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Institutional Acupuncture

How 3 biodiesel companies defy the odds in a challenging industry

Published September 16, 2014
How 3 biodiesel companies defy the odds in a challenging industry

While biodiesel companies across the United States await government decisions on updates to the Renewable Fuel Standard and Blender’s Tax Credit, the Western Sustainability and Pollution Prevention Network checked in with three West Coast biodiesel companies for an insider’s look at the state of the industry. Of the 297 biofuels companies currently operating in the U.S., we chose three — Pacific Biodiesel, Bently Biofuels and SeQuential Pacific Biodiesel — because they share a feedstock of used cooking oil and a passion for protecting the environment.

In addition, each one of them is standing strong in uncertain times, surviving conditions that have forced many other biodiesel companies out of business. This article will touch briefly on each company, the challenges that they face, their secrets to success, why it’s important that the biodiesel industry survive, and what we can do to help the biofuel industry succeed.

How three biodiesel companies got into the biofuels industry

The founders of Pacific Biodiesel, Bently Biofuels and SeQuential Pacific Biodiesel each entered the biodiesel industry for different reasons, but eventually came to the same conclusions: creating fuel from used cooking oil helps the environment, reduces our dependence on fossil fuels and makes good business sense.

Pacific Biodiesel, located in Kahului, Hawaii, is the oldest biodiesel company in the United States. For founders Kelly and Robert King, the impetus for entering the industry was a desire to put a waste product to work by recycling used cooking oil into a fuel source and keeping it out of the Central Maui Landfill. At the time, little was known about the possibilities for biodiesel, so the Kings worked with researchers from the University of Idaho to develop methods for converting used cooking oil into fuel.

They built the first biodiesel plant on site at the Central Maui Landfill in 1995 and have been successfully diverting cooking oil from the landfill ever since. “Last year, we went through the process of figuring out how much FOG (fats, oils and grease) we’d kept out of the landfill,” said Kelly King. “It was something like 22 million gallons. For a small island, that’s pretty big.”

[Learn more about alternative energy at VERGE SF 2014, Oct. 27-30.]

During the past two decades, Pacific Biodiesel has helped to design and build twelve other biodiesel facilities, including plants for Bently Biofuels and SeQuential Pacific Biodiesel on the mainland U.S..

Bently Biofuels, located in Minden, NV, was founded in 2002 by Don Bently, out of concern for rising petroleum fuel prices. “In 2002 Don Bently had the foresight to say that oil was going to get to $100 a barrel,” said Carlo Luri, Director of business development for Bently Enterprises. “Oil was trading for about $25 a barrel back then. And that was the historic high, so nobody in their right mind would have even forecast or predicted that oil could have quadrupled in price. It only took five years for that to happen.”

Bently, an entrepreneur and industrialist, opened a plant for biodiesel production on his family ranch in 2005. In 2006, he began to market and sell the product in California. Today, the nine-person team at Bently Biofuels sells biodiesel to customers in Northern Nevada and California from fueling stations in Minden, Reno, Berkeley and San Francisco.

SeQuential Pacific Biodiesel, currently operating out of Salem, OR, began production in Eugene, OR, in 1998 as Eugene Biosource. Tyson Keever, one of SeQuential’s three co-founders, was initially attracted to the “do-it-yourself” nature of biofuels production. “You could make it at home in your garage,” said Keever. “It was just very empowering and tangible.”

In 2002 Eugene Biosource became Sequential Biofuels. In 2005, they partnered with Pacific Biodiesel to form a joint venture called SeQuential Pacific Biodiesel. Today, SeQuential Pacific Biodiesel produces more than six million gallons of biodiesel a year at its plant in Salem, and sells fuel from more than 30 retail locations across Oregon and Washington. To date, the company has displaced 10,250,000 gallons of petroleum, offsetting 189,700,664 pounds of CO2 emissions.

Challenges facing the biofuels industry today

As gasoline prices increase, so does the appeal of alternative fuels; and like gasoline, alternative fuel prices can fluctuate based on a variety of political and economic factors.

National Average Price Between
April 1 and April 15, 2014




Biodiesel (B20)


Biodiesel (B99-B100)




Ethanol (E85)


Natural Gas (CNG)








Table 1. The Clean Cities Alternative Fuel Report provides regional alternative and conventional fuel prices for biodiesel, compressed natural gas, ethanol, hydrogen, propane, gasoline and diesel. See all price reports. Source: Alternative Fuel Price Report, April 2014 (PDF) .

Biodiesel is currently more expensive per gallon than gasoline and other alternative fuels. One reason for this discrepancy is that the other fuels are better subsidized. The Blender’s Tax Credit, which is a fixed $1-per-gallon tax credit given to the first fuel blender of a volume of biodiesel that contains at least one-tenth of one percent petroleum-based diesel fuel, has been inconsistent. Every two years, the Blender’s Tax Credit expires and has to be re-authorized by Congress. At the end of 2013, it had not been reauthorized for 2014, according to Carlo Luri of Bently.

“If we don’t get that $1 tax credit, it’s basically a dollar out of somebody’s pocket,” said Luri. “Either the customer has to pay $1 more or we have to make due with $1 less. Trying to run a biofuel business with $1 less per gallon for revenue means that most biodiesel companies are operating in the red.”

If the Blenders Tax Credit is reauthorized for 2014, companies can be paid retroactively. Luri explained that this has happened several times in the past but there is no guarantee that it will happen again. This uncertainty makes it difficult for many biodiesel companies to compete with the petroleum industry.

“Petroleum subsidies are embedded in federal statutes, so they don’t have to go back every two years and ask for them,” said Kelly King of Pacific. “All of the renewable fuel subsidies and incentives are short-term. They have to be voted on every two to four years, and that’s not conducive to creating an industry where investors want to know what their return on investment is going to be for the next five years.”

