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    After Brazil announced a record sugar crop for this year, with a decline in both ethanol and sugar prices as a result, India too is now preparing for a bumper harvest, a senior economist with the International Sugar Organization said. Raw sugar prices could fall further towards 8 cents per lb in coming months, after their 30% drop so far this year. Converting the global surplus, estimated to be 4 million tonnes, into ethanol may offer a way out of the downward trend. Economic Times India - June 18, 2007.

    A report from the US Department of Agriculture Foreign Agricultural Services (USDA FAS) estimates that the production of ethanol in China will reach 1.45 million tonnes (484 million gallons US) in 2007, up 12% from 1.3 million tonnes in 2006. Plans are to increase ethanol feedstocks from non-arable lands making the use of tuber crops such as cassava and sweet sorghum. USDA-FAS - June 17, 2007.

    The Iowa State University's Extension Bioeconomy Task Force carried out a round of discussions on the bioeconomy with citizens of the state. Results indicate most people see a bright future for the new economy, others are cautious and take on a distanced, more objective view. The potential for jobs and economic development were the most important opportunities identified by the panels. Iowa is the leading producer of corn based ethanol in the US. Iowa State University - June 16, 2007.

    Biofuel producer D1 Oils Plc, known for establishing large jatropha plantations on (degraded land) in Africa and Asia, said it was in advanced talks with an unnamed party regarding a strategic collaboration, sending its shares up 7 percent, after press reports linking it with BP. Firms like BP and other large petroleum companies are keen to secure a supply of biofuel to meet UK government regulations that 5 percent of automotive fuel must be made up of biofuels by 2010. Reuters UK - June 15, 2007.

    Jean Ziegler, a U.N. special rapporteur on the right to food, told a news briefing held on the sidelines of the U.N. Human Rights Council that "there is a great danger for the right to food by the development of biofuels". His comments contradict a report published earlier by a consortium of UN agencies, which said biofuels could boost the food security of the poor. Reuters - June 15, 2007.

    The county of Chicheng in China's Hebei Province recently signed a cooperative contract with the Australian investment and advisory firm Babcock & Brown to invest RMB480 million (€47.2/US$62.9 million) in a biomass power project, state media reported today. Interfax China - June 14, 2007.

    A new two-stroke ICE engine developed by NEVIS Engine Company Ltd. may nearly double fuel efficiency and lower emissions. Moreover, the engine's versatile design means it can be configured to be fuelled not only by gasoline but also by diesel, hydrogen and biofuels. PRWeb - June 14, 2007.

    Houston-based Gulf Ethanol Corp., announced it will develop sorghum as an alternative feedstock for the production of cellulosic ethanol. Scientists have developed drought tolerant, high-yield varieties of the crop that would grow well in the drier parts of the U.S. and reduce reliance on corn. Business Wire - June 14, 2007.

    Bulgaria's Rompetrol Rafinare is to start delivering Euro 4 grade diesel fuel with a 2% biodiesel content to its domestic market starting June 25, 2007. The same company recently started to distributing Super Ethanol E85 from its own brand and Dyneff brand filling stations in France. It is building a 2500 ton/month, €13.5/US$18 million biodiesel facility at its Petromidia refinery. BBJ - June 13, 2007.

    San Diego Gas & Electric (SDG&E), a utility serving 3.4 million customers, announced it has signed a supply contract with Envirepel Energy, Inc. for renewable biomass energy that will be online by October 2007. Bioenergy is part of a 300MW fraction of SDG&E's portfolio of renewable resources. San Diego Gas & Electric - June 13, 2007.

    Cycleenergy, an Austrian bioenergy group, closed €6.7 million in equity financing for expansion of its biomass and biogas power plant activities in Central and Eastern Europe. The company is currently completing construction of a 5.5 MW (nominal) woodchip fired biomass facility in northern Austria and has a total of over 150 MW of biomass and biogas combined heat and power (CHP) projects across Central Europe in the pipeline. Cycleenergy Biopower [*.pdf] - June 12, 2007.

    The government of Taiwan unveils its plan to promote green energy, with all government vehicles in Taipei switching to E3 ethanol gasoline by September and biofuel expected to be available at all gas stations nationwide by 2011. Taipei Times - June 12, 2007.

    A large-scale biogas production project is on scheme in Vienna. 17,000 tonnes of organic municipal waste will be converted into biogas that will save up to 3000 tonnes of CO2. 1.7 million cubic meters of biogas will be generated that will be converted into 11.200 MWh of electricity per year in a CHP plant, the heat of which will be used by 600 Viennese households. The €13 million project will come online later this year. Wien Magazine [*German] - June 11, 2007.

