When developing biomass feedstock projects, there is one area that challenges the project through completion&mdash;feedstock supply and pricing. In some biomass electricity projects, the feedstock is compared to a fuel such as coal, for which risk is minimized by long-term contracts with large companies.&nbsp; There are multiple sources of coal, and large producers reduce or minimize counterparty risk.&nbsp; The energy in coal, or Btu that can be extracted, is typically within a predictable range. Assuming adequate supply, key factors in sourcing feedstock are energy density and price.&nbsp;
Feedstocks that are produced for fuel tend to have more predictable energy densities, but also have higher pricing and production profiles.&nbsp; Many feedstock projects focus on waste feedstock because they are paid to take it or pay a low cost, and that can drive profitable projects.&nbsp; In financing such a project, there is a higher risk that needs to be addressed, related to production for an alternate purpose, lack of contractual consistency, price escalation for transportation and handling, and price risk, if there is competition for the waste.
 A number of projects designed around feedstock waste streams have not been financed due to waste feedstock risk. Commercial waste for feedstock sourcing carries the inherent risk of no supply if the producing industry changes, as happened with housing market production and its construction waste.&nbsp; To counter that risk, some projects have sought consistent supplies through municipal wastewater and solid waste.&nbsp; While those waste streams require processing to become useful feedstocks, the constant supply of no-cost or low-cost feedstock can be contracted with little risk of the waste-producing industry failing. Further, as the use for the waste becomes more developed, brokers enter the market to capture supply and margin.&nbsp; While most recently discovered feedstocks carry some of that risk, the waste feedstocks can be more volatile in supply and price.
 Biomass feedstock projects can be financed when the risk is approached strategically, with awareness of:
 Multiple Feedstock Sources. Multiple sources of the same type of feedstock and different sources of different feedstocks reduce supply and counterparty risk.&nbsp; Feedstocks tend to have seasonal variances in availability and price that also should be addressed.
 Processing and Output Capacity for Different Blends of Feedstocks. Tests should be performed and data collected on different feedstock blends and the impact, if any, on output capacity. Counterparty Risk. The feedstock sources and providers, including the industry that provides the feedstock.
 Impact of Regulatory Requirements. Regulatory issues concerning the source, handling, and storage of the feedstocks as well as the regulatory requirements that apply to the use of the feedstock. Feedstock Requirements. For acceptable processing, the feedstock must meet the regulatory and processing requirements to produce the output capacity.&nbsp; Standards or requirements should be set that can be measured against the available supply.
 Developers should be prepared for financiers to expect third party review and reports addressing the various risks of feedstocks.&nbsp; The following should be considered:
 Feedstock Supply Agreements. At a minimum, use a form of purchase agreement acceptable to feedstock providers that sets out the feedstock requirements or standards, as well as remedies for not meeting the standards.&nbsp; For example, the presence of hazardous substances will likely cause rejection of the feedstock, but higher moisture may cause a price discount instead of rejection.
 Feedstock Resource Assessment. A third-party assessment describing the availability of the feedstocks will need to be prepared, including competition for the feedstocks and pricing information. Fuel Management Plan. A plan or agreement with a third party will be required, which will describe how the various feedstocks will be procured, handled and stored, and the working capital necessary to maintain a high-quality fuel supply.
 Pricing Collars or Guarantees. Ultimately the best plans may not cover the perceived risks of feedstocks.&nbsp; Project developers should contemplate fixed-price guarantees or price collars (high-low) under which the project can be operated.
 Many financing sources require a higher degree of project risk reduction.&nbsp; Feedstock projects should develop a focused approach to reduce the perceived risks relating to the feedstock, its providers, and long-term pricing.&nbsp; A strategic approach with properly negotiated agreements can cover many perceived risks. Author: Mark Hanson Partner, Stoel Rives LLP (612) 373-8823

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Financing of Feedstock Supply

Covanta appoints Waffenschmidt to advisory council Covanta Energy Corp., owner and operator of numerous waste-to-energy projects, appointed John G. Waffenschmidt, vice president of environmental science and community affairs, to the Product Stewardship Institute Advisory Council. The council advises PSI on reducing the health and environmental impacts throughout the life cycle of a consumer product. As the vice president of environmental science and community affairs at Covanta Energy, Waffenschmidt is responsible for building community outreach strategies, reducing waste stream toxicity under Covanta&rsquo;s Clean World Initiative, developing environmental justice policies and working with various academic and NGO organizations. He also serves as a member of the Pennsylvania Environmental Justice Advisory Board and the Regional Plan Association, Long Island chapter.
 SCS is first U.S. ISCC certification body Scientific Certification Systems is the first certification body in the United States to be accredited by the International Sustainability &amp; Carbon Certification system. SCS has been approved to conduct biofuel certifications, as well as ISCC Plus certification for food, animal feed and derivative chemicals produced from any feedstock. ISCC certification qualifies biofuels sold into the European Union for recognition under the Renewable Energy Directive, which sets targets and minimum sustainability requirements for biofuel use throughout the EU. About 1,300 certified companies have already been certified under the ISCC system, making it one of the world's fastest-growing biofuel certifications. To earn certification, a biofuel must have a reduced carbon footprint as compared to the conventional fossil fuel it replaces. Biomass and biofuel production must also meet minimum social, environmental and traceability criteria.
 Turboden to provide ORC generators for two London companies Turboden, manufacturer of biomass fueled Organic Rankine Cycle turbogenerators, was awarded an order for a 1 MW ORC plant for British broadcasting group BSkyB and a 1.8 MW ORC plant for airport owner BAA, both located in London. Turboden has an ORC plant operating in France, as well an order for another 1.4 MW trigenerative ORC plant in Poland that will provide power, heat and cooling for a five-star luxury hotel. 
Barko Hydraulics acquires Norco assets Forestry and material handling company Barko Hydraulics LLC has acquired the assets of Norco Equipment Co. of Oconto Falls, Wis. The acquisition will enable Barko to significantly expand customer options in the forestry, bioenergy, recycling and right-of-way maintenance markets while complementing Barko&rsquo;s existing line of material handlers. Norco currently manufactures products under the Puma Equipment brand headquartered in Oconto Falls, Wis. Puma builds four- and six-wheel forwarders, track harvesters, processing heads, and firewood processors. In addition to Norco&rsquo;s Puma line, the company also offers a full line of wood processing equipment from hand-fed brush chippers, high horsepower whole-tree chippers and grinders under the Dynamic Manufacturing label. 
Martin Engineering introduces new return roller Martin Engineering has introduced a new return roller for its conveyor system technologies. The new design is a trackmounted, pivoting, return-side idler that allows service and replacement from one side of the conveyor. The Evo Return Roller&rsquo;s track-mounted assembly utilizes one-pin quick change functionality to make service fast and easy. As a result, the roll can be replaced by one person in less time, reducing the risk of injuries. Evo Return Rollers help improve safety and prevent injuries by minimizing suspension and heavy lifting, while reducing the time and resources needed for service or replacement. The return roller also features an integrated fine adjustment to completely square the belt. Return rollers can be employed anywhere there is belt sag on the return side of the conveyor, or in situations where there are seizing issues that require frequent roll replacement.

