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In Pursuit of Loot

Biomass projects encounter many of the same challenges as other businesses, including obtaining adequate capital. Biomass Magazine talks with industry experts about the current financial situation, and funding opportunities for biomass projects.
By Anna Austin and Lisa Gibson
Money is the determining factor in achieving project success no matter what industry is involved. Although a lack of liquidity in the equity and debt markets is currently keeping a lid on project development activity, there are some encouraging signs on the horizon for biomass projects, according to Rob Kurtz, BBI International Engineering and Consulting Group project manager. "Positive signs include the recent USDA issuance of feasibility study grant guidelines for both combined heat and power at biofuels plants and anaerobic digestion systems, and a slight thawing in venture capital/risk investment as evidenced by the Tendril and Gevo investments recently announced, and several other announcements by companies developing combined-heat-and-power systems," Kurtz says. The Tendril Networks and Gevo investments totaling $70 million were among the top five reported venture-capital deals nationwide for clean energy and environmental technology companies in the second quarter, according to Ernst & Young LLP. Gevo, an Englewood, Colo.-based alternative fuels producer received $40 million and Tendril, a Boulder, Colo.-based smart grid software company received $30 million.

Biomass project developers need to think big when they are putting together their financial package, says Timothy Baye, bioeconomy and bioenergy business development specialist at the University of Wisconsin-Extension. "Think return on capital, working capital needs, for this type of commodity-related business, you'll need equal to or up to three times the amount of the capital budget, because you've got to secure a feedstock-and that takes money."

Securing Federal Dollars


Billions of federal dollars are available in the U.S. alone to assist developers in meeting costs. The $787 billion American Recovery and Reinvestment Act of 2009 signed into law in February includes about $94 billion in direct and indirect spending for clean energy projects, including biomass. About $72 billion of that is in direct investments and $22 billion in tax incentives, according to John Eustermann, a partner with Stoel Rives LLP law firm.

Additionally, the U.S. DOE provides financing opportunities, as does the USDA, which announced in July that it's taking applications for the Biomass Crop Assistance Program, part of the 2008 Farm Bill that aims to support crops for bioenergy, by helping with harvest, collection and storage. From 2009-'12, the USDA has a total of $950 million available for renewable energy projects in the Biorefinery Assistance, Repowering Assistance, Bioenergy for Advanced Biofuels and the Rural Energy for America programs. This year, $210 million is available. The money is competitively awarded and the amount depends on the program, according to Jay Fletcher, with the USDA. A staff of professional loan reviewers determines which projects will get funding.

This year's DOE appropriation for the Biomass Program is $217 million, according to Valri Lightner, DOE Biomass Program manager. The entire application process for DOE's competitive grants and loans takes about eight months, Lightner says. DOE has announced more than $1 billion over five years since the beginning of 2007 to support the development of integrated biorefineries, efforts to advance biomass conversion technologies and research and development of cellulosic feedstock, she says.

Each federal agency's programs have eligibility requirements, along with varying deadlines. Project timelines and percentages of project costs eligible for funding also vary.

The U.S. Department of the Interior does not allocate funds specifically to biomass through grants or loans, but some of its projects generate biomass, according to Scott Lieurance, division chief of the Division of Forest and Woodlands with the Bureau of Land Management. Service contracts, where feasible, will have biomass sections. About $10 million worth of current projects have biomass potential, he adds, in projects dealing with habitat restoration, forest health and fuels reduction. "We try to make that material available for utilization," he says. In 2008, the BLM had 100,000 to 200,000 tons of biomass for sale, Lieurance cites. The department has seen an increase in the past few years in the number of inquiries into how much biomass is available and where, he says.

As the economy falters, more people and companies are turning to renewable energy, Eustermann says, and biomass is a huge part of that. "All eyes are on the stimulus and all eyes are on energy and all eyes are on turning this financial debacle around," he says, referring to the recession.

Tammie Ptacek and James Bertrand, shareholders at the Leonard, Street and Deinard law firm, have also seen an increase in interested parties. Many clients are interested in cash grants in lieu of the production tax credit, a program in the Recovery Act. The cash grant is a one-time payment equal to 30 percent of the project's qualified capital cost, whereas the production tax credit is paid over a 10-year period, Bertrand, the head of the firm's energy group, points out. "That's really causing people to get excited," Ptacek says. The program includes a stipulation that projects have to begin construction in 2009 or 2010. It does not provide initial funding, and applicants must be in the commercial production phase of their projects to qualify.

The benefit of the program is that it allows projects to proceed without tax credit investors, Bertrand explains. "A lot of developers think this makes their projects easier," he says.