    The annual biodiesel market in Bulgaria may grow to 400 000 tons in two to three years, a report by the Oxford Business Group says. The figure would represent a 300-per cent increase compared to 2006 when 140 000 tons of biodiesel were produced in Bulgaria. This also means that biofuel usage in Bulgaria will account for 5.75 per cent of all fuel consumption by 2010, as required by the European Commission. A total of 25 biofuel producing plants operate in Bulgaria at present. Sofia Echo - June 11, 2007.

    The Jordan Biogas Company in Ruseifa is currently conducting negotiations with the government of Finland to sell CER's under the UN's Clean Development Mechanism obtained from biogas generated at the Ruseifa landfill. Mena FN - June 11, 2007.

    Major European bank BNP Paribas will launch an investment company called Agrinvest this month to tap into the increased global demand for biofuels and rising consumption in Asia and emerging Europe. CityWire - June 8, 2007.

    Malaysian particleboard maker HeveaBoard Bhd expects to save some 12 million ringgit (€2.6/US$3.4 million) a year on fuel as its second plant is set to utilise biomass energy instead of fossil fuel. This would help improve operating margins, group managing director Tenson Yoong Tein Seng said. HeveaBoard, which commissioned the second plant last October, expects capacity utilisation to reach 70% by end of this year. The Star - June 8, 2007.

    Japan's Itochu Corp will team up with Brazilian state-run oil firm Petroleo Brasileiro SA to produce sugar cane-based bioethanol for biofuels, with plans to start exporting the biofuel to Japan around 2010. Itochu and Petrobras will grow sugarcane as well as build five to seven refineries in the northeastern state of Pernambuco. The two aim to produce 270 million liters (71.3 million gallons) of bioethanol a year, and target sales of around 130 billion yen (€800million / US$1billion) from exports of the products to Japan. Forbes - June 8, 2007.

    Italian refining group Saras is building one of Spain's largest flexible biodiesel plants. The 200,000 ton per year factory in Cartagena can handle a variety of vegetable oils. The plant is due to start up in 2008 and will rely on European as well as imported feedstocks such as palm oil. Reuters - June 7, 2007.

    The University of New Hampshire's Biodiesel Group is to test a fully automated process to convert waste vegetable oil into biodiesel. It has partnered with MPB Bioenergy, whose small-scale processor will be used in the trials. UNH Biodiesel Group - June 7, 2007.

    According to the Barbados Agricultural Management Company (BAMC), the Caribbean island state has a large enough potential to meet both its domestic ethanol needs (E10) and to export to international markets. BAMC is working with state actors to develop an entirely green biofuel production process based on bagasse and biomass. The Barbados Advocate - June 6, 2007.

    Energea, BioDiesel International and the Christof Group - three biodiesel producers from Austria - are negotiating with a number of Indonesian agribusiness companies to cooperate on biodiesel production, Austrian Commercial Counselor Raymund Gradt says. The three Austrian companies are leading technology solution providers for biodiesel production and currently produce a total of 440,000 tons of biodiesel per annum in Austria, more than half of their country’s annual demand of around 700,000-800,000 tons. In order to meet EU targets, they want to produce biodiesel abroad, where feedstocks and production is more competitive. BBJ - June 6, 2007.

    China will develop 200 million mu (13.3 million hectares) of forests by 2020 in order to supply the raw materials necessary for producing 6 million tons of biodiesel and biomass per year, state media reported today. InterFax China - June 6, 2007.

    British Petroleum is planning a biofuel production project in Indonesia. The plan is at an early stage, but will involve the establishment of an ethanol or biodiesel plant based on sugarcane or jatropha. The company is currently in talks with state-owned plantation and trading firm Rajawali Nusantara Indonesia (RNI) as its potential local partner for the project. Antara - June 6, 2007.

    A pilot project to produce biodiesel from used domestic vegetable oil is underway at the Canary Technological Institute in Gran Canaria. Marta Rodrigo, the woman heading up the team, said the project is part of the EU-wide Eramac scheme to encourage energy saving and the use of renewable energy. Tenerife News - June 6, 2007.

    Royal Dutch Shell Plc is expanding its fuel distribution infrastructure in Thailand by buying local petrol stations. The company will continue to provide premium petrol until market demand for gasohol (an petrol-ethanol mixture) climbs to 70-90%, which will prove customers are willing to switch to the biofuel. "What we focus on now is proving that our biofuel production technology is very friendly to engines", a company spokesman said. Bangkok Post - June 5, 2007.

