 Aloha. Welcome to Think Tech Hawaii's Movers, Shakers, and Reformers. This is our Biofuels in Hawaii series. I'm your host, Carl Campania. Join us each week as we explore biofuels in Hawaii and our interviews with some of the various local stakeholders to learn about policy, feedstock, and conversion processes. Today, our guest is Mr. Kyle Dada, General Partner of Ulupono, of the Ulupono Initiative, a Hawaii-focused impact investing firm founded by Piero Midiar that uses for-profit, non-profit, and social investments to improve the quality of life for island residents in three areas specifically locally produced food, clean renewable energy, and waste reduction. Previously, Mr. Dada was the CEO of US Biodiesel Group, a national biodiesel firm, managing director of research and consulting at the Rocky Mountain Institute, and vice president of Booz Allen Hamilton, where he was the managing partner of the firm's Asia Energy Practice and later led the US Utilities Practice. Mr. Dada holds a Bachelor's of Science, Master's in Environmental Science in Resource Economics and Master's in Public and Private Management degrees from Yale University. So I honestly cannot think of a more qualified person to help us learn more about and develop biofuels here in Hawaii. So welcome to the show. Great to be here, Carl. So excellent. So let's start off a little bit. Tell us a bit more about why you have decided that biofuels, going back to your education, why did you start to choose biofuels? What led you in that direction? Well, when you look at alternatives for renewable energy in the entire energy system, one of the areas you get to after you look through electricity is transportation, as well as for both brown transportation and aviation and marine. And obviously you want to make things more efficient first, and we have the electrification of vehicles to address the gas lean market, but eventually you're going to have to address aviation fuels, and that leads you down the biofuels path, as well as I think there's clearly some diesel applications in a lot of areas where biofuels already works very well with the engine manufacturers. Okay, okay. So that has sparked your interest and that led you into wanting to pursue, from an educational perspective and environmental perspective, and then down the road, how to pull it all together. So that's where you are right now. So when I was at Booz Allen, I led a lot of strategic work for the major oil companies all over the world, actually. And so we monitored and tracked biofuels in the progressing industry at that point, and actually spurred some of the companies to start making sort of informational investments in the space. But when I was at Rocky Mountain Institute, we did an extensive study on how to eliminate oil from the transportation sector for actually the Pentagon of strategic services. And that was when the oil end game that really led to a lot of thinking around changing the whole transportation sector, and a lot of the carbon and lightweight vehicles you see today come from the early work, but also biofuels played a role there. And then I became CEO of US Biodiesel Group, which then merged to the renewable energy group to kind of create the number one biofuels company in the States, which then went public a few years back. So we've looked at it for, I've really had a career that's touched it in many different levels. And then in Hawaii, we recognize that, you know, we do use a lot more jet fuel than most states per capita because of course the tourism economy. And while we're doing tremendously on the electrical power side, and obviously have a goal of 100%, which is groundbreaking nationwide by 2045, we are going to have to address the other parts of the barrel. Yes, which is an important point because as so that I'm not the one always saying it per barrel. What's the percentage per barrel that goes towards electricity versus transportation? Well, it's really about in Hawaii. Yeah, in Hawaii. It's about a third of the barrel that goes to electricity. The other two thirds go to transportation, actually jet fuel, which is remarkable, is about a third of our of our sort of the barrels we bring in. So it's a very, very important thing to address. And of course it's harder because you're flying a plane as opposed to driving a truck. So the standard for the fuel is higher. It has to go through a lot more certifications and the quality of that fuel is higher, which means there's a lot more refinement of it, which creates certain challenges as you're moving from biochemistry of sort of biologically derived fuels into a substitute for that quality petroleum fuel. Right, right. So with those specifications we're referring to ASTM, correct, the ASTM standards, and there are several of them. For example, D1655, which is a I guess a fairly new one that is trying to address the various pathways or one of the ones that's trying to address the various current pathways to incorporate biofuels into at least on a mixture basis at the moment. So yes, and that's one of the huge steps, the type that we have. I believe there are five current pathways that are approved and that I've finished incorrectly from Kathy. There's another 18 that are being pursued. So that's it. Finding ways to connect that to what we're able to grow and produce here, correct, is one of the I guess challenges that we have. That's right. And that's a lot of what Ulupono has been doing for the last seven years is addressing that challenge. We've made a series of investments in a series of companies to actually go down each of the major pathways. And if you sort of stand back and think about it, there's an oil pathway, right? We take oils and turn them into a biodiesel, which is already a transportation fuel, but then you do a little more work to the biodiesel becomes an aviation fuel. And that's a pretty proven pathway. There's a sugars to alcohol pathway. You can get sugars from, of course, sugar or plants that produce sugar, or you can get sugars from trees, but you have to go through hydrolysis to get the sugars out of the