Diesel Fuel’s Quality Problem

Let us start with one simple fact, it is illegal to even sell gasoline without the minimum amount of detergent additives established by the EPA.  Specifically citing The Code, 40 CFR 80.161 – “Gasoline may not be sold or transferred to a party who sells or transfers gasoline to the ultimate consumer unless such gasoline contains detergent additives which have been certified according to the requirements of this section.”  While this minimum requirement is a necessary starting point most engine OEM’s today recommend going far beyond the EPA minimum requirements by encouraging that Top Tier gasoline’s be used in their engines.  For a list of all the leading retailers who have adopted Top Tier link HERE.

So one might wonder what would happen if you decided to run your car on raw gasoline and just ignored the detergent and performance requirements of modern engines? Likely nothing good.  Injectors would clog, emissions would increase, and you just might find yourself stuck on the roadside.  Despite that reality diesel fuel users both on the consumer side at home and in commercial fleets at work are doing that very thing.  They are dumping raw diesel fuel into a very advanced engine and many are learning the hard way this may not be a great idea.

Diesel has never had the best image.  From the black smoke bellowing out of that truck in front of you on your drive home to the scandalous Volkswagen emissions fraud case, diesel seems to work hard at looking bad.  But the other side of story is that diesel is a tenaciously competitive fuel.  It provides relatively cheap and dense BTU’s that are better at powering the engines that move heavy loads than anything else we’ve come up with.

Despite the many challenges diesel faces engine manufactures have recently made some amazing progress.  With the implementation of EPA Tier 4 Final in 2015 diesel engines of all classes now have nearly eliminated their smoke, soot, NOX, and SOX emissions.  The chart produced by John Deere below shows just how dramatic the reductions in pollutants have been since 1996.

johndeereemissionschart

So if this story is about diesel fuel quality why are we talking about emissions?  Well the progress on emissions has resulted in engines that put tremendous new demands on the diesel fuel.  The most obvious of these demands was the reduction of sulfur in 2006 for use in the 2007 model year engines.  What has been far less obvious is the unintended consequences of removing the sulfur from the fuel.  With sulfur removed diesel fuel can hold far less water in solution.  When that water drops out of solution in storage tanks the bacteria and algae that feed on the hydrocarbons while living in the water start having quite a feast.  In the process these organisms are creating a hideous mess inside diesel tanks of all shapes and sizes.

KONICA MINOLTA DIGITAL CAMERA

If we were still running diesel engines with large clearances and tolerances this wouldn’t be as much of an issue.  Now however, these 2010 and later diesel engines come with a very different set of technologies.  The High Pressure Common Rail (HPCR) engines of today operate at extremely high pressures up to 50,000 psi and injectors with clearances down to between 2-4 microns.  The example video below shows how many injector ports per cylinder the diesel must flow through.  Any one of these clogs with deposits or contaminants then fuel is wasted or the entire injector fails.

Emissions requirements have also resulted in engines with a daisy chain of emissions reduction equipment on the exhaust that includes a diesel particulate filter (DPF), a diesel oxidation catalyst (DOC) and a selective catalytic reduction (SCR) unit. Each of these components introduces new maintenance challenges and burdens on the engine and the fuel.  If injectors clog with deposits from dirty fuel, dirty tanks or unstable biodiesel the downstream impact on each emission control component can be severe.

SCR basics

So is this really a diesel quality problem or a diesel specification problem?  The short answer is both.  With sulfur out of the fuel diesel tanks simply require a much more stringent maintenance and cleanliness regime than they have had in the past.  Keep the water out and the bugs and algae won’t grow.  Sounds simple, but that leads us back to the diesel specification itself, or the ASTM D-975 specification for diesel fuels in the US.  More specifically for the vast majority of fleets we are talking about, “1.1.4 Grade No. 2-D S15—A general purpose, middle distillate fuel for use in diesel engine applications requiring a fuel with 15 ppm sulfur (maximum).”

To spare you reading the 27 page specification let us summarize the primary areas contributing to our biggest quality concerns:

  • Can contain up to 5% biodiesel and still be labeled ULSD #2.
  • Can contain up to 500 parts per million of water and sediment.
  • No minimum requirement for detergent or dispersant.

Now nothing wrong with biodiesel of course most progressive fuel suppliers are integrating biodiesel into their diesel fuels and in several states you simply do not have a choice.  The challenge with using increasing amounts of biodiesel is that at the temperature and pressures of modern diesel engines there are likely to be deposits formed in the engine if no additive chemistry is employed to provide detergentcy.

