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Biofuelsnews

The Art and Science

of Bioenergy Project

Financing

Louisiana, to produce ethanol from agricultural

residues (see Biofuels News vol. 1, no. 4, p. 1). BCI successfully combined significant equity (some from its

principals, some from private investors, some from

DOE); good business sense; varied technological expertise; and entrepreneurial energy to launch this $90 million project. It garnered the talents of The Industrial

Company, a well-respected engineering firm, to guarantee its processes and equipment. With all this, BCI was

able to obtain essential debt financing from Prudential

Insurance to complete the renovation by the year 2000.

During 1999, Arkenol, a technology company based

in Mission Viejo, California, plans to begin building a

new biomass-to-ethanol plant near Sacramento. The

plant, which will use rice straw as a feedstock, will be a

stand-alone unit. Arkenol hired Bateman Engineering to

be the engineering, procurement, and construction contractor and provide the guarantee for the process. DOE

has signed a $4 million dollar contract to fund the engineering, permitting, and various financing activities for

the project. According to Michael Fatigati, project development director, an ethanol purchase contract with a 

Volume 2, Number 1 Winter 1999

“If we knew what it was we were doing, it

would not be called research, would it?”

Albert Einstein 

“A billion here, a billion there, pretty soon

it adds up to real money.” 

Former Senate Minority Leader 

Everett Dirksen (R-IL)

page 1

Financing bioenergy projects, which cost $5 million to

$150 million (or more), is not for the fainthearted. Companies wanting to launch a biomass-to-energy conversion

technology business have to prove to potential financiers

that the technology is sound and profitable. This is especially true for bioethanol producers.

The idea of high risk project financing took hold some 50 years ago in the

power generation industry. It has since

become quite commonplace in industries such as bioenergy that generally

do not have substantial balance sheets

because it helps with high capital costs

and project management. Today, the

bioenergy business, and particularly

the bioethanol industry, is using investment capital to compete and expand

their role in an oil dominated market.

The “Big Three” Biomass 

Companies 

In October 1998, BC International

(BCI), a relatively small technology

company, dedicated a former

molasses-to-ethanol plant in Jennings,

“Arkenol plans a $100 million plant that will make 8 million gallons per year of

ethanol and 40 million gallons per year of citric acid. The company plans to solve

the problem of rice straw’s high silica content by co-producing precipitated silica.”

Michael McCoy, “Biomass Ethanol Inches Forward,” Chemical & Engineering News, December 7, 1998, pp. 29-32

continued on page 2
page 2

Printed with a renewable-source ink on paper containing at least 50% wastepaper, including 20% postconsumer waste.

large regional refiner is close at hand, as are equity and

debt financing from Enron Capital, and other funding

from Prudential.

Masada Resource Group, based in Birmingham,

Alabama, plans to develop a $130 million waste disposal/recycling facility in Middletown, New York. On

the front end, it will recycle plastics, glass, metal, and

wastepaper. It will also use fermentation techniques to

turn wastepaper and other cellulosic material into

ethanol. The surrounding municipalities will pay

Masada to accept its municipal solid waste, and will

share in the profits from the ethanol sales. Stone & Webster Canada, Ltd. (Toronto) is guaranteeing the

processes for this project, which is planned for startup

by the year 2000.

Financing—Making a Convincing Case

The technologies for converting biomass to ethanol

have very high capital costs relative to revenue projections; therefore, they

pose quite high financial risks. Their advocates need to not only

defend the technological validity of a product or process, but—

just as importantly—to

present solid arguments for its financial

soundness. Also, a

lender looks for good

business sense and

experienced personnel. A bank will want to see operations and maintenance contracts and key staff resumes,

and will need to be made aware of any operations or

maintenance issues. It will also need to know that the

engineering firm guaranteeing the processes is very 

reputable. 

Before committing money to a project, a lender will

have its own engineers assess the technology, and independently determine the viability of the target market.

Some questions the lender will ask are: Who is supplying the feedstock...how much...for how long? Who is

buying the product...how much...for how long? What

are the unit operations? What is unique about this technology? Who guarantees that it will work? What kind of

money will it return?

