US food processing giant Archer Daniels Midland (NYSE: ADM) and privately held Cargill have joined forces to invest up to $560 million in new biofuel refineries in Brazil. The companies are expecting the Brazilian government to double the amount of biofuel that must be blended into petroleum-based diesel from 5% currently to 10%.

Bunge Ltd. (NYSE: BG) received approval to build a biodiesel plant with a capacity of more than 100,000 gallons/day. Bunge will use soybean oil as a feedstock for the plant.

The catch is that Brazil already has double the biofuel refining capacity that it needs. So even a doubling of demand does not lead to a need for more capacity. There is even less demand for biodiesel exports to Europe or the US. European biodiesel plants are running at less than half of rated capacity, and US plants are running at an estimated 25% of capacity.

Brazil has approved 21 new plants or plant expansions which would increase production of biofuels by about 38%. If the government does raise the biodiesel blend ratio to 10%, it is not likely to happen until 2014 or even later. Some observers believe the blend ratio will rise to 7% by the end of this year.

While the demand for blending biofuel appears to be much lower than the projected supply, it’s worth noting that biodiesel, unlike corn- or cane-based ethanol, is a drop-in substitute for petroleum-based diesel. Most diesel-powered cars can use 100% biodiesel without modification. Diesel-powered trucks do require some modifications before they can use straight biodiesel.

If the biodiesel producers can get the fuel to market at below the cost of petroleum-based diesel, they could profit from drivers switching to the cheaper biodiesel. It’s a long-shot, but not a terribly difficult one.

We noted earlier today a resolution to the solar energy subsidy changes in Italy. But certainty in Italy is not matched either in Spain or Australia.

The Spanish government, facing severe economic pressures, is likely to reduce its planned renewable energy goal for 2020. Originally, the country planned to install enough renewable energy to meet 22.7% of Spain’s energy needs by 2020. That target is likely to be reset to 20.8% from renewable sources. Spain’s support for both solar and wind energy has been among the most generous in all of Europe, but Spanish citizens are now paying more for electricity even as unemployment rises to more than 20%, and the government is paying more than it can afford in subsidies for new renewable energy projects. The government is expected to announce its program next week and to get it approved in July.

In Australia, the government is lowering the subsidy it pays for individual solar PV installations. Under the current program a typical installation of 1.5 kW gets up to AUD$6,200. After June 30th, that figure will fall to AUD$1,200. The government blames the country’s feed-in tariff rules which, it claims, have boosted electricity rates in the country. Cuts to the subsidy could lead to a drop of 50% in solar PV installations according to some.

Wind energy is taking its lumps as well today. We’ve noted before that proposed changes in siting requirements in Wisconsin have led to the cancellation of two wind farms.  Alliant Energy Corp. (NYSE: LNT) took a $5 million impairment charge on increased risk to a proposed 100-megawatt wind farm due to the uncertainty about siting requirements.

In South Africa, the head of the African Wind Energy Association has accused major utilities in that country of sabotaging renewable energy projects. He claims that the success of wind farm construction has cost the old utilities some business and that they are retaliating by spreading “propaganda” about wind farms.

South Africa could meet up to 25% of its demand for electricity with renewable sources, primarily wind. The country has about 7,000 megawatts in development, but that is more than the country’s grid can handle. To meet a target of 30,000 megawatts by 2025, substantial work would need to be done on the country’s grid.

Finally, the Bonneville Power Administration, BPA, has said that it would require wind farms to shut down during periods when the flow of Columbia and Snake River water through BPA hydro-generation turbines is at its peak. The BPA cannot just dump the water over the spillway due to restrictions on flows that could harm migrating fish in the spring and early summer.

Forcing the wind farms to close when electricity supply exceeds demand could cost the wind farm operators $41/kWh, and the BPA says it won’t pay compensation for the lost revenue. Approximately 3,400 megawatts of wind generation is connected to BPA’s transmission system in Oregon and Washington. The threat of lawsuits and public outcry has caused the BPA to re-think its plans. Stay tuned.