Water in the fuel may sound like an obvious issue but perhaps at just 500 parts per million it is really not something to worry much about.  Well to illustrate just how much water that is consider this if each truck load of 7000 gallons of diesel fuel came in just below the specification that would mean that there are 3.5 gallons of water in every truck load of fuel.  You just thought the water cooler guy was the only one delivering water to your business, seems he may have some competition. water cooler

So if you are dumping nearly a 5 gallon pail of water in your diesel tank every time you get a load of diesel and that low sulfur diesel no longer holds that water in suspension let’s guess what we find in our tanks at the end of a year.  I am not even going to talk about the sediment part of the specification let’s just assume running dirt through an engine with 2-4 micro clearances is on the face of it a really bad idea.

As a big fan of diesel in general I hope we can clean this up, but like any problem getting to a solution starts with some recognition that the problem is real.  On that note I am starting to see a few suppliers run at this problem instead of away from it.  They are offering advanced additive treatment programs, tank cleaning and maintenance solutions, and first and foremost talking with their customers openly about the challenges with diesel fuel quality.  Those marketers and suppliers that get in front of this to protect their customers are going to take share and win business.

 

 

Better, Faster, Cheaper? Can Electric Vehicles beat Internal Combustion Engines?

We have probably all heard the tale about the boiled frog.  A frog will jump out immediately if dropped into a pot of a boiling water but will sit comfortably and be cooked alive if the water is cold and then very gradually raised to a boil.  This tale is starting to feel relevant in the energy business.  Major changes in energy consumption are SLOW to materialize.  It took us thousands of years to move beyond burning wood as our major energy source.  Coal powered the industrial revolution 250 years ago and seems to have peaked in consumption only in the last year.  Oil having boomed since that first well in 1869 dominates transportation 150 years later.

The peaking of coal due to substitution of natural gas while not dramatic enough for those who want the demise of all fossil fuels is cold comfort for those working in the collapsing coal business.  Yes this switch to natural gas has been hastened by the focus on reducing green house gases and pollutants, but the much broader driver has been fundamental economics that have made natural gas better, faster, and cheaper.  The net result is that king coal has lost it’s best market, power generation.

While more broadly useful than coal, oil has one biggest and best market, refined fuels.  Fuel for transportation is what drives oil’s value.  What if we are now seeing not peak oil in terms of production but peak oil in terms of demand?   What if the biggest and best market for fuels is lost to a new substitute?  The glacial pace of change that typically occurs in energy make changes like this nearly impossible to see until they have already had a massive impact.

Part of this what if question may be materializing now.  We all know that despite the seemingly endless hype around Tesla that electric cars are currently a non-factor.  At less than one tenth of 1% of global car sales last year it seems clear that the water in this pot is calm and cool.  The heat may however be turned up soon.  When looked at a little more closely we can begin to see the power of compound growth start to become evident.  As depicted below if the current growth rate of electric vehicles continues they will be 35% of the new car market.

ev-sales

So what right?  You mean in 25 years a whopping 35% of new cars might, and I stress the MIGHT, be electric.  Slow as this may seem the urgent challenge I see for the current oil and fuels market is that changes on the margin of demand and supply are what drive prices.  It is that last barrel or gallon sold that often sets the price for the whole batch.  Even bigger than those short term price changes at the margin are the changes in expectations.  It is change in longer term expectations, not the current reality, that drive the value of stocks, assets, reserves, and companies.

For proof that changes on the margins of markets can have catastrophic impacts on prices we need look no further than oil’s crash from $100 to $27 a barrel.  This crash that wiped out prices by 75% and trillions in market value was all caused by a 1-2% surplus.  When looked at in isolation 1 to 2 million barrels a day sounds big, but against 90 million barrels a day in demand it is a tiny amount of the market.  Yet this tiny change has been large enough to wreck the worlds largest commodity market.  Entire countries are going down, governments are going to fall, and trillions in valuations have been lost, all over a 1-2% surplus.