    Abraaj, a Dubai-based firm, has bought the company Egyptian Fertilizers in order to benefit from rising demand for crops used to make biofuels. The Abraaj acquisition of all the shares of Egyptian Fertilizers values the company based in Suez at US$1.41 billion. Egyptian Fertilizers produces about 1.25 million tons a year of urea, a nitrogen-rich crystal used to enrich soils. The company plans to expand its production capacity by as much as 20 percent in the next two years on the expected global growth in biofuel production. International Herald Tribune - June 4, 2007.

    China and the US will soon sign a biofuel cooperation agreement involving second-generation fuels, a senior government official said. Ma Kai, director of the National Development and Reform Commission, said at a media briefing that vice premier Wu Yi discussed the pact with US Secretary of Energy Samuel Bodman and other US officials during the strategic economic dialogue last month. Forbes - June 4, 2007.

    German biogas company Schmack Biogas AG reports a 372% increase in revenue for the first quarter of the year, demonstrating its fast growth. Part of it is derived from takeovers. Solarserver [*German] - June 3, 2007.

    Anglo-Dutch oil giant Royal Dutch Shell PLC has suspended the export of 150,000 barrels per day of crude oil because of community unrest in southern Nigeria, a company spokesman said. Villagers from K-Dere in the restive Ogoniland had stormed the facility that feeds the Bonny export terminal, disrupting supply of crude. It was the second seizure in two weeks. Shell reported on May 15 that protesters occupied the same facility, causing a daily output loss of 170,000 barrels. Rigzone - June 2, 2007.

    Heathrow Airport has won approval to plan for the construction of a new 'green terminal', the buildings of which will be powered, heated and cooled by biomass. The new terminal, Heathrow East, should be completed in time for the 2012 London Olympics. The new buildings form part of operator BAA's £6.2bn 10-year investment programme to upgrade Heathrow. Transport Briefing - June 1, 2007.

    A new algae-biofuel company called LiveFuels Inc. secures US$10 million in series A financing. LiveFuels is a privately-backed company working towards the goal of creating commercially competitive biocrude oil from algae by 2010. PRNewswire - June 1, 2007.

    Covanta Holding Corp., a developer and operator of large-scale renewable energy projects, has agreed to purchase two biomass energy facilities and a biomass energy fuel management business from The AES Corp. According to the companies, the facilities are located in California's Central Valley and will add 75 MW to Covanta's portfolio of renewable energy plants. Alternative Energy Retailer - May 31, 2007.

    Two members of Iowa’s congressional delegation are proposing a study designed to increase the availability of ethanol across the country. Rep. Leonard Boswell, D-Ia., held a news conference Tuesday to announce that he has introduced a bill in the U.S. House, asking for a US$2 million study of the feasibility of transporting ethanol by pipeline. Sen. Tom Harkin, D-Ia., has introduced a similar bill in the Senate. Des Moines Register - May 30, 2007.

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Monday, June 18, 2007

China EnerSave retrofits coal plants to burn biomass

As we read the depressing stories about China building a new coal-fired power plant each week, a more optimistic trend is emerging that builds on old coal plants and turns them green. China EnerSave, a company that entered the power and energy sector in 2004, apparently has found the right investment strategy: making money with a large conventional coal plant, using the profits to attract funds to build medium-scale biomass power facilities and retrofitting many small coal plants that dot the country into facilities that burn local, carbon-neutral plant matter.

Writing for Singapore's Business Times, Teh Hooi Ling explores this cascading strategy and sees that it works well. China EnerSave currently operates a 270 MW coal-fired power plant called Henan Yima Jinjiang. It acquired a 51 per cent stake in Yima in mid-Sept 2006 for US$45 million. And in the last three months of 2006, that 51 per cent stake contributed $6.3 million or 76 per cent to the group's 2006 full-year operating profit. In essence, Yima helped increased China EnerSave's 2006 net earnings to $4.8 million, from $1.1 million the year before.

Just over a month ago, China EnerSave entered into another agreement to buy over the remaining 49 per cent of Yima for US$20 million. The deal will be completed by end-July. This means the group will get 100 per cent of Yima's revenue and earnings for four months this year.

China EnerSave is also a major partner in the 2004 joint development of a greenfield project to develop a waste-to-energy plant. The 12 MW plant in Huizhou, in which it has a 71 per cent stake, started operating late last year. It will make its maiden contributions in the current financial year.

But the group's biggest bet is in biomass energy projects. It is now building three 24 MW biomass power plant projects in China. The first two - in Chengdu County and LongChang County, in Sichuan province - are scheduled for completion in 2008, while the third, in Changyi County in Shangdong, should be ready in 2009. Tay Wee Kwang, China EnerSave's executive director, said the group has managed to negotiate with the exclusive right to run a biomass plant in each of the above counties.