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Business Briefs

Hawaii currently supplies about 90 percent of&nbsp; its energy with imported oil at a cost of about $7 billion spent outside the state&rsquo;s economy. This makes Hawaii the most oil-dependent state in the U.S. The state is taking some major initiatives to try to change that.
 That includes S.B. 2785, which has passed the Hawaii House and Senate and is now awaiting the governor&rsquo;s signature. Once signed, the bill will allow for an inter-island undersea cable system that would connect the islands with power and high speed broadband. Right now, Hawaii has six relatively small and separate electric grids, which do not have neighboring grids to draw power from as do mainland utilities. The islands are already connected with many telecom cables, but no power cables. Unfortunately for Hawaiian ratepayers, when the price of oil skyrockets, so do electricity prices.
However, backers of S.B. 2785 believe that connecting the islands would allow the state to use more of its own renewable resources at fixed, predictable prices that won't be tied to the price of foreign oil. Based on similar cables elsewhere, Hawaiian energy officials project the cost to deliver power via an 80- to 100-mile cable to be less than 10 cents per kilowatt-hour (kWh) at 40 percent capacity. At a higher capacity, it drops below 7 cents per kWh. With low sulfur fuel oil at $135 per barrel, the cost of just the oil burned in oil-fired generators is 24 cents per kWh, according to the Hawaii State Energy Office.
 While investors and private developers would pay for the upfront costs, ratepayers would have to pay generation and transmission costs, but they would no longer have to deal with drastically fluctuating electricity rates.
 There is no question of whether the project will work, as similar projects have been successfully implemented in other locations, including the Baltic Cable that connects Germany and Sweden, which spans 155 miles and has a 500 MW capacity. In order for this whole scenario to effectively play out, however, the state&rsquo;s renewable energy industry needs to grow in a big way, and it seems as though it&rsquo;s on the right track.
 There are currently more than 20 biomass or biofuel projects in planning stages or under development on the islands, and they will use feedstocks such as algae, eucalyptus and municipal solid waste to produce products from biodiesel to renewable gasoline and jet fuel to renewable energy.
 Under development in Pepe'ekeo on the Hamakua Coast of Hawaii, HÅ« Honua Bioenergy has scored a 20-year, 21.5 MW power purchase agreement (PPA) with Hawaii Electric Light Co., and now just needs approval of the PPA by the Hawaii Public Utilities Commission. The company is converting a former sugar mill into a power plant, and will use locally grown biomass, including eucalyptus, as fuel.
 Another project well on its way to fruition is being carried out by Honeywell&rsquo;s UOP, Envergent Technologies and several other partners. The project will be implemented in two phases, with phase one already complete. At the integrated biorefinery in Kapolei, Hawaiian crops such as macadamia nuts and sugarcane will be sent through a rapid thermal pyrolysis process (RTP) and converted into a liquid biofuel.
 Located at the Tesoro Corp. refinery, the integrated biorefinery will be used to demonstrate viability of the RTP technology, test the fuels produced and evaluate the environmental footprint of the fuels and process technology. Dave Cepla, managing director for Envergent Technologies, says phase one of the project focuses on producing a direct substitution for heavy fuel oil. &ldquo;We will operate that phase for some period of time, and the second phase&mdash;engineering, which is ongoing&mdash;will upgrade the technology, probably beginning during the middle of next year.&rdquo;
 The fuel will then be upgraded into transportation fuels to produce a blend of gasoline, diesel and jet fuel, according to Cepla. Regarding feedstock, Cepla says the objective of the project is to produce a wide variety of biomass material native to Hawaii&mdash;grasses, some bagasse, certain trees&mdash;and some that are not indigenous as well. &ldquo;Are resources limited on the island? Certainly,&rdquo; Cepla says. &ldquo;There is only so much land mass. But we&rsquo;re working with commercial developers who are looking toward the future, looking at either acquiring or leasing land on a number of the islands to plant purpose-grown crops in a sustainable fashion. We believe there&rsquo;s enough land mass to be able to sustain a long-term commercial operation on the land.&rdquo;
 Cepla says most of the resources needed for the project requires capabilities not commonly found on the islands, so most are being shipped in. &ldquo;The Hawaiian Islands don&rsquo;t really have a heavy industrial presence, and so most of the skill sets needed from individuals and manufacturing facilities don&rsquo;t exist,&rdquo; he continues.
 Cepla says the project site was chosen for a number of reasons, but mostly because of the partners involved, particularly Tesoro Refining. &ldquo;They&rsquo;ve given us land space on which to build the facility, and that was an important element,&rdquo; he says. There are more partners, including the University of Hawaii, and to a great extent the project was driven by those partners and their location.
 Cepla adds that Hawaii is welcoming of projects such as this one. &ldquo;They&rsquo;re very dependent on bringing oil in, which is an expensive proposition, so they are heavily invested in trying to find alternatives,&rdquo; he says.
&mdash;Anna Simet

Beginning with Bio-Oil: Phase one of the integrated biorefinery in Kapolei, Hawaii, has been completed.

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Contemplating Connections: Hawaii already has an underwater telecommunication cable system.


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Hawaii strives to stabilize its energy prices with renewables

Aloha Biomass

Synergy Dairy is located in western New York&rsquo;s Wyoming County, one of the leading dairy production regions in the U.S. The 2,000-head farm is now the site of an important milestone for the state&rsquo;s biogas industry.
 It hosts a recently completed 1.4 MW biogas plant, which takes in about 425 tons of waste per day from local food processors, as well as the dairy&rsquo;s cow manure. Not only is the facility the largest on-farm anaerobic digestion (AD) project in the state, it&rsquo;s also New York&rsquo;s first biogas project specifically designed for codigesting animal and food wastes.
 It wasn&rsquo;t a simple feat, and the project almost missed the deadline for $2.8 million in federal energy tax credits, which would have resulted in its demise. Last fall, the power purchaser notified the project's owners that it would be unable to complete hook-up to the power lines until March, delaying startup and disqualifying the project for the tax credits. But with the help of Sen. Charles Schumer, D-N.Y., a strong proponent of renewable energy in the state, the project was able to get back on track and meet the deadline.
 A ribbon cutting ceremony was held in early April, followed by a grand opening in May, and since then, it&rsquo;s been smooth sailing for CH4 Biogas, which owns and operates the facility. With such a significant success story under its belt, the company is ready to offer its experience, services and advice to other farms looking to implement similar projects. Biomass Magazine discussed the project with Lauren Toretta, vice president of CH4 Biogas.
 Biogas projects seem relatively simple at a glance, but often take a great deal of time and effort to implement. What&rsquo;s the most difficult aspect of bringing an on-farm digester project to fruition? 
 Toretta: Financing and legal paperwork are the most difficult aspects. They are the most time-consuming&mdash;lots of moving parts and steps to keep organized and stay on top of, in order to get the financing finalized and the project moving forward.&nbsp;
 How much does a project like this one cost?&nbsp; 
 Toretta: Typically, the range is around $6 to 9 million. Financing and legal costs for our first project were over $1 million. We hope to reduce this on future projects by developing standard agreements.&nbsp;&nbsp;&nbsp;
 Let&rsquo;s talk feedstock. Aside from manure, where is the food waste coming from, and what kinds of contracts (if any) are in place?
 Toretta: The waste comes from local food processors. It is waste that would otherwise be landfilled or land-applied without treatment. Most of our contracts are short-term, 3 to 5 years.&nbsp; The bulk of our feedstock at Synergy Biogas is manure that is pumped directly from the barns.&nbsp;&nbsp;
 So it&rsquo;s a co-digestion plant.&nbsp; What&rsquo;s different about co-digestion than single feedstock?
 Toretta: The plant is designed to take in and process food-grade organic waste along with manure.&nbsp; The manure is the same from day-to-day in terms of volume and consistency, but the supply and consistency of the food waste is variable. The plant is designed to manage this variability and keep the digestion process (a biological process) running on an even keel. We have front-end receiving tanks to equalize deliveries, as well as grinders and debris traps. We can adjust the relative proportion of manure to food waste fed to the digester from hour to hour.
 What about permitting? What permits did you need, and were they difficult to obtain? 
 Toretta: Typically, there are local zoning permits and environmental permits, and state level air and waste/water permits. The air permits are linked to the engine emissions, which we have good data on through GE Jenbacher. In the case of Synergy, the permits were not hard to obtain. We followed the guidelines, provided documentation, and adhered to the filing and review procedures.&nbsp;
 The project generates 1.4 MW of power.&nbsp; Can you give us any details on your power purchase agreement (PPA)? 
 Toretta: Our plant is a participant in the regional power market administered by the New York Integrated System Operator, which allows us to sell electricity and renewable energy credits to counterparties in New York and New England. We work with a broker, Evolution Markets Inc., to find the best offer.&nbsp; We are currently negotiating a three-year PPA with a New England utility. In the meantime, the local utility National Grid is buying the electricity we generate.&nbsp;&nbsp;
 What makes a location a good candidate for a project of this size and scope?
 Toretta: When we think about an on-farm project, the most important thing is having a good partner. The Synergy dairy is well-managed and progressive. And size matters. We want a farm with at least 1,500 cows and a land base for handling the digested biomass. Next, we look at the availability of food waste in the area and the cost of interconnecting to the power grid. In some rural areas, the cost of interconnection can be prohibitive. Existing infrastructure needs can be a critical limitation to the siting of a plant and for general economic development.
 Has CH4 used a Jenbacher engine in existing projects? It seems they have a very good reputation and track record in the industry. 
 Toretta: For the size engines we&rsquo;re looking at&mdash;1,000 kW/h (kilowatts per hour) to 2000 kW/h&mdash;GE Jenbacher is the market leader in terms of efficiency and reliability. Our partner, Bigadan A/S, builds and operates biogas plants in Europe and is having good success with Jenbacher engines.
 &nbsp; How long, from beginning to end, did the project take to complete? 
 Toretta: From the time we close financing and can order equipment the construction period is less than 12 months. Synergy Biogas took nine months from groundbreaking to commissioning. The schedule is weather-dependent, but our facilities are modular, which makes site installation relatively quick.&nbsp;
Permits, zoning approvals, site design, construction budgets, feedstock agreements, power purchase agreements and loan agreements have to be in place prior to the start of construction. It can take several months of development work to get all these documents and approvals to bring a project to closing.&nbsp;&nbsp;&nbsp;
 What other projects does CH4 own/operate? Any similar to this one? 
 Toretta: Synergy is our first U.S. facility. Our partner, Danish company Bigadan A/S, has built 45 similar plants around the world, predominantly in Europe. We have several projects in development and plan to start construction on a facility in Ohio in July.&nbsp;&nbsp;&nbsp; Author: Anna Simet Contributions Editor, Biomass Magazine <a href="mailto:asimet@bbiinternational.com">asimet@bbiinternational.com</a> (701) 751-2756

