November 2012 Biomass Magazine by BBI International

November 2012

Strong Views, Big Results How John Mayâ&#x20AC;&#x2122;s bondbased financing method gives developers the money to build. Page 22

Plus:

Third-Party Biogas Plan Adds Revenue to Dairy Operations Page 38

And: Finance Veteran Chris Groobey Dishes on Clean Energy Investing Page 22

A Look Back at the Algae Event of the Year Page 28

www.biomassmagazine.com

INSIDE ¦ ADVERTISER INDEX¦ NOVEMBER 2012 | VOLUME 6 | ISSUE 11 2012 National Advanced Biofuels Conference & Expo 2013 International Biomass Conference & Expo Agra Industries

48 4 26

Airoflex Equipment

Algae Biomass Organization

Amandus Kahl GmbH & Co. KG

BBI Consulting Services

Biomass Industry Directory

Centre for Research and Innovation in the Bio-Economy

Continental Biomass Industries, Inc.

CPM Beta Raven

CPM Roskamp Champion CST Industries, Inc. Dieffenbacher

6 21 19

Fagen Inc.

GEA Westfalia Separator

Himark bioGas

Indeck Power Equipment Co.

Jeffrey Rader Corporation

Metso Power AB

Mid-South Engineering Company

Millard Maritime

Ontario Ministry of Economic Development and Innovation

PRODESA ThermoEnergy Corporation

5 40

Twin Ports Testing

West Salem Machinery

Williams Crusher

BRUKS Rockwood

Wolf Material Handling Systems

Wood Group - Mustang

FEATURES

DEPARTMENTS 04 EDITOR’S NOTE

22 Q&A Navigating the Valley of Death

Financial Innovation Yields Industry Dividends By Tim Portz

Chris Groobey explains his time helping firms acquire much needed capital. Interviewed by Tim Portz

06 INDUSTRY EVENTS

24 POWER MAP Mapping Out Power Capacity

07 POWER PLATFORM Biomass to the Rescue By Bob Cleaves

The 2013 Biomass Power Map features an overview of the power industry, plus capacities and trends. By Kolby Hoagland

10 LEGAL PERSPECTIVES Opportunities and Perils in Green-Black Alliances By Todd Taylor

28 ALGAE Algae’s Mile-High Potential on Parade A review of the industry’s most important event of the year. By Tim Portz

32 PROJECT FINANCE Meet the Biobanker John May’s bond-based approach to project finance is the new normal for going commercial. By Luke Geiver

12 ADVANCED ADVOCACY A Look Back and a Look Forward By Michael McAdams

14 BUSINESS BRIEFS 18 BIOMASS NEWS 44 MARKETPLACE

38 BUSINESS Adding Dollars to Dairy Third-party business models allow dairy operations to run biodigesters and increase revenue without the burdens of ownership. By Anna Simet

Biomass Magazine: (USPS No. 5336) November 2012, Vol. 6, Issue 11. Biomass Magazine is published monthly by BBI International. Principal Office: 308 Second Ave. N., Suite 304, Grand Forks, ND 58203. Periodicals Postage Paid at Grand Forks, North Dakota and additional mailing offices. POSTMASTER: Send address changes to Biomass Magazine/ Subscriptions, 308 Second Ave. N., Suite 304, Grand Forks, North Dakota 58203.

NOVEMBER 2012 | BIOMASS MAGAZINE 3

¦EDITOR’S NOTE

Financial Innovation Yields Industry Dividends

TIM PORTZ VICE PRESIDENT OF CONTENT & EXECUTIVE EDITOR

tportz@bbiinternational.com

In September, the Union of Concerned Scientists released a report, titled simply “The Promise of Biomass,” in which it establishes that some 680 million tons of various forms of biomass could be made available for conversion into energy products by 2030. The report offered by the UCS differs in its final numbers from the U.S. DOE’s most recent iteration of its “Billion Ton Study,” but the assertion is the same: the U.S. has the biomass feedstocks to satisfy a significant portion of its energy needs. The UCS report suggests 54 billion gallons of biofuels capacity could be supported by the available biomass in this country, a near quadrupling of the currently installed capacity. The list of questions that have to be answered to realize this incredible potential is long and varied, but ultimately not one gallon of the potential outlined in this latest, hopeful report will be realized unless capital can continue to be squeezed from an increasingly reluctant, cautious and skeptical investment community. Even at modest “per-gallon” or “per-kilowatt” construction estimates, to fully realize the potential for biomass-based energy, hundreds of billions of dollars of debt and equity will be have to be secured. Fortunately enough, the biomass industry is serviced by an experienced cadre of financial professionals with decades of experience, working to build financial packages and business models that help overcome any reservations they may have about investing in new projects, new startups and new technologies. Luke Geiver’s cover story “Meet the Biobanker” examines the success that John May and Stern Brothers & Co. have had leveraging bond financing to bring investors with varied risk profiles to the same project as investors. The solution is complex, yet effective, and Geiver’s article takes a stepwise look at the credit enhancement strategies and risk allocation that May’s team has used to help an impressive number of projects get the financing they need to get under construction and operating. Anna Simet’s feature “Adding Dollars to Dairy” highlights the growing interest in owner/operator business models being deployed in the biogas space to drive operational risk out of projects to entice greater investment. Continued private investment is the lifeblood of this industry and this month’s issue of Biomass Magazine convincingly argues that the most exciting innovations in this sector are not just next generation conversion technologies, but also the financing strategies being developed to ensure they can be capitalized and built.

Make Plans to Attend REGISTER NOW 866-746-8385 | service@bbiinternational.com |

4 BIOMASS MAGAZINE | NOVEMBER 2012

APRIL 8-10, 2013

Minneapolis, MN www.biomassconference.com

#IBCE13 Follow Us: twitter.com/biomassmagazine

EDITORIAL PRESIDENT & EDITOR IN CHIEF Tom Bryan tbryan@bbiinternational.com VICE PRESIDENT OF CONTENT & EXECUTIVE EDITOR Tim Portz tportz@bbiinternational.com CONTRIBUTIONS EDITOR Anna Simet asimet@bbiinternational.com FEATURES EDITOR Luke Geiver lgeiver@bbiinternational.com NEWS EDITOR Erin Voegele evoegele@bbiinternational.com COPY EDITOR Jan Tellmann jtellmann@bbiinternational.com

ART ART DIRECTOR Jaci Satterlund jsatterlund@bbiinternational.com GRAPHIC DESIGNER Elizabeth Burslie bburslie@bbiinternational.com

PUBLISHING & SALES CHAIRMAN Mike Bryan mbryan@bbiinternational.com CEO Joe Bryan jbryan@bbiinternational.com VICE PRESIDENT, SALES & MARKETING Matthew Spoor mspoor@bbiinternational.com EXECUTIVE ACCOUNT MANAGER Howard Brockhouse hbrockhouse@bbiinternational.com ACCOUNT MANAGERS Marty Steen msteen@bbiinternational.com Bob Brown bbrown@bbiinternational.com Andrea Anderson aanderson@bbiinternational.com CIRCULATION MANAGER Jessica Beaudry jbeaudry@bbiinternational.com ADVERTISING COORDINATOR Marla DeFoe mdefoe@bbiinternational.com

SENIOR MARKETING MANAGER John Nelson jnelson@bbiinternational.com

Subscriptions Biomass Magazine is free of charge to everyone with the exception of a shipping and handling charge of $49.95 for any country outside of the United States, Canada and Mexico. To subscribe, visit www.BiomassMagazine.com or you can send your mailing address and payment (checks made out to BBI International) to Biomass Magazine Subscriptions, 308 Second Ave. N., Suite 304, Grand Forks, ND 58203. You can also fax a subscription form to (701) 746-5367. Back Issues & Reprints Select back issues are available for $3.95 each, plus shipping. Article reprints are also available for a fee. For more information, contact us at (701) 746-8385 or service@bbiinternational.com. Advertising Biomass Magazine provides a specific topic delivered to a highly targeted audience. We are committed to editorial excellence and high-quality print production. To find out more about Biomass Magazine advertising opportunities, please contact us at (701) 746-8385 or service@bbiinternational.com. Letters to the Editor We welcome letters to the editor. Send to Biomass Magazine Letters to the Contributions Editor, 308 2nd Ave. N., Suite 304, Grand Forks, ND 58203 or email to asimet@bbiinternational.com. Please include your name, address and phone number. Letters may be edited for clarity and/or space.