cellulose, another pathway. But again, that actually pathway has proven commercially effective. I think Altair is running an alcohol-based system now for transportation. So that pathway is there, but it goes back to our ability to produce cheap sugars here. And then there's the pathway, of course, of taking woody matter and turning it into a gas and then going through the old chemistry of Fisher-Troath, which was developed by the Germans and improved by the South Africans. It's actually quite effective. And that also can produce a jet fuel. So we've actually made investments in each of these. And then algae is just another way of getting oil, but with a much more highly productive species than a terrestrial plant. So we've got a couple of investments in algae. I'm glad you brought that up, actually. We do have the Kauai algae farm, which I'm hoping gets to remain and we can get to continue developing that. I'm not sure where we are with that. There's lots of conversations. I would like to learn about that, but I think it's being held quiet at the moment as they're figuring it out. But the thing about algae is it's a significant, it's an exponential yield. Correct. Correct. And that's an important thing to think about. In Hawaii, we have to be practical that we don't want to reinvent the old debate of food versus fuel. We don't have to do that here. That's an old debate, but we actually can do it right here. So what does that mean? You don't, you want to think through the yields and you don't want to use your primary cultural land if you can avoid it for these kinds of things. So, you know, if conventional oils from soybeans, that's about 60 gallons an acre, maybe 80 with if you use better seeds like canola, you know, corn, you can get around 100, you can get to 400 with oil seed palms. But you really want to sort of jump to a different level. I mean, the advanced sugars and all the advanced canes, that might be 1000 gallons an acre. But when you get to algae, you're starting at 1000, you're shooting for 10,000. And that's what you're shooting for. And you can see and if you look at all the work that was done in the last five years, you can actually see a pathway to affordable jet fuel. The work that was done in Hawaii, which DARPA reviewed says there's a pathway to $2 gallon jet fuel. That's sort of the magic number. But they can see the pathway for that type of technology. So we know the pathways there. There was also good work done on some of the cellulosic fuels, the work we did investing in with rent tech to upgrade the fuel, clear fuels technology, which was a SimGas technology for wood, married to rent tax very good. Fisher Trose technologies, that actually that that work, which was we funded with rent tech, and of course, the Obama administration put a lot of money into this work technically well. So there's so we know that chain works. And what scale and what scale was that? Well, not I think the last the other issue we had to talk about in Hawaii. So what's the minimum scale you need to produce in terms of land basis to fund one of these by refineries? And what's the kind of capital cost? And what does that mean to put the chain together? Because all these things are entry related. So in general, our view at a Lopono is you have to be able to build an end end chain with a series of contracts that make it investable for not just us, but more importantly, for the banks. So there has to be a series of contracts that do that. And I will give the utility credit because one of the things that they did was step up to the following challenge. When you're building by refinery, it takes about 10 more like 20 years to get the capital back, you start getting your money back for real about year 12 or 15. So you have to have very long term contracts for the fuel. The military at best goes out five years, the airlines go out one or two years. Good to have contracts, but they're really short duration. Only the utility stepped up and said, we will at least start the conversation. Actually, we got one or two, we got one approved for 20 years, a 20 year contract. That's HECO. That was HECO, our utility. And that was an important thing because even though that's not the highest and best use for the biofuel molecule, it does allow the first ones, the first plants to be commercially financed. Absolutely, because you need to have that path all the way through. So that was a very big step. So they did that step. The Obama administration should think back, put in an enormous amount of money, as did the Europeans. And actually, the Japanese put in some, too, in three different sort of technology initiatives linked together to really push down the advanced biofuels pathways. A lot of money was spent, billions actually across the world. And a fair amount of private capital was spent and some oil companies like Shell stepped up and also put real money into this. So there was a lot of work done and we did benefit from a bunch of that. We brought a number of technology projects into the state. The two algae projects were part of that, the one on Kauai, but also Solana, which was a Shell joint venture on the big island. Of those two, Solana has survived, is still in business, which is a credit to their CEO. The, you know, we did do the clear fuels venture, which was a homegrown technology here that married to a mainland larger company. And that whole pathway was funded. And in fact, it worked. So we did a lot of work the last round, which is over the last five years. Now, one of the things that happened, it didn't come to full commercial fruition because oil prices dropped. By the time the technologies worked, the oil prices dropped. And that's an important reality of the chain. So the biofuels chain, much like the solar chain, started at a relatively high price. And as you know, the story of solar over a series of about a decade, a decade and a half, it really started to drop. And then the Chinese and the Europeans and the Americans scaled it up. And now it's ubiquitous. And it's completely a grid parity, especially here, especially