DELIVER WHEN READY: Frontend receiving tanks are used to provide food waste or manure at an equalized level during the process.

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Along with its partners at Synergy Biogas LLC and GE Energy, CH4 Biogas recently commissioned the largest on-farm anaerobic digestion project in New York state.

Creating  a Biogas Empire

The first-to-market business strategy doesn&rsquo;t reward advanced biofuels or biobased chemical companies because the race to provide drop-in biofuel or renewable chemicals isn&rsquo;t about brand loyalty or opening a facility first, it&rsquo;s about a flawless production process.For Amyris Inc., considered at one time a leader in the race to commercialize renewable chemicals and fuels, that is a good thing. The company revealed earlier this year that it would reign in plans for production at two different facilities because of issues with biofuel production yields. For a company that has already gone public, formed major partnerships and proven that synthetic biology and the use of superbugs could potentially rank near the top of all fuels or chemicals production methods, the announcement was a setback for both stock prices and the assumption that if any company would succeed first, it would be Amyris.
 But don&rsquo;t worry; no giant names such as Microsoft Corp. or Samsung are fighting for brand loyalty in the bioenergy sector by a first-to-market strategy. Just ask Rob Stone, a technology generalist admittedly burdened with an overactive curiosity about everything. Stone, the managing director of equity research for financial services firm Cowen and Co., has been following the clean technology sector since 2005 to provide general investment insight for everything from solar arrays to catalytic hydrocracking methods and the companies that use them. &ldquo;Being first to market and establishing a brand has significance in end markets where it matters to grab consumer mind share,&rdquo; he says, citing iPads or Tablet PCs. But in an enormous, trillion-dollar market like fuels and chemicals, he adds, there is room for multiple players and, in fact, customers want more than one supplier to leverage price.
 In simple terms, for the majority, when we buy gas, we just want the physical product at the lowest price, regardless of the name that goes with it.
 Still, there are benefits of entering the advanced biofuels and biobased chemicals market more quickly than others, Stone points out. Those early entrants will be in a better position to gather additional capital for future expansions and other projects, he says. If the segment of early entrants is profitable, however, some financial backing will go to competitors.
 Technology Over Timing
 LanzaTech knows exactly what Stone means in more ways than one. When Range Fuels&rsquo; plan for an advanced biofuels venture in Soperton, Ga., failed, New Zealand-based LanzaTech pursued the advanced biofuels market using the shuttered biorefinery. Jennifer Holmgren, CEO of LanzaTech, notes that purchasing the plant made sense because of the existing infrastructure at the facility, as well as the opportunity to tap into the region&rsquo;s available wood basket. Entering the market first, however, holds little relevance to the company&rsquo;s goals, which strive more toward delivering the best possible product through optimal technology. &ldquo;Being first to market will present significant business opportunities,&rdquo; she says. &ldquo;However, this is really only the case if your product is able to really deliver. There is no sense rushing through a sub-optimal technology at the expense of being the first.&rdquo;
 In fact, for this industry, both Holmgren and Stone imply that more players in the market is better. &ldquo;We are fortunate to be working in a space where there are multiple players,&rdquo; she says. More approaches and more information, especially from failed ventures, provide companies like LanzaTech with more perspectives that help develop processes further, she added. But failed technologies or businesses are not the same as stalled or slowed ventures, she cautions. Because most companies in the sector are often painted with the same brush, she says, the failure of similar companies can attribute to a fall in confidence in the sector as a whole.
 Stone adds a different point of view, saying that if a technology or company in the sector works, a significant lift occurs in overall valuation for the entire market. &ldquo;That&rsquo;s why venture backers and other funders will end up funding a number of companies in the space,&rdquo; he says. Stone believes that that probability makes the advanced biofuels and biobased chemical sector appealing and interesting for investors. &ldquo;There are so many opportunities and the markets are so large and diverse.&rdquo;
 The bioenergy industry does represent a real opportunity, and not just because of the huge financial possibility, or the reality that being first to market doesn&rsquo;t apply. Stone says soon-to-be commercial advanced biofuel producer KiOR Inc. is a good example, with its work on southern yellow pine trees in Mississippi. The company is akin to a vertically integrated oil company that combines production, exploration and refining. Identifying a wood basket is like discovering a well that may never run dry, he says, and the technology of most advanced biofuel firms presents an interesting opportunity that traditional oil and gas companies cannot claim.
 &ldquo;If this stuff (technology like KiOR&rsquo;s) works, unlike an oil well, it will produce level output if not rising output,&rdquo; Stone says, attributing the statement to the fact that a better catalyst for a biofuel process can always be created and the process can be tweaked over the 40-year lifespan most plants will operate. With a traditional oil well, the start of the production process is high based on optimal well pressure, but will be depleted over time. An operation has to use more enhanced recovery techniques to produce the same amount of product because of falling output and higher recovery costs.
 So it seems as though following the leaders and learning from their mistakes might be the best strategy in the advanced biofuels and biochemicals sectors. Author: Luke Geiver Features Editor, Biomass Magazine (701) 738-4944 <a href="mailto:lgeiver@bbiinternational.com">lgeiver@bbiinternational.com</a>

RISE ONLY WHEN READY: For companies like LanzaTech, market entry should come after commercially proven processes, never before.

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TECHNOLOGY TITANS: Not only has Holmgren and LanzaTech planted roots in Georgia, the company has also formed partnerships with the number one and number three steel producers in China.

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MARKET WIZARD: As an equity research manager for a financial services company, Stone has to understand the magic of syngas or solar arrays.

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Being first on the scene is beneficial in many markets, but advanced biofuels may not be one of them. 