A company should complete four key steps before it

can expect to obtain financial backing:

1. Enter into feedstock contracts. A company must

look for opportunities to obtain feedstock at the lowest

possible cost. This helps determine the plant site, which

should be less than 100 miles (preferably less than 50

miles to minimize transportation costs) from the feedstock. Feedstock suppliers should be able to guarantee

the supply of the feedstock for a specific length of time

related to the financing term.

2. If possible, site the plant next to a biomass or 

coal power plant with an economical supply of process

steam. This way, the ethanol plant can buy low-grade

process steam and electricity from the power plant and

avoid the capital costs for on-site steam and electricity

generation.

3. Establish off-take contract guarantees with vendors interested in ethanol. The lender will need to know

that the revenue from the product and coproducts will

at least equal the amount of debt that is financed. Here

too, the lender will favor a contract that is long-term

(related to the financing term) and available

from a vendor with a

proven track record.

The contract will typically refer to a floor

price with provision for

escalation over time.

Any alternative is not

considered financeable.

4. Obtain a guarantee from the technology

supplier or constructor

that the technology will produce ethanol in the quantities and quality necessary to meet the contract requirements. In order to reduce the total risk of a project, the

lender will seek a “deep-pocket” for recourse should

something go wrong with the technology. Efficacy insurance may be available, at a significant cost, to offset

some of the risk to the lender’s money.

The process is complex, and a bioethanol project may

take years from conception to completion. But these

technologies are worth the effort. After all, the production and use of bioethanol can enhance this country’s

economy, improve its environmental outlook, and

strengthen its energy security.

The Art and Science of Bioenergy Project Financing (continued)

For more information contact an engineering and construction company, ethanol development and producing company, or venture capitalist.

“Some questions the lender will ask are: Who is 

supplying the feedstock...how much...for how long?

Who is buying the product...how much...for how

long? What are the unit operations? What is unique

about this technology? Who guarantees that it will

work? What kind of money will it return?”

Michael Fatigati,

project development director, Arkenol
Regional Biomass Energy Program Manager

Michael Voorhies; phone, 202-586-1480; 

email: michael.voorhies@ee.doe.gov

The Regional Biomass Energy Program (RBEP) is a

national effort administered by the Office of Fuels

Development (OFD), and implemented through five

regional programs. It strives to match local biomass

resources to local energy needs. Program objectives are:

• Improve state and local government, and industry capabilities and effectiveness in bioenergy production and use.

• Support resource availability and planning efforts.

• Encourage economic development through bioenergy technology investment.

• Accelerate market acceptance of bioenergy technologies

by reducing or eliminating market barriers and understanding economic and environmental costs and risks.

Each regional program works both independently and

jointly to focus on goals that reflect the unique aspects of

its geographic region. To help further this work, DOE’s

Office of Transportation Technologies (OTT) is making

available $1 million in additional funding in 1999. The

money is being allocated through a competitive process

that involves the individual RBEPs submitting proposals

to OFD. Several proposals have already been funded.

The Northeast Regional Biomass

Program (NRBP) is run by the

Coalition of Northeastern Governors and the Council of Great Lakes

Governors. Rick Handley, program

manager for NRBP, said, “We are creating a network of technical experts to

educate the regional biomass board

members so they can better understand current projects

and industry developments, which can provide benefits

to their state, region, and country.” NRBP proposed a

$50,000 project to promote public support for new biomass-to-ethanol plants in the Northeast. A qualified consultant will research and prepare a white paper on

biomass-to-ethanol technology, its current and projected

contribution to fuel supplies, the need for state-supported

credit assurance, and the external economic and environmental benefits that would arise from such investments.

This research could be applied to other geographic areas

as well. For more information, contact Richard Handley, Northeast Regional Biomass program manager, at 202-624-8454;

email: nrbp@sso.org; or visit the website: www.nrbp.org.

The Southeast Regional Biomass Energy Program is managed by Tennessee Valley

Authority. It proposed a

$200,000, multi-year workshop

program that will involve all five

regions. Each state-level workshop

will target energy, agricultural,

environmental, and economic

development agencies and will involve community leaders, state legislative committee leaders, and the general

public. The workshops will include presentations about

biofuels used as octane enhancers or in blends, the economic and environmental benefits of biofuels, and available vehicles. Primers and other publications will also be

distributed at the workshops. The goals are to educate

state and local governments and other interested parties

about the potential of biomass in their states. For more

information, contact Phil Badger, Southeast Regional Biomass

Energy Program manager, at 256-386-3086; email: pcbadger@

tva.gov; or Warren Zurn, Southeast Regional Biomass Energy

Program administrator, at 404-347-1047; email: warren.

zurn@hq.doe.gov. 