here. So it's a good story. So you look at biofuels today and you can wring your hands. Oh, so expensive. But but actually the way to sort of think about a very simple level is that even it takes for the last five years, pre of the Obama work and the work of the Europeans, right around the time of the first, the last big oil spike. Where did you know oil hit 145? When we started that journey, biofuels were about unsubsidized about $200 a barrel, a barrel. They're in that range or a lot of them are in that range of costs. So for all the money we spent in the public and private sector, what did we get it down to unsubsidized? We got down to about 125, sometimes 110, sometimes unsubsidized, unsubsidized. So we got that's extraordinary. That's extraordinary. We did a lot of work. We got to that place. Now there's a $40 a barrel subsidy, a dollar in gallons was 42 to be precise. That brings it down to about 80. So had the oil prices stayed at 100. That's a federal subsidy. Yeah, the federal subsidy. So had oil prices stayed at 100, then some of the projects that we just been talking about would be commercial today. They would be under operation, they would be building. They're currently being stalled or have failed? No, they've probably either stalled or failed or got to go to round two. But because even as we dropped the cost curve, of course the price of oil dropped faster because oil's cyclical. Yes. And we went to one of these deep cycles where it's very inexpensive. Will it come back? It tends to look over to the last hundred years. It tends to kind of rise and fall. Well I recently heard that they're already talking about affecting the product out of OPEC. They're going to start reducing numbers so therefore prices will start to go back up again anyway. But there's another piece of the economics which I think is as important for us to understand which is what is the value of long-term fixed prices? I mean all of us know that if we were to try to purchase something in the future at a fixed price we'd have to pay a premium for that. Right, right. So let's jump into that. Let's take a quick break. We're already at our first break here. So I said it happens really quickly, right? So okay, thank you for joining us. This is Think Tech Hawaii's Movers, Shakers and Reformers. We're doing our Biofuels in Hawaii series and thank you to our guest Mr. Kyle Dada from Ulu Kono Initiative and we will see you in one minute. Thank you. Do you want me to shorten the answers? Oh no, don't worry. Don't worry. Aloha, I'm Kirsten Baumgart, Turner, host of Sustainable Hawaii. Thanks for watching Think Tech this summer. We have a lot of terrific shows of great importance and I hope you'll watch my show too every Tuesday at noon as we address sustainability issues for Hawaii. They're really pertinent as the World Conservation Congress approaches in September and the World Youth Congress that's focusing on sustainability next year as well. Have a great summer and tune in at noon every Tuesday. Good afternoon Howard Wigg, Code Green, ThinkTechHawaii.com. I appear on Mondays at three o'clock and my gig is energy efficiency doing more with less. It's the most cost effective way that we in Hawaii are going to achieve 100% clean energy by the year 2045. I look forward to being with you. Aloha. Aloha, welcome back to ThinkTech Hawaii's Movers, Shakers, and Reformers. I'm your host Carl Kampania. We are doing our biofuels in Hawaii series and today our guest is Mr. Kyle Dada from Lupono Initiative. So we were just talking about, well we're starting to get into some of the economic aspects of biofuels. So let's jump back into that as far as we were talking about the pricing and the hedging aspect. So let's jump back in. Let's just say with subsidies we were able to get biofuels down to $80 a barrel, but the price today is more like $40 or $50 a barrel. So we see that gap and say, well is it uneconomic? So part of the question is well that $80 a barrel, we can make that the same price every year for the next 20 years. So that's, there's a value to that hedge. It's a huge value. So what's exactly, so what's that value worth? So we've been doing a work with the University of Chicago for the power sector but looking at hedges and oil and natural gas which are derivative of our power sector. And so you should go out 10 years, the premiums at least 30 if not 40%. You should go out 20 or 30 years of course it escalates dramatically. And so you may see premiums almost the point of doubling the price. Right, that's how the premiums go for when you get to 20 or 30 your point. So when you look at the hedge economics you're saying wait a second, that's actually in the money. And that insight is why now go back to why would the PUC approve the Hawaii Bioenergy Contract way back in the day when it was probably being priced around $100 a barrel because as they looked forward they were to say wait a second, $100 a barrel was a great deal for 20 years and in fact it was a phenomenal deal. It was an incredibly cheap hedge. And that's exactly just like we're doing the solar today, we're actually buying fixed price contracts and wind. So biofuels should get the same treatment. So from looking at that perspective we're pretty close to being the money now but there's other issues we have to get to talk about. So one is scale. Scale, exactly. So for the different types of choices what's the minimum efficient scale? And that really talks about land commitment. So if you go down... Minimum efficient scale, so land commitment, so you're talking about yield of what you're able to get, what you're able to produce, the yield you're getting out of it and how much fuel is produced. And at what... That's right, well if you look at it more like given the underlying agricultural realities of how much either oils, sugars or wood you can get from an acre of land. How many acres do you need to make sure that the processing unit you're putting in place has enough fuel to operate, to create fuel, have the feedstocks and there's a minimum efficient scale to those processing units. So that's