So what happens when we reach that perhaps mythical horizon where 35% of new cars are electric?  Who knows?  I sure don’t, but my point is that it doesn’t matter.  What matters is the change in marginal prices and expectations.  Coal is still worth a lot when compared to most other rocks laying in the ground, but coal companies are not.  Why?  Because they have been deemed to have no future.  If fuels begins to lose their primacy in transportation it won’t be 2040 when trillions will be written down.  It will be much sooner when companies and even countries go tumbling over the edge.  Using an average demand of 15 barrels per year per car and the current growth rate of 60% Bloomberg predicts electric cars could cause the same 2 million a barrel a day surplus we are experiencing today by 2023.

ev-predicting-crash

While this forecast seems possible there are a lot of assumptions that must come true for that to happen.  A big assumption behind the rise of electrics is that batteries will continue to decline in price and improve on energy density.  I think an even bigger assumption is that internal combustion (IC) engines will largely stand still at today’s levels of performance.

The consumer will always choose better, faster, cheaper.  In the case of electric vehicles we have already seen the faster part.  We have a four door sedan blowing the doors off all but the very fastest super cars with sub 3 second 0-60 times.  If we use that same benchmark of speed and acceleration as your metric then that same sedan is also cheaper.  Not cheap enough for mass market, but far cheaper than the $250,000 Ferrari it matches for speed.  This is the challenge the fuels industry now ultimately faces.  Unfortunately it is one I see very little attention and focus on by most.

While I am worried that we are not seeing more investment in improving the internal combustion engine there is good news here as well.  We know it is competition that drives advances and improvements.  So perhaps now 100 years after beating the last competitor, the horse, the internal combustion engine will again move forward.  How the internal combustion engine evolves and improves is going to be the biggest factor in how long this proven champion can hold onto the title.

So back to my frog story.  It seems that many companies who depend on the internal combustion engine continuing to reign supreme are simply basking in their cool bath for now.  A lot of focus is on policy and politics not on engineering and manufacturing.  Maybe the fuels industry, that spans both oil and renewable fuels producers, can just hope that the current engine manufacturers come up with better internal combustion engines on their own.  Hope however is not a strategy.

Engines and fuels are an integrated system.  One will not advance without the other.  So while the renewable fuels industry and traditional fuels industry bicker and sue each other before the EPA the real competitor continues to evolve at an increasing pace.  If EV’s replace gasoline it won’t matter what kind of blend the internal combustion engine is burning because the better, faster, cheaper solution will have replaced it.

I have recently found two places where a productive conversation is happening between automotive manufacturers and fuels producers.  The first is at The Fuels Institute. This think tank is bringing together bright minds from all three perspectives.  Automakers like Toyota and Fiat Chrysler are working with refined fuels manufacturers like Phillips 66 and renewable fuels producers like Poet to advance the discussion in new and insightful ways. Because of this unique effort and perspective I joined the board of directors of The Fuels Institute this year.

The other place where I see focused efforts to advance the internal combustion engine is Clemson University’s International Center for Automotive Research (CU-ICAR). Located in Greenville, SC this 250 acre research center sits next to a massive BMW plant.  They have leading global OEM’s like Michelin and Timken running labs on site that are doing research every day beside most of the world’s largest automakers.  This massive campus is led by Zoran Filipi, who encouragingly has spent much of his career driving advances in internal combustion.

CUICAR reveal

I am excited to see places like The Fuels Institute and CU-ICAR working to get more juice out of the 100+ year old champion that is the internal combustion engine.  Who will be better, faster, cheaper in the end?  Who knows, but one thing is for sure, trillions are on the line.  It seems that those making or marketing fuels, renewable or fossil, need to be paying very close attention.  Maybe the temperature of the pot will stay calm and cool, maybe not.  Either way I would have my best thermometer front and center on my desk every day.

 

Top 10 Leadership Articles of 2015

Who doesn’t like year end lists.  Well, I love short punchy pithy lists of ideas, topics, and recommendations.  So in that spirit here is a list of well…mostly other lists.  Most very easy to read, some with great ideas you can put to work right now and some other topics that I think are just worth pondering a bit during the holidays as you recharge for next year.

To kick it off I’ll start with the simplest and I think biggest leadership tip I received all year – SMILE.