Forget First  to Market

In early June, I had the privilege of attending a tour of the Burgess Biomass Power Project in Berlin, N.H., sponsored by Babcock &amp; Wilcox, the engineering, procurement and construction contractor. I am sharing their story as an example of a biomass facility at the center of a revitalizing town&mdash;where the market and the local government have similar needs that are being met by biomass.
 At 75 MW, the project brings almost 500 jobs to a region of New Hampshire that's been hit hard by the economic downturn. This would not have been possible without a long-term contract for the power, negotiated between the developers and the local utility, Public Service of New Hampshire.
 It all began in May 2006, with the closing of a 150-year-old-plus paper mill. For most of the northern New Hampshire town's recent history, the mill had been the center of economic activity and&mdash;despite the mill's shrinking size as the dawn of the Internet decreased demand for paper&mdash;remained the top employer for the town of 10,000 residents, until the day it shut down.
 For several years, the lot that had been home to the historic paper mill remained empty as the town debated what to do with the land, and more importantly, how to restore the jobs that were lost with the mill.
 In 2010, after four years of debate during which the buildings and the former paper mill began to fall into disrepair, a developer purchased the land and buildings to build a biomass plant.
 In addition to putting to use a vacant lot that had once been the center of the community, the new biomass plant would employ former paper mill workers who would do jobs that fall within their expertise. Additionally, the new biomass plant would use the very same boiler that had been implemented by the paper mill.
 The biomass plant project, which has been permitted and is being developed by Cate Street Capital, is currently in the construction phase. The project enjoys lots of support from local government and residents in Berlin. In September 2011, upon Cate Street Capital's closing for project financing, Berlin Mayor Paul Grenier said, "I think this is the beginning of a new economic era for the city of Berlin."
 Berlin&rsquo;s story is just one example of the market and regulatory environments aligning to support a project that will provide much-needed jobs and clean energy. Another is in Washington state, where government recently passed a law that reaffirms the jobs potential and carbon neutrality of biomass, and extends renewable energy status to previously unrecognized, older biomass facilities. And there are many other examples across the country.
 The lesson here is that, with regards to energy, market needs and government needs are not mutually exclusive&mdash;and biomass can often help overcome both the economic and environmental challenges. Author: Bob Cleaves President and CEO, Biomass Power Association <a href="http://www.USABiomass.org">www.USABiomass.org</a> <a href="mailto:bob@biomasspowerassociation.com">bob@biomasspowerassociation.com</a>

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The Role of State Governments in  Supporting Biomass Power

I am continually struck by the number of professionals, and the variety of their responsibilities, that are involved in the development of any biomass-to-energy project. From the first spark of an idea for a project&rsquo;s development through the commissioning phase, the assembled body of professional expertise is staggering. Furthermore, every project that succeeds and begins delivering renewable power, heat or fuels is testimony to the expertise and commitment of every professional involved.
 This month in Biomass Magazine, we examine the professionals who pursue, shape and fulfill the off take agreements, contracts and power purchase agreements (PPAs) that ultimately are the driving force behind this industry. Any sales professional will remind you that &ldquo;nothing happens until somebody sells something,&rdquo; and the energy sector&nbsp; is no exception. Featured this month is a close look at the role contracts play in not only&nbsp; any specific project&rsquo;s development, but also how contracts and PPAs collectively form a foundation of a steady and reliable energy product supply.
 Luke Geiver&rsquo;s article &ldquo;Contract Concepts&rdquo; outlines the role of pellet supply contracts in providing surety to waiting utility customers who cannot tolerate any supply interruption or quality inconsistency.&nbsp; He features insights from contract experts including Henry Pease, a senior biofuel portfolio manager for RWE, who sources nearly 3 million tons of wood pellets annually from all over the globe.
 In Anna Simet&rsquo;s story&nbsp; &ldquo;Power Purchase Plays,&rdquo; she establishes the relationship between a PPA and a project&rsquo;s ability to attract and convince a conservative lending community. The professionals she spoke with remind us that biomass energy competes with other renewables but, as evidenced by her conversations with South Carolina utility Santee Cooper, biomass can and does win its fair share of the market because of its reliable and consistent base-load qualities.
 Finally, I&rsquo;d like to draw your attention to the expanded biomass coverage you can expect in Biomass Magazine. This month&rsquo;s issue focuses on the conversion of biomass into not only renewable kilowatts and Btu, but also liquid fuels and next- generation renewable chemicals. In covering the industry, we&rsquo;ve often found that stories about inputs, conversion technologies and projects couldn&rsquo;t be confined to heat or power but had applicability in fuels and chemicals as well. To tell the whole story, the fuel and chemical components had to be discussed. And so it is with the biomass industry as a whole. To tell the entire biomass story, we have to talk about all of its energy product possibilities. In fact, perhaps the strongest argument for the continued advancement of the biomass-to-energy industry is biomass&rsquo;s ability to be converted into every energy product the U.S. and world consume. No other renewable energy input can boast that, and Biomass Magazine&rsquo;s new editorial scope should be construed as a celebration of biomass&rsquo;s unrivaled output flexibility.

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Contracts as Industry Marching Orders

In columns I have authored during the last two years, I have described the increased challenges facing the advanced biofuels industry.&nbsp; Today, I welcome the opportunity to now share with you the political, legislative and regulatory landscape we face in Washington; the challenges, opportunities and achievements of our industry, and to a greater degree, the renewable energy sector.&nbsp; Usually I like to take a closer look at a particular issue, whether that&rsquo;s tax policy, the Biomass Crop Assistance Program, or even the challenges facing the renewable fuel standard (RFS).&nbsp; But this past month in Washington could best be described as an avalanche, on all fronts, against all biofuels.
 Let&rsquo;s start with the recently announced program from the U.S. Department of Defense, the U.S. DOE and the USDA. Folks, this is the first year the government was attempting to prudently invest $510 million federal dollars over the next three years from the Defense Production Act to assist, on a match basis, with the building of new plants to manufacture drop-in renewable fuels for use by America&rsquo;s Armed Forces. The avalanche I mentioned began as the House Armed Services Committee, by a vote of 32 to 29, placed a measure into play that requires the Pentagon&rsquo;s purchase of advanced biofuels to be at parity cost with existing fuels.&nbsp; That action can&rsquo;t be mistaken for anything else but an unreasonable hurdle in the road to further developing and commercializing advanced biofuels.
 The action continued in the House Appropriations Committee, where the majority removed any money for use by the DOE and DOD through the DPA.&nbsp; Though following significant assistance from the White House, their colleagues on the other side of the Capitol in the Senate Appropriations Committee agreed to keep full funding of the DOE&rsquo;s component.&nbsp; Now we await the full Senate Appropriations Committee vote on the DOD portion, which as of press time appears to be intact, despite substantial efforts to remove it.
 With all of the legislative maneuvering that potentially could delay our future commercial success, we had some encouraging action as lawmakers agreed on the funding of the energy title in the Senate Agriculture Committee, to the tune of $800 million for BCAP and other elements for biofuels in the Farm Bill.&nbsp; Though a handful of amendments would have&nbsp; discontinued the energy title and the entire RFS, the Senate voted against them and the Farm Bill was passed with our renewables programs unscathed. Now it's a waiting game, as the energy title must survive the House.&nbsp;
 Through all of this there is good news, as a significant number of entities from the airline industry, the environment community, the U.S. Farm Bureau, the military establishment and the biofuels industry, to name just a few, have circled the wagons and worked together like no other point in our history. We can all see the potential leadership position the U.S. has before it; our nation could once again be an industry-changing innovator that the rest of the world would follow. Developing renewable energy alternatives is an inevitable part of our shared global future, and America should help lead the way, not turn its back on it.&nbsp; Time for us all to get to work. Author: Michael McAdams President, Advanced Biofuels Association (202)469-5140 <a href="mailto:michael.mcadams@hklaw.com">michael.mcadams@hklaw.com</a>

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Renewables Fight Underway in Washington