EnerSave's biomass power plants typically have the following properties:
  • Operational life: 30 years
  • Feedstock: agricultural waste - bamboo, rice stalks and corn stalks, with an average heating value of 3600 kcal/kg
  • 2 x 300MT direct steam biomass-to-energy system
  • generating 24 megawatts of electricity
The company has signed more than 10 exclusive memorandums of understanding to develop such biomass plants with various provincial authorities in China and is carrying out feasibility studies.

To accelerate its entry into the power industry, China EnerSave is looking into opportunities to acquire small coal-fired power plants that are suitable for conversion into biomass power plants:
:: :: :: :: :: :: :: :: ::

According to Mr Tay, to build a new 24 MW biomass plant, investment of 250 million renminbi (S$50 million) and a time frame of 20 months are required. Retrofitting a coal-fired power plant into a biomass plant needs half of that investment and takes only a year.

The AIM is to have 20 biomass power plants in China by the end of 2010.

The Chinese government gives a 0.25 renminbi subsidy for every kwH of electricity generated by biomass plants. Assuming that remains, and that China EnerSave can obtain the feedstock for its plants at the prices it expects, each plant can generate net earnings of about US$3.6 million, according to analysts' estimates. This includes carbon credits of US$1.1 million a year.

As the investment will be 40 per cent funded by equity, the return on equity works out to a decent 28 per cent.

Dedicated biomass plants
Biomass power plants burn plant matter such as trees, grass, agricultural crops or waste, or other biological material in a boiler to produce high-pressure steam. This steam rotates a turbine and generates electricity. Next to hydropower, more electricity is generated from biomass than any other renewable energy resource in the United States now. And China is stepping up its efforts in the sector too.

Because of the low energy content of biomass compared to coal, biomass plants are slightly less efficient because feedstocks have to be stored and handled in more complex chains, just like the waste products, such as biomass fly ash of which greater quantities become available. But the lower efficiency is easily offset by the environmental advantages of green power. Biomass does not add carbon dioxide to the atmosphere because it absorbs the same amount of carbon in growing as it releases when consumed as fuel. Its low sulphur content means biomass combustion is much less acidifying than coal combustion, for example. Also, the ashes from biomass consumption are very low in heavy metals and can be recycled on soils, or used as a feedstock for a range of construction materials.

In China, a small subsidy is available for biomass generated electricity to make it competive with coal, still by far the cheapest feedstock in the country. A biomass plant must also ensure it has sufficient feedstock available nearby at an economical rate. An efficient collection and storage system must be in place.

Assuming the design and engineering of the plant is fine, a profitable biomass operation must also make sure the cost of getting its electricity on to the grid is not exorbitant. According to Mr Tay, China EnerSave has located its plants between 800 m and 8 km from the nearest connection points. Also, a biomass plant must have access to water.

In a 26-page report on China EnerSave released last month, research firm Standard & Poor's forecast that the group will make a net profit of $18.6 million this year, or almost four times its earnings last year. But this assumes a 51 per cent stake in the Yima coal power plant. And 2008 will be the year when the biomass projects start to chip in to the bottom line. S&P, whose report is paid a fee by China EnerSave, reckons the group could rake in $24.5 million.

At $18.6 million forecast earnings for 2007, China EnerSave is trading at about 10 times that. And for 2008, the multiple is 7.6 times.

However, to fund its aggressive expansion, China EnerSave has had to raise funds. Earlier this year it completed a $30 million convertible note issue to Value Capital Asset Management. All the Notes have since been converted to shares.

And currently, it is in the process of issuing a $50 million convertible bonds. Four months after the completion of the issue, the bonds can be converted at a 10 per cent discount to the then-traded price of the shares. So the lower the share price, the more shares the bond holders will get. However, there is a minimum conversion price.

S&P said that despite the large share issuance, China EnerSave's new projects should generate enough profits to more than make up for the dilution. 'Although its new business is not without risks, we believe the favourable medium- to long-term demand for energy in China should help mitigate some risks. While returns should converge to more normal levels of around 12 per cent internal rate of return for most power assets in China, this should be supported by stable utilisation rates and generally stable cash flow,' it said.

So on the whole, it appears that China EnerSave is worthy of closer attention, concludes Teh Hooi Ling. The Dubai Investment Group and Hong Kong-based Private Equity firm Energy Partners seem to think it's a worthwhile bet. Each owns about 11 per cent of the company. Meanwhile, one director, Tan Choon Wee, has been accumulating the shares in the open market.


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