what defines it. Otherwise they just become wildly expensive when you make them too small. So for forestry that's about 15,000 acres. So if you look around the state and so I need 15,000 acres that are all together and that brings you to a handful of places. There's a couple of places on Kauai. There's a couple of places on the Big Island. Okay. I would think Big Island has more space. They have a few places but a few places that have again if the yield you need 15,000 acres of contiguous land when you get down to... This is woody, these are trees. Yeah, these are trees. These are like eucalyptus trees like you see in Hamaku or Pahoa. They grow very, very well but there could be other trees. And you can do grasses too but you still need that amount. When you get to some of the sugars you could probably do it at 5,000 to 8,000. You're happier at 10,000 so it's a little bit less. But you can do some things with sugars that allow you to shrink the scale somewhat. And some crops like you know, Kusava are very, very high yield ones. One of our investments in five cows for the high yield sugars. So you can sort of see a path forward that says you know we could probably do some of this. But when you get to algae here's what's amazing. Algae that manifests the scale is about 100 acres. You get 100 acres as an order of magnitude difference. And you don't have to use as you were talking earlier in the previous segment, you don't have to use higher quality or class A, class B, agland. That's right. Because when you get to the forest you actually can do on the forestry lands that doesn't necessarily have to intersect with the class A, class B. The sugars, you've got to use class A, class B. They will not grow without that kind of quality of land. The algae can really be grown on because it's basically concrete raceways anywhere. We run on lava fields, literally. And in fact, Solana isn't a lava field. It loves it there. Exactly. It's always Kona. It was always sunny and then they're happy next to power plants so Y and I is a great place. We think we put our power plants in marginal places so it's a good place to put the algae next to it because it wants the CO2. It's also good for a distribution check. Right. Right. Which is why we've made a series of investments in the algae technologies. And again, they've gone far. They've proven out the fuel alone will not pay for it often down to either byproducts or other products through the proteins where we need some of the phytochemicals. So that technology is still alive and well and what we envision is even though oil prices are low now they're going to come back up and so what we really need to talk about is what do we need to do to get ready for the next round? So that when I'm giving all the money we spent and all the stuff we've done in Hawaii how do we do that? That is huge because that's a big piece of a number of studies that are going on right now specific to tropic, subtropic zones, Hawaii, specific to the Hawaii region and the Pacific region what can be grown here and in what yields in order to create enough product. We've heard from defense logistics agency, DLA, say that well what they need is what's called operational volume. So okay how many gallons how many millions of gallons per year do they need in order to really make it something that they can begin to purchase because you're right they were telling us that they'll they'll purchase like a year or two years of a contract when it behooves everyone if you've got a longer term but only at a good price. So yes that's a very important piece first of all just to wrap that up a very important piece to understand and you can understand that simply by looking at your home operational budgets. When you know okay I'm paying this much for my rent or mortgage I'm paying this much for my car this much for my insurance and it's a static number versus oh my electricity bill just went up this month. Why that's right and you're realizing oh well that has a direct impact on the price of oil and that's where that comes in and that's the connection that not a lot of people feel immediately or even connect to this to this conversation. That's right. So okay now let's get to let's talk about scale and then the challenges. So scale how we achieve the scale because I know there have been a number of this is what we're really talking about is production scale so how do we produce more and more and more and the number of acres we need but then also the technologies and where are the technologies and how advanced are they are they ready to get to that next scale. That's a good question so because we've invested in essentially all the different technologies we have a point of view on this so to everyone's credit especially the European but also the Americans we've put a lot of money into the cellulosic pathway which is the woody pathway and even though we spend half a billion dollars collectively each on scaling these up to full commercial when we scale them up they didn't work they this didn't work yours didn't work corn didn't work there's still more challenges and the integration of all these pieces so we recognize that that's going to take yet another round so that means we have to understand where we are with that we know the sugar to alcohol pathway works just great and we know the alcohol jet pathway works just great we know the oil right and we know the oils work as well so so both those pathways work in the oils if we know algae made a huge set of strides technically but we pretty much got them to sort of the five acre scale and you got to take those same modules and now bring them to the 20 acre scale and then for the 20 acre scale you can go to the 100 acre scale when you're at the 100 acre scale you're actually at a point where you're economically self-sufficient it starts to make sense and then you can clone the 100 acres so that's the pathway we're on so the next round is going to be that's for the 20 and the 100 and one of the questions that is under debate right now as the investor is are the other non-energy pieces the proteins