The Other Path to Decarbonizing Transportation

The Other Path to Decarbonizing Transportation

Both California and New York have declared they want people to buy only EVs starting in 2035 and more states are considering joining the push.  But that leaves the existing 276 million gasoline and diesel vehicles still on the road in the US (31 million in California) and emitting carbon dioxide.  Even if EV sales are ten-fold greater than today, it would be only replacing 5 million vehicles per year in the US.  Rapidly decarbonizing transportation really requires dealing with the existing stock of conventional vehicles.  The one policy that is growing in popularity to do this is to shrink the amount of fossil fuel-derived carbon in the fuel for these existing vehicles.  Some states have started to do this through setting a Low Carbon Fuel Standard (LCFS).

At our September 16 Perspectives discussion, Daniel Mazzone from the Institute for Transportation studies at UC Davis updated us on the status of these rules and the many opportunities for entrepreneurs that they may provide.  California, Oregon, and British Columbia have adopted such rules so far, and Washington State may be joining them in 2023.  The rules in each jurisdiction are similar but not identical.  The rules work similar to cap-and-trade systems for controlling air pollutants.  A target is set for the carbon content of fuels below that in conventional fuels, a “carbon intensity” is calculated for each existing and potential fuel option, and then either low carbon intensity fuels must be blended into the conventional fuels or the fuel supplier must buy credits from alternative fuel suppliers to offset their excesses.  The credits are earned from sales of alternative fuels directly to vehicles.  

The target for California is now 7.5% below the content in conventional petroleum fuels, declining to 20% below by 2030.  The credits are interchangeable among the jurisdictions with such rules now.  The purchase price for credits is now $180 per metric ton of CO2-equivalent.  That is actually a pretty attractive price and a good subsidy for low-carbon fuels.  

Coming up with the carbon intensity scores for each fuel is based on a calculation of the carbon emissions from all parts of the production, delivery, and consumption chain involved, driven by a complex computer model called GREET.  As one might expect, the adoption of a score by the regulatory authority in each jurisdiction is the result of a political-technical struggle.  Those that can get a low score for their fuel have a considerable economic advantage.  The table of scores has a long list of fuels.  There is obviously an opportunity for innovators to come up with new low carbon fuels and advocate for as low a score as possible.

Mazzone noted that right now much of the compliance with the LCFS is coming through the use of bio-based diesel fuels because so many vegetable oils are available for conversion to diesel.  This may hit a ceiling before too long.  Nevertheless, renewable diesel is getting $5 per gallon in incentives from the credits they generate compared to a cost of $7 per gallon to make the fuel, bringing the cost to a competitive level.

In addition, vehicles made to run on natural gas can use gas from renewable sources.  Methane from dairy digesters has a big advantage under the rules now because credit is given for the methane emissions from cow manure that are avoided by collecting the manure and capturing the methane.  He mentioned that right now the cost of making this gas has been calculated as $294 per cow per year.  The recovered methane has a value of $1935 per cow per year, or about half the value of the milk per cow per year.  That huge return is driving a lot of investment in new digesters.   

EV infrastructure also generates credits by a calculated value of installing a charger.  If you are installing chargers and not claiming these credits, you are missing out.

Another frontier for low carbon fuels is those to be used in aviation, as well as credits for electric used in airplanes.  

A big opportunity may exist for making synthetic gasoline and diesel from captured carbon dioxide and hydrogen from green sources.  We have written before on the growing number of teams pursuing technologies that could do this economically.  The LCFS credits markets will clearly provide more incentives to pursue these paths.

Will others adopt the LCFS approach?  Canada is considering doing it nationwide.  Other states are seeing how it is working out.  Could it be applied to the entire US soon?  DOE has not made much mention of it, focusing instead on the President’s EV charging initiative, but this could change.

Daniel had so much to say and generated so many questions, we are sure to have him back for Part 2.  For now, take a look at the video on our YouTube channel and look at his slides.

Thomas Hall

ABOUT THE AUTHOR

Gary Simon is the Chair of CleanStart’s Board. A seasoned energy executive and entrepreneur with 45 years of experience in business, government, and non-profits.

