AgroNomics vision 2014 - On Farm Energy Independence

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HelioPower Engineering Energy Solutions since 2001 On Farm Energy Independence AgroNomics, Vision 2014 U.S. Ag Investment Conference Nov 11-15, 2013 - Reno, Nevada Tom Millhoff Agribusiness Practice Leader HelioPower, Inc.

description

An applied economic perspective of on-farm energy: Energy Matters Energy Economics - Supply, Demand & Price Energy Planning Guide

Transcript of AgroNomics vision 2014 - On Farm Energy Independence

Page 1: AgroNomics vision 2014 - On Farm Energy Independence

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On Farm Energy Independence

AgroNomics, Vision 2014U.S. Ag Investment ConferenceNov 11-15, 2013 - Reno, Nevada

Tom MillhoffAgribusiness Practice Leader

HelioPower, Inc.

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Overview

• Energy Matters• Energy Economics: Three levers for savings

• Supply: Cheap power alternatives – tips & traps

• Demand: Unconventional ideas, sustainable savings

• Price/Policy: Paying less and creating wealth• Energy Planning Guide

• Approaching Energy Projects• Valuing Energy Projects• Financing Energy Projects

• Conclusions, Questions & Answers

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Energy Matters

• Utilities face rising & deferred costs• Farmers face rising & volatile retail prices• New Era of Choice & Independence

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Energy Matters - Traps

Utilities face rising & deferred costs

Coal – regulatory costs, emissions abatement

Natural Gas – unsustainably low prices Nuclear – Mothballed reactors Hydro – aging dams, permitting, climate

change Failing Infrastructure - future costs

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Energy Matters - Traps

Farmers face rising, volatile retail prices

2006 2007 2008 2009 2010 2011 2012 2013 CAGR

-5%

0%

5%

10%

15%

20%

PG&E Large Ag Pric-ing

% change vs YAGO

20052008

20112014

20172020

20232026

20292032

2035$0.00

$0.10

$0.20

$0.30

$0.40

$0.50

$0.60

$0.70

Forecast PG&E Large Ag Pricing

PG&E $/kWh - optimisticPG&E $/kWh - pes-simisticDG $/kWh*

$/k

Wh

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Energy Matters - Tips

New Era of Choice & Independence

Future: Distributed Generation Modest Capital Costs+ Economies of proximity+ Competing approaches+ Low/zero cost fuel+ Falling legal barriers= Growing competition+ Emissions reductions= Competitive Marketplace

Past: Centralized Power Generation Massive Capital Costs+ Economies of scale+ Lack of substitutes+ Fuel control+ Legal barriers to entry= No Competition+ Price inelasticity= Monopoly Power

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Energy Economics

• Supply• Demand• Price/Policy

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Energy Economics

Manage Supply, Demand & Price

PRICEEnergy Analytics

DEMAND:Conservation, Efficiency & Demand Mgt

SUPPLY:Distributed Generation

(Renewable?)

INTEGRATED SOLUTIONS

% R

etu

rn

$ Return

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Energy Economics

Manage Supply, Demand & Price

$- $1,000,000 $2,000,000 $3,000,000 0%5%

10%15%20%25%30%35%40%45%50%

Returns by Investment

$ Return (ROI)

% R

etur

n (IR

R) Efficiency

Conservation

Rate / Demand Management

Integrated Energy Solution

Distributed Generation

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Energy Economics - Supply

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Energy Economics - Supply

On-Farm Power Alternatives

Carbon Fuel Sources• Electric Grid• Natural Gas• Diesel• Combined Heat

& Power (CHP) / Co-Generation

• Nat Gas Fuel Cells

Renewables• Solar Photovoltaic

(PV)• Solar Thermal• Biomass & Biofuel• Wind & Geothermal• Hydroelectric• Hydrogen Fuel Cells• Storage

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Energy Economics – Carbon Fuels

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Energy Economics - Supply

Electric Grid: The “Avoided Cost” Hurdle

CharacteristicsEstablished, reliable,

cheap Monopolistic marketplace Rising, volatile prices Rural power quality issues Rural accessibility issues Expensive in some states Expensive summer rates

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Energy Economics - Supply

Natural Gas: The “Avoided Cost” Hurdle

CharacteristicsEstablished, reliable,

cheapDomestic supplyClimate friendly vs coal Monopolistic distribution Rising, volatile prices Rural accessibility

issues Environmental risks

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Energy Economics - Supply

Diesel: An unnecessary evil?

CharacteristicsReliable, on-

demand High fuel costs High NOx

Emissions

Tips & Traps Ongoing fuel costsLimit usage to on-

peakPlan on changing!

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Energy Economics - Supply

Natural Gas Engines

CharacteristicsReliable, on-

demandCheap fuel cost Accessibility

Tips & TrapsCo-Gen/CHP heat

need? Emissions regs Rising fuel costs

Electricity

Natural Gas

Diesel

Propane

Relative Irrigation Fuel Costs

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Energy Economics – Renewables

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Energy Economics - Supply

Biomass (Crop Residue)

CharacteristicsCarbon negative!On-site fuelHeat + power (CHP) Large investment Hard to finance Complex

interconnection 12mo fuel inventory High O&M costs

Tips & TrapsGot heat baseload? Fuel oppty costs?