The Pacific Northwest and Alaska

Regional Bioenergy Program

(PN&ARBP) will coordinate biodiesel and ethanol projects

with the DOE Clean Cities

Program on the Green

Fuels and Clean Parks Initiative. The goal of Clean Cities is

to help the National Park Service

(NPS) adopt and use alternative fuel vehicles. The goal

of the PN&ARBP is to increase the awareness and use of

biofuels in the national park system. The program will

work with the NPS to select four to eight national parks

for funding transportation-related activities and demonstrations. A workshop will be conducted for NPS staff to

identify and resolve transportation issues and to garner

support from NPS managers who wish to participate in

public outreach activities and demonstration projects.

Also, a program to work with surrounding communities

to increase the use of biofuels in transportation corridors leading to the national parks will also be available.

Finally, the program will provide technical assistance,

evaluate progress, and prepare and disseminate information to the public and to other national parks via

print, television, and on-line media, as well as additional conferences and workshops. For more information, 

IN THE SPOTLIGHT

Diversity—

Key to the RBEP’s 

Success

page 3

continued on page 4

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National Renewable Energy Laboratory

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Golden, CO 80401 

page 4

DOE/GO-10099-698 For more information, contact the National Alternative Fuels Hotline at 800-423-1DOE.

Produced for the National Biofuels Program, Office of Fuels Development, U.S. Department of Energy,

1000 Independence Ave., S.W., Washington, D.C. 20585-1121. 

contact Jeff James, Pacific Northwest and Alaska Regional Bioenergy Program

manager, at 206-553-2079; email: jeffrey.james@hq.doe.gov.

Other projects are under way in the other regions.

The Great Lakes Regional Biomass Energy Program

(GLRBEP), for example, is focusing on using waste

sugar (abundant in the beverage and confection

industries) as an alternative to traditional feedstocks. It will examine the availability of the feedstock, the feasibility of blending it with corn, and its

profitability for ethanol production. Other projects

include research using ethanol production wastes as a surface de-icer and

the use of E85 and E95 in light- and heavy-duty engines. For more information, contact Fred Kuzel, Great Lakes Regional Biomass Energy Program manager, at 312-407-0177; email: fkuzel@cglg.org or visit the Council of Great Lake

Governor’s website at www.cglg.org.

The Western Regional Biomass Energy Program

(WRBEP) is managed cooperatively by the DOE

Golden Field Office and the Nebraska Energy Office.

This 13-state region has numerous projects under

way that seek ways to use feedstocks such as

forestry wastes, municipal solid wastes, soybeans

and other oil-based feedstocks, and rice straw to

produce biofuels. For more information, contact Dave

Waltzman, Western Regional Biomass Energy Program

manager, at 303-275-4821; email: dave_waltzman@nrel.gov; or Jeff Graef, Western Regional Biomass Energy Program administrator, at 402-471-3218; email:

jgraef@mail.state.ne.us; or visit the website at www.westbioenergy.org.

Diversity—Key to the RBEP’s Sucess (continued)

DID YOU KNOW?

Upcoming

Conferences

and Events

21st Symposium on Biotechnology for 

Fuels and Chemicals

May 2-6, 1999, Fort Collins, CO

Contact: Liz Willson, 303-275-4457

www.nrel.gov/biotech_symposium

The National Marketplace for the Environment 

May 3-5, 1999, Anaheim, CA

Contact: Mark Merson, 800-334-3976 

President’s Council on Sustainable 

Development 

May 3-5, 1999, Detroit, MI

Contact: Mark Merson, 800-334-3976 

Canada’s Energy Efficiency Conference

May 18-20, 1999, Ottawa, Canada

800-342-7146 (North America) or 

613-233-5773 (Ottawa area)

www.ethanol.org

Fifth National Clean Cities Conference

May 23-26, 1999, Louisville, KY

Contact: Clean Cities Hotline 800-CCITIES

www.ccities.doe.gov

15th Annual International Fuel Ethanol 

Workshop and Exposition

July 22-25, 1999, Cedar Rapids, IA

Contact: Bryan & Bryan, 719-942-4353

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