Special Subcommittee on Energy


Minutes of the<MeetNo1> 4th Meeting

of the 2009 Interim


<MeetMDY1> September 18, 2009


The<MeetNo2> 4th meeting of the Special Subcommittee on Energy was held on<Day> Friday,<MeetMDY2> September 18, 2009, at<MeetTime> 10:00 AM, in<Room> Room 131 of the Capitol Annex. Senator Brandon Smith, Chair, called the meeting to order, and the secretary called the roll.


Present were:


Members:<Members> Senator Brandon Smith, Co-Chair; Representative Keith Hall, Co-Chair; Senators David E. Boswell, Dorsey Ridley, John Schickel, Katie Kratz Stine, and Johnny Ray Turner; Representatives Royce W. Adams, Eddie Ballard, Dwight D. Butler, Leslie Combs, Tim Couch, Will Coursey, Jim Gooch Jr., Thomas Kerr, Martha Jane King, Harry Moberly Jr., Rick G. Nelson, Fred Nesler, Sannie Overly, Tom Riner, Fitz Steele, and Brent Yonts.


Guests:  Scott Sykes, President, Genesis Development; Dr. Bruce Pratt, Eastern Kentucky University, George Campbell, General Atomics, Ed Burtner, Mayor, City of Winchester, and Roger Ford, Senior Partner, CNG Energy LLC.


LRC Staff:  D. Todd Littlefield, Taylor Moore, and Susan Spoonamore, Committee Assistant.


The August 28, 2009 minutes were approved, without objection, by voice vote upon motion made by Rep. Royce Adams and seconded by Rep. Keith Hall.


Chairman Smith introduced Dr. Bruce Pratt, Eastern Kentucky University for the Center for Renewable Alternative Fuel Technology (CRAFT).  Mr. Pratt explained that the perfect biofuel would be sustainable, renewable, environmentally sound, reduce greenhouse gases, net energy gain, economically viable, and it would not directly compete with human or livestock feed.  He stated that the CRAFT plan has three phases, and it was now in Phase I of Initial Research and Development; Technology Refinement; and Field to Fuel.


Dr. Pratt stated that General Atomics of San Diego, CA, a corporate partner, chose Central Kentucky as a place to establish a local biofuel industry from a comprehensive study that was done by Oak Ridge National Laboratory.  That study listed Kentucky as a hotspot for biomass potential.  Eastern Kentucky University was chosen because of its geographical position, but overall, EKU has tremendous support from its administration and the General Assembly.


Rep. King asked if there were any statistics on how miscanthus was growing on reclaimed areas, and whether switchgrass or miscanthus grows better in poor soil. Dr. Pratt said Germany is using miscanthus as a source for biofuel.  In Eastern Kentucky, miscanthus was planted next to a power plant as part of a biofuel plant.  For now, CRAFT is going to concentrate on switchgrass, but miscanthus does have potential. He stated that switch grass will survive in relatively poor soil.  He was not familiar with miscanthus.


Sen. Boswell stated that the Center for Applied Energy Research is doing work in miscanthus.  They recently planted test plots.


Rep. Hall asked if pasture land was currently being under-utilized. Dr. Pratt stated that some pasture land would be diverted into the biomass program, but it would depend upon the farmer’s preference.


Rep. Moberly stated that the model indicating a 50 mile radius area shows that you can produce and use a lot of fuel produced in that area. There are very low transportation and pipeline costs. 


George Campbell, General Atomics from San Diego, California stated that General Atomics had taken great pains in looking how to develop biomass as a new energy enterprise. General Atomics also has interests in Kansas, Mississippi, Texas and Wisconsin.  The ability to establish an industry in an area where you can grow the material, harvest, refine it, bring it into the algae, refine the algae into an oil product and consume it all within a 50 to 100 mile radius, is the baseline of the next petroleum revolution.