Luri also described another hurdle that biodiesel producers face: the price of yellow grease (another name for used cooking oil) dropped almost 40 percent between 2013 and early 2014. “Financially, that is very damaging to the companies that are trying to recycle the oil, because you have a fixed contract to buy the oil from the restaurant at a certain price,” explained Luri. “Your collection costs are more or less fixed because you’re paying salaries, insurance, fuel, depreciation on the trucks, and meanwhile the price that you can sell that oil into the market is down 40 percent.”

Limited feedstock is another major challenge facing the biofuels industry, according to Tyson Keever of SeQuential Pacific Biodiesel. Feedstock prices fluctuate dramatically, making it difficult for biofuels companies to maintain a sustainable business operations model. “Go back five years, most of the industry across the country made biodiesel from soybean oil,” said Keever. “Today, a lot of new sources of feedstock are coming to market. Corn oil has taken a significant market position, and more fats, oils and greases, recycled cooking oil and tallows are coming to market.”

All three companies think that it is unlikely that biofuels would ever replace petroleum because there aren’t enough soybeans, corn, or used cooking oil to meet our country’s demand for fuel.

U.S. EPA’s proposal to reduce the mandatory volume of biofuels blended or sold into the nation’s fuel supply for 2014 is another policy change that is expected to have an adverse effect on the biofuels industry. Each year the EPA is required to set standards for the Renewable Fuel Standard program and determine the national volume of biodiesel that will be required. If the EPA were to reduce the required volume of biodiesel for the coming year, this would be the first time the agency scaled back its ambitions since the RFS program began in 2007.

Changes in state policy affect biodiesel companies as well, but the biodiesel industry is receiving some support from the courts. “The petroleum industry, the food industry and other refineries are united in the attack on biofuels, and most of that is focused by attacking the programs that are put in place to incentivize biofuels,” said Carlo Luri of Bently. “In California, the Low Carbon Fuel Standard is under attack, and at the federal level the Renewable Fuel Standard. In the last 8 or 10 months, there have been a number of rulings coming down from the courts of appeals that are standing in support of renewable fuels. So the attacks are there, and they do have an impact, and it tends to slow things down and stall things and sometimes impact prices.”

Stay local

To remain in business during these tumultuous times, each of the three companies shared a common strategy: stay local.

“Our strategy has been to focus on a community-scale model, with an emphasis on being able to compete without tax credits,” said Tyson Keever of SeQuential Pacific. “We have a large used cooking oil collection company where we go direct to the back door of the restaurant. We try to stay within 500 miles of our production facility. We sell most of our fuel as locally as we possibly can, and as far down the fuel-shed as we can to the end user.”

Kelly King, operating from a small island in the mid-Pacific, concurred. “You’ve got to look at your local resources,” said King. “You don’t want to be shipping feedstock from the other side of the country, or from outside the country. We always focus on ‘local is better’, ‘smaller footprint is better.' It’s better for the environment, it’s better for the economy, and socially it’s better because people have jobs locally.”

At Bently Biofuels, which was founded on the principal of self-sufficient farming, they believe that locally-produced fuel provides great benefits to the community, including cleaner emissions, proper disposal of waste, displacement of petroleum and domestic energy security. The more fuel we can make locally, the less we need to obtain from unstable parts of the world, like the Middle East.

Unexpected benefits of biodiesel

Biodiesel’s economic impact includes helping restaurants to make money by properly disposing of waste.

“We don’t often get credit for this, but restaurants have saved millions of dollars, maybe even billions if you look across the nation, from going from the model of paying haulers to pick up their used cooking oil and grease trap oil, to getting paid for it or getting it picked up for free,” said King. “Since 2010, we’ve saved the restaurants on Maui over $1,000,000 in fees. Restaurants are starting to see their waste oil as a commodity, rather than a waste”.

In Hawaii, where resources (and landfill space) are limited, biodiesel is especially important because it provides an opportunity to prevent pollution while putting a waste product to good use.

Many biodiesel users see increased business as customers actively look to do business with environmentally friendly companies.

"Since 2006, we have been fueling with 100 percent biodiesel”, said Erik Stein, owner of Extended Horizons, Maui’s top green dive operator. “Customers seek us out because consumers are now looking for businesses that are actively protecting the ocean and earth. The benefits have flowed to our bottom line as biodiesel burns cleaner than petro-diesel, reducing our engine maintenance costs."

“Converting restaurants’ recycled fats, oils and grease (FOG) into biodiesel is a great way to divert waste, reduce pollution and support local businesses,” said Asia Yeary from U.S. EPA Region 9. “Communities in Hawaii and elsewhere also benefit from this renewable resource because it significantly reduces asthma-causing soot, sulfur dioxide and greenhouse gas emissions.”

Pacific Biodiesel, SeQuential Pacific Biodiesel and Bently Biofuels have successful business models that support their communities, reduce C02 and greenhouse gas emissions, and keep fats, oils and grease (FOG) out of our sewers and landfills. Public awareness is the best way to keep these companies in businesses.

Anyone can use biofuel

Many people confuse biodiesel with vegetable oil, and believe that only specialized or “converted” engines can use biodiesel. In truth, biodiesel can be used in any diesel engine, if the appropriate blend is selected. Biodiesel can be used alone as “B100” (100 percent biodiesel) or mixed with petroleum diesel and blended into many different concentrations.

According to the National Biodiesel Board, biodiesel blends of 20 percent and below will work in any diesel engine without engine modifications. If the blend has been properly treated by the biodiesel company, it will work year round, even in cold climates. B20 (a blend of 20 percent biodiesel, 80 percent petroleum diesel) provides similar horsepower, torque and mileage as diesel. Blends of 5 percent biodiesel and lower meet the ASTM standards for diesel fuel and don’t require any special considerations.

For gasoline-powered vehicles, a different type of biofuel — bioethanol — can be used. The E10 blend (10 percent bioethanol and 90 percent unleaded gasoline) can be used in any gasoline engine. Higher blends require a specialized engine.

Another myth is that using biodiesel will void a vehicle’s warranty. The U.S. Department of Energy Handling and Use Guide (page 37) states that federal law prohibits voiding of a warranty just because biodiesel was used.

