Renewable energy advocates are learning this year what the oil and gas industry already knew—Luck is not always a lady, Mother Nature can be a witch, and commodity markets are unforgiving.
Favorable conditions gave US farmers an early start toward an expected record corn crop this year. With a mandated market for ethanol in gasoline production, farmers increased corn planting by 5% to 96.4 million acres in 2012, the largest acreage in the last 75 years and the fourth consecutive year of expansion. Planting was virtually completed by late May.
Before the end of June, however, crop conditions collapsed under the heat of the worst Midwest drought in 25 years. The US Department of Agriculture reduced its 2012 corn yield prediction July 11 to an average 146 bushels/acre, down 20 bushels from its June guesstimation. Insiders said the unusually big cut will drive up prices for grains, meat, and ethanol.
Moreover, the US Department of Agriculture now rates only 40% of the current corn crop as good or excellent, a 20-point drop in a month, and the lowest rating for early July since the 1988 drought. This means a third consecutive year of tight corn supplies, officials said.
Food as fuel
Back when Congress first pandered to the farm-belt vote by banning methyl tertiary butyl ether (MTBE) in favor of corn-based ethanol for oxygenate blending in gasoline, advocates pooh-poohed skeptics' warnings it would raise food prices. The magic bullet, they said, was simply to plant more corn to satisfy increased demand.
But food prices went up despite increased planting and a quest to produce ethanol from other plants. And with drought sucking the life out of this year's corn crop, food prices will rise even more. The price of corn escalated more than 3% to a 13-month high after USDA's crop revision. Sometimes it's just impossible to outsmart Mother Nature.
Ethanol production is especially vulnerable to high corn prices since most of the nation's 200 ethanol plants make biofuel from corn starch. The rising price of ethanol and declining demand for gasoline in today's uncertain economy reduced the ethanol market.
The US Energy Information Administration said ethanol production declined 36,000 b/d to 821,000 b/d in the week ended July 6—the lowest level in nearly 2 years and the fourth consecutive weekly reduction. Ethanol stocks were down 761,000 bbl to 19.53 million bbl that week.
Five ethanol plants have been idled "off and on" this year, and others have reduced production, insiders reported. Valero Energy Corp., large independent refiner, operates 10 ethanol plants and has temporarily idled two in Albion, Neb., and Linden, Ind., as production costs outstripped market prices.
US ethanol stocks reached a record 23 million bbl in March and have remained above 20 million bbl this year, up from total inventory of 18 million bbl at the end of 2011, EIA reported.
Wind market
This reporter could find no data as to whether the hot, dry summer has helped or hindered US wind power. But it brings to mind the tale of a similar summer in West Texas so parched and still that a local rancher had to chop down one of the two windmills on his land because there was scarcely enough wind to turn one.
EIA reported US electric power generation from wind turbines increased 27% in 2011, continuing a trend of rapid growth. Still, it contributed less than 3% of total electricity generation last year.
Federal tax credits and grants have encouraged increased capacity and electric power generation from wind and other renewable sources. But some investment incentives expired last year, and the production tax credit for wind generation is to end in December.
It wouldn't be the first time the 2.2¢/kw-hr tax credit ran out. Since enacted in 1992, the credit has been renewed seven times, usually before expiration. But three times Congress allowed it to expire. Each lapse triggered a 73-93% drop in turbine installations, according to the American Wind Energy Association.
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