Biofuels Company Courts State Agribusiness Agency

posted in: July 2012 | 0

Yet another renewable energy company has clamped its eyes on Kaua`i lands controlled by the state Agribusiness Development Corporation.

Hawai`i Bioenergy, which seeks to develop, produce and sell biofuels in Hawai`i, announced to the ADC board in May that it is looking for feedstock lands on Kaua`i, but is seeking no specific amount from ADC’s inventory of at this time.

Preliminary estimates suggest, however, that the company needs at least 3,000 acres on Kaua`i, whether from the ADC or somewhere else.

Hawai`i Bioenergy is a partnership that includes three of the state’s largest landowners — Kamehameha Schools, Maui Land & Pine, and Grove Farm — as well as tech firms Khosla Ventures and Finistere Ventures, and eBay and Honolulu Civil Beat co-founder Pierre Omydiar’s venture capital firm, `Ohana Holdings.

The company’s recent experiments on Kaua`i and O`ahu converting plants into oil and fuel have proven successful enough that it wants to scale up, said Joel Matsunaga, Hawai`i Bioenergy’s chief operating officer.

“All of our modeling shows you won’t make money if you only sell biofuel. You have to sell co-crops,” using whatever technology fits the site, he said. “We have to have all parts of the equation under control … rather than [having] a conversion site and assuming someone will sell you bio-feedstocks.”

Hawai`i BioEnergy already has a firm buyer in Hawaiian Electric Company. Last August, Hawai`i BioEnergy signed a contract with HECO to supply the utility with ten million gallons a year of locally grown biofuels for 20 years. Matsunaga said he expects the state Public Utilities Commission to approve the contract by year’s end. The company would then have five years to start delivering the full amount to HECO.

In addition, Hawai`i Bioenergy wants to provide biofuel for military and transportation needs and plans to use conversion plants that must process 400 tons of dry feedstock a day to be economical. To do that, it needs a lot of land.

The company, which sees trees as its primary crop, already has a large chunk of potential feedstock land locked up on Kaua`i: 14,000 acres owned by Grove Farm. (With stream setbacks to prevent erosion taken into account, the usable land is closer to 10,000 acres, Matsunaga says.) It’s got letter of intent from Kamehameha Schools for 12,000 acres on the Big Island and is seeking more land from Parker Ranch.

With regard to public lands, Hawai`i Bioenergy is looking at ADC’s lands on Kaua`i, Waiakea forest lands on the Big Island, and other state parcels, Matsunaga said.

“We would like a long term license for 20 years and beyond. We would like as much land as available,” Matsunaga told the board, adding that it could pay higher rents than the ADC’s existing tenants and has forest management expertise.

“We’re looking at trees. On flatter lands, we’d use grasses maybe. The land doesn’t get touched as much. Ultimately, we think the land is treated a lot better and it

helps the state reach its Hawai`i Clean Energy Initiative commitments. HECO and KIUC [Kaua`i Island Utility Cooperative] have targets to reach. We can help,” he said.

Board member Duane Lau asked whether Hawai`i Bioenergy’s Kaua`i project could proceed without ADC lands.

“Yes and no,” Matsunaga said. “Weyerhauser [a partner] will tell us if we have enough material coming from the land for that one conversion unit. If we don’t do enough for 400 tons a day, we could just go with the Big Island. If we can’t get ADC land, we would try to find other lands.”

When asked by board member and state Department of Land and Natural Resources water deputy William Tam how many acres the company needs to produce 400 tons per day, Matsunaga said needs to produce 130,000 to 135,000 tons a year. With 10,000 farmable acres from Grove Farm and using a rate of ten tons/acre/day, it could produce 100,000 tons a year right now, Matsunaga said.

“[We] still need 30,000 to 35,000 tons,” he said, which equates to 3,000 to 3,500 acres.

***

Is Pac West Fading

Or Ready to Rock?

If everything had gone as planned for Pacific West Energy Kauai, LLC, its proposed 20 megawatt power plant would have begun commercial operation this month, with biofuel production soon to follow.