Please recycle this magazine and remove inserts or samples before recycling

NOVEMBER 2012 | BIOMASS MAGAZINE 5

¦INDUSTRY EVENTS National Advanced Biofuels Conference & Expo November 27-29, 2012 Hilton Americas - Houston Houston, Texas Next Generation Fuels and Chemicals Make plans to attend the 2012 National Advanced Biofuels Conference & Expo in Houston. With three comprehensive program tracks titled Pathways & Partnerships, Inputs & Supply Chains and Money & Markets, this year’s event will feature advanced biofuels and biobased chemicals—technology scale-up, project finance, policy, national markets and more—with a core focus on the industrial, petroleum and agribusiness alliances defining the national advanced biofuels industry. (866)746-8385 | www.advancedbiofuelsconference.com

You deserve consistency and quality through your entire biomass pelleting process —from chips to load-out. Get it with CPM. U Equipment for your total biomass process U Integrated biomass expertise U Engineered for quality, durability and consistency U Energy efficient Look to your Partner in Productivity—CPM—for your biomass pelleting solutions.

Canadian Renewable Fuels Summit December 3-5, 2012 Westin Ottawa Hotel Ottawa, Ontario Canada is now a frontrunner in the worldwide effort to create clean, renewable sources of transportation fuel. Learn from industry experts, engage in valuable peer to peer collaboration, find solutions for your business challenges, discover new products and services. The CRFS is a great opportunity to exchange ideas and gain a global perspective on the renewable fuels industry. We offer insightful plenaries and are now offering concurrent industry breakout sessions. (613)594-5528, ext. 223 | www.greenfuels.org

International Biomass Conference & Expo April 8-10, 2013 Minneapolis Convention Center Minneapolis, Minnesota Building on Innovation Organized by BBI International and coproduced by Biomass Magazine, the International Biomass Conference & Expo program will include 30-plus panels and more than 100 speakers, including 90 technical presentations on topics ranging from anaerobic digestion and gasification to pyrolysis and combined heat and power. This dynamic event unites industry professionals from all sectors of the world’s interconnected biomass utilization industries— biobased power, thermal energy, fuels and chemicals. (866)746-8385 | www.biomassconference.com

International Fuel Ethanol Workshop & Expo June 10-13, 2013 America’s Center St. Louis, Missouri Where Producers Meet Now in its 29th year, the FEW provides the global ethanol industry with cutting-edge content and unparalleled networking opportunities in a dynamic business-to-business environment. The FEW is the largest, longest running ethanol conference in the world—and the only event powered by Ethanol Producer Magazine. Visit our website to reserve premium booth space now. (866)746-8385 | www.fuelethanolworkshop.com

800-428-0846 6 BIOMASS MAGAZINE | NOVEMBER 2012

POWER PLATFORM¦

Biomass to the Rescue BY BOB CLEAVES

This has been the worst year for wildfires on record. A Washington Post article recently chronicled the government’s losing battle to control fires amidst tightening purse strings and firefighting costs that can now top $1 billion per year. The story quoted a Nature Conservancy expert, who, questioning the strategy of saving money on prevention methods so that funds would be available for fighting fire, said, “They were telling people in May, ‘Be careful, don’t spend too much [on prevention].’ ” Biomass is an obvious forest fire prevention resource that is not being fully utilized, with tighter budgets often cited as the reason. This is a shortsighted approach; channeling funds to clear forest debris for use as biomass fuel has a dramatically lower price tag, and is much better for the environment than putting out five-alarm fires once they’ve started. In the past, I’ve used this column several times to make this point, and I know that many, if not most, Biomass Magazine readers are aware of the facts and agree with me on this. This time around, I’m going to tell you about a biomass facility that pitched in during a local wildfire emergency. Over the summer, the Chips wildfire struck the Plumas National Forest in northern California. Over its six-week life, the fire—one of the largest ever experienced in California—consumed 75,000 acres of land and cost the state $60 million in control and cleanup efforts. On Aug. 17, about halfway through its lifespan, the fire took down the PG&E Caribou Transmission Line, a critical power line servicing Susanville, Calif., and its 15,000 residents. This was a dangerous development for a number of reasons. Aside from the danger posed to residents by losing electricity during one of the hottest summers on record, Susanville served as an important outpost for crews fighting the Chips fire. Without hotel accommodations and staging grounds available in Susanville, firefighters would have to rethink their strategy, potentially losing valuable time and risking further spread of the fire and its resulting damage. Luckily, the local biomass facility run by HL Power came to the rescue. For more than two weeks, the

facility worked closely with the local Lassen Municipal Utility District to take on a large part of the electricity load to power the town. The plant’s 30 MW of electric generation capacity was ample support for the LMUD system, which requires approximately 25 MW. A coordinated effort was planned and executed to transfer the entire electric load onto the power lines coming directly from the plant, and this required careful coordination and work throughout the night by HL Power, LMUD and PG&E—a task made even more complicated by fire damage to a communications center. A lot of dedicated and experienced people had to work together to complete this process successfully. Throughout the wildfire, HL Power worked closely with local utility officials to ensure that the community could continue to operate as normally as possible. Reasonable conservation measures were requested of the customers, which helped to stabilize load and voltage fluctuations. HL Power provided about 22-23 MW during the peak of the day and about 11-12 MW at night while demand is lowest. In the end, the efforts and preparedness of HL Power allowed the community and local businesses to continue to function normally during a very serious fire emergency. The power it provided helped sustain several thousand firefighters who converged on Susanville and surrounding communities to control several fires, in addition to the Chips fire. By Sept. 11, the fire was finally under control. It’s likely that appropriate forest fire prevention measures would have helped control the spread of the fire in the first place, and possibly would have benefited plants like HL Power by assisting with fuel collection. This story, however, shows how indispensable biomass has become in an area like Susanville. In the face of a potential disaster, HL Power stepped in and kept the lights on. If any Biomass Magazine readers have similar stories about biomass contributing to a community, I’d love to hear them. Author: Bob Cleaves President and CEO, Biomass Power Association www.USABiomass.org bob@biomasspowerassociation.com

NOVEMBER 2012 | BIOMASS MAGAZINE 7

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¦LEGAL PERSPECTIVE

Opportunities and Perils in Green-Black Alliances BY TODD TAYLOR

Oil and natural gas are hot. In fact, they are far hotter than renewables, as much as we would like to have otherwise. Instead of complaining about this situation, however, wise biomass companies should be looking at ways to make lemonade. Working with an oil or natural gas company to deploy your technology could provide a number of benefits, including more rapid commercialization and access to capital and expertise. Heresy? Perhaps, but some might also call it a wise strategy to survive and thrive. Examples of the aforementioned include LanzaTech’s agreements with BaoSteel and Petronas; Gevo’s offtake with Total; Flint Hills and SG Biofuels; Benefuel and Edeniq and Synthetic Genomics and Exxon Mobil. Other examples include companies using biobased processes to clean up fracking waste water, and utilizing flared natural gas to produce fertilizer for agricultural uses. Before booking that plane ticket to Houston or Williston, N.D., however, plan your joint venture with Big Oil carefully. In any joint venture, who controls it is one of the first issues discussed. Usually, but not always, it is dictated by which party brings the most cash or other assets to the JV. Control encompasses who is on the board, staffs key officer positions, has the power to fire and hire management, and decides what happens if there is a major disagreement as well as how to add a new party to the JV. Closely connected to control are partnership contributions to the JV. Cash, intellectual property, hard assets such as equipment, plant assets, management time and the always popular, “assets to be named later,” are normal contributions to a JV. Parties that contribute hard assets—ones that can be readily valued by an accountant—will usually try to value those assets more than soft assets such as patents, unpatented intellectual property, licenses, and management time. Usually, this puts the small partner— such as your biomass company—at a disadvantage. Be sure to have a good rationale for why