Overcoming Hurdles


Although there seems to be plenty of government funding available, getting at that money can be tricky. One of the biggest problems is the process for developing programs: bills come out; they are signed into law and announced; the rules for eligibility and applying are established; and applications are accepted, Eustermann says. Rulemaking takes time, so even though announcements of funding opportunities are made, it doesn't mean the lump sum is available immediately. "If you're relying on those to get your project up and running, you're going to have problems," he says. "It's out there, but it's not solid." For example, solicitations with crucial details of the DOE's legacy loan guarantee program for innovative projects, announced in 2005, were just released July 29, 2009, along with solicitations for the newly established loan program for projects using proven technologies. As of that date, no funding had been issued for any projects from the 2005 innovative loan fund, Eustermann says.

An issue with the popular cash grant program is that there is no pre-approval process, Bertrand says. "As a developer, you have to move to commercial operation and bank on the fact that you can check all the boxes properly," he says, adding that the gamble is easier for large developers to make than smaller ones.

But the money is starting to flow, Eustermann assures. "They're rolling out there," he says. "Each one has its own ins and outs. It's there; they just need to get the rules around it."

The process could be improved if there was more collaboration between the DOE and USDA on funding opportunities, Eustermann says. "They need to work together," he insists. "DOE has programs USDA doesn't have and USDA has programs DOE doesn't have."

Projects With an Advantage

Presumably, projects with complete applications and the least amount of risk involved will most likely be the biggest competitors for available funds, Eustermann says. "You've got to have a complete application; those that have no noise around them; no hair on them."

Projects with the lowest risk are probably going to be financed first and foremost, he adds. The most economically viable and bankable projects probably will walk away with the funding. "It's going to come down to the projects that have the highest credit rating," he explains, citing as an example an individual going to a bank for a loan.

Ptacek and Bertrand agree that it's too early to speculate on whether certain types of projects will be more likely to receive money, but Bertrand says there is a preference for shovel-ready projects.

The DOE focuses on nonfood cellulosic feedstocks, specifically agricultural residues, energy crops, forest resources and urban wood waste, Lightner says. The department also recently initiated work on algal-based fuels. Fletcher says the USDA does not focus its funds on certain feedstocks.

Applying for Federal Funds


Federal funding announcements can be monitored at www.grants.gov. Grant opportunities are listed by agency or category. Information on the DOE's loan guarantee program is available at www.lgprogram.energy.gov, and USDA funding information can be found at the department's Web site, www.usda.gov. Specific and in-depth rules and eligibility guidelines for the USDA and DOE programs are searchable on the federal register at www.gpoaccess.gov/fr/.

Anna Austin and Lisa Gibson are Biomass Magazine associate editors. Reach them at aaustin@bbiinternational.com or (701) 738-4968 or lgibson@bbiinternational.com or (701) 738-4952.

Sidebar
Loan Guarantees Available for Renewable Energy Projects
U.S. Energy Secretary Steven Chu announced on July 29 that the U.S. DOE will provide up to $30 billion in loan guarantees, depending on the applications and market conditions, for renewable energy projects. Another $750 million will support several billion dollars more in loan guarantees for projects that increase the reliability, efficiency and security of the nation's transmission system. The two new loan guarantee solicitations are being funded partly through the Recovery Act and partly through 2009 appropriations.
"These investments will be used to create jobs, spur the development of innovative clean energy technologies, and help ensure a smart, strong and secure grid that will deliver renewable power more effectively and reliably," Chu says. "This administration has set a goal of doubling renewable electricity generation over the next three years. To achieve that goal, we need to accelerate renewable project development by ensuring access to capital for advanced technology projects. We also need a grid that can move clean energy from the places it can be produced to the places where it can be used and that can integrate variable sources of power, like wind and solar."
The lending authority includes:
4 Up to $8.5 billion in lending authority supported by 2009 annual appropriations for renewable energy
4 Up to $2 billion in subsidy costs, provided by the Recovery Act, to support billions in loans for renewable energy and electric power transmission projects
4 Up to $500 million in subsidy costs to support loans for cutting-edge biofuel projects funded by the Recovery Act
4 Up to $750 million in subsidy costs, provided by the Recovery Act, to support loans for large transmission infrastructure projects in the U.S. that use commercial technologies and begin construction by Sept. 30, 2011
The two solicitations mark the sixth and seventh rounds of solicitations by the department's Loan Guarantee Program, which encourages the commercial use of new or improved energy technologies to help foster clean energy projects. Applications were accepted for 45 days following the July 29 announcement. The department streamlined its processes to accelerate these new loan solicitations. By investing in both renewable energy technology for generating electricity and technologies to modernize the country's transmission system, the Recovery Act targets the full integration of renewable energy sources onto the electric grid.
For more information on this solicitation and the department's Loan Guarantee Program, visit the Web site at www.lgprogram.energy.gov/.
SOURCE: U.S. DOE
 

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