Paul Ausick

Here’s a map of the US electricity transmission grid.

The effort to work on an upgraded grid began with the Energy Policy Act of 2005 (EPAct). One of EPAct’s provisions directed the Federal Energy Regulatory Commission to designate energy transmission corridors that would move electricity generated in remote parts of the country to population centers. The effort petered out because it was widely disliked to begin with and would have been nearly impossible to implement in the West.

In the East, where distances are shorter, but land for transmission corridors is scarcer and much more expensive, politicians and Eastern utilities feared that wind and solar generation in the West and Midwest would cause them to miss out on the economic windfall that developing clean energy promised.

The immediate proposal under discussion involves building what is called an overlay grid of extra-high voltage lines that would, in effect, be an interstate highway system for transporting electricity from its point of generation to interconnections with local distribution grids and consumers. The plan calls for a network of 765,000 kV lines at a cost of some $100-$220 billion. Currently there are no such high-voltage lines in the US. A completely upgraded US electricity grid, including the extra-high voltage lines, could top $1 trillion.

The IOUs and their allies argue that transmission lines that merely pass through a state or region without feeding electricity to that area should not be paid for by consumers in that area. If this principle is adopted, it would have a chilling effect on the development of alternative energy-generation in the remote parts of the country where the wind blows most steadily and the sun shines most consistently. Because there aren’t enough consumers in that area to absorb all the additional planned generation, it is likely that alt energy projects would be scaled back.

The IOUs also have an ulterior motive. If alternative power sources are subsidized by everyone, it threatens what is essentially a captive market for the coal-, gas-, and nuclear-fired plants these companies have either built or have on the drawing boards. The IOUs argue that subsidized transmission distorts the price signals that are inherent in rates.

In a letter to Senators Harry Reid and Mitch McConnell, a group of utility districts argue, “Transmission planning and cost allocation must support price transparency and the access to accurate cost and price information so that the power purchasers can make informed resource purchase decisions and consumers do not end up paying more than necessary.” The letter goes on, “If developers and potential customers of the new resources don’t have to pay the costs of transmission associated with their decisions, the price signal is lost and distant resources will have an unwarranted price advantage over local, less costly ways of getting to the cleaner energy future we all desire.”

The utility districts, like the IOUs, have an ulterior motive. If clean energy can be supplied at a competitive cost, the utility districts are likely to face competition they have not had to deal with in the past.

The battle is already being waged in California, where a June ballot initiative would require that residents approve by a two-thirds majority any attempt by a public agency to enter the retail power business. The initiative, Proposition 16, responds to a law passed in California in 2002 that allows the establishment of a community choice aggregation program that could get public funding to enter the retail power market.

The sole sponsor of Proposition 16 is PG&E Corp. (NYSE:PCG), which has spent more than $30 million so far in support of Prop 16. If the proposition is approved, it will be virtually impossible for a local government to purchase electricity from a non-PG&E source.

The argument for spreading the cost of grid upgrades around to all consumers is also laced with special interests. Sunny states like Nevada and Arizona, and windy states like the Dakotas could generate enough electricity to power the US essentially forever. Politicians from those states know, however, that without a way to get that power to market, development will never happen.

Development means jobs and wealth and re-election, exactly what the Eastern politicians feared. A new wrinkle has developed, though, that might change the debate slightly. When Interior Secretary Ken Salazar last week approved the Cape Wind Project offshore of Massachusetts, the door was opened to similar development off the Atlantic coast. If that should happen, the wealth would get spread around more, and opposition from East coast politicians and utilities could subside.

That still leaves the IOUs and many utility districts opposed to spreading out the costs, but that issue could be addressed in a variety of ways that would satisfy everyone. That’s what politics is for, after all.