10 BIOMASS MAGAZINE | NOVEMBER 2012

your soft assets are just as, if not more, valuable to the future success of the JV, than their old, alreadypaid-for hard assets. What if the JV needs more money? Are the partners required to contribute additional cash? If so, what amounts? What happens if one party cannot or does not contribute? Next up is division of the spoils, usually a direct reflection of the contributions of each partner. However, sometimes one party has interests beyond their share of any revenue, such as tax credits, depreciation allowances or even non-financial benefits. Valuing ongoing contributions to the JV, such as a management agreement, can also make this more complicated. What happens after the JV is signed and your big oil partner wants to find another young biomass company to support? What if you find another, more suitable partner? Can either party be part of a competitive business? What if the partners have already discussed similar opportunities with others before the JV is formed? How will past opportunities be handled— through each company, or through the JV? What about intellectual property, especially jointly developed IP? Usually the largest contribution by a biomass company to a Big Oil/small biomass JV, IP needs to be handled appropriately to preserve the value of the IP brought to the JV, but also to enable to JV to commercialize the jointly-developed IP. For a biomass company, teaming up with a Big Oil or natural gas company can create many opportunities. When deciding to sleep with the enemy, however, it is critically important to honestly address the above issues up front, because while teaming with a powerful company can be exciting, it can be dangerous. Author: Todd Taylor Attorney, Fredrikson & Byron 612 492 7355 ttaylor@fredlaw.com

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¦ADVANCED ADVOCACY

A Look Back and a Look Ahead BY MICHAEL MCADAMS

It’s been a long year for advanced biofuels. Authoring a column that will be released right before the election is not an easy task, so I asked myself, “What could I possibly write that would hold any interest for the readers of this publication when we are all really just awaiting the outcome of the big election?” I decided that a look back, as well as a look forward for some context, would be of value. I’ll begin by looking back over the past four years. In 2010, the Republicans took control of the House. This followed two years of Democrat control of both houses of Congress and the White House, which produced a blizzard of legislation. What did we pass in those two years—2009 and 2010—that affected biofuels? The record reflects the passage of the American Recovery Act with $800 million in funding for the development of biofuels, and the expansion of the tax code for a number of renewable energy technologies, as well as the extension of six separate tax provisions specifically for biofuels. Those were the biggies. In 2011, what did we get out of the House? We began with HR 1 which attempted to limit the use of E-15 along with specific floor votes to eliminate the Biomass Crop Assistance Program. This was followed by a long string of hearings on wasting money for all types of renewable energy including biofuels, votes against funding the U.S. Department of Defense effort to build biofuels capacity under the Defense Production Act, as well as allowing five of the six biofuel tax provisions to expire. Let me state the obvious: over the past two years, the Republicans in Congress haven’t been helpful to this industry. So looking forward, we have a current president who has consistently supported the biofuel industry and spoke directly about it in his public remarks— including his convention speech about advanced

12 BIOMASS MAGAZINE | NOVEMBER 2012

biofuels—while only recently, Republican nominee Mitt Romney has suggested he will continue to support the renewable fuels standard (RFS). We have the secretary of the U.S. Navy supporting the use of funds to build biofuel plants and purchase biofuels while the Republican chairman of the House, Armed Services Committee and Appropriations Committee oppose the use of funds for these purposes. We have the RFS under threat, no Farm Bill, no agreement on extending the current tax credits, as well as no future funding for the DOD DPA program given that there is no appropriations legislation. Overall, there are a serious number of issues outstanding. There is an old phrase, “elections have consequences.” It’s a good one, and the choice is yours. I have been around long enough to know that after the election we may have “more flexibility” from the winners on either side of the aisle, but the past two years have laid down a set of data points that suggest no matter what your party affiliation is, we need to do a better job speaking to rural Republicans about the jobs that have already been created and those that are forthcoming from the advanced biofuels sector. This should not be an election where the biofuels industry is in a winner-take-all position. Advanced biofuels should not be a partisan issue; it should be a fundamental component of America's energy policy options set in the future. The phrase “all of the above” should be the operative path for America’s energy policy. So let’s stick together, work harder on both sides of the aisle, make more noise about what our industry is already delivering for America, and above all, get out there and vote. See you after the election! Author: Michael McAdams President, Advanced Biofuels Association (202) 469-5140 Michael.McAdams@hklaw.com

Setting the Record Straight on Algae Separation hen diﬀerent technology enters a market, there is always some question about how it compares to what’s been available. That’s the case with spiral plate versus disc stack separating equipment. Disc stack separation has a proven 50-year record in algae dewatering and concentration. With over 300 installations worldwide, the process has been perfected and a signiﬁcant amount of data collected.

3. G-forces over 10,000 allow for production of pastes that are 11.5% drier.

% Dry Solids

40 38 36 34 32 30 10 8 6 4 2 0

11.5% Difference 34 31.5

Spiral plate

Disc stack

4. Processing parameters such as speed and ejection time are adjustable on disc stack equipment. This allows production of solids with varying dry matter levels for diﬀerent customer requirements.

Design elements in disc stack machines allow production of a superior product at a lower cost. Here are the facts: 1. Continuous machine operation allows for maximum up-time during processing. Solids are ejected at regular intervals with absolutely no interruption. There is no need to slow down the equipment and then bring it up to operating speed with a disc stack separator. 2. Automatic cleaning-in-place (CIP) is programmed in the machine, saving time and labor costs.

With six service offices throughout North America and professionals that are experts in algae separation, GEA Westfalia Separator offers the centrifugal separation equipment that can cost-effectively meet your needs. We welcome the comparison between the two separation technologies. To learn more and find out about testing one of our machines, contact Keith Funsch at 201-784-4322 or Keith.Funsch@gea.com.

5. Thirty (30) models are available with capacities ranging from less than 1 m3/hr to over 150 m3/hr. We work with you to find the machine that maximizes production for your current operation. Most machines can be scaled up as needs change. 6. Energy consumption, given the complete range of disc stack machines we offer, is equal to or less than what spiral plate technology offers. Disc stack machines use up to 20% less power.

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engineering for a better world

Business Briefs PEOPLE, PRODUCTS & PARTNERSHIPS

Herty Advanced Materials Development Center names new executive The Savannah, Ga.based Herty Advanced Materials Development Center has named Alexander Koukoulas as its president and CEO. In his new position, Koukoulas is a Koukoulas will work with Herty’s clients to scientific advisor and bioenergy achieve their research export and the and development and U.S. DOE and USDA, and serves financial goals while as a technical working to create advisor and board an environment that member at many cultivates opportunity organizations. for business to relocate to, or stay within Georgia. Koukoulas, a scientist and entrepreneur, previously

14 BIOMASS MAGAZINE | NOVEMBER 2012

served as managing director of ANL Consultants LLC, consulting firm active in the pulp and paper, biomaterials and bioenergy industries. He has also served as vice president and executive director of research and development at Albany International, and has held leadership positions at International Paper. American Biogas Council elects board members The American Biogas Council has announced the election of four directors to its board. Joining the board for their first terms are Juliette Bohn of Humboldt Waste Management Authority and Chris Voell from BioCHG LLC. Nora Goldstein of BioCycle and Paul Greene from O’Brien & Gere are rejoining the board for their third terms. Board members are elected by the 160-member organizations

of the ABC, which include anaerobic digester developers and builders, engine and turbine manufacturers, farmers, wastewater utilities, landfill operators, engineering and law firms, financiers, nonprofits, universities and the entire biogas supply chain. Merrick & Company adds technical specialist, project engineer Detlef Kurpanek has joined Merrick & Company’s Energy Group as a senior technical specialist. He offers 25 years of experience in diversified engineering, project engineering and project management in both conventional and renewable energy projects. In his new role, Kurpanek will help ensure high-quality project delivery in the company’s utilities, refining and bioprocessing sectors. John Kosanovich has also joined Merrick

BUSINESS BRIEFS¦

as a project engineer. In this role he is responsible for technical aspects of project execution within the company’s Energy Group. He will also act as a discipline liaison for project tasks as well as generate proposals for specific energy-related projects. Greenwood Energy hires CEO, senior vice president Greenwood Energy, the North American renewable energy division of the Libra Group, has announced that Scott Whitney joined the company as CEO of Loria will develop, its renewable fuel acquire and division, formerly manage clean known as Greenwood power projects for

Greenwood Energy.

Fuels. Prior to joining Greenwood Energy, Scott spent 25 years with Covanta Energy, most recently serving as president of Covanta Holding Corp.’s European group. Dennis Loria has also joined the company as senior vice president of project development. Prior to joining Greenwood Energy, Loria founded an independent consulting practice providing technical, business and strategic advisory services for clean energy projects. Investment firm to unite corporations with startups New York City-based Broadscale Group LLC will unite major energy and utility companies, such as Duke Energy, General Electric and National Grid, with startup firms that offer innovative technology, but lack a strategic partner or the capital necessary to succeed in large

markets. Broadscale has also formed a strategic relationship with Pegasus Capital Advisors LP, a private equity fund manager that will invest in deals identified by Broadscale. The company intends to offer strategic sources of capital for startups while also giving large corporations access to well-screened investment opportunities and innovations.

