Biorefinery 2015 – Transformations in Biofuels Costs, Financing

by Jim Lane (Biofuels Digest) The first wave of cellulosic biofuels projects are now reaching completion. But what does the next wave look like – from technology to financing? We explore the trends in our two-part Biorefinery 2015 series.

... Long-term, we know that financial structures will change. But how? In our special two-part report this week in the Digest, we’ll look at two significant trends that will define the change in how scale-up and deployment will occur.

Tomorrow, in part II, we’ll look at a new set of technologies coming along that are redefining our ideas about scale — and the cost of a first commercial pilot and demonstration project as well as costs at scale.

Citibank’s Michael Eckhart told BusinessWeek recently that alternative forms of financing for next generation biofuels such as the World Bank’s green bonds could be the best way to bridge the funding gap. The fact that they don’t require collateralization and securitization shields investors, which could pave the way for investment in advanced biofuels facilities. ...

...The World Bank has been issuing bonds in the international capital markets for over 60 years to fund its activities. World Bank bonds are issued as liquid benchmark bonds, plain vanilla, local currency bonds, and as structured notes.

For investors, World Bank Green Bonds are an opportunity to invest in climate solutions through a triple-A rated fixed income product. ...

Since the inaugural issue in 2008, the World Bank has issued approximately USD 3.5 billion in Green Bonds through 55 transactions and 17 currencies.

“It’s about a paradigm shift to the bond market,” said John May of Stern Brothers, “with recognition from the USDA that this does not pose any greater risk. This opens up hedge funds, pension funds – who have much more sophistication with the credit quality issues than the small system of Ag banks that have adopted the [Business & Industry] program.

Section 9003 is found in Title IX of the 2008 Farm Bill. Section 9003, the Biorefinery Assistance Program, provides loan guarantees for the development, construction and retrofitting of commercial-scale biorefineries, and grants to help pay for the development and construction costs of demonstration-scale biorefineries.

“The bank market simply isn’t there,” May noted. “The biggest untapped market is the bond market – taxable and tax-exempt, that [currently] use the same regulations that the B&I program has.” ...

The Risk Transfer Guaranty Bond uses a “Covered Bond” structure — a technique popular in the 1990s — combining a reserve account and an investment account both funded with cash from the closing proceeds. ...

... Issuer is Bermuda-based exempted corporation – reserves protected by statute

The sweetener for the bond investor is the nature of the coverage of the bond. To use an example, to provide $100 million to a project, $200 million in bonds are issued. $87 million of the net proceeds are invested in Treasury-grade securities and will yield the original $100 million at payback time — ensuring that the investor has zeroed out his capital risk and is only risking the interest that can be earned.

...First, midstream enzyme companies such as Novozymes and DSM have become highly active — through the POET-DSM JV and the Novozymes investment in Beta Renewables, alongside Chemtex and TPG.

...Second, upstream feedstock-oriented companies have become highly active — in areas ranging from municipal solid waste, via Waste Management to traditional feedstocks such as sugarcane, where Bunge has become an active investor in its JV with Solazyme as well as becoming active with other companies such as Cobalt Technologies on the biobutanol front.

READ MORE and MORE (The World Bank) and MORE (Biofuels Digest) and MORE (Biofuels Digest) MORE (Biofuels Digest) and MORE (BioInvest Digest) and MORE (Biofuels Digest)