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BTEC webinar delves into biomass project financing

By Anna Austin | June 29, 2011

The development or timeline cycle for a biomass project is typically three or more years, according to Greg Montgomery, managing partner at Abundant Power, a financial services company.

Financing for each project stage is different, comes at different times, and includes development capital, construction capital, permit capital and operations capital. “Biomass project financing is a technique that is used to finance capital-intensive projects that are either difficult to support on a developer’s corporate balance sheet, or are more attractive when financed separately,” Montgomery said.

Montgomery was one of three presenters during a free Biomass Thermal Energy Council webinar held June 29 and titled Biomass Thermal Finance: Options, Steps and Resources for Biomass Project Development.

There are several different components to project financing, according to Montgomery. The project itself is the centerpiece. “You have many different parties involved in the transaction, including the developer who puts the project together, debt financer, off-take energy purchaser, operator, EPC (engineering, procurement and construction) contractor, feedstock supplier and tax equity providers. All are parties to the project, and each is taking different risks.”

For plant construction, a developer should choose an EPC firm that is reputable and will give performance guarantees, including construction scheduling for bringing the plant on-line, Montgomery said. That’s also important when choosing an operation and maintenance entity. “They should have a track record that includes the technology involved, and be able to stand behind guarantees relative to the operation.”

A power purchase agreement (PPA) can be the key to biomass project financing, from Montgomery’s perspective. “There are two sets of different objectives to be addressed in a PPA to make the project financeable,” he said. “From a utilities standpoint, they want to see milestones on construction. If they aren’t done they’ll want delay damages. They want a guaranteed commercial operation date and certainty of delivery of agreed energy quantity.”

On the project development side, developers want force majeure relief on liability, a stable cash flow, no damages if milestones other than completion date are missed, caps on delay damages, avoiding of security postings and an escalating price over time. “You want the PPA contract to be as long as possible,” he added.

The next webinar presenter, New Hampshire-based Merrimack Valley School District’s Facilities Director Fred Reagan, spoke about the school’s experiences with the financing, construction and savings of a biomass heating system.

The 5 million Btu Messersmith boiler is in a standalone facility with one stack. It heats the high school, middle school, superintendent’s office and a bus garage via piping, Reagan said. “This past heating season we payed $50 per ton of wood chips, which equaled out to paying about 82 cents per gallon of oil. We burnt 511 tons of wood chips this year and it cost us $25,550.”

The system averages a yearly savings of about $52,000, he added. It cost about $1.5 million to build, compared to the original gas boiler that cost $925,000. “The price difference between the two was about $575,000, so we needed to come up with that. We received 55 percent building aid toward the cost of the project; district taxpayers were responsible for the remaining $258,000.”

The tax bond was approved by taxpayers with 74 percent approval, and Reagan said he believes that number was so high because taxpayer’s questions were answered well in advance of the district’s annual meeting. “They were very well-informed,” he said.

Of the biomass heating system overall, Reagan said it is easy to run and maintain. “We were a little nervous going into it, but it’s a very simple process, and repair maintenance and mechanical issues are minor. We’ve only been down about 10 hours in five heating seasons.”

The final presenter was Dan Kuipers, managing partner at Sustainable Energy Financing LLC. The webinar was moderated by Joseph Seymour, who is the program coordinator policy and government affairs for the BTEC. It was the seventh in a series of webinars hosted by the BTEC and funded in part by the USDA’s Wood Education and Resource Center.

All seven of the webinars are posted in full on the BTEC website at www.biomassthermal.org.

 

 

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