Biodiesel should not cause engine problems. "We've been using B20 since 2006, averaging a million miles a year on our biodiesel-fueled vehicles, with no issues," said Kelvin Kohatsu, Fleet Administrator for Hawaiian Electric Light Company.

The best way to support the biofuels industry is to use biodiesel in your diesel-powered vehicles and bioethanol in your gasoline-powered vehicles. Use the U.S. Department of Energy’s Alternative Fueling Station Locator to find a list of fueling stations around the U.S.

Top image by Mejidori via Wikipedia.

Also in The P2 Pathways Blog:

Retail Horizons: Will fracking constrain business growth?

Published September 16, 2014
Tags: Energy, Retail
Retail Horizons: Will fracking constrain business growth?

This article is the sixth in a 12-part series about the future of U.S. retail for the Forum for the Future-led 2014 Retail Horizons project in partnership with Retail Industry Leaders Association. For more about the project and the toolkit available in October, read the first post, which also contains a table of contents for the series.

How we produce the energy we need, how much it costs and how we use it will all have profound consequences for the future of retail business growth and the transition to a sustainable economy. Among other things, these factors strongly will affect supply chains, manufacturing and consumer confidence.

Although the energy system is too vast and complex to quickly summarize, a peek at one aspect of it — fracking for oil and gas — hints at the myriad ways in which changes underway could affect the future of retail and sustainability.

Driven by new horizontal drilling and hydraulic fracturing technologies, the production of natural gas and oil within the United States has seen huge growth. In just a few short years, the U.S. has gone from being a net oil importer to a net oil exporter, something that seemed inconceivable a decade ago.

At a moment when conventional oil supplies were feared to be peaking, conflict in the Middle East threatens to disrupt production and China is competing with the West for resources, this unexpected windfall has helped prevent a surge in fuel and electricity prices.

The consequences are that long and complex supply chains remain feasible, energy-intensive commodities such as aluminum are plentiful and consumer confidence has been rising. Beyond the fracking boom towns in places such as Williston, N.D., the new energy supply has been driving manufacturing job growth in long-depressed Rust Belt cities such as Youngstown, Ohio.

However, fracking is highly controversial and its future is uncertain. Fracking has been shown to contaminate groundwater and cause earthquakes. Fracking operations also leak methane, a potent greenhouse gas, and the scale of these "fugitive emissions" may be far greater than previously thought. Finally, although boosters have claimed that fracking could supply U.S. energy needs for 100 years, there is increasing evidence that the recent boom could be a bubble about to burst. The U.S. Energy Information Agency recently admitted that the recoverable oil in the Monterey shale formation in California is probably 96 percent lower than previously estimated.

Should the fracking bubble pop, we could expect to see a shortening of supply chains, rising commodity costs and a decline in consumer confidence and spending. It is impossible to depict this future with certainty, however, which is why the Retail Horizons project developed a set of four scenarios to explore how these and other factors will influence the future of retail.

Top image of sunset on an oil rig by Stephen Coburn via Shutterstock.

Best Buy hits billion-pound recycling goal, doubles pledge

Published September 19, 2014
Best Buy hits billion-pound recycling goal, doubles pledge

Five years ago, Best Buy set what many thought was an impossible goal: collecting 1 billion pounds of electronics and appliances by the end of 2014.

Not only did the retailer surpass that target this summer, its leadership just pledged to manage an additional 2 billion pounds by 2020 through its takeback program, which spans more than 1,400 U.S. stores.

"We're hoping to collect twice as much in the same amount of time," said Scott Weislow, senior director of environmental services.

By the way, neither the original goal nor the new one includes items that Best Buy might be collecting from business customers, which are considered separately. For perspective, the consumer electronics industry as a whole collected 620 million pounds during 2013, which was double the previous year; the collective goal is 1 billion pounds annually by 2016. Dell, which rivals Best Buy in the reach of its program, is striving to collect 2 billion pounds total by 2020. It's the only company remotely close to what the retailer has achieved, at least when it comes to consumer collection.

"They did this early. Everyone predicted they would fail at this," said John Shegerian, co-founder, chairman and CEO of Electronics Recyclers International (ERI), one of Best Buy's biggest recycling partners with eight facilities across the United States. "This was a brand new paradigm. I give them so much credit for sticking with it, and for growing it."

Best Buy's recycling rules are pretty simple: If you have a television, mobile phone or printer that you'd like to ditch and you can carry it to the store, the staff will take it for free. (Right now, individuals are responsible for wiping any personal data on hard drives before handing something over.) Smaller items like cables or chargers can be dropped into in-store kiosks. If you have something big — like a washer or wide screen television — you can arrange to have it picked up for a fee, unless you're buying a replacement from Best Buy. In that case, the old one will disappear for free. "There are very few items we don't take," Weislow said.

Work in progress

Make no mistake: The company made plenty of adjustments behind the scenes to deliver against its initiatives and to minimize the expense associated with it. It actually has been collecting electronics items since 2001, but when the company formalized the program in 2008, it decided against building its own recycling and refurbishment infrastructure. "From an expense management standpoint, having a consolidated approach wasn't working," Weislow said.

Instead, it is allied with about a half-dozen e-waste experts that are certified under both the Responsible Recycling (R2) and e-Stewards disposal programs and can help Best Buy harvest value from the materials and precious metals contained within outdated or damaged products. Best Buy's partners currently include ERI, Sims Recycling, Regency Technologies, Jaco Environmental and Call2Recycle, according to its website.

"Their first job is to see whether they can repair the item and get it back into the market," Weislow said. "The next step is to determine: Are there other parts they can use?"

Best Buy took a regional approach, matching its own investments to places where state laws required or encouraged collection and where these partners were establishing processing facilities. One big change it made over the years involves how items are delivered to recycling facilities. While it previously contracted with a third party to handle this, now it uses the same trucks that are delivering new items to stores to pick up items intended for recycling.

"The previous model was expensive and sub-optimal," Weislow said. "We had trucks that were already filled with products heading in. Why wouldn't we consolidate the shipments?"

