Industrial Engines: Bets to be Made in Ethanol
Roland is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
During the 1990s companies applied for permits to build ethanol plants at a furious pace. Nearly every industry was on board with the idea that tank grade hooch would stop us from having to send sons and daughters to die in countries only “big oil inc” cared about. Everybody that is, except “big oil inc.” Despite being ordered to create an infrastructure to transport alcohol, “big oil inc” refused. Instead, they spent more money in bribes (campaign contributions) than it would have cost to build the pipelines.
Some companies didn’t listen to “big oil inc.” Oh, they paid lip service in the U.S. claiming it was completely impossible to build efficient long lasting engines which burned 100% alcohol, then quietly put them into production outside of the U.S. What most of you reading this won’t know is that General Motors (NYSE: GM) began producing alcohol engines July 2, 1980 when the first Chevette with alcohol engine was introduced to the Brazilian public. IN 1981 they procued the 292-alcohol engine for trucks they put out a 6-cylinder alcohol engine for trucks.
Quietly, in the United States, GM created an E100 powered industrial engine. What they didn’t do was take it through certification. Instead, they left the individual certification up to those companies who would use it. Most start-ups could not afford the $250,000 mandatory EPA testing for each configuration. Adding insult to injury, the 2008 financial debacle allowed GM to slash and burn this division in the U.S. despite government bail out dollars and a mandate to put more alcohol engines into production.
Scattered about the United States are various companies which produce agriculture irrigation systems, standby generators, backup generators, water well drilling rigs, and various construction equipment. The one thing they have in common is a pilot project which got part way through an EPA approval process before GM stopped producing the engine they were going to use. (Standby generators kick in automatically when power is lost, backup generators require someone to physically start them.)
During the last State of the Union the President announced an “all of the above” energy policy which would rely heavily on existing green energy technology. Congress applauded, making it sound like they might actually follow suit rather than continually taking bribes from “big oil inc” and crippling renewable energy in this country.
So, what is going to happen? These companies are all going to find out about each other and squawk in a united fashion during this election year. We are already seeing this information in trade magazines so it is simply a matter of time before the various trades find out about each other and complain vocally about GM (who took tax dollar bail out money) pulling the rug out from under them.
There is no act of Congress required. GM still owes TARP money to the government. All that is required is a Presidential order for GM to start production on either these engines or direct bolt-in replacements. The final bit of work needed is some kind of agreement with the EPA so that these engines only have to be tested once, not by every user.
The industrial engine market is a large market. It will significantly improve any manufacturers bottom line. Unlike the regular automotive market, we do not need to build an infrastructure to get this market E100. Why? Because the bulk of these customers have their own tankers to do transport with and the rest contract with tanker services for job site delivery. Every one of them can take a tanker directly to a local ethanol plant and drag it to where they need it. They are currently doing it with every other type of fuel. Anyone who has ever driven past a large new construction project has seen the beat up tanker topping off the earth moving equipment.
GM will be the easiest one for you to watch because any executive order will make the news. The second easiest will be the generator market if you are willing to regularly visit one or two WEb sites which cover the generator market. Before you nay say the generator market claiming all standby generators are hooked into “city gas”, please allow me to tell you that only stupid people do that. Yes, many customers demand it, but, P.T. Barnum was correct, there is a sucker born every minute. “City gas” will only operate your generator during a power outage if the pumps supplying your “city gas” happen to be on a different power grid. The blackout of 2003 taught everybody that successful backup power systems have a on-site fuel supply which is trucked in and can be trucked from multiple states away.
The first battle ground “big oil inc” is going to lose is the industry engine market. This market does not need, nor does it currently use, a pipeline infrastructure. In the midwest you can draw a 100 mile circle around where you are and generally find there are at least two alcohol plants inside of that circle so transport costs are becoming a non-issue because that is generally more than the number of gas terminals from any given pipeline within the same circle.
Every automobile manufacturer selling cars in Brazil today is either building or buying engines which run on E100, it is required by law. The dirty little secret is that most of the ECMs (Electronic Control Modules) on FFV (Flex Fuel Vehicles) will allow the engine to burn anything from E10 to E100. The United States just doesn’t have any of these engines currently EPA approved for E100.
The University of Nebraska’s Industrial Agricultural Products Center in Lincoln compared engines using E100 and natural gas for three seasons. The study confirmed neither maintenance nor performance are an issue with either fuel. Ethanol did have a significant advantage when it came to emissions.
Your plays? GM should get its governmental brow beating by mid-election cycle. Honda (NYSE: HMC), Volvo, General Motors, Ford (NYSE: F) and FIAT all have engines which will burn E100. Once GM is taken out to the woodshed we should see a feeding frenzy with announcements from all other engine manufacturers claiming they are getting their engines EPA approved. Kohler and Generac (NYSE: GNRC) are the two biggest names in standby generators but only one is publicly traded. Honda has a large presence in the manual start generator market, but, as of yet, hasn't waded into the standby generator market. After that you have to dig deep in the trade magazines to identify either publicly traded companies in the agriculture irrigation market, or the small ones looking for investors to help get their alcohol based system to market. Oddly enough $250,000 can make one a major player in many of those companies.
Roland Hughes is the President of Logikal Solutions and author of many titles. He does not knowningly own a position in any of the companies mentioned.
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