  1. 7 Brilliant Leadership Lessons, by Jenna Goudreau – http://www.businessinsider.com/7-brilliant-leadership-lessons-i-learned-this-year-2015-12
  2. The 3 Things that separate a Leader from a Manager, by Gina Belli – http://www.businessinsider.com/the-3-things-that-separate-a-leader-from-a-manager-2015-7
  3. 7 Ted Talks that will make you a better leader, by Kevin Daum, http://www.businessinsider.com/7-ted-talks-that-will-make-you-a-better-leader-2015-7
  4. Lessons on Leadership from C3PO, by Doug Wagner http://goodmenproject.com/featured-content/lessons-on-productive-pessimism-and-leadership-from-c3po-dwgr/
  5. Sound like a leader with these 5 simple sentence starters, by Robin Camarote – http://www.inc.com/robin-camarote/sound-like-a-leader-with-these-5-simple-sentence-starters.html
  6. The leadership behavior that’s most important to employees, by Christine Porath – https://hbr.org/2015/05/the-leadership-behavior-thats-most-important-to-employees&cm_sp=Article-_-Links-_-End%20of%20Page%20Recirculation?platform=hootsuite
  7. 20 questions leaders can ask their teams , by Matt Monge – http://themojocompany.com/2015/12/20-questions-leaders-can-ask/
  8. Leadership lessons from creative directors by John Patroulis – http://www.fastcocreate.com/3054913/creation-stories/5-leadership-lessons-from-creative-directors-behind-award-winning-ads?partner=rss
  9. 7 Things every leader should know Lolly Daskal  – http://www.lollydaskal.com/leadership/7-basic-things-every-great-leader-should-know/ 

Finally one for looking ahead to 2016 I liked this one:

10 insights on inspriational leadership for 2016, by Scott Mautz –  http://switchandshift.com/10-insights-on-inspirational-leadership-for-2016 

 

 

The Only Energy That Matters

After spending three days at the Ernst & Young Strategic Growth Forum, the educational confab built around EY’s Entrepreneur of the Year Awards, I walked away with one overpowering conclusion.  Yes after hours of listening to great CEO’s like Meg Whitman of HP, David Novak of Yum Brands, Fisk Johnson of SC Johnson and chatting with many of the 250 regional entrepreneur of the year award winner’s it was just one thing.  No list of hot trends, no complicated roadmap to success, no gee whiz new technology to go check out.

The one unifying consistent theme running through every presentation, every discussion, every motivational session, and nearly every acceptance speech at the awards podium was, drum-roll please….It is  all about your people and how you motivate them, recognize them, harness their passions to a common mission, and how as a leader you can make their lives better.  The message was packaged differently by each speaker and almost every speaker had a new book to convey their point. I have a reading list at the bottom of the books I would check out – but we already know the punchline – people, people, people.

David Novak has taken recognition to a place that on the surface seems almost absurd until you hear how meaningful the program has become to thousands of managers across so many different cultures, countries, and brands.
IMG_0307Think that Colonel Sander’s secret recipe was behind KFC’s global success? Nope, it is all about a silly rubber chicken award whose recipients treat like an Oscar.  After taking this nutty form of recognition to insane heights David employed the same approach at Pizza Hut but used a cheese head you could wear as the medium for recognition and now uses a giant set of teeth at Yum brands.  David’s point is that the medium doesn’t matter but the message is the most important one you can deliver to your team – They matter, you appreciate them, you recognize their great work, and that you do it in a way that everyone can see and celebrate.

Moving on from David and his rubber chickens and cheese heads we had a chance to hear from bestselling authors Adrian Gostick and Chester Elton of The Culture Works.  Adrian and Chester had some crazy props of their own throwing stuffed carrots into the audience.  These carrots, a not so subtle reference to the carrot and stick comparison of motivational methods, made the session fun and interactive but the message was very consistent with David Novak’s – recognition matters.

The best part of the session was when Chester, the self-proclaimed “apostle of appreciation” brought a man on stage to talk about his relationship with his wife of 20+ years.  Asking the man how often he and his wife told each other they loved each other the man responded, “All the time, before I leave in the morning, before I hang up the phone, before we go to sleep.”  “So do you think you can overdo appreciation?” Chester asked the audience.  His point was clear.  Show your people appreciation often and in verbal, visual, and easily recognized ways.

Charles Koch has a new book out, Good Profit, and took the stage with Maria Bartiromo to talk about the book.  They did stray into some politics of course, but Maria started out by asking Koch about the business philosophy spelled out in the book.  Koch summarized his philosophy down to one question, “how do I maximize the value I create for customers, employees, suppliers and communities.” In other words take care of the people involved and they will drive your success.  I won’t cover the political questions here, but suffice it to say this is a guy who is taking all those “evil Koch brother’s” statements in stride and is confident in his company’s focus and most importantly in his employees.
EYMegThere was a lot of wisdom to absorb in just a few short days at this event but given how often we have to experience death by power point I think Meg Whitman summed it up best by reminding us that leadership, “is not a left brained exercise on spreadsheets with lots of math and financial statistics, it is about the stories you tell and how you communicate.”  It was also interesting that in spite of Whitman’s incredible business experience she mentioned that she did not fully understand this until running for public office, and losing.