The next wave

How on earth will Best Buy deliver on its aggressive new goal? For one thing, the retailer's own research shows only 39 percent of consumers recycle electronics items. The research covered approximately 900 adults age 18 to 65, and it was conducted independently by Millward Brown during July and August.

The data suggest there is plenty of room for upside: Seventy percent of the respondents said they anticipate recycling these items in the future.

While many of the items collected so far have been televisions, Weislow expects that to shift in the coming year, with more mobile phones and desktop computers coming Best Buy's way than ever. It's also closely watching trade-in trends: Nearly half of the survey respondents surrendered their old mobile phone for some sort of compensation when buying a new one.

As a separate data point, in early September, ecoATM reported that it has collected 3 million mobile phones, tablets and MP3 players since 2008. Considered another way, that's about 879,000 pounds of plastic and metals or two Boeing 747-400 series airplances. This year alone, ecoATM has already processed more than 1 million devices. It's got roughly 1,100 kiosks located at U.S. shopping malls and large retailers.

All photos courtesy of Best Buy.

How Tennant sought to flourish through innovation

Published September 15, 2014
How Tennant sought to flourish through innovation

H. Chris Killingstad was vice president of a struggling 132-year-old company when he went to an industry trade show in 2002. His company, Tennant, made floor cleaning equipment using technology first developed during the Great Depression.

"When I walked into the room, I saw hundreds of different machines that looked exactly the same, except for their colors," he said. "I realized that we had to do something to differentiate ourselves."

Today he is Tennant's CEO. The company's stock has risen 300 percent since 2002, more than five times faster than the Dow Jones Index.

How did he do it? With a lean, clean and green strategy aimed at contributing to a healthier world. He did it in the face of enormous doubt from customers and competitors who wondered whether "chemical-free cleaning" would pay off. Not only did his gamble prove technically sound, but his vision has inspired and engaged customers and employees.

Tennant exemplifies a new breed of business. It competes on environmental performance — not just the "20 percent less energy and CO2 emissions by 2020" kind, but radical innovation that represents a breakthrough for both customers and investors.

The company's electrolysis-based water technology, ec-H2O, provides user benefits that include eliminating the cost of chemicals and reducing the risk of slip-and-fall accidents by avoiding chemical residues on floors. As Tennant explains it, the technology oxygenates water and electrically converts it into an ionized solution that has both acidic (sanitizing) and alkaline (cleaning) properties. Its ec-H2O line of floor-cleaning products dramatically has outpaced industry sales and helped the company to achieve record profits.

Business needs a new norm

From car company Tesla to fast-moving consumer goods maker Unilever and home improvement retailer Kingfisher, growing numbers of industry leaders are redefining what it means to be a sustainable business. For them, sustainability is no longer about incremental change aimed at reducing harm. They are shining examples of business as an agent of world benefit. Their purpose is to have a "net positive" impact on society and the environment while reaping above-average financial rewards.

What can you and your organization do to become an agent of world benefit? Case Western Reserve University, where I work as an associate professor of organizational behavior, has produced new research that suggests untapped opportunities exist in two areas.

Credit: Tennant

First, businesses must replace the tired notion of sustainability with the much more inspiring one of "flourishing," aimed at creating the world we all want rather than the one we just get by in. Would a healthy marriage be described as sustainable? No, we would want to describe it as doing well or thriving. Flourishing engages and motivates people in an entirely different way from most corporate sustainability efforts. The Tennant vision was not about minimizing harm from the use of chemicals. It was to eliminate chemicals altogether.

Second, businesses need to pay more attention to personal well-being — to whether people are able to feel "whole" at work and to feel treated as human beings rather than fungible resources. We need work environments in which people's values line up with their organization's values to enable them to live purpose-driven lives. Mindfulness and other reflective practices can help people deal with workplace stress by reconnecting them to what they care deeply about. Cultivating emotional and spiritual health is the next frontier in corporate excellence.

Why is this so important? Surveys of the American labor force reveal that over 50 percent of employees identify themselves as disengaged at work, with a further 18 percent saying they are actively disengaged. A blunt May 31 headline in The New York Times reads, "Why you hate work." It detailed white-collar dissatisfaction, including factors such as the lack of meaning and significance in jobs.

More generally, business is suffering from an image problem. Corporations bounce from accusations of fraudulent financial practices to environmental disasters, from claims of low hourly pay to promoting products seen as of questionable value to consumers.

How to get started on a new path

It is time to recognize that narrow short-term ROI calculations for environmental performance and social responsibility are no longer enough. We must change who leaders are being, not only what they are doing.

Not surprisingly, companies already are demonstrating that being an agent of world benefit can give a big boost to the bottom line. Google, General Mills, Fairmount Santrol, Clarke and GOJO Industries are among the new breed proving the business value of full-spectrum flourishing, starting with the inner well-being of their people.

Case Western Reserve's Weatherhead School of Management will host its third Global Forum for Business as an Agent of World Benefit from Oct. 15 to 17. H. Chris Killingstad from Tennant will be there. Top image of flourishing tree by Porojnicu Stelian courtesy of Shutterstock.

How a risk-screening tool can set up solar for success

Published September 15, 2014
Tags: Finance
How a risk-screening tool can set up solar for success

Rocky Mountain Institute (RMI) and the truSolar working group have developed a risk-screening tool targeted toward middle-market commercial solar projects.

According to Jamie Mandel, manager at RMI, commercial rooftop and ground-mount systems, which can range from 10 kW to 1 MW, are not financed as often as they should be.

The small- and medium-sized companies and developers that provide these systems do not have FICO scores to attract sufficient debt financing. They are also too small for project finance. The middle-market customers seeking to install these systems may include family companies and small chain stores.

Many of these projects lack a standardized risk assessment profile, a common language and a shared industry standard to reduce obstacles. These missing pieces contribute to a lack of information which makes lenders skeptical about the risks involved.

Distributed Sun’s chief executive officer, Chase Weir, said standards are lacking for projects downstream in the value chain where buyers and sellers transact.