SHARE YOUR INDUSTRY NEWS: To be included in the Business Briefs, send information (including photos and logos, if available) to Industry Briefs, Biomass Magazine, 308 Second Ave. N., Suite 304, Grand Forks, ND 58203. You may also email information to evoegele@bbiinternational.com. Please include your name and telephone number in all correspondence.

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BiomassNews Japanese group to develop biohydrogen production The Japan-based Hydrogen Innovation Town Business Research Group has begun verification tests on a technology that produces hydrogen from biobased material, specifically sewage sludge. A plant based on the same technology that takes in various biomass feedstocks celebrated its grand opening last year. The HIT Business Research Group consists of Japan Blue Energy Co. Ltd., Daiwa Lease Co. Ltd., Toyota Tsucho Corp. and Mitsui Chemical Inc. Daiwa House Industry Co. Ltd. and Toyota Motor Corp. are also participating in the group as observer members. According to information released by the group, the process features JBECâ&#x20AC;&#x2122;s proprietary

18 BIOMASS MAGAZINE | NOVEMBER 2012

gas Blue Tower technology. The process takes in biomass feedstock and converts it into a high hydrogen content gas via a steam reaction process.

Turnkey CHP plants now available Envirotherm GmbH, an Allied Technologies company, and ZeroPoint Clean Tech Inc., a biomass gasification technology developer, are joining forces to build turnkey, biomass-fueled, combined-heat-andpower (CHP) plants. The plants built under the partnership can range in size from 2 MW to 20 MW. According to the companies, the combined effort to create full EPC delivery of a standardization solution for biomass gasification plants includes relationships with original equipment manufacturer vendors, project financiers, feedstock and recovered wood suppliers as well as with vendors of aftermarket services. Europe is already home to two plants build by Envirotherm and ZeroPoint. According to ZeroPoint, construction on the first of eight additional projects is expected to begin before the end of the year.

BIOMASSNEWS¦

E2 report projects increased advanced biofuel production

Algae industry closes in on commercial deployment

A report Advanced Biofuel Capacity (millions of gallons per year) published by EnNumber of 2012 Capacity 2015 Capacity Companies vironmental EnLow High Low High Low High trepreneurs (E2) 23.1 150 1 6 0.1 0.1 demonstrates that Jet Fuel 877 877 Biodiesel 91 91 564 564 the biofuel in56 370.5 Butanol 1 4 19 19.5 dustry is well-po337.2 512.2 Ethanol 24 35 14.2 14.2 sitioned to meet 248.4 300.8 Adv. Diesel 5 9 75.1 75.4 increased demand Adv. Gasoline 4 52.4 113 7 2.4 3 for advanced 11 312.6 Fuel Flexible 1 11 11 13.3 biofuels, which 1.1 1.1 Biocrude 2 2 0 0 1,606.20 2,637.20 Total 129 165 685.8 689.6 will be driven by the federal renewable fuel standard (RFS) and California’s based on facilities that have substantive low carbon fuel standard (LCFS). evidence of construction through associThe report, titled “Advanced Biofuel ated financing, site selection, feedstock Market Report 2012,” projects that at least procurement, and other factors. The sec27 new or retrofitted advanced biorefinond method generates a high-end estimate eries will come online by 2015 to meet that takes projections made by compademand created by the RFS and LCFS. nies themselves and uses funding status, E2 includes two methods for measur- technology demonstration, partnerships ing production growth in its report. The and other factors to establish feasible first generates a low-end estimate and is numbers.

Commercialization and scale-up were two primary topics of discussion at the 2012 Algae Biomass Summit, which kicked off Sept. 25 in Denver. The message of the event’s opening session was that algae production is very close to commercial deployment. However, shoring up government support mechanisms for algaederived products and removing barriers to algae cultivation are issues that must be addressed. The role of military was also discussed. During his keynote address, Sen. Mark Udall, D-Colo., stressed that the U.S. Department of Defense is the largest user of fossil fuels in the world. “Developing renewable fuels is a strategic and tactical necessity,” Udall said. “No one understands the true cost of fuel more than our combat personnel on the ground in the darkest corners of the world.”

¦BIOMASSNEWS Northern Ireland clean power plant moves from developer to producer Additional potential projects identified by Kedco, where planning or feedstock is available Clay Cross, Derbyshire, England Southern England Rutland Scotland

8 MW gasification plant and 1 MW anaerobic digestion plant 4 MW gasification plant 1.3 MW anaerobic digestion plant 4 MW gasification plant

*Information sourced from Kedco plc

Kedco plc has announced its biomass power plant in Newry, Northern Ireland is supplying power to the grid. The event marks the company’s transition from a development company to an operator of renewable energy assets. The electricity generated by the Newry Biomass Plant is being sold to Bord Gais Eireann under a power purchase agreement. The facility will eventually feature 4 MW of capacity, 2 MW of which are already online. Kedco is completing development of the second phase of the

project, which is expected to come online during the fourth quarter of 2013. The civil and on-site work for the additional 2 MW of capacity has already been completed, and a deposit has been paid to secure the expansion of the grid infrastructure for the project. Once fully operational, the plant will generate electricity to power more than 7,000 homes. Kedco also has a 12 MW biomass power plant under development in Enfield, London.

Solgear, NRC partner on bioplastics Vancouver, British Columbia-based Solegear Bioplastics Inc. has formed a new partnership with the National Research Council of Canada. The partnership aims to combine Solegear’s proprietary formulations with the NRC’s to create new products not otherwise possible. Solegear has been working with the NRC since 2007. According to Nathalie Legros, group leader for Polymer Bioproducts at NRC, Solegear has done an excellent job identifying market opportunities in the rapidly growing field of biopolymers. Legros added that the new partnership will allow both parties to bring Canadian innovation to the biobased plastics industry. In August, Solegear secured a round of Series A financing that will be used to purchase raw materials, support sales, fund intellectual property and grow the company’s management team. According to Toby Reid, Solegear’s founder and CEO, the main goals of his company are to use a greater portion of biobased content in its biopolymers and to remain committed to the compostability of its products.

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BIOMASSNEWS¦ Terrabon files for bankruptcy

WERF report analyzes barriers to biogas

August 2009: Receives investment from Waste Management

Terrabon is founded

13 20

11 20

September 2012: Files for bankruptcy

07 20

05 20

03 20

01 20

99 19

97 19

May 2008: Breaks ground on pilot plants

April 2009: Closes equity financing installment with Valero Energy July 2011: Contracted to produce jet fuel for DARPA

Houston-based Terrabon Inc. has filed for Chapter 7 bankruptcy. Under Chapter 7 proceedings, the company’s operations will cease and a trustee will be tasked with liquidating the company’s assets for the benefit of creditors. According to the company, it was unable to obtain sufficient corporate funding to finish development and engineering activities for its proposed 5 MMgy commercial-scale facility. “It is with great disappointment we announce Terrabon has been un-

able to obtain additional financing and must suspend operations,” said Gary Luce, Terrabon’s CEO. “This is a sad day for Terrabon’s employees, partners, suppliers and vendors who never wavered from their robust support of our company and the technology we deeply believe in. We want to thank them and convey how deeply we appreciate their steadfast loyalty during our journey to become an additional source of alternative energy for the United States."

The Water Environment Research Foundation has released a report identifying the barriers to biogas use for energy at wastewater treatment facilities. According to the report, inadequate payback and the lack of available capital are the dominant hindrances. While 43 percent of wastewater treatment facilities employ anaerobic digestion systems, only 8 percent of that 43 percent use the resulting biogas to generate electric or thermal energy. The U.S. EPA Combined Heat and Power Partnership estimates that the amount of wasted biogas could supply an additional 3 million MWh of power per year. The report found that the largest barriers to developing power generation at these sites are related to higher priority demands on capital and perceptions that the economics don’t justify investment. Other barriers include regulatory policy factors and human decision-making factors. According to the WERF, better cost- and benefit-estimation methods, legislation to assist in CHP financing, and state renewable portfolio standards could help provide incentive for CHP installation at these facilities.