The pressing need in the US for a robust, modern grid that can reliably get electricity to where it’s needed does not admit an easy or cheap solution. The solution will cost billions of dollars and take years to build. Government policy, and money, have been driving what little has been done so far. But the most fundamental question is the one now being asked: do we let government policy drive development or is listening to the market both fairer and more likely to lead to the desired result?

Paul Ausick

• Alliant Energy (LNT) Cut to Neutral at Baird.
• CenterPoint (CNP) Cut to Hold at Jefferies.
• Evergreen Solar (ESLR) Cut to Neutral at Piper Jaffray.
• Forrester Research (FORR) Cut to Market Perform at William Blair.
• International Flavors (IFF) Cut to Underweight at KeyBanc.
• Life Time Fitness (LTM) Cut to Market Perform at Morgan Keegan.
• Liquidity Services (LQDT) Cut to Perform at Oppenheimer.
• Northern Trust (NTRS) Cut to Market Perform at KBW.
• Opnext (OPXT) Cut to Perform at Oppenheimer.
• Regency Centers (REG) Cut to Neutral at JPMorgan.

Jon C. Ogg
February 6, 2009

Alliant reported full-year EPS of $2.61, down from EPS of $3.78 in 2007, but $0.02 better than analysts’ estimates. Full-year revenue of $3.68 billion also beat estimates of $3.59 billion. The fourth quarter was less upbeat, though, with EPS from continuing operations of $0.46, down from $1.80 in the same period a year ago.

Alliant’s EPS guidance for 2009 is $2.18-$2.48. Normal weatherconditions–not too hot, not too cold–will drive results, as will theoverall economy.

Duke reported non-GAAP EPS of $0.27, higher than analysts’estimates of $0.25. For the full year, Duke reported non-GAAPEPS of $1.21, a penny better than expected, but two pennies worse than2007. Revenue for the quarter met expectations of $3.13 billion. For the full year, Duke reported $13.21 billion in revenue, beatingestimates of $13.15 billion. Once again, weather takes the blame forthe drop in annual EPS.

Duke noted that in 2009 it will freeze salaries for most of its exemptemployees, and is setting an "employee incentive target’ of $1.20EPS for the year. That’s not very encouraging.

Paul Ausick
February 5, 2009

Alliant expects earnings for 2008 to be about $2.65/share, at the lowend of previous guidance. Analysts expectations for EPS are $2.64, sotoday’s numbers should raise any issues.

However, guidance for 2009 is substantially lower. EPS for the naturalgas business is forecast at $2.18-$2.48, and for the utility businessat $1.95-$2.25. Analysts had been expecting EPS for 2009 at $2.84. Thecompany’s president and CEO noted that Alliant’s rising rate base is"more than offset by declining retail sales" and unfavorable rate casesettlements.

Alliant also revealed that planned capital expenditures for 2009 totalnearly $1.3 billion, of which $435 million is targeted for developingwind power generation. To keep investors happy, Alliant will increaseits dividend from $1.40/share to $1.50/share.

This is barely a lukewarm forecast, and Alliant shares were down more than 5% this morning.

In another issue we’ve been watching, Exelon Corporation (NYSE:EXC) hasfiled Hart-Scott-Rodino notice in connection with its hostile takeoverbid for NRG Energy, Inc. (NYSE:NRG). Exelon failed to impress NRGmanagement with the offer, so it took the deal directly to investors.

Exelon also filed an application with the Federal Energy RegulatoryCommission (FERC) to approve the merger. In that filing, Exelonproposed to divest certain facilities in Texas and the mid-Atlanticstates in order to "protect and enhance competitive markets andmitigate any potential market concentration." All told, Exelon proposesto divest about 4,600 megawatts of capacity in order to complete thedeal with NRG.

Exelon shares are up about 1%, and NRG shares are up about 2% thismorning. Exelon’s tender offer to NRG shareholders expires on January6th, unless Exelon decides to extend it. The company did not provideinformation on how many shares have already been tendered.

Paul Ausick
December 18, 2008