All of these sessions were a great reminder that far too often we can dive into financial facts and figures while losing our audience.  We must remember that if our discussions about financial or operational performance do not connect emotionally with our people in a way that motivates and aligns them with the mission then it is wasted time.  I most often write about energy topics and I think this post is all about energy as well, in fact it is about harnessing the only energy that really matters, that of your people.

Reading List from this article:

all-in1What Motivates Me

Breaking Down This Winter’s Biggest Questions in the Energy Markets

This past quarter has been a tumultuous one in the global energy markets opening several key questions as we head into the winter season.  In this quarter’s Fuels News 360out this week, the writers and editors provide some insightful answers useful to anyone using fuels, natural gas, or power.

IranDeal Why the nuclear deal with Iran may be better described as a the “oil” deal with Iran?  While we can all appreciate the long term impacts to national security it looks like the real impact today is all about oil, see page 13 for the analysis.

Think that in the huge global energy industry that local refining capacity doesn’t really matter?  Well ask those folks in Chicago or Los Angeles that are paying up to a dollar a gallon more than the rest of us, see page 25 for the review.

Has the US already lost their most important foreign crude oil customer?  While the debate over crude oil exports remains a favorite of the political class the industry may already have arrived at an early answer, see page 30.

Have fleet customers moved on from renewable fuels to pursue hybrids, CNG, LNG, and other alternatives?  Well one renewable fuel has commercial fleet operators excited and for some pretty compelling reasons, see page 35RenewableDiesel

Could natural gas prices actually decline during winter?  With inventories at all time highs and more gas on hand than anyone, including the EIA, thought it looks possible, see page 39.

How many coal plants have we retired in the last six months?  How much solar did we install to make up for it?  This change in our power generation mix is scary and exciting that the same time, see page 41 for review.

How the heck do winter diesel additives work and can they really save money while keeping trucks on the road when the snow flies?  Read how using additives properly for just one million gallons of winter fuel could save as much as $120,000, page 45 has the breakdown.

winterdieselsavings

I hope you enjoy this quarters issue, I think it’s the best yet from a great team.

If you’d like to download the pdf click here >> FN360 Q3 2015 ISSUU

Energy Secure vs Energy Independent

First of all “Energy Independence” is a ridiculously misunderstood and misapplied statement.  For most of the energy we use in the US we are incredibly independent.  If we take energy as three streams; electricity, heat, and transportation then on the first two fronts we are secure and independent.  The US electricity grid is the largest machine ever built and it is fueled by domestic sources that are secure and independent.  For residential and industrial demand we now increasingly use domestic resources like renewable energy and natural gas.  So when we hear politicians referring to “Energy Independence” we are talking about transportation where we are still using petroleum for 92% of our needs.

Energy Sources and Uses

For that 92% of transportation using oil we are still importing a significant amount from all over the world including many countries that have no love lost for the USA.  The chart below shows that even with the massive expansion of tight oil production, or “fracking”, we still are using 25% imported supplies.  So being 25% dependent on other countries for these supplies does mean that we are not “Energy Independent” for the transportation portion of our energy needs.  But does that matter?  Are we “Energy Secure”?  I argue that the answer is a resounding YES we are.

US liquid Fuels Demand

Taking one piece of this puzzle to consider is just how much fuel and other refined products we are exporting today.  This has been increasing dramatically in recent years and is now nearing 3 million barrels per day.  If we were so desperately dependent on foreign oil how would we possibly be exporting the equivalent of over 15% of demand?  The fact is we are exporting a rapidly growing amount of fuels to the rest of the world because we have plentiful crude oil, the most efficient refineries in the world, and very cheap natural gas.

US exports of fuels

The next point of my argument that we are Energy Secure is that we have at least three major wars going on in the Middle East and our military engagement has been minimal.  The civil war in Libya continues, Syria is hardly recognizable as a country any longer, Iraq is being divided up, Yemen is pure chaos.  As little as 5 years ago even two of these events would have catapulted oil prices to well north of $100.  Now we sit around $60/bbl and prices barely move with increasingly shocking news of death and destruction across the region.