“NABCEP is a good example of a widely accepted standard further up the value chain that provides a nationally recognized procedure to certify engineers who design these systems," Weir said. "Further down the value chain, there is not currently a standard approach to evaluating investment risk.”

RMI and the truSolar working group have created a framework which, if adopted by all counterparties in deals, will lead to substantial benefits, Weir said. “When counterparties to deals you’re doing – and counterparties to deals you’re not doing – all implement the same truSolar framework, the whole industry can enjoy economies of scale,” he said.

Expanded scale

The truSolar score is similar to Carfax, a commercial service that provides vehicle history reports to individuals and businesses.

Another similar example comes from the telecom industry. Not too long ago, major telecom companies convened a working group and realized that each company conducted business differently. This was preventing them from scaling up. This realization resulted in the creation of Code Division Multiple Access (CDMA), which has now become a standard technology for 3G high-speed mobile use.

The introduction of CDMA brought mobile smartphones to the global market, which was not yet a trillion-dollar market at that time. CDMA helped to scale the mobile phone industry up to reach a hundred-billion-dollar market.

TruSolar will serve a very similar function. A universally-accepted standard would potentially open up the solar market to reach more customers in the next 10 years.

“Solar is a billion-dollar market that wants to become a trillion-dollar asset class,” Weir said. “Markets don’t accomplish this scale without transaction standards. There is an inevitability to it, but it takes time. Until everyone agrees on the rules and protocols, we’re holding back growth.”

truSolar will provide these rules of the road and create formulas to quantify risk.

Benefits of truSolar

One big question is: What effect will this tool have on the cost of capital?

Weir said he expects the tool to produce direct benefits such as increased conversion rates, reduced professional service fees, lower soft costs and transaction costs, and ultimately, a healthier market with more mature businesses and sustainable margins.

Wide-scale adoption of the tool may also impact other drivers of soft costs. For instance, this may lead to better understanding of the solar asset class in the lender and securitization markets and subsequently reduce the cost of capital.

By increasing adoption of solar power through more efficient primary markets, truSolar enables securitization and competition. This may reduce the weighted average cost of capital by several hundred basis points, Weir said.

The unlevered after-tax cost of capital today is 8 to 10 percent, Weir said. Securitization and the emerging yieldco structure is driving the cost of capital to 4 to 6 percent.

Some companies are already achieving these low costs of capital, but these are the billion-dollar scale companies, which are limited in number. According to Weir, truSolar’s vision of democratizing an institutional best practice, not just among large companies but for mom-and-pop businesses and new market entrants as well, may be achieved by 2018.

Although this statement paints a positive vision of solar’s future, Weir noted that the truSolar group did not view the tool as a direct means of lowering the cost of capital.

RMI wants to reduce the cost of solar, Mandel said. RMI is interested in the accurate pricing of risk and the reduction of transaction costs rather than the lowering of risk.

Mandel said reduced transaction costs could lower the cost of solar by 40 cents per watt.

Currently, most projects proposed in the solar industry do not get financed. The truSolar team is hoping to reduce deal dropout rate, which was built into this 40-cent reduction in cost.

It is possible that banks may not trust a self-scoring tool like truSolar; this may create opportunities for private companies to offer third-party verification and auditing services.

The truSolar working group has not determined who the third-party verifier will be.

According to Mandel, Distributed Sun has created an affiliate company, called beEdison, that will be providing commercial products based on the truSolar score. RMI feels that having an initial commercial partner is critical to long-term success, and ultimately hopes that others will seek licenses as well.

Working group and peer review

The truSolar working group was formed in late 2012. It kickstarted efforts by identifying leading companies along the industry value chain. These companies include materials, racking, panel and inverter companies; financiers; insurance companies; and rating agencies.

In the past 18 months, 1000 professionals and eight firms in the industry have provided feedback on the tool’s functionality and accuracy.

According to Weir and Mandel, it is critical that the working group transition to an independent industry body, called the “accreditation body,” which will manage a living standard and act as the final arbiter on risk scoring and algorithm management.

RMI, the chair of the organizing committee, is currently drafting bylaws and structuring a sustainable revenue model to establish truSolar as an independent 501(c)6 entity.

Trust and transparency are a priority and are paramount for widespread adoption, according to Weir. It has not been determined yet whether truSolar will partner with an industry body or remain independent.

Looking forward, Weir said he anticipates the tool will have a positive effect on the market and open channels for improved information, understanding and communication. These direct benefits will indirectly reduce soft costs and a lower cost of capital.

Weir and Mandel said that as the truSolar tool moves through the peer review process and is launched into the market, they will be prepared for challenges.

Mandel said he expects adoption will be one of these challenges. “Adoption means the tool is relevant, trusted and accurate.”

Technical accuracy could also be a concern, as well as business model structure.

“A business model that focuses too heavily on preserving revenue streams will not build trust,” Mandel said. “At the same time, if the business model is too open, you run the risk of destroying incentives or introducing competition.”

The working group completed the alpha phase this spring. This resulted in a list of over 800 attributes to evaluate risk.

These attributes included construction, operation and maintenance provider, location, sunlight, component products, contract structure and financing approach.

The recently completed “beta phase” focused on quantifying attributes, designing algorithms and narrowing in on which attributes quantify risk best.

At this stage, the tool combines over 400 attributes. TruSolar is taking this a step further to create a score so that this information can be easily interpreted by industry stakeholders, especially lenders.

Ultimately, lenders must understand risk factors so that they can accurately assess project viability, Weir said.

One essential function of the tool is a pre-screening test to determine if and when a project is worth full due diligence. The test will include about 150 questions.

The tool will identify problems and generate a prescriptive recommendation based on the user’s inputs, while stressing profitability.

Weir said that this profitability assessment is not just based on formulaic measures like internal rate of return – or pre-tax or after-tax, levered or unlevered financing.

“The tool evaluates risks to generating kilowatt-hours and cash flow and helps investors understand how to reduce, eliminate and transfer risk, or accept risks,” Weir said.

This article originally appeared on Clean Energy Finance Forum and is reprinted with permission.

