Advanced BioFuels USA

by Mike Newman (Parhelion Underwriting Inc./Biofuels Digest) Connecting people from renewable fuels companies with projects they want to finance to the people who can finance them was a key goal for Parhelion Underwriting’s recent virtual roundtable.

The finance panel included Justin Goldstein from Goldman Sachs, John May from Hamilton Clark and Maximo Blandon with Stephens Inc. and the renewable fuels sector was represented by Ted Kniesche of Green Development Capital, Jordan Solomon from Ecostrat and Mark Riedy of Kilpatrick Townsend & Stockton LLP.

In today’s Digest, is there a shortage of investment money in the biofuels sector, what are the biggest risks, key themes that emerged from these finance experts, and more.

From their views of the market several themes emerged.

As a creation of the 21^st century, renewable energy is an emerging industry and like any new industry there are new risks; new technology, regulatory, feedstock, offtake and commodity market risks that must be explained and understood by the financial markets.

“The biggest risk – and the most valuable asset – is technology that is new or at first commercialization”. Insurance has become the alternative to an EPC contractor to wrap a project but at a price: ….

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Feedstock risk has often been a barrier to project financing because of the fragmented networks of mostly small producers. A recent important development is the BSCR Standards, ….

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“Every project finance lender in the world scrutinizes offtake agreements because lenders rely on the contracts to provide the financial assurances they need to validate the cash flow forecasts that form the basis for loan repayment”.

Commodity price risk is the possibility that commodity price changes will cause financial losses for producers of a commodity.

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It’s also an industry still heavily influenced by government policies that combat climate change, so that in financing U.S. renewable fuels projects the environmental commodities – carbon credits that are the currency of those governmental policies – are often more valuable than the fuel itself.

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Yet, despite the risks, there’s no shortage of money currently interested in the sector.

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“It’s difficult to get non-recourse loans from commercial banks unless the deal can be de-risked”.

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The tax-exempt bond market has become more flexible. 

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We noted several market trends. We are seeing “renewable fuels and gas replacing fossil fuels in fleet buses, the marine fuel industry and long-distance trucking and some of those projects are coming up for financing”. We have also seen “a new phenomenon: refiners, such as Exxon Mobil and Phillips 66, converting to renewable diesel”. And there is a strong movement towards reducing Carbon Intensity (CI) scores by using solar, wind and renewable natural gas projects.

Opportunity zones are opening up financing on some projects.

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And there is lot of enthusiasm for Carbon Capture & Sequestration (CCS) projects ….  READ MORE