Circling Opportunity

Blue Sphere Corp.’s two-prong business development strategy in the global waste-to-energy industry is proving to be fruitful.
By Anna Simet | February 19, 2016

In a recent letter to Blue Sphere Corp. shareholders, CEO Shlomi Palas describes 2015 as a standout year for the five-year-old company. The declaration is tough to argue: Blue Sphere’s first two stateside anaerobic digestion (AD) projects have reached final stages of construction, and a recent acquisition in Italy adds four more existing AD plants to the company’s portfolio; all are operating under long-term power purchase agreements.

Palas reflects on the journey he’s been on since 2007––the path, of which, has changed course several times––to where he is today. “At that time [2007], I was focused on China and working in biodiesel, I helped build an algae farm with a large utility company,” he says. A few years later, he founded Blue Sphere. “We didn’t start with waste to energy, but rather, a project that was supposed to reduce emissions,” he says. “We changed direction when the carbon credit industry in Europe did; we looked for other opportunities. After researching the WTE market, we saw that it was very well-developed in Europe, but in the U.S., it had just started moving forward.”

Blue Sphere’s business development strategy is two-fold—new development (build-own-operate) in the U.S., and acquisition in Europe, with a focus on Italy. “In Europe, there are thousands of biogas facilities,” Palas says. “The market is good for acquisition and not development. America is good for development, but not acquisition.”

Italy is home to about 1,200 biogas facilities, thus the appeal. “Down the road, our goal is to acquire a few dozen of them,” Palas says. “There are other markets in Europe in which we are active, such as Holland, but we have about 20 projects in the pipeline in Italy, and our goal is to acquire an additional seven this year.” He adds that while Germany, the birthplace of anaerobic digestion, boasts roughly 7,000 biogas plants, it is “a huge market, but an exhausted market. There are not many new developments over there, and we’ve identified a unique business opportunity in Italy, so that’s where we’re focused.”

As for new-build projects, Blue Sphere has narrowed its efforts in the U.S. to the Northeast, where opportunities are unfolding largely in part to the region’s support of zero waste initiatives. “I can’t say too much at this point, as big utilities don’t like when we name names,” Palas says, when asked to elaborate on Blue Sphere’s next U.S. projects. “But, I can tell you that our focus is more in New England, for the simple reason that it’s very supportive of the waste-to-energy industry—by regulation, by waste bans—the area is very advanced in comparison to others. I’m not saying we won’t do business in California, which is also advanced in its waste-to-energy initiatives, the South or other regions. If an opportunity arises, we’ll look at it. But for now, this is where we will initiate business.”

And Blue Sphere is soon to prove out that business concept, as its pair of flagship AD projects, developed in partnership with an affiliate of York Capital Management, are nearly complete and will be operating by spring.

From Dirt to Digestion
A visit to Blue Sphere’s website provides each plant’s construction story via photos that have been posted over the past several months. The latest update provided in December shows a nearly complete Charlotte, North Carolina, facility. “The receiving building is there, the gensets, digester, waste treatment is done…we were actually supposed to finish everything at the end of December, but the weather was so bad,” Palas says. “We didn’t have a choice, we had to hold back a little.”

Now, the estimated finish date is the end of February or beginning of March, just in time for the facility to open its doors and serve as a tour site at the International Biomass Conference & Expo. “I just visited the site and nearly drowned in mud and snow, but we’re in good shape,” Palas says with a chuckle. “We’re in the last mile of construction, it looks beautiful.”

In Johnston, Rhode Island, the plant is at nearly the same stage as Charlotte, the only significant difference being its size. “Charlotte is 5.2 MW, and Johnston is 3.2 MW, both are based on food waste. A 5.2-MW plant is huge, we’re talking 424 tons of food waste per day…I believe the largest AD project in the world is 7 MW. Most in the world are less than 1 MW, close to half a MW, maybe 90 percent.”

Power from Charlotte and Johnston will be sold to Duke Energy and National Grid, respectively, via 15-year power purchase agreements.

Building an AD plant and being able to easily replicate the same design elsewhere is a significant advantage, according to Palas. “The beauty of this business is that it’s almost like cut and paste,” he says, emphasizing that Blue Sphere does not own the technology being deployed at its plants, and doesn’t plan to at any point. “That’s part of our strategy—we want to be able to select the best technology available for each solution, whether it’s AD, woody biomass, incineration. For each project we face, we’ll choose the technology that will solve that specific problem.”

The technology provider and engineering, procurement and construction contractor of Blue Sphere’s Charlotte and Johnston facilities is Italian company Austep S.p.A. “We let them take the reins,” Palas says.  “The way we operate is that we’re not constructing the facilities, we hire others to do it. We’re more on the management and supervision level.”

What drew Blue Sphere to the sites of the Johnston and Charlotte plants? A few main components are must-haves when it comes to AD project development, according to Palas, the first being a nearby interconnection. “A few hundred feet maximum—we won’t go a mile or a mile and a half. It needs to be near the substation,” he says. “The distance to the grid—it needs to be close.”

The site must also be near a major highway, “or a railroad,” Palas offers. “It can’t be near any neighborhoods or houses; you don’t want 40 to 50 trucks of waste going through a neighborhood. It should be in an industrial zone. There are more, but those are the major criteria when we come in to evaluate a potential site.”

Additional components important to new projects in today’s development climate, Palas says, are incentives and tax credits, and that’s particularly to an industry that’s relatively young in the U.S., as AD is both state and federal, as well as low-interest loans, renewable portfolio standards and renewable energy certificates and other benefits offered to project developers.

Without hesitation, Palas credits the strength of his team of 12 as the key to having accomplished such a great deal in one year. “It’s very strong, and we have the expertise we need—financial people, technical people, and business development, all of the skills you need to develop a successful project, that’s our main advantage. Some companies are very strong in technology, but weak in finance or business development.”

Palas says he sees Blue Sphere growing personnel-wise, perhaps doubling or slightly more.  And as far as adding facilities to its portfolio goes, 2016 is shaping up to be another productive year. “We have a lot of projects in the pipeline in the U.S. and Italy, and a few megaprojects in Asia—it’s going to be an interesting year,” he adds. “We’ve proven our concept under project development, now we need to prove to the market that it’s not luck—we know how to do it again.”

Author: Anna Simet
Managing Editor, Biomass Magazine