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Moss AdamsPowerSoft.biz, Greenberg Traurig, Momentum,

College of Engineering & Computer Science at Sacramento State

New Vision Aviation Pushing to Get Ready for Electric Aircraft

New Vision Aviation Pushing to Get Ready for Electric Aircraft

In our September 9 Perspectives podcast, New Vision Aviation CEO Joe Oldham described how his nonprofit is trying to push airports and other appropriate places to move faster to get ready for what he sees as a tidal wave of new electric airplanes.  He wants to see California especially be in the vanguard of the switch to EA’s as a way to cut carbon emissions and smog while providing faster commutes.  To do that, he believes the key is to be ready with all the recharging gear needed and to train more EA technicians, as well as to update regulations to eliminate unneeded hassles.  Do a Google search on “electric airplanes” and you will quickly see how many are being developed and even some ready to fly.  

Oldham is on to something thinking that things like recharging infrastructure are going to slow down deployment of EAs.  He has come up with a combination of a foldable solar array and a portable battery pack to get that infrastructure quickly available and in a very flexible way.  He is focused for now on the light V/STOL EAs that are likely to be the first for commercial use.  He sees them as a more energy efficient and quieter alternative to the helicopters that are now used to ferry business people around, making this an immediate market, with the first certification of the EAs in 2024.  

Current limitations on batteries put a limit on the range of these vehicles at 35-50 miles.  He personally has flown one 60 miles, with 20% charge left at the end.  But he is confident that this will get better with improvements in battery technology.  

Just like for EVs the speed of recharging will be an issue.  Right now, his simple system will do a recharge for a short trip in 90 minutes hours, implying a recharge rate of about 10 kWh per hour.  That must get better for electric aviation to spread, and he’s hoping to be the catalyst that gets attention from others who can make those improvements.

Finally, he sees servicing and piloting EAs as the source of thousands of new jobs, and an improvement in air quality in the disadvantaged communities that now typically surround the small private airports that are the most likely to be used by EA air taxis.  

 Oldham is very passionate about what he is doing and it was a fun event.  Check it out. 

Thomas Hall

ABOUT THE AUTHOR

Gary Simon is the Chair of CleanStart’s Board. A seasoned energy executive and entrepreneur with 45 years of experience in business, government, and non-profits.

CleanStart Sponsors

Weintraub | TobinBlueTech Valley, Revrnt, 

Moss AdamsPowerSoft.biz, Greenberg Traurig, Momentum,

College of Engineering & Computer Science at Sacramento State

Project Finance

Project Finance

With the goal of clean tech to decarbonize the world, there are extensive projects that need financing. For that, the usual route is to develop projects at scale using project financing.  Project financing is very different from venture financing. Using debt extensively requires that the project have reduced risk to a level comfortable for lenders. Some of the biggest CleanTech companies in the world who are now leading innovation and change have done so by using project finance. Using this tool means new technologies need strong validation to be considered.  As the clean tech transition speeds up, entrepreneurs are going to have to use project finance or something like it to make a big impact.  Here are an overview and some resources to help understand how to use it. 

What is project finance?

Project Finance is the process of funding an infrastructure project, such as a power plant or an airport. Usually over 75% of the money for the financing comes from loans.  Typically, the loans made available to project developers are misaligned with the timeline of the actual project itself. For example, projects with long-term Power Purchase Agreements (PPAs) and an expected operation period of 40 years are amortized over shorter periods of time. Developers rarely have the financial resources to secure optimal debt and hence have sought public long-term financing to reduce the cost of capital and still allow them to maintain ownership in the projects they’ve created. Essentially, a large company creates an independent project company to take on the project and the risk associated with it. The company has their own books, own board of directors, and own long-term contracts with lenders. Loans are secured only against the resources and flows of the project in order to guarantee the project workflow. If a loan is not to be paid in time or the project fails and declares bankruptcy, lenders can only legally go after the independent project company, allowing financial stability to the parent company.

Why is this important?

