Alternative Energy Watch: SunPower Going on Tucson's Roofs; Spain Generates Most Electricity from Wind; Ethanol Producers Hit by High Corn Prices (SPWRA, ADM, VLO, PEIX)

It is time for our daily review of the alternative energy sector. Tucson Electric Power (TEP) has revealed a plan to lease space on the roofs of public buildings in the city as space to install 11 megawatts of solar PV generation over the next three years. The electricity will be fed directly to the city’s electrical grid, where customers will be able to purchase clean renewable energy in 150-kWh blocks at the same price as conventionally generated power plus a $3 monthly charge. For a home-owner who uses about 1 MWh a month, the additional charge would be $30/month. That’s pretty steep.

TEP says it will install solar PV systems from SunPower Corp. (NYSE: SPWRA). The rooftop program is part of a larger TEP effort to install 125 megawatts of solar capacity in the next three years. The state’s Renewable Energy Standard calls for state utilities to provide 15% of their power generation from renewables by 2025.

Ethanol producers like Archer Daniels Midland (NYSE: ADM), Valero Energy Corp. (NYSE: VLO), and Pacific Ethanol, Inc. (NASDAQ: PEIX) could see margins on ethanol productions evaporate as corn prices continue to rise. This won’t have a huge effect on ADM or Valero because both benefit from rising prices for corn-ethanol. For Pacific Ethanol rising corn prices cause the company’s margins to get shattered. Pacific posted a fourth-quarter 2010 loss of -$11.6 million, even though revenues grew from $87.9 million in the same period of 2009 to $134.2 million. Margins were crushed by rising corn prices, and Pacific does not have the buying power of ADM nor the retail distribution of Valero to make up the difference.

For drivers, the rising price of ethanol strikes a double blow. Not only is ethanol more expensive, but because it contains less energy than gasoline, drivers need to buy more of it. Ethanol for May delivery on the CBOT is priced at about $2.69/gallon, while the May price for reformulated gasoline (RBOB) is around $3.16/gallon. Because ethanol provides only about two-thirds the energy of gasoline, it should cost about $2.09/gallon. Add the $0.45/gallon tax credit to the price of ethanol, and US drivers are paying a lot more for considerably less. An adjustment to the federal tax credit, as we noted in our Commodities Watch story last week could at least reduce some of the overpayment US drivers are contributing to ethanol producers.

Spain is making news on both the wind and solar energy fronts, in addition to its nearly constant presence in stories about European sovereign debt. In March, Spain generated more electricity from wind than from any other source, including coal. Wind accounted for 21% of Spanish electricity generation compared with 12.9% for coal-fired generation. Renewables as a whole, including wind, solar, and hydro, accounted for 42.2% of Spain’s March electricity generation. Spain has installed nearly 21,000 megawatts of wind generation in the cocuntry, enough to meet the electricity demand of the entire country of Portugal.

On the solar front, though, the news from Spain is less encouraging. The country’s feed-in tariff has cost the Spain’s conventional power producers about $28 billion in subsidies paid to solar producers. The payments were supposed to be reimbursed by the government, but Spain’s debt problems have delayed those payments, and the utilities are worried that they’ll ever get paid. Spain’s three big power companies — Iberdrola, Endesa, and Gas Natural — have been threatened with debt-rating downgrades unless they reduce these outstanding tariff receivables.

Beginning in 2004, Spain offered an overly generous subsidy for new solar projects. By 2010, about 10 times the expected amount of solar capacity had been installed in the country — with a concomitantly higher level of subsidy than the government had anticipated. The government is trying to retroactively cut the subsidy payments, but solar companies are fighting the cuts in court and stand a good chance of prevailing.

Paul Ausick