Top photo of solar installation by Elena Elisseeva via Shutterstock

What you should know about Greenpeace's Lego campaign

Published September 15, 2014
What you should know about Greenpeace's Lego campaign

A few years ago, we wrote about Greenpeace targeting Mattel. Through its “Ken dumps Barbie” campaign, Greenpeace was able to “force” Mattel to avoid using controversial packaging sources at that time (mainly Asia Pulp and Paper).

This year, Greenpeace has set its sights on another manufacturer of children’s toys: LEGO, that venerable institution of childhood, the one that helped us learn how to build, then destroy, all sorts of objects. I can’t think of a pediatrician’s office or day care center I visited when my children were young that didn’t have a LEGO table and building blocks. To coincide with the release of "The LEGO Movie," Greenpeace created its own LEGO movie called "Everything Is Not Awesome." This 1:46 minute video has over 5.5 million views.

Technically though, it isn't really going after LEGO, but after the oil companies. In fact, it notes on its website that “LEGO has pledged to phase out the use of oil and replace it with a sustainable alternative by 2030.”

So this begs the question, why doesn't it just go after oil companies directly? Well, it has protested against Shell, but I’m sure you hadn’t heard much about those efforts before the LEGO initiative. It seems Greenpeace hasn't had much success going that route. Greenpeace garners awareness through creativity that grabs the attention of popular media and gets traction on social media. It’s easier to do this by leveraging a surprising, well-loved target like LEGO.

More importantly, what Greenpeace is trying to do is get the attention of "Concerned Parents," the mainstream sustainability segment that we at the Shelton Group describe as making up about one-third of the American market. Greenpeace is “asking parents and LEGO fans to stand up for the Arctic and call on LEGO to cut ties with Shell.”

The strategy certainly has garnered attention (5.5 million views is impressive), and over 866,000 people, or roughly 16 percent of viewers, actually have signed the petition. But based on the fact that "The LEGO Movie" is currently the second highest grossing movie of the year, I’m not sure that Greenpeace has struck a strong chord with parents.

The problem may be that the issue is so far removed from the targeted product. The campaign targets LEGO’s supply chain, not a hazard directly associated with its products. That doesn’t create the same alarm as toxic content or some other health hazard.

Additionally, LEGO has made public pronouncements toward sustainability — with goals that even Greenpeace acknowledges. So it’s possible some parents see this action by Greenpeace as unfair.

LEGO appears to be standing its ground. LEGO’s response to the matter seems to sum up the view that it is being unfairly targeted: “We firmly believe that this matter must be handled between Shell and Greenpeace. We are saddened when the LEGO brand is used as a tool in any dispute between organizations.”

The lesson here for other marketers is that high-profile successes (such as a kid’s movie based on your product) can put you on activists’ radar screens — particularly if your product or supply chain aligns with its agenda. But if you’re doing the right things, and directly and transparently address the concerns, you can withstand the storm, and attention eventually will shift to other issues.

So before launching any major advertising campaign or high-profile tie-in partnership, it’s a good idea to get your sustainability house in order and carefully consider all aspects of your business, including your supply chain.

Top image of a Lego tree by Katie Walker via Flickr

Also in The Speaking Sustainably Blog:

Building a smart city, one streetlight at a time

Published September 15, 2014
Building a smart city, one streetlight at a time

Learn more about smart cities at the GreenBiz VERGE Salon in New York City tomorrow, and at VERGE SF, Oct. 27 to 30.

The vision of a smart city decked out with millions of sensors feeding useful information to city officials and citizens is almost out of science fiction. To reach that point, though, it’s best to focus on something much more prosaic, such as helping citizens find parking spaces or switching out the bulbs in streetlights.

Cities around the world have long-range initiatives to reduce greenhouse gas emissions and better prepare cities for severe storms and other climate disruptions. But in most cases, achieving those goals with top-down, technology-driven projects is bound to stumble, said Charbel Aoun, president of smart cities for Schneider Electric.

“As much as we believe technology is critical to enabling smart cities, we avoid talking about technology,” said Aoun. “Smart cities is about cutting-edge innovation, but cities don’t like innovation — they can’t afford to fail.”

Instead, city officials need to modernize their infrastructure one chunk at a time and create a technical architecture that allows them to integrate their IT systems with their operational systems — electric and water grids, transportation systems and other infrastructure.

Schneider holds meetings with city officials to discern their priorities and then seeks out a project that can demonstrate some sort of energy savings, such as building efficiency upgrades. Ideally, those savings can fund further work. “You have to sell the value to the mayor, the management and the different department heads,” Aoun said. “It’s the basement connecting to the data center connecting to the mayor’s office.”

Light-bulb moment

The challenge for many cities is that once a city decides to install Internet-connected equipment, it quickly exposes organizational problems.

Consider streetlights. City departments are expert at operating streetlights and know who suppliers are and when upgrades are needed. But what happens when an LED street light is also a platform for providing wireless Internet access, security cameras and air quality monitors?

The streetlight goes from being a piece of equipment managed by the energy or traffic department to a high-tech device that needs to be integrated into back-office IT systems and monitored for network security. Rather than have the traffic department manage this equipment, it’s best for IT departments to have responsibility, said Aoun.

Buy-in from the budget keepers

Financing new initiatives is a challenge for cities, many of which face big budget deficits. The City of Boston managed to finance a number of energy-efficiency initiatives by getting two types of budget people to talk to each — those in charge of capital expenditures and those in charge of operating budgets.

Credit: Martin LaMonica

By demonstrating that a building efficiency project could reduce operating budgets, for instance, the city was able to free the funds from the capital budget for a number of efficiency upgrades, said Todd Isherwood, an energy project manager for the City of Boston, who spoke at an event organized by Schneider Electric. An upgrade to LED street lights was able to save a substantial amount of money when utility rebates were figured in.

“The savings opens up a discussion,” Isherwood said. “None of my colleagues will move on the budgets unless there is money that can be saved.”

Those efficiency projects have led to a broader initiative to benchmark all of the city’s buildings and report their energy performance data. Once all the information is collected and consolidated, facilities managers can start to prioritize efficiency upgrades or make simple behavioral changes, such as deciding on how best to turn heating and cooling off at schools.

