It is easy to understand the due diligence required to prove a new technology before a commercial scale project can obtain financing. Having a long-term offtake agreement with favorable terms is another box that has to be checked. But many project developers and technology providers in the biofuels, biochemical and bioproducts space underestimate the efforts needed to de-risk the feedstock supply as a critical element of project finance.
In the early stages of developing any new technology the lab – bench – demo progression of the technology is the key focus. Only when the private equity partners or bond underwriters say we can’t finance your project without a guarantee of a reliable, consistent, industrial quality feedstock does the appropriate amount of attention go into the development of feedstock supply. In many conversion processes, feedstock costs can be over half of the operating cost of a commercial scale facility. A fact that validates the capital market’s insistence on proving the reliability of the biomass supply.
Most projects have a component of debt and a component of equity financing, with the debt portion sometimes being supported by programs of the USDA, DOE or other agencies that might provide grants or loan guarantees to be used in conjunction with bond issues or bank financing. Equity can come from industry partners, institutional sources or a local group of project supporters. Agencies such as USDA, with its Biomass Crop Assistance Program, have recognized the challenge and importance of financing the early stages of the feedstock establishment. The program also acknowledges that the biomass supply chain generally requires long lead times to establish. This requires the financing to be available early in the project cycle. Fortunately, biomass establishment timelines frequently coincide with engineering and construction timelines for the conversion facility. The financing of the biomass supply chain can occur within the project finance structure or separately as more reliable bankable suppliers develop.
Genera Energy was the first to focus its efforts on the development of a world class fully integrated biomass supply chain in order to de-risk a projects feedstock supply and give the financial community the confidence to underwrite these leading edge projects. Contact us to find out how we can provide our services to your project and make feedstock risk a thing of the past!
By Barry Davis, CFO
