For Better Results, Forget About the Money

Financing a bioenergy project in the midst of today's Euro Zone market whirlwind and the continuing saga of another Moody's bank downgrade announcement highlights what has become a confusing, yet simple truth about renewable energy project finance.
By Luke Geiver | June 27, 2012

Financing a bioenergy project in the midst of today’s Euro Zone market whirlwind and the continuing saga of another Moody’s bank downgrade announcement highlights what has become a confusing, yet simple truth about renewable energy project finance: it’s not about the money.

When we cover the way a biogas project in New York state, or a woody biomass-to-fuels pilot plant in Tennessee is ultimately paid for, we write about power purchase agreements, strategic partnership funding or off-take contracts, all elements of project finance that need to be addressed before any money changes hands. Please, if you or anyone you know has financed a project by visiting the local bank, signing a loan agreement that includes a reasonable interest rate and tenure, without having the previously mentioned elements figured out, I would love to know about it.

What I hear when I talk with people who are seeking project finance help or helping those who need it, is what most people already know. Banks (and that includes all sizes from Goldman Sachs to the local State Bank and Trust) need to have more money on hand than in the past, while taking on less risk when they do loan. Because of this, project finance today I would argue, means presenting the most complete project at the time of the funding request including secured off-takes, established feedstock providers and reliable technology. But that’s not all. Project finance is also about presenting the most all-encompassing view of why and how a project’s impact is worth the risk of money and time spent.

A proposed 35 MW biomass power plant in Vermont is a great example of a project development team that seems to be focused on creating that “all-encompassing” project, one that clearly shows any time or money spent by funding agencies or taxpayers will be worth the risk.

To start, Weston Solutions, an environmental consulting firm and partner on the project, has already used an open-hour on-site question/answer period to transform the initial plant designs, adapting regional elements (a single water source for the entire community) to improve the plant designs.

Next, the developers have put forth nearly $400,000 to help reduce wood-stove air emissions created from local users. The money will help replace current users of wood-stoves that contribute to the region’s smoke inversion dilemma. Then, to add to the solution of less water usage in the region, the developers purchased an unused 750,000 gallon water tank from the local community to capture rain water off of the massive roof of the proposed site. For the other residents of the industrial complex where the biomass facility will be located, the developers will create a thermal loop, providing those businesses with access to cheap heat ($10/MMbtu delivered), and, for the residents of the surrounding community, the facility has already committed to supplying 5 million Btu’s per hour of heat (all free) in the winter through a residential heating system.

Of course, this project is about the money and the return on investment for those involved, but it’s also about the impact to the economic well-being of the region. As one would expect, Dan Ingold, senior technical director for the project, is excited about this endeavor. But here is the best part. During those open-hour sit-down periods when people from the community could ask questions to Ingold himself, he said the number one question people had was about the number of jobs created (400 during construction, 160 permanent). The response from the people shows why project finance is also about creating a regional presence, in this case a presence linked to job creation. According to Ingold, “We have a bunch of people who have already put their application in.” What bank wouldn’t want to hear that?