Over time, the city will get data on which buildings have combined heat and power units and can operate independently in the case of power outage, Isherwood said. Those buildings could act as shelters in the case of a prolonged outage.

A few cities in Europe have plans to create a “city operating system” that will allow developers to create applications with sensor data. But most cities don’t have the resources or the technical staff sophisticated to take on these types of grand projects, said Laurent Vernerey, CEO of Schneider Electric in North America.

“If (a smart city project) is not something thing that will be visible to the citizen, it’s going to be difficult,” Vernerey said. “As a mayor or city manager, how can I make their life easier? When they find an angle like this, then it opens doors very quickly.”

Top image of LED streetlight in San Luis Obispo, Calif., by emdot via Flickr

Kaiser exec: Can hospitals heal patients and the planet?

Published September 15, 2014
Kaiser exec: Can hospitals heal patients and the planet?

A healthy and sustainable environment is a necessary foundation for human health. On that most people agree. But there is an interesting paradox in health care: As hospitals deliver care to individuals, their environmental footprint — pollution, energy use, waste production, unsustainable food services — can be harmful to our health.

The statistics might be surprising to some.

Hospitals generate some 7,000 tons of waste per day, or more than 2.3 million tons a year.

One average-sized U.S. hospital produces about 18,000 tons of carbon dioxide annually, and health care accounts for 8 percent of greenhouse gas emissions in the U.S.

Hospitals are often among the top 10 water users in their communities, with some facilities using up to 700,000 gallons of water per bed per year.

A growing segment of health care business and clinical leaders are addressing this glaring contradiction. They are embracing environmental stewardship as part of their commitment to improving the health of communities so that hospitals can truly be places of healing. And, they are discovering that a focus on sustainability actually can improve the bottom line.

In my new book, "Greening Health Care: How Hospitals Can Heal the Planet," I examine the intersection of health care and environmental health, both in terms of challenges and the revolution underway to overcome them. These strategies are penetrating many other sectors, and the story is much broader than just the health care arena. Businesses that supply medical products, design and build hospitals and clinics, produce food for patients and staff, and make electronic devices for clinical technology are being asked to join the effort. Hospitals are more than an important part of the community; their impact reaches across the globe.

Health care generates about 18 percent of all U.S. economic output, making it large enough to create and lead a national, even global transformation that could incorporate environmental sustainability in every dimension of the sector's economic activity for the health and well-being of the world's people.

"Greening Health Care" focuses on these primary topics: The health implications of climate change; managing and minimizing hospital waste; creating a more sustainable and healthy food system; building greener hospitals and detoxing the health system through the use of greener and safer chemicals.

Healthy profits

While the health care sector can have a significant impact in improving the environment in all of these crucial areas, a key question remains: Can environmental stewardship strategies in health care coexist with today's constant pressure to cut costs?

The latest comprehensive examination of the question estimates that if the health care industry conserved energy, reduced waste and more efficiently purchased operating supplies, it could save more than $15 billion in 10 years. This report, published by the Commonwealth Fund, looked at nine hospitals and health systems over a five-year period.

"This study turns on its head the belief that introducing environmental sustainability measures increases operating costs," says Blair L. Sadler, senior fellow at the Institute for Healthcare Improvement, one of the study authors and former CEO of Rady Children's Hospital in San Diego. "In fact, just the opposite is true."

He noted that a focus on environmental stewardship is "good for patients and staff, and is a better strategy than having to lay off valuable personnel or closing effective programs that lose money."

Kaiser Permanente — and a growing group of health care leaders in this area — is making great progress to green its operations all while paying close attention to cost and affordability of health care to our patients. The greening of health care is a lesson of hope, one that can inspire others and lead to a transformation in this vast industry — and in other sectors as well. I invite everyone engaged in health care to take up this cause.

Top image of stethoscope by STEVEN CHIANG via Shutterstock.

Here's what can become the Airbnb for the electricity grid

Published September 15, 2014
Here's what can become the Airbnb for the electricity grid

As Thomas Friedman reported in The New York Times, the shared economy is booming, with companies such as Uber and Airbnb continuing to disrupt the incumbent taxi service and hotel sectors. The Ubers and Airbnbs of the world tap the huge value of underused assets and create millions of dollars of value for users in the process.

Shared economy companies unbundle existing assets and enable value exchange out of those assets, with close to zero marginal capital cost because the users themselves own the actual physical assets, whether a car or a home. Could the electricity grid be next to go the way of a sharing economy?

For more than a century, the electric grid has relied almost exclusively on centralized infrastructure, such as large power plants and long-distance transmissions lines. But distributed energy resources, or DERs — and the customers buying, installing and using them — are changing the economic landscape for the power sector. Energy efficiency, demand response, distributed generation such as rooftop solar, distributed storage such as batteries, smart thermostats and more are poised to become the front lines of a sharing economy revolution for the grid. Shared economy solutions will help to increase asset use rates and improve consumer and overall system economics, just as they have for other sectors.

What's been missing — so far — is a trusted, open peer-to-peer platform for DERs to "play" in a shared economy. An independent platform underlies the success of many shared economy businesses. At its core, the platform monetizes trust and interconnection among market actors — a driver and a passenger, a homeowner and a visitor, and soon, a power producer and consumer — and allows users to both bypass the central incumbent (say a taxi service, hotel or electric utility) and go through a new service provider (say Uber, Airbnb, or in the power sector, Google).

Now as millions gain experience and trust with Airbnb, Uber and Lyft, they should reasonably ask, "Why couldn't I share, sell or buy the energy services of consumer-owned and -sited DERs like rooftop solar panels or smart thermostats?" The answer may lie in emerging business models that enable 1) peer-to-peer sharing of the benefits of DERs, and 2) increased use of the electric system and DERs.