For the past 45 years since the oil embargoes of the 1970’s we have secured our energy supplies with military might and to a much lesser degree foreign aid and diplomacy.  Today we have secured our energy supplies with ingenuity, innovation, very hard work, and copious amounts of private capital.  I almost choke when I hear financial analysts spout off that this oil and gas boom was only possible because Wall Street invested over $650 billion of capital in the energy sector.  Well Captain Obvious thanks for that news flash, of course massive private capital was necessary.

Compare that with the $1+ trillion dollars in tax payer money we invested in middle eastern wars over the past decade.  Would we rather have private investors secure our energy here at home with their own money or fund our security with taxpayer money and the blood of american soldiers?  I am going with the hard working, risk taking, domestic energy producers of not only oil and gas but of solar, wind and biofuels.  Those engineers, entrepreneurs, investors, and inventors along with their Wall Street backers have not only secured our present but also given us a strong bridge to an increasingly renewable future.

Deregulate Thyself – Dropping the Grid at Home and at Work

How do we know that solar and other forms of distributed generation have arrived?  Look no further than your closest utility.  With solar panel prices declining over 60 percent just in past few years and with installed capacity booming we now have a coast to coast battle for your rooftop.

States Fighting Solar

The latest wrinkle in this unfolding combat between utilities working to maintain their monopolies and homeowners wanting to save money was Tesla’s announcement of their Power Wall product.  Looking to add sales of batteries beyond what they can use in their cars Tesla wants to hang a few on your garage wall to store some of that sun that you are not home to use during the day.   This is sure to turn up the heat on utilities even further.

Most utilities have focused their efforts on being able to charge higher interconnect fees.  One of the highest profile fights has been in Arizona where, “Solar-rate changes will add about $50 to the average solar customer’s monthly bill, mostly through a new “demand charge” based on their peak power demand during the month.”  Considering the average residential electric bill in Arizona was $122 in 2013 a $50 fee would allow the utility to collect 40% of what they earn in revenues for delivering actual power for simply providing a connection to the grid for net metering.

tesla powerwall

So if you could store some sun while you are away at work and then use it when you arrive home you could offset a lot of your power bill without paying any interconnection charge.  So for utilities counting on collecting up to 40% of the average consumers bill from solar users this is a problem.

What is far more interesting to me if if these trends can begin offering commercial users more options to harness distributed generation.  To figure out if any of this can have an impact at work as well as at home I designed a thought experiment to test some figures.  Some of this may sound pretty far fetched, and if you think I’m way off on the numbers, assumptions, or just nuts please comment and tell me why.

First let’s paint the picture of our office.  We have about 250 people in a typical office campus of nearly 80,000 square feet.  We use right around the average kWh per square foot for an office and consume 4,000 kWh per day.   We currently have a 76 kW solar array on the roof producing about 260 kWh per day.   The average employee lives 14 miles from work.  We are located north of Atlanta, GA.   Our rate per kWh is about $0.11/kWh or $12,375 per month.

Now if we wanted to deregulate ourselves for most of our power we would need to find another 3750 kWh per day.  We could install more solar by putting in covered parking.  If we use an example from Solaire Generation which covers 22 spaces with 100 panels we can deploy 11 units covering most all of our parking.  This would provide space for 1100 panels.  We could use the SunPower Maxeon X21 panel which puts out 345 watts per panel for a system total of 380 kW.  Using our location’s energy production factor of 1600 as provided by the Department of Energy we can expect to produce 1300 kWh per day.

Carport EV PV

After starting with a load of 4000 kWh per day we are now down to 2440 kWh of demand.   So with seemingly every available square foot covered in solar panels now what?  Well since we put in the Solaire Generation unit which includes Electric Vehicle charging stations perhaps we could look to get our employees in to some EV’s.

Not for everyone for sure, but let’s say with a company rebate on top of state and federal programs we can get 150 employees using an EV.  Let’s assume some buy Nissan Leaf’s, some BMW’s i3, and some buy the Tesla S.  Those cars store between 24 kWh and 85 kWh per vehicle.  Using a simple average let us figure we have 50 kWh per vehicle at 150 vehicles for a total of 7500 kWh of power available.

Now of course folks do have to drive to and from work.  Using our average round trip commute of 28 miles and an average range of 175 miles for the pool of cars overall we have 84% of the power stored in the car batteries available for use.  Let us just use 80% to provide a small margin of error or for some errands on the way home.  This leaves 6000 kWh of power available for the office.