Ed Burtner, Mayor, City of Winchester, stated that this is an economic  development strategy that Clark County has been pursuing in terms of being innovative and looking at ways that the economy can be helped.  Winchester and Clark County have been very pro-active in helping their farmers diversify and this project is a prime example of how that can be done.


Rep. Yonts asked how much the fuel product would sell for when it is fully commercialized, and would the price make it competitive on the market. Dr. Pratt stated that it would cost approximately $4 a gallon.  With crude oil at $74 a barrel, it would not be competitive.


Rep. Yonts asked how much it would cost to build the pilot plant. Dr. Pratt stated that it would cost between $20 million and $25 million.  A full-scale commercial plant would cost around $300 million.


Mr. Campbell stated that General Atomics sees the price of oil escalating as the availability of getting the oil out of the ground decreases.  It is a resource which is on the down swing, and studies suggesting anywhere from $1.65 to $4.00 a gallon.  General Atomics believes they can get the cost of biofuel much lower as the volume increases and improved performance of the extraction process is achieved.


Rep. Moberly stated that there are high expectations in using co-products from the process that would help to buy down the costs as well.  Rep. Hall introduced Scott Sykes, President, Genesis Development of Kentucky. Mr. Sykes stated that Genesis Development was Kentucky’s first green energy company.   The company focuses on utility scale wind energy development in Eastern Kentucky and Central Appalachian Mountains. The company specifically targets existing surface mining sites for the development of and implementation of the wind energy facilities.  According to the Global Wind Energy Council there are 25,000 megawatts of installed capacity in the United States – that is 25 gigawatts of power. Mr. Sykes stated that wind power is the fastest growing energy source in the world. The company is complementing the industries already in Eastern Kentucky.  They are able to partner with coal companies and property owners that have title to existing surface mines. This creates a new revenue stream for that property and also creates new jobs.


Mr. Sykes stated that the goal of Genesis Development is to have the first operational utility scale wind project in Kentucky. He said that they were able to indentify 135 sites in Eastern Kentucky that are ideally suited for wind energy development because of strong winds along the ridge lines; remote locations ideal for developments; good existing transmission infrastructure and the growing regional load demand.


Mr. Sykes explained that the large wind systems range between 660 kilowatts to 7 MW.  Genesis is looking at building 2 to 2.5 MW turbines.  The first project will be a 100 MW facility – using turbines which cost around $3 million apiece.  The total project will cost around $120 million to $130 million. Since we are a merchant electric generator we are required to pay a filing fee with the state siting and permitting board which amounts to $1,000 per MW.  Once we start generating power, we would enter into a long term power purchase contract with companies such as AEP and EoN.


Rep. Riner asked if Genesis was aware of another company trying to capture wind energy, and if so, do you all work together. Mr. Sykes stated that he was not familiar with another company pursuing wind energy.


Rep. Nesler and Rep. Ballard asked how Mr. Sykes responded to folks who are not sold on wind energy, and what do you say about the turbines killing birds. Mr. Sykes stated that Kentucky has to be able to develop every resource that we can in order to sustain the economy, stabilize energy costs and to be able to move forward. Statistics show that more birds are killed by flying into high-rise buildings than turbines.


Rep. Yonts asked if any of Genesis’s projects would have to be subsidized. Mr. Sykes stated that there are some state and federal programs available right now.  He said that private companies are making funding available.


Rep. Moberly asked how much a wind turbine costs, what type of licenses and permits were required to build a wind turbine, and whether smaller wind turbines would be available in the future. Mr. Sykes stated that it would cost approximately $3 million per turbine.  He said that they have to go through a federal and state process.  For Kentucky, a full NEPA assessment is required. Additional permits may be required by local planning and zoning.  There are smaller wind turbines for homes.


Rep. Moberly asked if there were tax credits or deductions available for installing home wind turbines, and how much that would cost. Mr. Sykes stated that Kentucky actually has a tax credit for that.  He said that it would cost between $300 and $7,000 to install residential wind turbines.


