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Denial of contract based on price

Hawaii Electric Co.'s request for a 20-year offtake of biomass-based diesel is denied by the state utility commission.
By Ron Kotrba | October 05, 2011

Last week I wrote about what Morgan Keegan & Co.’s manager of investment banking says is important for gaining financing of bioenergy projects, and at the top of his list was securing long-term matching feedstock and offtake agreements.

This week, Hawaii’s Public Utilities Commission denied a request by the Hawaii Electric Co. to approve a 20-year biofuel supply contract with Aina Koa Pono LLC because it found the contract price to be excessive.

Aina Koa Pono states that it, along with MELE Associates, Inc. and TekGar LLC is combining thermochemical depolymerization technology (gasification followed by FT reforming) from TRI with the independent cracking and depolymerization abilities of certain high frequency microwaves. The result and a “huge leap forward” it says, known as Microwave Depolymerization or MWDP.

The questions I have are, how does an offtake contract request denial like this hurt a biorefining startup company, or the broader industry in general? Today the price of advanced biofuels is oftentimes higher than petroleum, but how do the people who develop these contracts, and those who sign them, guess the price in 20 years?

Interestingly enough, Hawaii Electric says even though the commission denied its request for a 20-year contract to purchase biomass-based diesel from Aina Koa Pono, the electric company is moving forward with a 100,000- to 150,000-gallon supply agreement with Phycal for algae biofuels by 2014. The commission must approve this as well, but if it didn’t sign off on a contract for FT biomass-based diesel made from terrestrial biomaterials because of excessive pricing, then good luck to Aina Koa Pono in getting the commission to approve the algae biofuel supply contract.