In June, Agriculture Secretary Tom Vilsack announced that two new Biomass Crop Assistance Program project areas will be developed and another existing BCAP project area will be expanded through the help of a $9.6 million funding round.
 In New York, ReEnergy Holding LLC will enroll 3,500 acres in a fast-growing shrub willow that will be used to help the biomass power developer generate more than 100 MW. The biomass company already has three facilities that have committed to purchasing the shrub feedstock. Part of the project will include support from the &ldquo;Come Farm With Us,&rdquo; campaign, a program that targets new and beginning farmers from the St. Regis Mohawk reservation located only 15 miles from one of the committed facilities.&nbsp;
&nbsp;&nbsp; Chemtex International, a division of Gruppo Mossi &amp; Ghisolfi, an advanced biofuels, biobased chemical and renewable energy developer based out of Italy, has been awarded roughly $4 million from the USDA to develop 4,000 acres of miscanthus and switchgrass in North Carolina. The energy crop project areas will be spread throughout 11 counties, and the energy crops will be used, in part, for Project Alpha, a 20 MMgy cellulosic ethanol biorefinery that will also produce onsite biogas for power generation, set for startup in 2014 in Sampson County, N.C. The feedstock planting, mitigation and monitoring will be led by Repreve Renewables LLC, a Georgia-based energy crop developer. Farmers will receive both establishment assistance and five years of annual production support from the BCAP funding, according to the USDA.
 A northeast Arkansas project area already established through BCAP support will expand acreage for giant miscanthus grown throughout three counties to almost 8,000 acres. The project area is sponsored and run by the partnership of MFA Oil and Aloterra Energy LLC called MFA Oil Biomass LLC. The energy crops will be used for fuel pellets for export and in-farm heating and biobased packaging, according to the USDA.
&mdash;Luke Geiver

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Project area funding is awarded in New York, North Carolina and Arkansas

BCAP Back in Action 

Advanced biofuels and biochemical company LS9 Inc. reached a new benchmark with the June 12 opening of its demonstration-scale biorefinery in Okeechobee, Fla. A retrofit of the plant was completed in May, with large-scale production expected to commence during the third quarter of 2012.
 The facility features 1,000- and 35,600-gallon fermenters, which are expected to produce approximately 75,000 gallons of product annually. LS9&rsquo;s technology is capable of producing a wide variety of products, including biodiesel, biobased jet fuel, specialty esters and fatty alcohols. The process has been demonstrated with several feedstocks, including biomass hydrolysate, glycerin, molasses and sweet sorghum syrup. The company has announced that biodiesel will be one of the first products produced at the plant.
 According to LS9, the demonstration-scale plant will be used to enhance production capabilities and generate large commercial samples for testing and product qualification. The company also intends to use the facility to test and optimize new process conditions in the future.
 &ldquo;The opening of our demonstration plant in Florida moves LS9 from a development company towards becoming a fully integrated commercial organization,&rdquo; saysEd Dineen, LS9 president and CEO. The Florida Opportunity Fund&rsquo;s Clean Energy Investment Program invested $4.5 million to help fund the retrofit of the facility. In addition to making the necessary adjustments to implement LS9&rsquo;s production technology, the company notes that retrofit activities also focused on reducing energy consumption through the use of technologies such as variable speed drivers and advanced computer control systems.
&mdash;Erin Voegele

Ribbon Cutting : (L-R) LS9 Vice President of Operations Greg Rood, Florida State Representative Steve Perman, LS9 President and CEO Ed Dineen, Florida Opportunity Fund President Louis Laubscher, and Florida Opportunity Fund Program Manager Jennifer D

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New LS9 Inc. biorefinery in Florida will produce biodiesel first 


Demonstrating Progress 

Something special is happening with a research project focused on two white rot fungi genomes. Led by the U.S. DOE&rsquo;s Joint Genome Institute, a team of international researchers is collaborating on a project to sequence and analyze the fungi strains to understand how enzymes present in the fungi break down plant biomass. It&rsquo;s not the research that is special, however, it&rsquo;s the number of people working on the project, revealing that the continual quest for super enzymes used to break down biomass is not only a strong trend in the field of bioenergy research, it&rsquo;s a popular area of research to be in.
 &ldquo;The fact that we have such a large group of people involved in this project is a clear demonstration that there&rsquo;s certainly interest in enzyme discovery,&rdquo; says Dan Cullen, senior author of the research study and a member of the USDA&rsquo;s Agricultural Forest Service&rsquo;s Forest Products Laboratory. In the study, &ldquo;Comparative genomics of Ceriporiopsis subvermispora and Phanerochaete chrysosporium provide insight into selective ligninolysis,&rdquo; Cullen and his huge team analyzed C. subvermispora and P. chrysosporium, finding large differences in the way each breaks down lignin. According to Cullen, few fungi have the capability to degrade lignin in the first place, and even fewer have the ability to selectively remove lignin at such an efficient rate. &ldquo;C. subvermispora is one exception in its ability to do just that,&rdquo; he said.
 Interest in the lignin degrading fungi didn&rsquo;t start with this research project, however. Kent Kirk, a former researcher at FPL says work with the fungi strain first started at the University of Minnesota, where researchers were working to improve the concept of biopulping, a method of turning woody biomass into pulp for the pulp and paper industry by exposing the woody biomass to the C. subvermispora fungi for two weeks, a process that reduced energy processing costs of the biomass by 30 percent. Although the process was only completed at a 50-ton scale, Kirk says rising energy costs could make biopulping more popular. The work will also help researchers understand the process and the applicable enzymes that can help reduce the costs to process biomass feedstock for bioenergy purposes.
 The research by Cullen&rsquo;s team certainly won&rsquo;t hurt. Angel Martinez, a researcher at the Spanish National Research Council in Madrid may have found the reason why the fungus works well to degrade lignin. According the Martinez, the C. subvermispora fungus has more manganese peroxidases and laccase, enzymes that speed lignin degradation. On top of that, the team also discovered new enzymes not previously recognized in the C. subvermispora strain.
 Although Cullen points out that the cellulose degrading portion of the fungi could be repressed and requires further study, he believes more of the same will continue the progress the team has made in understanding the power of the biopulping fungus C. submvermispora. &ldquo;To really make direct progress on understanding the mechanism of selective lignin degradation,&rdquo; he says, the development of more experimental tools and the use of more genetic analysis are needed.
 That shouldn&rsquo;t be a problem given the role of Igor Grigoriev. Grigoriev leads the JGI Fungal Genomics Program, where he says his team is currently working on 20 similar fungi strain genome analysis projects. &ldquo;This should provide us a better understanding of the diverse and complex mechanisms of lignocellulose degradation in fungi, the influence of these mechanisms on carbon cycling in the forest ecosystem, and ultimately,&rdquo; he says, &ldquo;lead to improvements in biopulping.&rdquo;&nbsp;
&mdash;Luke Geiver

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Lignin degradation research is hip, and it could cut costs on biomass processing

Biopulping's Role in Bioenergy 

Sweden&rsquo;s subarctic forest range is setting records. A research team consisting of six Swedish scientists has found that over roughly the past 15 years, forest density and the average tree-line height in the region has increased by 19 percent. In addition, a new survey of shrub, tree and vegetation data on 549 plots in 61 forest clusters originally collected and analyzed in 1997 was performed by the team using in-field testing and remote sensing, revealing that over the past 43 years, &ldquo;tree biomass has doubled.&rdquo;
 According to the team, &ldquo;tree basal area and biomass increased by 19 percent between 1997 and 2010 with the main increase occurring in established birch forest.&rdquo; The results concur with the results of other studies that suggest that there has been a general increase in cover and biomass of trees and shrubs in subarctic and Arctic areas. Those studies were performed in 2001, 2006, 2007, two in 2010 and another in 2011.
 So what does all this mean? According the research team, in spite of increased browsing pressure from a growing reindeer population and the occasional outburst from moths that eat away at birch trees located in the study region, there is simply more tree growth and biomass availability in the region now than before. The group calls the situation a &ldquo;welcome phenomenon,&rdquo; and says that, &ldquo;increased nutrient availability associated with higher soil temperatures and a longer growing season,&rdquo; could continue the expansion of the forest.
 For biomass developers and biomass users in Sweden, the obvious impact of a growing woody biomass resource could mean anything from cheaper feedstock for biomass-based power, or an expansion of more bioenergy use in the region. However, for the Center for the Study of Carbon Dioxide and Global Change, a group that also took notice of the study, the work of the Swedish research team might help explain a theme supported by the center. In its quest to provide their version of non-emotionally charged, unbiased information regarding the rise of carbon dioxide in the atmosphere, the center believes that a warming earth will benefit plants, not cause their extinction. Right or wrong, six Swedish scientists who&rsquo;ve shown a 19 percent increase in biomass density and tree line height that is linked to warmer soil and a longer growing season might help their argument.
&mdash;Luke Geiver

Greater Growth: Biomass-based power stations in Sweden, such as the one pictured here, will benefit from a greater abundance of regional biomass.