the animal feeds the kind of nutraceuticals the phytochemicals are those enough to invest the 20 acre scale so that while we're waiting we've gotten that scale done so that we're ready for the 100 acre scale because if we can see our way through to that that would be an enormous step up so that's one of the challenges we have right now is is doing that study or getting those studies to show us that the ancillary products the secondary products are there it's really the investment it's I think I I think what happened with algae is it proved to self enough some of these companies did pretty well that it really is the next round of investment in a low energy market so energy is not driving it but so it has to be all the other when all the other markets are there they're conventional markets it's really getting to the next stage so our thinking is that's likely to happen the next five years which will then set us up if you sort of take a look at the energy markets you say likely what needs to happen so that's my next question here is what are the barriers what what needs to happen as we begin to lay that plan out over the next five years to be able to be there from the private sector it's really about risk and reward up you know it's not about government subsidies per se for some of these investments at least in the algae sector for the the public sector and what can the public sector do there's a couple things that will make a big difference you know one is on the military side which has the greatest need and the greatest desire there's really an issue of can they see forward to doing five or ten year contracts can they understand the value of the hedge and build that into their procurement system much like the utility did the PUC did they took the first step the military followed suit that would change the game in terms of how the investors view the world and that's very very important I don't think we can ask the airlines to do it because well they're already doing it the airlines are already on a voluntary basis internationally yes they're buying it but this is about this is about buying long-term contracts at known fixed prices that at volume and scale and the military is more suited for that because they have a higher need in terms of why they really want this fuel and the power companies similarly were able to sort of see through it like we think about solar and how that's a hedge they were able to understand that equivalence the military in the next five years that work could be very very important and especially and the Pacific could be a good region because of our special needs here to actually demonstrate that and I know that they are very interested in trying to drive that there's a number of studies being done in multiple facets of this that they're driving the other thing that really matters at the state level is actually ironically not the subsidy it's about water water you can't for most crops you can't grow them without water certainty so here you have 18S obviously a perfect place to grow a number of crops at the right scale with no water certainty so who's going to make a 20-year investment when the underlying certainty of water supply is at best year to year so ultimately adjudicating what's a very political thorny issue that no one wants to sort of touch but really needs to be resolved I think it's very important not just for biofuels for all of agriculture so getting final clarity making the hard calls and whatever you're going to make the calls on how we allocate our water and which way we do that to all the important needs that are there we honor and respect all the needs but eventually we have to make some decisions that's very important because that unlocks large amounts of contiguous land otherwise you're back to the forest and you're sort of banking on the forest the algae which are essentially less proven pathways so you have more technology proving if you could commit the water you can go down the proven pathways and then it's just a question of contracting which when you look to the military or you have to go back to the utility and look at the long-term value of fixed price contracts and the numbers will start to work so we're that close we can begin to see we can see that we're getting closer and closer there are still some barriers we need to overcome and conversations that need to be had and some of them are challenging conversations but the opportunities are there the investors are there looking for that opportunity that's right the landowners are being engaged and we're trying to find those stakeholders to contribute as well in the whole picture so and there's one other way we can we can make a decision about this and I know par petroleum is open to which is we have been focused on what I call pure play biofuels so you're you're taking doing all the work to create little mini refineries which normal economic oil scale there there are dots on the map I mean not even there's a small little pinpoint so they're very un-economic in a certain degree sense if we thought about differently I said you know what here's the watch we know we use 700 million gallons of jet fuel a year if we're lucky we could produce maybe 100 million gallons of stuff which would be great so rather force the pure play if we could say you know what why don't we use refineries and have them do the refining and and blend in the feedstocks and say no that's okay in terms of our resilience what we've done we've actually decreased our old dependency and we don't have to spend a lot of money on the downstream transformation remember I told you every time you go up to the higher higher qualities you have to have you have to have higher quality fuels that costs a lot of capital no it does unfortunately we're out of time I wish we had a lot more time but thank you for joining us this is Think Tech Hawaii's Movers, Shakers and Reformers the biofuels in Hawaii series again thank you to Mr. Kyle Dada for joining us we will see you next week thank you to the entire staff and the entire crew of Think Tech Hawaii see you next week