Once ranked number 37 on the state energy office’s list of 40 important renewable energy projects, it’s now unclear exactly what the company proposes to do: It hasn’t decided where its plant will be, has no firm agreements for feedstock land, and doesn’t yet know whether it wants to produce power and biofuel, or just biofuel.

Even so, the company pressed the ADC board at its May meeting to grant a lease of some 750 acres in Kekaha, Kaua`i before the end of the year.

The company proposed as early as 2006 to produce energy and biofuels using former sugarcane land, and had an agreement to provide the island’s utility, KIUC, with 20 to 25 MW of power. But with Pac West’s continual shifting of plant and feedstock sites, KIUC eventually walked away.

As a result, Pac West has downscaled its project to produce only 5 to 12 MW (Phase 1) and biofuels (Phase 2).

“We submitted detailed financials to the utility explaining that we can still do this,” company manager William Maloney told the ADC board. Phase 1 would cost $25-30 million; Phase 2, $60 million.

“We may not even do Phase 1. Personally, my inclination is do phase two, but we have investors who want to do Phase 1,” said Maloney.

Last September, Maloney told Honolulu Civil Beat reporter Sophie Cocke that biofuel conversion technology was not ready for commercialization and called Hawaiian Electric Company’s request for proposals to produce biofuels — which Hawai`i Bioenergy won — a “fantasy RFP.” But by the ADC’s May meeting, he had clearly revised his opinion about the feasibility of conversion technology.

“The technology caught up with us. That was going to be a later phase,” he said. “The delay [in getting the project off the ground] has resulted in a more opportune environment for the project.”

Pac West no longer needs to sell electricity to KIUC and also doesn’t need its help with financing, he added.

“With the project now, we don’t need debt financing. KIUC, they’ve gone from guaranteeing our loans, then there’s a change in management, and they’re not guaranteeing our loans,” he said.

Pac West is expected to decide by August 1 whether to proceed with Phase 1. With Phase 1, Pac West needs at least 5,250 acres; without it, only 3,750. Either way, ADC’s land is critical, Maloney said.

Also this summer, the company is developing a memorandum of understanding with Rentech, which will provide biofuel conversion equipment and equity and will eventually be the project’s owner, Maloney said. (Rentech holds an interest in ClearFuels Technology, Inc., which has developed a biomass gasifier that can turn a variety of feedstock types — wood waste, bagasse, etc. — into diesel and jet fuel. Together they are developing biomass-to-energy projects in Hawai`i.)

“I need to be planting land before the end of the year,” he said. “What do I need to do” to get it, he asked the board.

No Direction

When it came time to discuss what to do about Pac West, neither staff nor the ADC’s board were sure how to proceed.

Noting that no one had any handouts on the Pac West agenda item, board member and state Department of Business, Economic Development and Tourism deputy director Mary Alice Evans asked ADC executive director James Nakatani whether he had an assessment of the company’s proposal and recommendation for the board.

Nakatani seemed to want the board to give him direction.

“We just don’t want to sit on the land. … We don’t have anybody in mind. They have a proposal, that’s fine, but I want everybody to step it up,” he said. “I’ve been sitting on this waiting for a proposal.”

Renewable energy company Pacific Light and Power, which won a lease last year for much of the same lands Pac West had been eyeing, also wants the 750 acres.

Given Hawai`i Bioenergy’s recent interest in the land (see above item), “we should get a proposal from all three of them,” board member David Rietow suggested.

Board member and new state Department of Agriculture deputy director Scott Enright agreed. He said that while Maloney had made an interesting presentation, his company had exhibited “a real failure to perform.”

Maloney countered that his company had twice submitted documentation to ADC staff to support its request for land.

“We never received a draft lease to conclude the transaction,” he said.

To this, Marissa Sandblom reminded Maloney that Pac West’s project constantly changed. “Milestones kept getting pushed out further and further. [You] never got a power purchase agreement with KIUC, which was integral,” she said. (Although Sandblom is vice president of Hawai`i BioEnergy Partner Grove Farm, she did not recuse herself from the discussion.)

In the end, none of the board members were comfortable deciding one way or another on Pac West’s proposal without a recommendation from staff, but they suggested that Nakatani draft a general lease for the available land.

— Teresa Dawson

Volume 23, Number 1 July 2012

Leave a Reply