NOVEMBER 2012 | BIOMASS MAGAZINE 21

Q&A Navigating the Valley of Death Project finance veteran Chris Groobey reflects on 15 years in clean energy, the government’s role in its growth and the industry’s slow climb out of recession. Chris Groobey, partner at Wilson Sonsini Goodrich & Rosati, has always been intrigued by big things being built and projects coming to completion. For the past 15 years, he has represented development teams, navigated loan guarantees and pre-commercial funding difficulties, engineered joint ventures, and, connected lenders and investors with the people building the biobased industry’s “big things.” How did you get involved in clean energy finance? A few years after I graduated law school, I represented the U.S. ExportImport Bank in the financing of some power plants in Pakistan. That brought me into contact with another law firm that had a very strong energy-focused project finance practice. I knew that I liked the industry and that it was a complicated and challenging area to work in. So, I moved to that other law firm back in 1995 and that’s when I moved to energy projects full-time. What was the project that really drove home the potential this industry holds? The project that affected me most personally was working on the financing of an ethanol plant in Iowa Falls, Iowa, in 2002 and 2003. It was one of the first projects to be backed by private equity and project finance banks. I spent a lot of time in Iowa learning about the project and industry and meeting all of the people involved. The project truly mattered to the community and I was a believer in the product and industry. When the plant started operating, 5,000 people came to the celebration. I was really

22 BIOMASS MAGAZINE | NOVEMBER 2012

proud to have had a role in a project that had such a positive impact on the surrounding community. I’m very fortunate to still be friends with many of the people involved in that project, and it set me on the path of being very heavily involved in biofuels for more than 10 years now. You’ve ushered several projects through the precommercial stage known as the valley of death. What does it take to navigate through this funding stage successfully? I think it’s a combination of moxie and humility. Successful entrepreneurs are a special breed. They dream big dreams, they push other people, they seek new answers. But the financial community can be very demanding as well, and especially for the first project, it has to be done right and conservatively. Especially these days, there are more people needing money than people who have it, so it’s a real fight to obtain financing for projects of any sort. The successful ones are those who both push to do something new and different while still understanding the ground rules and who follow them as much as possible. What makes project finance and the idea of pulling together financial resources for a particular project, maximizing the chances of repayment and protecting the original investors from liability, different than other forms of financing methods? The question for project finance is whether the developer can make the other parties involved—whether they are lenders or equity investors in the project—comfort-

Chris Groobey

Q&A ¦

INTERVIEWED BY TIM PORTZ

able that you have done such a good job structuring the project that, if something were to go wrong and all you gave the lenders was the project itself, they would still get their money back.

In a presentation to the National Governors Association in late 2011, you talked about the opportunity for states to invest in clean tech and that federal investment will trend downward. Is this still the case?

You watched clean energy development decrease after the economic crisis of 2008. Has the activity level in the clean energy sector completely recovered from the downturn?

Can failed projects be successfully run by equity and debt partners to recoup investment?

This is really a continuum. There has been a real transition of financing. The Department of Defense is driving a lot of the overall growth of renewable energy in the United States, but they are doing it by promising revenues to projects in lieu of investing in or lending to projects, which is what (the U.S.) DOE and USDA have done. The question now has become, with the demise of DOE loan guarantee programs, and with USDA’s energy programs in flux on Capitol Hill, what other financing mechanisms are available to support projects and how can a developer take advantage of them? We’re still in an economic environment where you have a very competitive job market, not just for people, but also for states. States will frequently do for energy companies what they do for auto companies or other big job creation engines that everybody wants to land for their state. The financial support comes in the form of favorable loans, sometimes equity investments or forgiveness of obligations that other people may have to pay. States were already leading thinkers in how to drive renewable energy with regulatory mandates, and now they are thinking about how to enable the companies to meet those mandates, preferably inside their own borders. It’s economic development 101, and it has been very successful for the companies that have taken advantage of it.

No, it has not recovered. This is partly due to the expiration of the tax grant programs, partly to the demise of the European banks that were active in project finance and partly to the overall impact of the new natural gas discoveries and resulting expectations of low gas prices for years to come. But in general, the companies that remain are stronger from their experience, and the sector is full of quality and promise and back on the upswing.

Yes, that has definitely happened, although sometimes not in the originally-anticipated time frame. I think a good example is firstgeneration ethanol plants. Essentially, all of these plants that were backed by private equity and project finance lenders went bankrupt or went into a restructuring process that people refer to as “handing over the keys.” Some lenders and investors in these projects got their money back after waiting out the corn price fluctuations or selling the projects to other ethanol producers. The people who took this approach were usually the lenders and investors who were more committed to biofuels and the agricultural sector generally. Conversely, other types of investors would just shut down the plants or sell the plants and the associated debt to vulture investors or hedge funds. While this was not ideal for the ethanol industry, it did provide opportunities for other, stronger investors to consolidate their position in the industry and also enabled new companies with new business plans. Not to pick on first-generation ethanol at all, there was a phase in the power industry in the early 2000s where a lot of people got very excited about merchant (non-contracted) power plants, and the vast majority of those projects didn’t work out either.

What is the best argument for the continued investment by federal and state governments in clean energy? Short-term, it’s jobs, jobs, jobs. As someone once said, “it’s the economy, stupid.” Long-term, it’s energy security, including price certainty. Renewables are at, or near grid parity, and the more we can insulate our energy prices from the fluctuations of the commodities markets, the better it will be for all of us.

NOVEMBER 2012 | BIOMASS MAGAZINE 23

¦POWER MAP

24 BIOMASS MAGAZINE | NOVEMBER 2012

POWER MAP¦

Mapping Out Power Capacity The 2013 Biomass Power Map shows new growth and current trends. BY KOLBY HOAGLAND

NOVEMBER 2012 | BIOMASS MAGAZINE 25

ÂŚPOWER MAP

nce a year, Biomass Magazine publishes an updated U.S. Biomass Power Map, offering a visual representation of electricity production throughout the U.S. from the combustion of solid biomass. Our team uses phone interviews, countless emails and hours of research including input from the Energy Information Agency (EIA) and the U.S. EPA, to verify the status of each plant. Information provided on the map must also meet certain predetermined criteria. To be included on the map, the power plants must have a minimum nameplate capacity of 1 MW, and utilize no less than 40 percent solid biomass in their annual fuel mix. The power plants on the map must also be equipped with the necessary connection hardware to supply electricity to the grid. The newest version of the Biomass Power Map, mailed with the November issue of the magazine, shows the majority of biomass power plants are primarily located on the East and West Coasts. Among state-based capacity, Florida tops all other states at 878 MW, followed closely in second place by California with 831 MW. After the top two producing states, the generating capacity of biomass power among all other states drops considerably to 407 MW in Maine. At a regional level, the northeastern U.S. has the greatest concentration of biomass power plants with a total of 69 installations. As the map indicates, an influential factor in the location of biomass power plants is the price of electricity in the area where the biomass power is sold. The cost of electricity in the top five biomass power producing states is relatively high for retail electricity costs compared to other states. SHawaii and Alaska rank first and third highest, respectively, for development potential, based on their state rates. The potential for the sectorâ&#x20AC;&#x2122;s growth is not, however, limited to states that have high electricity prices.

26 BIOMASS MAGAZINE | NOVEMBER 2012

Number of Installations by Capacity

Graph 1. Power-generation capacity ranges from less than 25 MW to 75 MW or more in the 187 biomass power plants represented.

Total Production Capacity of Each Generation Range

Graph 2. A total combined capacity of 5,918 MW is represented on the map. The majority of facilities fall into the 25 to 74 MW capacity range.

POWER MAPÂŚ Top Biomass Power Producing Companies

Graph 3. The graph lists the top seven companies that produce electricity from biomass.

