Enabling Expansion

Project finance, scale-up hot topics at California biomass event
By Erin Voegele | January 30, 2012

In January, more than 300 members of the biomass industry met in San Francisco to network, conduct business and learn about new achievements in regional biobased economy. The 2012 Pacific West Biomass Conference & Tradeshow attracted a wide variety of professionals representing the biofuel, biochemical and biopower sectors.

Project finance and investment were strong themes at this year’s event. Bill Lemon, senior vice president of investment banking at Source Capital Group Inc., spoke to attendees about the importance of seeking out the right type of investor at each phase of a company’s development. For example, he said that debt investors are not going to want to invest in a risky project, even if the technology has the potential to be hugely successful. This is because the potential payoff is not big enough to offset the potential risk as the debt inventor will only recoup principle and interest no matter how successful the project becomes.

Technology risk is not the only risk investors in the biorefining industry must face. John May, managing director at Stern Brothers and Co., pointed out that feedstock related risks are also huge. Biomass feedstock is the bane of investment bankers, he said, because volatile or rising feedstock prices can severely impact the margins of a developer. 

Financial investors are not the only mechanism available, however, to support the scale-up of biorefining projects. Strategic investors can offer many advantages above and beyond financial support. During a breakout session at the conference, Eric Darmstaedter, president of ClearFuels Technologies Inc., spoke to attendees about the partnership his company formed with Rentech to scale-up its unique gasification process.

ClearFuels was ready to scale-up to demonstration-scale production in 2009, but lacked the capital to do so, Darmstaedter said. Rentech, which is now the majority owner of ClearFuels, signed on as a strategic investor, allowing the project to move forward. Darmstaedter said it turned out to be a great match. “Being able to co-locate at an existing facility saved us a lot of time and money,” he added. “They have a strong balance sheet, which is helpful. They had experience operating and had scientists, engineers and technicians who understood what we were doing.” As a result, a 20 ton per day demonstration plant was completed in November.

—Erin Voegele