Alternative Energy Watch: More Biodiesel Planned in Brazil; Solar Struggles on Two Continents; So Does Wind (ADM, BG, LNT)

Today’s alternative energy news looks at a new joint venture for biodiesel in Brazil, a country that already has much more capacity than it uses. Solar and wind energy are fighting cuts to subsidies and general backlash to renewable energy projects.

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