Project finance gives companies access to a bigger pool of money in the form of debt at a lower cost of capital compared to venture equity financing. It allows companies the ability to sell successful projects, giving them financial flexibility to move liabilities, protect key assets, and capitalize on changing interest rates. Now, what about investors? Project finance allowed for the emergence of Yieldco stocks a decade ago – a bundle of renewable energy projects with long-term contracted project cash flows. Essentially, creating a YieldCo is a way to exit a traditional project financing, taking out the original small group of lenders and replacing them with a large number of shareholders, often done through public markets.  With YieldCos, companies like NRG, SunEdison, and more were able to spin off parts of their portfolios to the market. This brought more investors into the market and freed the lenders and equity holders to recycle their money back into new projects. Successful YieldCo projects had lower risk and created strong returns to the original project finance participants.    The transition then is from initial deployments of a new technology almost entirely equity-financed or grant-financed, which build a track record and confidence.  Once these technologies are perceived to have lower risk, initial large-scale deployments are typically done through conventional project finance.  Finally, successfully financed projects are converted into YieldCos which are perceived to have predictable results attractive to a large number of small investors in the public markets and share prices are bid up to a level equivalent to high-quality bonds.  The result is a process which provides rich returns to early investors and lenders, propelling the deployment of new clean technologies.

If you want to learn more, follow the links below.

Thomas Hall

ABOUT THE AUTHOR

Nitza Jamias is currently a Senior at Sacramento State University graduating May 2021 with a Bachelor's in Business Administration and a minor in Political Science. Transferring from Santa Barbara City College in her hometown, she hopes to leverage her experience with CleanStart to achieve her aspiration of becoming a Financial Analyst while traveling as a military wife. Additionally, Nitza is concerned about sea-level rise and coastline erosion as she hopes to retire in California next to her husband on the paradise beaches she loves.

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College of Engineering & Computer Science at Sacramento State

Is it time to focus more on water supply?

Is it time to focus more on water supply?

The recent suggestion by a Democratic candidate in the recall election, Kevin Pallfrath, to build a huge freshwater pipeline from the Mississippi River to California reminded me that there hasn’t been an announcement of new technologies for increasing freshwater supplies on the front page in a long time.  That’s why a recent article in a professional journal from some researchers in Korea stood out.  These researchers discovered a clever way to make a membrane to distill seawater faster and cheaper.  

Clearly, climate change is going to mess up the distribution of water supplies around the globe, especially creating extended droughts in areas that formerly had a decent water supply—like California.  That will create a push to “do something”, and building a 2000-mile pipeline is probably not the right idea.  Lots of steel, lots of pumping stations, lots of right-of-way.  Water conservation and stopping leaks  have gotten lots of attention, but that is different for actions to increase the supply.

What does make sense is to come up with better ways to desalinate seawater.  Most of the populations affected by the new severe, recurring droughts are within 100 miles of a seacoast.   Desalination costs have been improving, slowly, mostly for the high-pressure reverse osmosis technologies.  The best prices I have seen put the cost of fresh water from the sea at $2.50 to $3 per thousand gallons from the dozens of desalination plants now installed worldwide. See this article for details.  That is a far cry from the $50/acre-foot (15 cents per thousand gallons) for water from the State Water Project—when it is available.  Water from Federal projects is even cheaper when it exists.   The complications of western water law prevent the price of water from being rationalized in a market, so buyers are stuck paying wildly different prices for it and fighting bitterly over the cheap supplies.  The hope has been that desalination costs would fall below $1 per thousand gallons and narrow the differential.   

While incremental improvements continue, there has not been the dramatic ten-fold reductions in costs that have occurred with solar panels, wind turbines, and batteries.  (See this great recent “deep dive” from CleanEdge on these trends.)  Some of the lesser success might be due to lack of sustained attention, since rain begins to fall every once in a while and people quickly ignore the persistent problem.  Every year we take more from rivers and underground aquifers than can be sustained and now more frequent and severe droughts compound the problem.  Are we not spending enough on R&D?  Maybe.  Are we not providing subsidies to incentivize innovation?  Maybe.  The increasing global water shortage may force more of these kinds of actions and create some breakthroughs.  It is a field relatively wide open to creative minds, but getting much less government attention than renewable energy.  Look for that to change as the seriousness grows and look for government to throw a lot more money at this.

Thomas Hall

ABOUT THE AUTHOR

Gary Simon is the Chair of CleanStart’s Board. A seasoned energy executive and entrepreneur with 45 years of experience in business, government, and non-profits.

CleanStart Sponsors

Weintraub | TobinBlueTech Valley, Revrnt, 

Moss AdamsPowerSoft.biz, Greenberg Traurig, Momentum,

College of Engineering & Computer Science at Sacramento State