We needed a balance of 2440 kWh after the installation of our solar covered parking.  So we only need 40% of that 6000 kWh of battery capacity in the cars to power the entire office.   My point here is that we could do this and leave folks plenty of range to get home. Remember that we only assumed converting over half of our employees to EV’s, so those with longer than average commutes are not impacted at all and can stay on gasoline.

Now does this make any financial sense?  Honestly right now probably not, but let me take the analysis as far as I can here and perhaps we’ll get others far smarter on this topic than me to chime in and correct our assumptions.

We would still have to pay employees for the power we use from their cars.   The general rate in our market for residential is about 8 cents/kWh.  Since we would be using 2440 kWh per day of their power from home we would be paying out $5,856 a month to employees.

Then of course we have the cost for the solar car park.  Using the last 22 projects in California of this size as reference we come to $3.67 per watt, putting our price tag at $1.39 million for the solar array.  If we assume no subsidies and credits are involved and use a depreciation schedule of 15 years we arrive at about $7,722 a month in expense for the car park.

So between paying employees for their power and paying for the car park we would be around $13,578 per month vs the $12, 375 per month we pay today.  Close but not cheaper.   We would also have maintenance on the installation.  Importantly I have not factored in the expense of the power management microgrid system needed to make this all work.  I am guessing those are niche products that are still pretty pricey today, but I don’t know what those cost and could find no references.  If you do know, please opine.

So what is the conclusion of our little thought experiment?   Well to power one’s own office park with just solar and some EV cars does indeed seem very feasible today.  But if not cheaper does it matter? Why other than costs would companies do this?

I do in fact think this is what many office parks will do over the next 10 years.  Why?  Because grid power is forever going up.  Solar power is dropping fast.  EV’s are getting cheaper and more competitive with gasoline every year.  This approach to distributed generation would be more sustainable, reliable, and resilient.

This is possible if not terribly practical right now not in some science fiction future.  How smart will it look in another five years?  My guess?  This approach moves from smart and groundbreaking to simply being mainstream in another ten years.

Gina McCarthy and the EPA’s Clean Power Plan – Implementing the Law but Following her Beliefs

I had the opportunity this past week to spend an hour with EPA administrator Gina McCarthy at this years Wall Street Journal ECO:nomics conference.  Twelve to fifteen of us had the chance to do a what the WSJ called a “Deep Dive” with the Administrator before her main stage interview by Gerard Baker later in the evening.  I was able to get a question in about the Renewable Fuels Standard (RFS) and the mandated levels that have still not been set for 2014 let alone established for this year, but we’ll get to that in a post all it’s own, I want to focus on the Clean Power Plan discussion that dominated the time we had with McCarthy.  The CPP proposes to cut US CO2 emissions by 30% as compared with levels in 2005.

It was clear very early that Administrator McCarthy is a gifted talker with a no-nonsense manner and who is quick to use self deprecating humor to make her points.  Her conference room manner is no doubt sharpened by many hours of hard testimony in front of the US Congress, an opportunity she says she still feels “honored” to be able to do.  Honored or not it is intense and brutal at times and while we asked many pointed questions one quickly formed the impression that McCarthy was enjoying being able to make her points without a microphone or camera in her face.

McCarthy’s main theme throughout the discussion was that the Clean Power Plan as proposed was the most collaborative effort the EPA has ever undertaken when engaging with the states.  Each state has the freedom to develop their own State Implementation Plan or SIP.  When challenged about what EPA will do if some states do not develop a SIP as some have stated they will not do, McCarthy was quick to say that they would then be forced to adopt a Federal Implementation Plan or FIP.  She went on to say that the FIP would likely be more expensive, less flexible, and less well fit to an individual states needs than what they could accomplish with their own SIP.

This general discussion had some pointed moments that resulted in polished statements from McCarthy that she has clearly used before.  When asked about the thousands of jobs lost by shutting down a forecast 45,000 megawatts of coal generation McCarthy was quick to state that, “I am sticking to my lane and regulating pollution not choosing fuels.”  She went on to say that states will decide how much coal to keep in their mix of generation capacity but that she expected around 30% of power generated would be produced from coal.  This well practiced statement clearly intended to reinforce the EPA’s legal perspective on the CPP overall, that it is all about implementing the law under the Clean Air Act and not some new extra legal over reach that flies in the face of the constitution or states rights.

