlike U.S. mainland ethanol producers, who are generally subjected to rising prices of corn, their primary feedstock, Ag-Energy is uniquely positioned to keep its costs low and controlled by growing its own sugarcane. The Kaua'i cane lands are amongst the most productive in the world, generating up to approximately seven tons of sugar per acre per year, almost twice the average worldwide per-acre yield. Kaua'i benefits from rich volcanic soils, access to plentiful water, and abundant sunshine. Ag-Energy believes it will have a significant price advantage in the Hawai'i market due to the added cost for competitors to transport ethanol from West Coast and foreign ports, and due to high tariffs on ethanol produced in Brazil and certain other ethanol-exporting countries. The Company also believes that local competitors face uncertainties regarding access to water and large capital outlays necessary to enter an entirely new market for them. In addition, an existing sugar producer would have to determine that cane diverted into ethanol production is an economic trade-off against sugar production. A local ethanol plant not based on local sugar production would likely be dependent on high-cost imported feedstock. see also: Ea O Ka Aina: Kauai Power Deal Forged 10/15/09 Ea O Ka Aina: Gay & Robinson Survival 10/2/09

1 comment :

Brad Parsons said...

I'm now convinced this is a good business plan and sustainable solution for Kauai.

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