Oregon and Washington each feature relatively low retail prices for electricity compared to other states, ranking 37 and 48 for the cost of electricity, but each state also has a considerable presence of biomass power production, with a combined capacity of 544 MW. Smaller plants dominate the biomass power industry, as the plant map shows. Nearly half of the 187 biomass power plants in the U.S. are under 25 MW in production capacity (Graph 1). As the size of the plants increase, the number of them decreases, leaving only 11 power plants with a production capacity of 75 MW or more. Yet, while smaller plants may predominate, the medium-sized facilities produce the majority of the electricity, as shown in Graph 2. The average U.S. biomass power installation is 32 MW. And while the 100 MW capacities of the recently opened Nacogdo-

ches Generating Facility in Sacul, Texas, and the Gainesville Renewable Energy Center in Florida might imply a trend of new facilities moving towards larger nameplates, the average for biomass power plants under construction is 40 MW. Covanta Energy Corp. dominates production by a single company with 1.3 GW of capacity (Graph 3), primarily converting solid waste to electricity. The company not only owns numerous waste-to-energy facilities but also operates plants for other organizations. Wheelabrator Technologies Inc. has roughly half of Covantaâ&#x20AC;&#x2122;s capacity and is the second largest producer of biomass power. Like Covanta, Wheelabrator's primary feedstock is solid waste. The average plant converting solid-waste feedstock to energy produces 34 MW, while the average agriculture residue and wood fuel facilities produce at 43 and 29 MW, respectively. The 2013 map exhibits both growth and the maturation of the sector by bringing larger plants online and pushing total existing production capacity to 5.9 GW. The map should be used as a tool in charting the sectorâ&#x20AC;&#x2122;s path forward, or, as a roadmap showing vast tracts of the U.S. where biomass power does not exist. Many of these states and regions have significant quantities of fuel feedstocks, but do not currently have the appropriate pricing, regulation, or circumstances to warrant the development of biomass power facilities. Author: Kolby Hoagland Data and Content Manager, Biomass Magazine (314) 308-7054 khoagland@bbiinternational.com

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NOVEMBER 2012 | BIOMASS MAGAZINE 27

ÂŚALGAE

Left to right: Martin Sabarsky, CEO of Cellana LLC, Dan Simon, CEO of Heliae Inc., and Paul Woods, CEO of Algenol Biofuels Inc., bring attendees up to speed on the commercialization efforts of their companies.

28 BIOMASS MAGAZINE | NOVEMBER 2012

Attendees packed the general sessions throughout the event.

ALGAE¦

Algae’s Mile-High Potential on Parade Commercialization and research advancements highlighted at the 6th annual Algae Biomass Summit BY TIM PORTZ PHOTOS BY CHARLOTTE SOUTHERN

Sen. Mark Udall, D-Colo., welcomed conference attendees to the summit and emphasized the importance of continued research in algae based biofuels.

en. Mark Udall, D-Colo., opened the Algae Biomass Summit by reminding the nearly 800 attendees that developing domestically produced renewable fuels was a “strategic and tactical necessity.” Udall’s opening remarks were only part of the highlights from the sixth annual event. In addition to an industry update from Mary Rosenthal, Algae Biomass Organization’s executive director, the event included discussion on the commercialization efforts of the industry’s largest players, sustainability measures, the role of the federal government in the industry’s growth and international efforts to bring algae to commercial relevance. Conference attendees filled breakout rooms during the four-day summit to hear expert perspective on the year’s developments and advancements in engineering and analysis, biology, scale-up and factors influencing finance and policy. In all, more than 135 oral presentations were available to conference attendees in addition to nearly 120 research-based poster presentations. In addition to the robust offering of oral and poster content, the Algae Biomass Summit’s continued to establish itself as the premier venue to conduct business as 60 vendors staffed booths on a busy trade show floor. Todd Taylor, energy and corporate attorney with Fredrickson & Byron, and program co-chair, says the event’s opening panel discussion on companies moving towards commercialization, “are on the vanguard, but they are not the exception.” ABO-affiliated companies, Taylor also said, “are aggressively seeking commercialization opportunities in many areas,” and that companies recognize that seeking commercial opportunities

Attendees sharing research advancements in the poster sessions.

NOVEMBER 2012 | BIOMASS MAGAZINE 29

ÂŚALGAE

L. Hunter Lovins, president of Natural Capitalism Solutions, opened the second morning with a keynote address urging the algae industry to keep sustainability top of mind as the industry grows.

Algae Biomass Organization Executive Director Mary Rosenthal opens the 6th Annual Algae Biomass Summit.

Examining federal agency support for bioenergy were, left to right, Tim Portz, executive editor of Biomass Magazine, Sarah Bittleman, senior adviser to USDA Secretary Tom Vilsack, Valerie Reed, Acting Biomass Program Manager, DOE and Nancy Bryson, senior partner at Holland & Hart.

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ALGAE¦ means R&D isn't finished, but is instead “an essential and ongoing part of creating a viable and long-lasting industry,” he says. New to the summit was the addition of the Young Researcher Award Poster Competition. The number of entries for the poster session was up from last year, but this year a jury selected a group of winners. First place recipients included Estaban Hicape from Colorado State University in the engineering category and Beth Rasala from the University of California San Diego in biology. The 2013 Algae Biomass Summit will be hosted in Orlando, Fla., Sept. 30-Oct. 3.

The winners of the Algae Biomass Summit’s “Young Researcher Poster Competition” from left to right: Estaban Hicape, Colorado State University; David B. Levin, University of Manitoba; Chair of the Young Researcher Poster Competition; ABO Executive Director Mary Rosenthal; Beth Rasala, University of California San Diego; Henri Gerken, AzCATI at Arizona State University; Katerine Napan, Utah State University; Alex McCurdy, Utah State University. Not pictured is Justin Ungerer, National Renewable Energy Laboratory.

Conference attendees perused the summit trade show booths.

NOVEMBER 2012 | BIOMASS MAGAZINE 31

¦PROJECT FINANCE

NOTHING TO FEAR: Through credit enhanced bond financing, John May has given risky projects access to capital. PHOTO: WHITNEY CURTIS

32 BIOMASS MAGAZINE | NOVEMBER 2012

PROJECT FINANCE¦

Meet the Biobanker

How John May and bond-based financing are commercializing bioenergy. BY LUKE GEIVER

he unemployment rate in the rural region surrounding Lake Providence, La., hovers around 18 percent. Thanks to Massachusetts-based Myriant Corp., the term biobased succinic acid will soon be synonymous in the struggling region, however, with the term employed. By the time Myriant begins operations at its 30 MMgy biobased chemical plant, 250 people in the area will have been employed to build the plant, and for everyday operations, another 50 will call the Lake Providence facility their full-time employer. Although the creation of 50 jobs may not impress someone outside the region, for the biobased chemical industry, the story of Myriant’s Lake Providence facility is significant. The story reveals what the future of biobased project finance looks like, why a town with a population under 4,000 is the new capital (unofficially) of the biobased chemical industry, and, why every new or future hire at Myriant’s facility, or any other biobased facility that may soon begin operations, should thank a particular investment banker from St. Louis.

NOVEMBER 2012 | BIOMASS MAGAZINE 33

¦PROJECT FINANCE

John May calls St. Louis home, but his job requires a grueling travel schedule that takes him to places in South America, southern Florida and in the case of Myriant, Lake Providence. As the managing director at investment banking firm Stern Brothers & Co., May knows well what it takes for a company to secure funding to build a bioenergy plant. His client list includes nearly all of the advanced biofuel production companies who’ve applied for and secured commitments for guaranteed loans from USDA for commercial plant build-out in the last two years, including: ZeaChem Inc., Chemtex International, Ineos Bioenergy, Fulcrum Bioenergy, Enerkem Inc., Fiberight LLC and others. According to May, his success at Stern Brothers wouldn’t have happened if his team hadn’t decided to test a new financing strategy in 2002. “Stern Brothers took a risk of its own in trying to create a demand in the THE CAPITAL: Myriant's Lake Providence facility is a job creator that exemplifies how commercial bond market for bioenergy project fi- construction projects can be paid for. nance among different types of funds,” he says, including mutual, insurance and hedge funds. The result of May’s attempts to create a demand why: risk. The five major banks in the U.S. currently hold nearly 60 perfor project debt in the bond market has proven, he says, that Stern cent of all total bank assets in the country, meaning that if large-scale projects over $25 million, receive traditional debt financing, one of the Brothers was at the right place at the right time with the right idea. May’s idea on bond-based financing created in 2002 is also the big five will be the source, May says. But, banks haven’t been willing or same financial model used today by nearly all of his clients in bioen- able to lend signficant sums of debt for the past 10 years, especially for ergy, including Myriant, and as May explains, there’s one huge reason projects that come with inherit risks like commercially unproven tech-

34 BIOMASS MAGAZINE | NOVEMBER 2012

PHOTO: MYRIANT CORP.

The Right Idea, the Right Time

PHOTO: MYRIANT CORP.