So McCarthy’s prepared answer was in line with what one would expect given the current and future legal challenges to the CPP but given the relaxed atmosphere of the exchange what was easier to gather was her belief that global warming is a major catastrophe that must be managed.  She made several comments along the lines of “this is a modest target” or “we would like to go far further in addressing greenhouse gasses but this is a start”.  If the CPP survives legal challenge without significant modification I think we can count on even more aggressive follow up actions if a democratic administration wins again in 2016.

Gerard Baker Interviews Gina McCarthy

After our “Deep Dive” session Gerard Baker the Editor in Chief of the WSJ interviewed Administrator McCarthy on the main stage and immediately dove into the legal challenges facing the proposed rule.  After repeatedly asking McCarthy about the various legal suits underway and anticipated, to which McCarthy simply kept replying that, “we will win”, Gerard finally asked what I thought was his best question of the night, “What if you don’t?”  Undaunted McCarthy simply retorted that she will win.  Pressed further by Gerard, McCarthy finally conceded that if the CPP falls to legal challenge that they would simply repackage the plan to account for the rulings and then keep trying.  There will clearly be no giving up on regulation of greenhouse gasses from this EPA administrator.  While McCarthy may claim to be “sticking to her lane and implementing the law”, she is more clearly pursuing her passionate belief that we are all doomed without EPA intervention.

Diesel Becomes a Cash Cow at the Retail Pump

Diesel demand in the US is growing and is expected to rise from roughly 48 billion gallons in 2015 to over 67 billion gallons by 2040.  This growth will off set what is expected to be a 25% decline in gasoline demand for the same period.  So the question to fuel marketers is how to capture more of this growth while dealing with a rapidly changing gasoline market.

For many fuel retailers the answer has been to add diesel pumps to their existing retail gas stations.  For those fuel retailers now selling diesel the margins have proven to be an unexpected bonanza.  At one point in January the average rack to retail margin was $0.90 a gallon.  These breathtaking spreads have since come back to earth but are still ranging between $0.30 and $0.50 a gallon depending on  where you are in the US.

Rack to Retail Diesel Spreads Through Feb 15I know those deeply involved in the diesel business will be quick to say, “that’s not how most fleets buy their diesel, they have deep discounts off of retail”.   True.  Most large fleets have cost plus, retail discount, or a lower of the two formula that provides significant savings as compared with the cash retail price that DOE reports.

So while neighborhood auto-diesel sales are sporting margins twice that of gasoline most of the volume is being sold a lot cheaper.  Right?  Well one of the major truckstop chains offering these discount price programs is public, TA.  Reading the transcript of TA’s fourth quarter earnings call we find, “gross margin per gallon was nearly $0.28 or $0.11 per gallon over the same measure in the fourth quarter of 2013.”

So what can fleets do to save money on diesel?  Seems that if you are a customer that has to purchase your fuel at a retail fuel island you simply must find a way to get access to the $0.10-$0.30 cent savings that the big fleets are saving.  If you are a fleet that can possibly squeeze in a bulk tank on at least some of your properties or truck terminals the payback for doing so is painfully obvious.

What can fuel marketers do to capture more of this growing diesel demand while offering customers better value?   For those with the technical and marketing experience continuing to invest in commercial cardlocks seems wise, at least where reasonable real estate can be obtained.  Easier to deploy and environmentally safe bulk diesel tanks connected to convenient back yard dispensing solutions are a win-win for both the fleet customer and fuel marketer.

Lastly giving mobile fueling / wet-hosing another look may make more sense than ever.  At these retail prices even if the fleet operator has low labor costs and is close to a retail station with diesel there is still a strong value proposition to be made.

Bracing for Change article from FUEL Magazine

Fuel magazine associate editor Bryan Sims was kind enough to interview me on the latest trends and changes in the industry.  I’ve linked to the article and the magazine below, it was fun to discuss these topics with Bryan and now that it is in print I suppose we can look back later and see how close we were on our predictions.

Fuel Magazine Cover Jan 2015

FUEL provides forward-thinking analysis of the global business of fuels through its knowledgeable industry editorial contributors, who write about timely developments on topics that include: new environmental regulations and policies; refinery technologies and expansions; sustainable energy solutions; transportation trends; the investment and financial climate; supply and demand analysis; and the latest regional developments.

If you want a PDF of the article please click here – Fuel Magazine Jan 2015 – Bracing For Change Article

A Practical Discussion On The Path Forward

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