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Energy Economics - Supply

Solar - Photovoltaic

CharacteristicsSustainable, no fuelLow ownership

costsIncentives,

financing Large capital

investment Not “power-dense”

Tips & Traps Got Sun? Got Taxes?Policy and finance

are as important as engineering

Buy low, sell high

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Energy Economics - Supply

Solar - Thermal

Characteristics• Shares Solar PV

attributesFor water

heatingEfficient &

economic Not power dense Heavy on roofs

Tips & Traps• Shares Solar PV

Traps/TipsQualify your roofImproved closed-

loop technology vs 1980’s

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Economics - Supply

Other Renewable Sources

GeothermalFacility heat &

steamReliable

baseload High up front

costs

WindInexpensive

energy Intermittent

power High up front

costs Expensive

feasibility

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Economics - Supply

Energy Storage

CharacteristicsEnable Micro GridGrid balance

servicesFix rural power

qualityIsland mode optionEmergency powerOff-grid power Still expensive

Tips & TrapsPeak demand

avoidancePrices falling: like

Solar 10 years agoVoltage frequency

business models No rate arbitrage

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Energy Economics – Demand

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Energy Economics - Demand Management

Manage When you Consume

• Charges vary by time of day and season• Main charges are for Energy (kWh) and Demand

(kW)

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Energy Economics - Demand Management

Manage When you Consume Trap: Summer

LoadTip: Peak Shave

Trap: On-Peak Load

Tip: Work Rules

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Energy Economics - Demand Management

Manage When you ConsumeOn-Peak Load Trap: Buy High

Solar + Net MeteringTip: Buy Low, Sell High

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Energy Economics – Price/Policy

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Energy Economics - Price/Policy

Manage What you Pay

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Energy Economics - Price/Policy

Manage Where you Consume

Net Metering Net Meter AggregationTip: Offset loads

without sacrificing cropland

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Energy Economics – Price/Policy

Avoided Costs Drive Energy Investment

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Energy Economics - Price/Policy

Renewable Portfolio Standards

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Corporate tax credit(s) only

Personal + corporate tax credit(s) Notes: This map does not include corporate or personal tax deductions or exemptions; or tax incentives for geothermal heat pumps.

Personal tax credit(s) onlyPuerto Rico

Energy Economics - Price/Policy

Renewables Tax Credits

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Energy Planning Guide

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Energy Planning Guide

How to Approach an Energy Project

Needs?• Cheaper power• Reliable power• NOx Avoidance• Buyer

compliance

Goals?• Return hurdle• Time horizon• Stability• Sustainability• Leadership• Competition

Resources?• Feedstocks/

Fuels• Site resources• Time• Team• Financial

• Capital• Tax appetite• Credit

Trap: Dive right in to a specific solutionTip: Define your Needs, Goals & Resources

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Energy Planning Guide

How to Select Energy Partners Do it yourself RFP or competitive bid on vague scopeEngage Energy Services partner for feasibility, scope,

financing, then take to bid (costs money up front)Select partner for turnkey solution (no up-front cost)

Selecting an Integrated Energy Services PartnerSeek referralsNABCEP, General & Electrical contractor certificationsGood standing with permitting authorities and utilitiesIn-house financing, install, operations & maintenanceLong-standing, healthy businessDo they ask insightful questions?

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Energy Planning Guide

How to Value an Energy Project

Traps: Comparables – not viable for design/build custom

projects Capitalization of income/rents - varied income

stream

Tips:NPV – Intrinsic present value of income producing

assetAdditive to property valuation Requires assumed discount rate

IRR – Simple means of comparing differing projects Does not reflect changing discount rates over time

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Energy Planning Guide

How Energy Projects impact Farm Values

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Energy Planning Guide

Financing Energy Projects

Cash Purchase / LoanBest total returns,

simple Requires capital, tax

appetite

PACE (Property Assessed Clean Energy Finance)Secured by Property

TaxVery low capital costs Mortgagers hate it Requires tax appetite

True Lease / Tax Lease3rd party monetizes tax

benefits & incentives Moderate financing &

transactions costs Delayed ownership

Power Purchase Agreement3rd party monetizes tax

benefits & incentivesLowest operational risk /

exp High financing &

transactions costs

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Energy Planning Guide

Making a Decision

Traps Technology Risk – Expect incrementalism Price Risk - Commodity characteristics Policy Risk - Consider pending policy &

sunset dates (ITC 2016)TipsTime risk - Lost savingsCompetitive risk – Will they have lower

costs?

Conclusion - If it makes sense today, DO IT.

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Conclusions

• We all buy, sell, value and finance energy• We are entering a new era of energy choice

ECONOMICS• SUPPLY: Avoided cost, resources & policies drive choice• DEMAND: Manage your energy demand• PRICE/POLICY: Leverage local policies

ENERGY PLANNING• Start by defining your needs, goals and resources• Invest your time in selecting good energy partners• Value and compare projects on long term savings (NPV,

IRR)• There is always uncertainty. If it makes sense today, do it.

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Thanks to…

• Carol Fornhoff – Westchester Group• Mark Peterson - Kefa Capital,• Howard Haldermann - Halderman Farm

Management• Corey Prins - Northwestern Farm Management Co.• George Baird - LandManagement Group, LLC• Ricardo Amon – the California Institute of Food &

Agriculture Research at UC Davis• Jim, Mary & James Rickert – Prather Ranch• Cheryl Cooley, Meg Butcher, and the ASFMRA

team

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Questions & Answers

Tom Millhoff - HelioPower, Inc.Agribusiness Practice Leader

C:775.830.0448 O:760.563.5528E: [email protected]