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Since 1997, subarctic forests are thicker and taller than ever before	

Sweden's Growing Wood Basket 

Several measures that could impact the biorefining industry have recently been addressed by Congress. One such initiative aims to create a federal production tax credit for biochemicals. The legislation, titled the Qualifying Renewable Chemical Production Tax Credit Act of 2012, or H.R. 4953, would establish a production tax credit of 15 cents per pound of eligible content of renewable chemicals produced during the taxable year. The measure was introduced by Rep. Bill Pascrell, D-N.J., and has been referred to the House Ways and Means committee.
 Under the bill, the term &ldquo;eligible content&rdquo; is defined to include the biobased percentage of the total mass of organic carbon within a renewable chemical, while a renewable chemical is defined as one produced using biomass that is sold or used in the production of polymers, plastics, or formulated products not used in the production of food, feed or fuel. The tax credit would not apply to chemicals that contain less than 25 percent biobased content, or to biochemical that were produced at rates of 10 million pounds or more during 2000.
 Another measure introduced by Reps. Glenn Thompson, R-Pa., and Kurt Schrader, D-Ore., aims to modify the definition of biobased materials to include forest products in the USDA&rsquo;s BioPreferred program. The bill is titled the Forest Products Fairness Act of 2012, or H.R. 5873.
 The BioPreferred program was created by the 2002 Farm Bill and includes two primary initiatives; product labeling and federal procurement. The labeling portion of the program allows products meeting certain biobased content specifications to label their product with a BioPreferred seal, which is designed to help consumers make informed purchasing decisions. The federal procurement component gives preference to the purchase of biobased products by government entities.
 Under the current program guidelines, paper, wood and pulp products are not considered qualified biobased materials for either labeling or federal procurement. H.B. 5873 would change those guidelines to make products like pulp, paper, paperboard, pellets, wood products and any recycled products derived from forest materials eligible for the program.
 However, not all congressional actions have been in support of the biobased industry. The U.S. Senate and House recently took action to undermine military efforts to reduce dependence on foreign oil by stripping funding for biofuels initiatives in their respective versions of the defense authorization bill. The House version prohibits the U.S. Department of Defense from pursing a public-private initiative for advanced biofuels, and would repeal Section 526 of the 2007 Energy Bill. The Senate Committee on Armed Services included legislative components that limit the military from buying biofuel using fiscal year 2013 funds if the cost is higher than that of petroleum-based fuels in its version of the legislation. In addition, the bill would bar the DOD from entering into a contract plan to design or construct a biofuels refinery or any other facility or infrastructure used to refine biofuels, unless specifically authorized by law. Additional amendments could be offered when the bills are subject to floor debate later this year.
&mdash;Erin Voegele

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Federal lawmakers address biomass, biochemicals and biofuels 

Congressional Action 

While some advanced biofuel projects have struggled to reach construction goals, construction of KiOR Inc.&rsquo;s first commercial-scale plant has proceeded ahead of schedule. In late May, the company announced that its Columbus, Miss.-based plant is 100 percent mechanically complete. The announcement was delivered as part of the company&rsquo;s first quarter 2012 financials. Under the original construction schedule, the plant would have been 90 percent mechanically complete at that time.
 &ldquo;Earlier this year I challenged [KBR Inc.] and our construction management team to find ways to accelerate our construction within our defined budget,&rdquo; says Fred Cannon, KiOR president and CEO. &ldquo;As they have at every turn throughout this history-making project, the Columbus team delivered beyond my expectations in a safe, environmentally conscious and effective manner. I am pleased to report that Columbus is 100 percent mechanically complete and we have commenced our commissioning plan.&rdquo;
 Despite the accelerated construction schedule, Cannon says that the project also appears to be coming in slightly below the anticipated $222 million budget. &ldquo;All of us here at KiOR are understandably proud not only to have delivered what we promised, but to have exceeded even our own internal expectations.&rdquo; Although some speculated that it would take two years to complete the project, the Columbus plant took only 13 months to build.
 According to Cannon, commissioning and startup activities are expected to take between 12 and 16 weeks. He also notes that considering this is a first-of-kind commercial plant, it is possible the schedule could be delayed. However, Cannon stresses that he fully expects the new plant to be producing cellulosic biofuels during the second half of 2012, with full capacity reached within six to 12 months. Once that level of production is reached, Cannon says that KiOR will focus its efforts on optimizing the production process to maximize yields, initially targeting 67 gallons per ton sometime in 2013.
&mdash;Erin Voegele

Expediting Production: KiOR Inc. completed construction of its first plant ahead of schedule. Once operational, the facility will convert biomass into biobased crude oil.

