“Rocks, Again” for Biofuels: New Capital Structures Needed for New Times?
by Jim Lane (Biofuels Digest) Better routes to capital formation may offer routes to a better world.
… Tax credits, loan guarantees, mandates, subsidies, and grants have been popular with project developers. Increasingly less so with Congress and the general public — and for the renewables industries, of late the news out of Washington has been generally bad.
For the Charlie Brown of renewables, advanced biofuels, it has been a steady diet of “rocks again” from DC and other capitals.
One reason for all the bad news – a renewed emphasis on parity pricing and performance, instead of green premiums. Customer groups such as airlines and the US Navy have clearly communicated that they may pay a premium for fuels used in testing and certification, but not in the long-term for everyday operations.
…Yet, for all the signature investments in biofuels, it has been an equally great period for capital formation in the world of fossil oil & gas. For example, the Wall Street Journal reports that $34 billion was invested in the oil and gas industry in Q1 of this year alone.
How much of that oil wealth would remain untapped — were Master Limited Partnerships, accelerated depreciation and techniques such as volumetric production payment unavailable to the oil & gas industry?
Some, far from all.
Oil production rarely is financed simply via securitizing the equipment used to lift crude oil out of the ground — there’s simply not enough value in the steel. Ultimately, the wellflow is the asset that is subject to a mortgage.
Similarly, and for the same reasons, it is tough to finance, say, algae biofuels via securities on the equipment used to manufacture fuels and chemicals from CO2, sunlight and water. There’s simply not enough value in the steel.
Parity financing helps with parity price So, while we chat about parity price and performance, we might also chat about parity financing instruments. In Congress, there has been a huge amount of chat about closing tax loopholes for the oil and gas industry. Facing headwinds, renewables supporters have lately shifted tactics. Instead of closing loopholes, broadening them to include “all of the above” energy sources?
For that reason, it’s worth spending some time looking at the techniques of capital formation in oil & gas. For one, let’s look at volumetric production payments. …A VPP involves the owner of an oil and gas property selling a percentage of their production in exchange for an upfront cash payment. READ MORE and MORE (Reuters)