Peer-to-peer access

P2P platforms empower consumers to directly buy and list a diverse set of products and services. For example, Vacation Rental by Owner allows anyone who owns a vacation home to rent it out when not in use. VRBO creates revenue streams for the house owner and expands accommodations options outside of traditional hotels to travelling consumers. Similarly, good old-fashioned weekly farmers markets bypass "centralized" supermarkets, bringing "distributed" local foods direct from farmers to consumers. In both cases, P2P platforms provide consumers direct access to and enhanced information about the source of diversified goods or services.

On the electricity side, in April, Netherlands-based Vandebron (Dutch) (literally translated as "from the source") launched a platform similar to VRBO, which allows individuals to buy electricity straight from a local farmer with excess electricity production from solar PV panels or biogas-to-power installations. Forget farm-to-table food; this is farm-to-meter power. The website allows you to pick from different producers, each featuring a high-quality picture and a small story about their farm, betting on the trust component to change how people pick their electricity producer. In this example, farmers receive a higher compensation from the platform per unit of electricity then they would selling their power to traditional utilities.

Likewise, California-based Mosaic offers private investors a P2P lending platform for solar power, although Mosaic aggregates investors to fund larger solar projects, so it more accurately may be described as a group-to-peer platform. Mosaic customers invest in solar projects sited on top of schools and other locations, and earn a rate of return that beats many investment vehicles in the market today. Revenue from the solar generation is shared between the investor and employed to offset the customer utility bill.

Increasing asset use

Any underused private asset is now a target for shared economy platforms, and that includes DERs.

Take rooftop solar PV systems, for one example. For grid-connected customers with rooftop solar, the majority of whom are net metered, existing valuation and compensation mechanisms fail to capture or share many values among participants at the distribution edge or exacerbates asset use problems.

Net energy metering compensates PV system owners for the kWh production of their system, but may not reflect the full range of system values that DERs can provide. These values — including wholesale peak shaving (because solar PV output is often coincident with peak demand), relief of distribution system congestion and emissions reductions — potentially are left on the table, while a shared economy solution could enable direct exchange of those values between consumers. Peers on the same congested distribution circuit could buy and sell energy services from DERs from one another, for example, providing relief for their feeder circuit.

[Learn more about distributed energy systems at VERGE SF 2014, Oct. 27-30.]

For another example, consider unused DER siting locations such as south- and west-facing rooftops of multi-family buildings and commercial buildings. These are prime targets for shared economy DER products and services. Emerging tariffs such as Virtual Net Metering in California utility territories allow for sharing of these unused locations and the renewable energy they generate by allowing their value to bridge from building owner to tenant.

Bulking up the bulk power system

A P2P platform for DERs also can benefit the bulk power system.

In Thomas Edison's grid, as with much of the grid today, central-station bulk generators with monopoly power deliver energy and information unilaterally through transmission, distribution and metering networks to end users. According to the New York State Department of Public Service, "the bulk power system is designed to meet retail peak demand, which ... tends to be 75 percent higher than average load. The total rate of system utilization is under 60 percent." Similarly, SDG&E's load factor has been steadily declining (to less than 50 percent in 2013).

With a growing difference between "base" and peak load-and central power assets that sit idle much of time, more or less called into use only to meet the peaks — the bulk power system's decreasing load factor is a sign of increasing asset underuse, just like the spare bedroom in your house that's vacant most of the year, or the empty car seats so prevalent in Americans' single-occupancy car commuting. That's untapped value a shared economy P2P platform can access, including in the bulk power sector.

For example, optimally deployed and dispatched DERs (ranging from energy efficiency and demand response to generation and storage) can shave peak demand, reducing the need for utilities to purchase and deliver expensive wholesale energy during peak demand periods. DERs have the potential to produce a smoother load curve, resulting in a smaller amplitude difference between "base" and peak load, and thus improving the grid's load factor and improving the grid's overall asset use rate. By enabling sharing of P2P DER energy services, the distribution system platform more fully can capture that economic opportunity.

P2P, but not without a central backbone

As decentralized DER markets emerge, the possibility that the power sector becomes a massive platform for shared economy businesses is real and exciting. As others have opined (PDF), the electricity consumer quickly will become a prosumer in a shared power economy, benefitting participants and non-participants alike. The question is how the incumbent grid financially can survive the coming energy system disruption, as it is a valuable component of the platform.

No P2P platform is without a centralized backbone. Whether Airbnb, Uber or something as yet unknown for DERs, telecommunications and software infrastructure — and the electricity grid — is a critical enabler of a P2P sharing economy. This is true, not just to literally make the platform work, but also to provide consumers with both choice and reliability.

Can't find a ride on Uber? Take your personal car, or use a car-sharing service, or call a taxi, or rent a car or take public transportation. You've got options, including several "centralized" ones, and those options give you both choice and reliability. So it should be with power, too. A P2P sharing economy for DERs doesn't obviate centralized power resources and the grid — it complements the grid to provide consumers with a more optimized set of choices and reliability.

P2P solutions are an exciting prospect, but other options, including grid-sourced power, will remain a piece of the puzzle that together offer the system reliability people and businesses demand of today's electric power grid.

The path forward

Along with grid use improvements, the increased market adoption of decentralized energy resources creates new markets for democratized and transactive trading of power and information. In turn, the opportunity for trade creates opportunities for new business models to disrupt the current utility monopoly around power delivery.

The regulatory challenge and opportunity is to determine the best path forward to support innovation through markets, maintain gains in clean energy programs and uphold regulatory compacts to provide reliable service at reasonable rates. Existing regulatory paradigms and utility systems are insufficient to enable the same type of information, payment and market disruption that spawned the sharing economy. New distribution system platforms are under development in several jurisdictions, either leading — or being led by — the explosive growth of DERs.

This story originally appeared at RMI Outlet. Top image of light bulb in hand by Marcus Williams via Flickr

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Matthew Crosby

Manager, Electricity Practice
Rocky Mountain Institute
Matthew Crosby is a Manager with RMI's electricity practice, where he serves as project manager for the New York Reforming the Energy Vision proceeding, and is involved with RMI eLab. Matthew focuses on regulatory and energy policy development to facilitate market-oriented energy delivery disruption and product innovation.
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