PROJECT FINANCE¦

ALL LINED UP: Over 250 construction jobs will be created during buildout. The plant will come online in early 2013.

nology, feedstock input uncertainty or a lack of end-user contracted agreements. “The bank market of the U.S., and really around the world,” May says, “is such that commercial banks aren’t capable of handling a large, sophisticated transaction (like the Myriant project), because they simply do not have the risk appetite.” In the past, if U.S. banks were unwilling to provide project debt to bioenergy companies, developers could turn to European banks such as WestLB of New York. But, that office has closed and sold its renewable energy practice due to the exposure it faced in the European financial crisis. And, when May says U.S. banks don’t have the risk appetite, it’s because those banks simply can’t take on projects with the risk profiles that many bioenergy project finance transactions represent. Upcoming Basel III new capital and liquidity standards, from the globally recognized banking standards committee that most globally recognized banks adhere too, could soon force large banks to adopt a strategy that some are already using: holding more cash or liquidity on hand, while avoiding (due to regulations that limit the ability of banks to invest in risk intensive deals) loans that are too risky and could result in a significant loss to a bank if a loan recipient defaulted. And unless a company is willing to give up a significant portion of its collateral to strategic partners, venture capitalists or private equity providers through financing rounds, equity financing in exchange for company control is not an option. Because May and his team knew that the bond market was not, and would not be under the same regulations of major banks or re-

quire a company to option off portions of its company, he went to the bond market. Bioenergy firms however, haven’t succeeded solely on bonds issued to mutual or hedge funds, in part, because May and his team realized something else: that investors looking at projects with higher risk profiles would need some element of certainty that their investment would GOT A REGIMEN: pay off. To appease investors, May developed a Stephen Gatto, project finance strategy that involves credit-en- CEO of Myriant, will deploy the same hancing tools similar to a USDA loan guarantee financial regimen on which pushes a poorly rated bond up by assuring future projects. through the guarantee that a bond will be paid out if the loan recipient defaults, with a complex bond-placement structure that brings bond investors looking for small returns in the 4.5 to 6 percent range together with investors that are actually looking for riskier investments that could potentially return 14 to 17 percent. Myriant, like nearly all of May’s previous clients, is a prime example of what the bond-based, credit-enhanced, structurally complex project finance model of today, and tomorrow, looks like. The Lake Providence facility is the first-ever biobased chemical plant to receive a USDA Business and Industry Rural Development loan guarantee, a program that has been around since the 1970s, and more importantly, offers a loan-backing provision that will guarantee up to 60 percent of the loan amount issued. NOVEMBER 2012 | BIOMASS MAGAZINE 35

¦PROJECT FINANCE In Myriant’s case, that meant $15 million of the bonds the company placed in the market were guaranteed by the USDA. Here is where the structure gets complex. In order to appease the investor who also wants higher yields (willing to underwrite the riskier investment), while also offering a bond package to the investor looking for a less-risky investment, May used the $15 million in guaranteed bonds, in combination with another $10 million worth of unguaranteed bonds to achieve a placement for $25 million with a very competitive blended rate. In short, May achieved a sweet spot

rate that can attract risk-averse investors, who like the guaranteed portion, and risk-seeking investors, who are all about the unguaranteed, 16 percent yielding portion. Typical projects of this type have installed bond tenures in the 15- to 20-year range, allowing the bioenergy companies enough time to build the equity and produce fuels or chemicals and also comfortably manage amortization of outstanding principal and accrued interest. In the end, May has found a way to offer hope to project developers strapped with technology, feedstock or any other risk, by

pairing an investment market (bonds) that has and will always have an appetite for the potential earnings created by a unguaranteed investment, with those in need of investments that hold a perceived risk. Although several of the transactions that May is working on in the bioproduct space will use USDA loan guarantees, he believes the bond market is viable even without credit enhancement. Myriant’s success at using the bond-based financing approach wasn’t just about the ability of May to explain the story of Myriant or the circumstances surrounding the bioenergy industry to investors, a message he says most bond investors understand. Feedstock requirements, off-take agreements, terms of debt and technology risk, he says, are all issues in other markets, but May says the bond market understands those factors may not all be answered in the world of bioenergy and be neatly wrapped and accounted for.

The Project Finance Regimen Stephen Gatto, chairman and CEO of Myriant, is no stranger to bioenergy or project finance. He’s already built and sold a biofuel production company and for the last 25 years, he’s been working on project finance for office buildings, labs or fuel production plants. “My experience over the last 25 years is that project finance regimens, if utilized by themselves,” Gatto says, “lower the cost of debt because they effectively lower the risk profile.” That is exactly why Gatto says, in addition to performing independent engineering and technology analysis on Myriant’s biochemical production process prior to seeking out funding, he decided to follow the bond-based financing approach for his Lake Providence project. May and Gatto share the same understanding of the bioenergy market, as evidenced through their history together. Gatto was the first person to let May deploy his bond-based financing method in the early 2000s. “Going into a project today, where you can mitigate the risk through contractual elements… is probably the only way you get these deals done,” he says. Gatto believes that if Myriant had attempted to use a traditional debt-style financing, the weighted cost of capital received for the project, if any capital were 36 BIOMASS MAGAZINE | NOVEMBER 2012

PROJECT FINANCE¦ received at all, would have been around 18 percent (almost 10 percent higher than that achieved by Stern Brothers for the Lake Providence project). “That is a very high cost of capital, certainly for a first of its kind plant,” he says. If the success of Myriant’s Lake Providence facility, or others who’ve worked under the guidance of May on bioenergy installations isn’t enough to prove why bond-based financing is the new normal for project finance, then Gatto’s future expansion plans should. “We will not change our financial structure regimen,” Gatto says, on plans for new plants. The company’s future regimen will include a third-party process evaluation that allows investors to see that the company can deliver what it says it will, and the regimen will also go to the $1 trillion bond market for financing, a place where typical regulations don’t exist and risk is welcomed. Although the complex nature of issuing a renewable-energy-linked bond placement might sound as if an aspiring company would need a previous relationship to work with May and his team, it’s not the case. May says he takes all calls from project developers, and is willing to pursue any type of bond-based project. The team is currently working on roughly 30 projects for 30 separate clients, the lion’s share of which, he says, are in the biomass industry. Over the next 18 months, he believes at least six deals will go through, ranging in size from $25 million to $250 million. Typically, at any given time, his team has at least two bond placements on the market. The life of a bond placement for a biobased company can be broken down into two parts. The first part involves a financial advisory relationship between a company such as Stern Brothers and the bioenergy firm. The first stage can last two to three months. The second part is the execution, when May sets up an online data room offering investors a chance to view a company’s profile, technology and overall risk. That step can take roughly one year. May and his team earn their compensation through monthly retainer fees and a placement fee that is paid when the bonds are sold to investors. The compensation can vary he says, but typically is based on

3 to 4 percent of the total amount of the bonds sold. For companies interested in pursuing a bond-based financing package but are worried about expiring loan guarantee programs, May says his firm is already developing, or has developed other credit enhancing tools like insurance guarantees for certain technology. May believes that over the next few years his travel schedule will not decrease, and his bondbacked strategy will continue to offer the best alternative to traditional debt-financing and in most cases, a better alternative. Comments

from Gatto also show just how important the first-ever biobased project in the U.S., and its ability to deploy a bond-based financing regimen, truly is for the entire industry. “The good news,” Gatto says of his Louisiana plant, “is that the construction will be completed shortly. Not only do you prove to investors that the plant and the operations are viable, but you have effectively de-risked your second plant.” Author: Luke Geiver Features Editor, Biomass Magazine (701) 738-4944 lgeiver@bbiinternational.com

NOVEMBER 2012 | BIOMASS MAGAZINE 37

ÂŚBUSINESS

GREENER PASTURES: Utilizing third-party biodigester ownership models can reduce waste and increase profits at dairy operations. PHOTO: USDA

38 BIOMASS MAGAZINE | NOVEMBER 2012

BUSINESS¦

Adding Dollars to Dairy The third-party ownership model offers dairy farmers a lowhassle, profitable manure management technique. BY ANNA SIMET

hen Robert Joblin and his colleague Ted Sniegocki started up Cenergy USA in 2006, the company’s first project was to obtain financing for a dairy digester. Though successful in finding a lender, the project didn’t go forward for a number of reasons. The experience was still worthwhile, however, as Joblin says he came to two realizations, one was that very little was known about the anaerobic digester industry. “A lot more data needed to be collected,” he says. The second realization was that if a different business model were used and a different financing method were implemented to fund biodigester projects, the industry could reach greater success. That approach was based on third-party ownership, a concept that the company has since built its business on. “We changed the entire economic structure [of digester business models],” Joblin says. Today, Cenergy’s clients include Fortune 500 companies, utilities, public institutions and private investors, and its first successful project—developed as part of AgPower Partners with Dean Foods Company and London-based Camco Clean Energy at Big Sky Dairy