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Accelerated Development

Wood pellet producers and biomass providers searching for a North America-to-Europe export supply contract will eventually find Henry Pease. As the senior biofuel portfolio manager for RWE&rsquo;s Supply &amp; Trading division, Pease leads a biomass trading and procurement group for the giant German utility provider. &ldquo;We source between 2 to 3 million tons of wood pellets (annually) from all over the world,&rdquo; he says, and because of his place in the global biomass market and his continual search for biomass, Pease says his team is familiar with all of the established producers and most of the companies close to startup, whether they operate in Finland or Florida.
 When Pease and his European counterparts talk about biomass trading and procurement, and generally comprehending the wood pellet export/import market, two things become clear: experience is favored, yet change is inevitable. They explained the basics of wood pellet supply contracts, the truths of long-term agreements, and why, even though firms like Pease&rsquo;s prefer to work with established biomass suppliers, the wood pellet supply contracts of the future will be formed with companies that don&rsquo;t yet exist in the marketplace today.
 Pellet Contract Basics
 To start, all biomass and pellet suppliers based in North America need to know that as the biomass fuel heads towards Europe, as Pease explains, &ldquo;the boat doesn&rsquo;t always finish where it said it was going to finish.&rdquo; The final destination of a cargo ship loaded with biomass however, should be of little concern to those who produced the biomass. From Pease&rsquo;s perspective, a pellet producer or biomass supplier should be concerned with two things only: producing, and continuing to drop the price of production. &ldquo;Our role as a trader is to optimize the supply chain,&rdquo; Pease says, &ldquo;to have a portfolio of supplies. Producers do what they do, whether they are a large producer or a small producer, their job is to make pellets as economically as they can.&rdquo;
 For contract agreements, the ability of a producer to do his job is also a main staple of how contracts are formed. &ldquo;A company that already exists and knows what he is doing isn&rsquo;t looking for the same offtake contract as someone that is coming to the market new,&rdquo; he points out. &ldquo;If you need equity or you need debt then you need different things in the offtake.&rdquo; The main point Pease makes about forming a contract however, is that his firm tries to match up what it can offer with what its investors (power plants and end users) need.
 Different buyers can do different things, he explains. Some can offer longer tenure, some can buy more on a tons/year basis, others can manage the freight from the production facility to the port to the end location, and, he adds, where an end user buys the biomass can greatly vary from the physical power station to a specific port or in some cases, even a specific boat.
 After a firm such as Pease&rsquo;s hashes out the needs of a buyer (a two-year contract for 200,000 tons delivered to a Belgium port through monthly shipments, for example), the next step in the process is to match up the ability of the producer with the need of the buyer to form the contract, all based on that dynamic.
 A typical supply agreement links a biomass trader or procurement specialist like Pease, with the biomass producer. In most, if not all cases, a producer will not be working directly with the end user. The typical cargo ship can carry 25,000 to 45,000 tons per load and a pellet provider or woodchip supplier will get paid every time a shipment arrives at port. Although most North American biomass suppliers would prefer a contract supply length of 10 or more years, Pease says the norm is anywhere from two to five years. The average installed capacity of a pellet mill participating in a supply contract can vary widely, (most are above 70,000 tons/year), and although the nature of biomass makes quick shipments or the presence of a large spot market a major portion of the overall supply market, there are enough companies or people currently operating in the market to show why single shipment and short-term contracts (months not years) do exist.
 Simon Christensen, storage, logistics and sales specialist for Copenhagen Merchants, a biomass trading and procurement firm, knows all about short term contract basics. Christensen says his company began operating in the pellet supply markets after a number of smaller mills in the Baltic markets voiced their need to aggregate their volumes in order to meet the needs of buyers with demands too large to be met by a single producer. &ldquo;There is always a market for long-term contracts,&rdquo; he points out, &ldquo;but there is also always a place for spot contracts.&rdquo;
 Christensen&rsquo;s firm trades more than 500,000 tons per year of biomass, half of which are spot- or short-term contracts that are for one- to three-month supply shipment periods. Another large portion of his business is what he considers a long-term contract, a term of roughly one to one and a half years in length. No matter what the length of the contract term is however, Christensen points out that a contract agreement can be initiated from both sides of the value chain and most importantly, &ldquo;the process is never a one off.&rdquo;
 Biomass Trader Truths
 Although Christensen&rsquo;s assertion about the repeatability of the supply contract formation process makes it sound as if every pellet producer entering into an agreement will be operating under a set of unique and potentially problematic circumstances each time product is ready for shipment, don&rsquo;t worry. Christensen, like Pease, can cite numerous examples of how or why contracts are formed. Consider this, Christensen says, sometimes it is the producers who approach first, explaining their desire to sell around a specific price. In other cases, the opposite is true, and a buyer will approach a biomass trader seeking a specific tonnage at a specific price, by of course, a specific date.
 Luckily for pellet producers or biomass suppliers, people like Christensen and Pease have an extensive portfolio of producers to meet the changing demands of larger buyers, which in turn, Christensen points out, makes the appeal of biomass to large European utilities greater due to the constant and readily available supply of biomass that is tracked, secured and ready because of trading and procurement firms. The best part is that with more biomass usage, more will only follow because of the stability of the supply market.
 &ldquo;As a trader we like having products with different specifications with different load ports with vessels that have different sizes,&rdquo; Pease says, &ldquo;because that means different power stations in different countries can have different demands and needs and we can try and match it all together.&rdquo;
 &ldquo;We always have stores in different places,&rdquo; Pease says, &ldquo;We can sort of balance out the needs of small producers,&rdquo; and, according to Christensen, large buyers. Throughout most of the year, a small producer he says, needs to have a low stock on hand and have access to fast cash loads.
 &ldquo;When you are building a pellet plant,&rdquo; Pease explains, &ldquo;you are trying to sell 80 to 90 percent of what you think you are going to produce upfront, so there is not a lot of wiggle room there.&rdquo; Unfortunately, problems arise for either side. Both Pease and Christensen had to deal with the backlash of a massive fire at a massive biomass power plant, Tilbury Power Station, this year that Pease says, &ldquo;severely disrupted the whole supply chain.&rdquo; The job of Pease and Christensen is to manage that, sell product to other end users, store product or in some cases, pay people not to produce. &ldquo;Our job is to sit in the middle of the ripples and try to smooth them out a little bit,&rdquo; Pease says.
 Smoothing out the process only helps the procurement firms shore up the future, according to Christensen, who says that any notion that a procurement firm will not pay out on a contract or fail at some point in the process is a nonsensical assertion, because as the middleman, two sides need to stay happy, not just one. &ldquo;If I don&rsquo;t deliver (for the producer or the buyer) I&rsquo;m out of it. I would argue that the main risk is on my side.&rdquo;
 To reduce that risk, both Christensen and Pease have a few thoughts on how to de-risk, or as Pease implies, to de-ripple the supply contract process. First and foremost comes stability by the producer, in both production and quality of the biomass supplied, something they look for in every contract. Then, Pease explains, producers need to think hard about how they operate. &ldquo;A lot of new companies operate with very few people,&rdquo; he points out, a situation that is usually difficult because there are so many aspects to the industry that a handful of people can&rsquo;t typically perform.
 As for payment plans, Pease says they prefer to pay North American producers in U.S. dollars instead of Euros because a pellet production team typically is not going to convert the money because of the amount of money required to do so, or the time. As for biomass supply aggregation models that bring multiple pellet producers or biomass suppliers together to fill a tonnage request of a large buyer, both Pease and Christensen say the model can and will work. &ldquo;It is perfectly feasible,&rdquo; Pease says, &ldquo;there are some issues they need to get past like sustainability and standardizing quality, but they can certainly do it.&rdquo;
 And that is exactly what Christensen hopes will happen. His firm is working with a group in Florida to form an aggregation model, because as he says, &ldquo;We see a big rise in demand, and a big rise in supply,&rdquo; regarding their outlook on the industry.
 Nicole Forsberg, a researcher at Lund University in Sweden studying the opportunities and barriers to growth in the European biomass market, reminds us why pellet producers or biomass suppliers should be bothering to link up with traders and procurers. &ldquo;In the EU,&rdquo; Forsberg says, &ldquo;demand far outweighs the EU&rsquo;s domestic forest supply capabilities, so,&rdquo; and this should be a clear enough reason, &ldquo;import is the only answer, even long-term.&rdquo; One should also keep in mind, she says, that if the imported pellets turn out to be cheaper than the EU&rsquo;s domestic supply, the import demand will be even higher. Currently, she says, imports from North America are mainly headed to the Netherlands, the U.K. or Belgium, due to the big harbors where large amounts can be imported.
 But, even though Forsberg&rsquo;s entire research platform is based on understanding the atmosphere of the export/import of biomass to/from Europe, the best reminder of why contract supply agreements matter comes from the person with the greatest risk, the middleman in this case, people like Christensen who have to appease two parties to make money. &ldquo;I believe if we are good,&rdquo; he says, &ldquo;if we follow this market, there will be plenty of opportunities for skilled traders.&rdquo; Author: Luke Geiver Features Editor, Biomass Magazine (701) 738-4944 <a href="mailto:lgeiver@bbiinternational.com">lgeiver@bbiinternational.com</a>

AFTER TILBURY: An explosion at the Tilbury Power Station earlier this year forced biomass suppliers to alter their trading and procurement plans. 


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BIOMASS ON THE BRAIN: Forsberg is researching the opportunities for biomass imports into Europe at the University of Lund.

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GREEN STORAGE: Wood pellet storage silos like this are a staple of all Copenhagen Merchantâ€™s receiving locations. 

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NEW BIOMASS NORM: Members of the Derwenthorpe Community stand before a biomass-based energy center that will power an entire housing community in York, England. The plan for the future is to build more centers similar to this. 

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FINAL DESTINATION: Several of Copenhagen Merchantâ€™s partnering ports in Denmark bag pellets onsite after receiving shipment. 

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From spot purchases to multi-year deals, producers, buyers and brokers must know their way around supply agreements. 