Sen. Stine asked if Genesis would be applying for more grants in the future. Mr. Sykes stated that they would.  They just applied to the American Recovery and Reinvestment Act for a $150,000 grant.  We pursue any available funding.


Sen. Boswell asked if Genesis would work out lease agreements with landowners or would the corporation purchase land. He also asked about determining the value of a site. Mr. Sykes stated that Genesis wants to give property owners a fair shake.  The company has a lease option agreement that allows it to go onto the land to measure the wind resource.


Rep. Overly asked if there was a requirement to post a bond so there are funds available to dismantle the turbines at the end of the thirty year life cycle. Mr. Sykes stated that the lease option agreement contains language regarding the dismantling of the turbines.  The company hopes to retrofit or refit the project at the end of its life cycle.  It has not discovered anything in place for bonding, but would be agreeable to doing that.


Rep. Overly asked if it was true that if the business did not succeed and the corporation was not there, these turbines would be abandoned on the landscape, absent some bonding requirement. Mr. Sykes stated that was correct.


Rep. Hall introduced Roger Ford, Senior Partner, CNG Energy, LLC, who discussed the utilization of the natural gas resources.  CNG Energy was recently formed and is seeking to commercialize natural gas for transportation specifically.  Mr. Ford stated that CNG was able to identify three revenue streams:  vehicle conversion systems; fueling infrastructure; and market distribution.  He said that CNG’s focus was the development of private and public fleets.


Mr. Ford explained that CNG Energy was awarded a grant through the Kentucky Science and  Technology Corporation (KSTC) that will identify technology for the best function and fit.  The University of Kentucky Center for Applied Energy Research (CAER) is conducting the technical feasibility study.  CNG has also contracted with Dr. Roger Bezdek of the Management Information Services in Washington, D.C. to conduct an economic cost benefit analysis for the state of Kentucky.


Mr. Ford stated that there are 120,000 natural gas powered vehicles on the road.  Globally that number would be 10 million. There are more than 1100 natural gas fueling stations in the United States and approximately 50% of those are available for public use.  On average natural gas costs about one-third less than conventional gasoline.  There are approximately 50 manufacturers who produce 150 models of light, medium and heavy duty vehicles and engines. Mr. Ford said that a dedicated natural gas vehicle reduces emissions of carbon monoxide by 70%; non-methane organic gas by 97%; nitrogen oxide by 87% and carbon dioxide by almost 20%.


Mr. Ford stated that a popular question concerns the safety of the tanks.  He stated that CNG dissipates in the atmosphere in case of an accident.  Fuel storage cylinders used in NGV’s are much stronger than gasoline fuel tanks.  They have sealed tanks that prevent spillage or evaporative losses, and it has a higher ignition temperature than gasoline. CNG is not toxic or corrosive and will not contaminate ground water. Mr. Ford discussed the Oklahoma Model, incentives, laws and regulations applicable to natural gas.


Rep. King asked for information on conversion kits, converting diesels trucks to natural gas. Mr. Ford stated that by using the conversion kits, using 80/20 blend, it was possible to achieve more horsepower.  Before installing the kits, one has to be certified.


Rep. Hall asked about the typical cost for a conversion kit. Mr. Ford stated that on the high range a kit could cost $10,000.  There is a 50% tax credit available from the federal government to help offset the cost.


Rep. Hall asked Mr. Ford to break down the price per gallon of gasoline versus natural gas. Mr. Ford stated that it would be 40% less of whatever someone is paying at the pump.


Rep. Hall asked if hybrids could be converted to natural gas and have the battery combination with fuel. Mr. Ford stated that he did not think the technology was there for that yet.


Sen. Boswell asked if it had been tested with bio-fuels and whether it worked. Mr. Ford stated that it would work.


The meeting adjourned at approximately 11:40 p.m.