NOVEMBER 2012 | BIOMASS MAGAZINE 39

PHOTO: USDA

¦BUSINESS

AD ADDITIONS: Dairy operations that add biogas installations can generate extra revenue without the typical hassle of ownership if a third-party model is employed.

near Gooding, Idaho,—recently received the Innovation Center for U. S. Dairy’s Sustainability Award for Outstanding Achievement in Energy. Cenergy is a partner in AgPower Group, which develops, owns and operates biomass projects, and recently completed development

of the largest dairy digester project in the U.S., a 4.5 MW system on a 15,000-head dairy near Jerome, Idaho. “One of the advantages of the way we have developed our business model is that we now have potential lenders who know it, under-

stand it, and are willing to consider financing a project based on it,” Joblin says. The third-party owner model is designed to take the burden off of the dairy producer, but still provides them with benefits that make it worth their while. AgPower Group, which uses a DVO Inc. mod-

We Turn Anaerobic Digester Wastewater Streams into Revenue Streams ;OLYTV,ULYN`»Z ;OLYTV (97 OPNO LMÄJPLUJ` HTTVUPH YLJV]LY` Z`Z[LT PZ HU \UILH[HISL VW[PVU MVY VWLYH[VYZ VM HUHLYVIPJ KPNLZ[LYZ ^OV ^HU[ [V IV[O JVTWS` ^P[O UP[YVNLU YLN\SH[PVUZ HUK YLJV]LY HTTVUPH HZ H ]HS\HISL WYVK\J[ ;OLYTV (97 YLJ`JSLZ [OL HTTVUPH PU KPNLZ[LY ^HZ[L^H[LY PU[V HTTVUP\T Z\SMH[L VY HTTVUP\T UP[YH[L MVY [OL WYVK\J[PVU VM ]HS\HISL MLY[PSPaLYZ HUK PUK\Z[YPHS WYVK\J[Z ;OLYTV (97 PZ LULYN` LMÄJPLU[ L_[YLTLS` YYVI\Z[ HUK JVTWHJ[ ¶ Z\P[HISL MVY L]LU Y\NNLK ÄLSK JVUKP[PVUZ YVI\ YV VI\ I Z[ HUK K JV JVTW TW WHJ HJ[[ ¶ ¶ Z\ \P[HI ISL MMVY VY L L]L ]LU U Y\ Y\NN NNLK NN LK K Ä ÄLS LK

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40 BIOMASS MAGAZINE | NOVEMBER 2012

BUSINESS¦

Opportunity on New York’s Dairy Horizon In order to keep up with the booming New York state Greek yogurt industry, there is a push for farmers in the state to increase herd sizes to fully capitalize on the yogurt-based opportunities. Sen. Charles Schumer, D-N.Y., recently announced a plan to help farmers do so, which involves working for a renewal of the federal 1603 Program to help farmers install biodigesters at dairy operations. The 1603 Program expired at the end of 2011, having provided renewable energy projects with an upfront cash grant in lieu of the Section 45 production tax credit and Section 48 investment tax credit. Before its expiration, 1603 helped fund more than 24,000 renewable energy projects across the U.S. The bulk of those projects may have been in the wind and solar sector, but 46 biomass projects funded received a combined total of $171.3 million, and five of them were diary digester projects in New York. According to data released from Schumer’s office, under newly proposed CAFO (Concentrated Animal Feeding Operations) regulations for New York announced in August, 4,455 dairy farms with fewer than 200 cows could increase their herds by at least 100 head to better meet the demand for milk fueled by the growing Greek yogurt industry. Adding more cows to dairies would

ified plug-flow digester technology, can make the development process much easier for a dairy farmer, who is usually unfamiliar with how the process works, and doesn’t have the time required to develop and operate a project. Additionally, an experienced third-party owner may have established a good reputation in the finance community, which is invaluable when it comes to funding a project. “It doesn’t require investment by the dairy; nor does it require the dairy to guarantee the loan,” Joblin explains. “At the same time, they experience a drastic reduction in manure management costs, gain superior bedding for the animals, are helped with environmental compliance and make a little bit of cash flow from the project.” In turn, AgPower benefits from the sale of electricity, carbon credits and renewable energy certificates, if the state has a renewable portfolio standard. Lauren Toretta, vice president of CH4 Biogas, says that initially, the potential owner of the project needs to achieve an understanding of the dairy’s current manure management system and needs, as well as their long-term engagement requirements in this type of project. “Basically, these are components of an overall

mean more manure and additional disposal methods. That’s where digesters come into play. For example, CH4 Biogas has at least three projects in New York under active consideration, all of which would be put within reach with a 1603 renewal. If the CAFO regulations were passed, smaller farms could add more cows without having to face mandatory expenses that farms with over 200 cows currently do. These costs are often the deciding—and inhibiting—factor for whether a dairy farm will expand, and Schumer said numerous upstate New York farmers have expressed their intention of growth now that the aforementioned impediment has been removed. Along with expansions, Schumer said he will push for the development and construction of additional biodigesters. “Upstate New York dairy farms must grow to meet new demands for milk and Greek yogurt, and that means one thing’s for certain: more biodigesters are key to accommodating the larger herds that will soon be grazing New York’s pastures,” he said. There are currently 20 biodigesters across upstate New York, from Rensselaer to Chautauqua, ranging in size from digesters supported by a herd of 350 cows to operations with 3,500 cows.

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¦BUSINESS feasibility and profitability assessment,” she says. “Once that’s complete, assuming that it’s viable, the siting, permitting, design and construction begins.” CH4 Biogas recently completed a 1.4 MW biogas plant at 2,000-head Synergy Dairy in Wyoming County, N.Y., one of the leading dairy production regions in the U.S. It takes in about 425 tons of waste per day and is the largest on-farm anaerobic digestion project in the state. The dairy’s involvement, once a company such as AgPower or CH4 is committed to the project, is quite simple: continue business as usual with the same number of cows, provide manure to the digester and continue to take back liquid effluent, all without having to worry about operating the digester system. “We do the rest,” Joblin says. Once operating, the AD systems are run by a combination of remote and on-site techniques. “Our biogas system is run and monitored by SCADA (supervisory control and data acquisition) for remote control and oversight, but there are two employees there who handle the daily operations on-site,” Toretta says. “We have additional remote support through our Danish partner who monitors SCADA, and provides problem solving and expertise to our on-the-ground team.” In AgPower’s case, it contracts a company to operate the project for them. Since starting its third-party biogas business model approach, lessons have been learned in the wake of finished projects. In Joblin’s case, he says there have been several.

Lessons Learned For Joblin, the first lesson is that state regulations—California, for example—can make or break a project, no matter the need for the dairy or the economics of the project. But, no project is the same. “While we have tried to create a cookie-cutter structure, every project is different and will have its quirks,” he says. “That impacts the economics.” Another take-away is that while a digester has benefits that make them worthwhile—including a little extra revenue for the farmer— sometimes expectations for revenue are unrealistic. “Many farmers mistakenly think our project will be a cash cow for their dairies, and that never happens,” Joblin says. With recent changes in government support—such as the 42 BIOMASS MAGAZINE | NOVEMBER 2012

PHOTO: CH4 BIOGAS

BUSINESS¦

ALL SEASON LONG: Dairy operators using a biodigester need to understand the long-term requirements of the project before engaging with a thirdparty like CH4 Biogas or AgPower Partners.

loss of the ITC grant program and sharply reduced wholesale energy prices—Joblin says these kinds of projects can no longer be financed on power purchase agreements. “The potential post-digester revenues will make or break a project,” he explains. “[The industry] has to develop better markets for fiber, nutrient and coproducts such as algae and greenhouse operations.” As for the coming year’s prospects, Joblin believes these projects will be harder to finance based on the dairy industry’s current struggles, and the need for potential third-party owners to know clients will be around for the long haul. “We must be assured one way or another that the dairy will be in operation for as long as our project is,” he says. “Falling power prices may also add to the struggle.” Overall, the core of third-party ownership project models requires one major factor for success, however. “Having a good partner, and a division of labor,” Toretta says. “It’s a very symbiotic relationship—we work closely with the farm and farmers, but each of us is able to focus on what we do best. Our individual successes are linked, so our goals are aligned.” Author: Anna Simet Contributions Editor, Biomass Magazine (701) 751-2756 asimet@bbiinternational.com

NOVEMBER 2012 | BIOMASS MAGAZINE 43

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