Contract Concepts

The fate of Russell Biomass, a biomass power project under development in Russell, Mass., revolves around a power purchase agreement (PPA) that hasn&rsquo;t yet been secured. Project partner Peter Bos admits the PPA is the most important component in bringing a project to fruition, but he says it&rsquo;s unattainable for now, at least until the final Massachusetts Department of Energy Resources renewable portfolio standard (RPS) regulations are out.
 This isn&rsquo;t Bos&rsquo;s first renewable rodeo, however. He is the founder and CEO of ARS Group, formed in 1982 to develop and own independent power plants. ARS&rsquo;s New England projects include a hydropower plant and a 40 MW wood-fired power plant. Russell Biomass has been in development since 2005, and though it has faced a myriad of obstacles along the way, Bos and his partners have forged ahead. While Massachusetts released its long-overdue proposed final RPS legislation in early May, the law is still looming, leaving developers like Bos, foresters and anyone else who has a stake in the biomass industry anxious and frustrated. But Bos says a new bill being proposed in the state appears to be good for renewable energy, as it would double the amount of green power that would be supported by long-term PPAs.
 But there&rsquo;s a catch. Unless it specifies a certain amount of energy to be derived from each renewable resource, it will be extremely difficult to compete with cheap onshore wind.&nbsp; &ldquo;The average [gross] cost of onshore wind per kilowatt hour (kWh) [in Massachusetts], for a 15-year contract, might be in the 10- to 11-cent range, 9 cents at the best,&rdquo; Bos says. &ldquo;The average biomass power cost over 15 years is around 17 to 18 cents, the average offshore wind costs around 24 to 25 cents, and solar is up around 40 cents.&rdquo;&nbsp;&nbsp;
 Prices are different in each state and region and depend on multiple factors, including financing, incentives, technology, project location and perhaps most significant, fuel availability and logistics. According to U.S. DOE estimates, a typical U.S. direct-fired biomass plant can produce electricity at a net cost of 9 cents per kWh, but that can vary greatly. For example, the Oregon Department of Energy reports that using conventional combustion technology without cogeneration, the estimated net cost to generate electricity from biomass in Oregon and the Pacific Northwest ranges from as low as 5.2 cents per kWh to 6.7 cents, significantly lower than in Massachusetts.
 That may not be surprising to most, as electricity rates consumers pay in the Northeast are generally the highest in the country. Costs in Massachusetts, New Hampshire, Connecticut and New Jersey are typically greater than 15 cents per kWh, according to 2010 National Renewable Energy Laboratory data, and in other states such as Washington, Idaho and Wyoming, rates dip anywhere from 5 to 7 cents per kWh.
 Bos says right now, 80 percent of renewable energy proposals in Massachusetts are for onshore wind projects, and with gas-fired power as cheap as it is, no power buyer wants to purchase renewable electricity that starts at 10 to 11 cents per kWh. It is possible to lower the price a little though, he adds, if the developer sells heat or low-pressure steam. &ldquo;You can get more revenue and lower the price per kWh, but probably not more than 2 to 3 cents, not to the price of wind,&rdquo; he says.
 So with that disadvantage, how does a biopower project developer make its case to power buyers?
 Convincing the Customers 
 &nbsp;&ldquo;You have to point out that it&rsquo;s the only 24/7 reliable power; wind and solar aren&rsquo;t,&rdquo; Bos says, explaining that with peak demand for electricity, a utility can count on biomass.
 Todd Taylor, energy and corporate attorney with Fredrickson &amp; Byron, agrees. &ldquo;[It&rsquo;s] reliability of power supply, coupled with alignment with power needs,&rdquo; he says. &ldquo;If the bioenergy project does not have the ability, in terms of both long-term feedstock agreements and technical reliability, to consistently deliver power, a power buyer won&rsquo;t be interested.&rdquo;
 Taylor reiterates that many power buyers have been acquiring wind PPAs to meet their RPS requirements, so bioenergy PPAs will need to fit within existing RPS power PPAs.
&nbsp;&nbsp; It&rsquo;s assumed that power buyers won&rsquo;t buy renewable electricity unless it is mandated, but Santee Cooper, a South Carolina-based power utility, is going against the grain. The state doesn&rsquo;t have an RPS, yet the utility currently has more than 200 MW of biomass, biogas and landfill gas-derived electricity, mostly contracted through long-term PPAs, according to Mollie Gore of Santee Cooper.
&ldquo;That&rsquo;s a key point&mdash;we&rsquo;re doing all of this voluntarily,&rdquo; she says. &ldquo;In our part of the country, biomass is the most abundant renewable resource in terms of cost and availability. With solar, the technology is changing, but it&rsquo;s still considerably more expensive. We&rsquo;ve had good luck finding cost-effective biomass projects&mdash;it has been a good resource for us.&rdquo;
 Cost-effectiveness is one of two key attributes Santee Cooper looks for in a perspective power supplier, Gore says, adding that the utility also needs to be able to get all of the environmental attributes with the project.
 In his experience, Taylor says power buyers will be most concerned about pricing, as they are usually regulated entities and have to manage pricing to consumers. Long-term contracts are important as well, but that goes back to the price again&mdash;only if it is right. &ldquo;The trend now is long-term contracts at lower prices, as bioenergy projects must compete against low-cost natural gas,&rdquo; Taylor says. &ldquo;Power buyers are trying to lock bioenergy projects into long-term, low-price contracts, in part, because most long-term natural gas projections show the cost rising, and cheap bioenergy now will help offset those rising costs.&rdquo;
 For the developer, Taylor says both length of contract and price are critical, but length of contract is slightly more important, as it gives assurances to financing sources that there is a long-term revenue source, assuming the price is enough to pay all costs and generate a sufficient return on investment for equity investors.&nbsp;
 Bos says there is a trade-off between price and length of the contract. &ldquo;The shorter the contract, the higher the price you need to have to cover the debt service you have,&rdquo; he says. &ldquo;If you have a 15-year contract, which is the max in Massachusetts, then you can only have debt for 15 years because the lender wants to see that your assured revenues will cover the debt of repayment.&rdquo; If one has a 20-year contract, he can spread that out and lower the price a little, but sooner or later when the length of the debt is stretched out, it doesn&rsquo;t allow you to lower your price as much with interest costs.&rdquo;
 A First Step 
 &nbsp;&nbsp;&nbsp; &ldquo;A developer should begin seeking out potential PPA partners as one of the first steps to any development projects,&rdquo; Taylor says. &ldquo;Understanding PPA pricing, structure and interest from potential PPA partners is critical to assessing the feasibility of any bioenergy project.&rdquo;
 &nbsp;&nbsp;&nbsp; Without a PPA, a project won&rsquo;t be financed, he adds, and bioenergy developers right now are facing a tough power market. &ldquo;Power buyers have purchased or committed to purchasing a great deal of wind power such that bioenergy projects have been squeezed hard,&rdquo; Taylor says. &ldquo;But wind energy has significant challenges due to transmission problems that distributed bioenergy projects often do not face.&rdquo;
 &nbsp;While large, utility-scale bioenergy has the same challenges as wind, the smaller, more local bioenergy projects are being developed far more rapidly. But the market varies by state and region. &ldquo;Some states are hostile to bioenergy, usually based on a misunderstanding of bioenergy as simple burning versus more advanced bioenergy technologies such as gasification or anaerobic digestion,&rdquo; Taylor adds. &ldquo;The key always is to find a great customer willing to buy your power.&rdquo; Author: Anna Simet Contributions Editor, Biomass Magazine <a href="mailto:asimet@bbiinternational.com">asimet@bbiinternational.com</a> (701) 751-2756

Big Picture View: Russell Biomass's project in Russell, Mass., has not yet secured a power purchase agreement.

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ONE OF MANY: The Berkeley County Landfill in Moncks Corner, S.C., is one of Santee Cooper's several biogas-powered landfill generating stations.

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Long-Term Power: For Taylor, PPAâ€™s for 15 years or longer are preferred today to offset debt obligations of tomorrow. 

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Securing the right power purchase agreement is essential to the success of a bioenergy project. 

July 2012

Business Briefs

Business Briefs

Columns

Financing of Feedstock Supply

The Role of State Governments in Supporting Biomass Power

Contracts as Industry Marching Orders

Renewables Fight Underway in Washington

Featured

Creating a Biogas Empire

Forget First to Market

Contract Concepts

Power Purchase Plays

July 2012.css-7jxktu{position:absolute;bottom:0px;left:0px;right:0px;height:3px;border-radius:3px;background-color:var(--chakra-colors-brandBlack);}

Business Briefs

Business Briefs

Columns

Financing of Feedstock Supply

The Role of State Governments in Supporting Biomass Power

Contracts as Industry Marching Orders

Renewables Fight Underway in Washington

Featured

Creating a Biogas Empire

Forget First to Market

Contract Concepts

Power Purchase Plays

July 2012