The Six-Year Odyssey: Or, why it takes so long to develop biofuels projects, Part 2

A two-part series in which Digest contributor Tim Sklar looks back on the development of a biocoal technology.

All the promise in the world, and every adversity, too.

By Tim Sklar

The South Carolina project

So we concentrated all of our efforts in developing the South Carolina plant and named this undertaking as The Georgetown Bio-coal Plant project. We hoped to serve bio-coal users in northwestern Europe, as a market for wood pellets had already been established, with much of it being shipped from Southeastern US ports.

First, a much needed Proof of Market Survey was undertaken, to convince potential investors that the project was worth undertaking.

An extensive list of coal fired power stations and cement plants located in Northwestern Europe was then compiied and inquiries sent to each of them, and a select number of them responded. Several companies expressed an interest in meeting with us, and we held five meetings in the greater Brussels area and one in the UK.

Each company with whom we had met indicated that they could easily use 60,000 mtpy of bio-coal in ther plants.

And based on the number of companies we had identified and contacted, but did not have a chance to meet, we estimated that the market prospects for bio-coal in northwestern Europe could easily be 600,000 mtpy or ten times the output of GBC’s proposed bio-coal plant.

Based on working with our Pennsylvania partners – or a back-up French firm we had met – we expected to commission a plant in summer 2012.

But then our French back-up went into bankruptcy and our Pennsylvania partners are focused entirely on developing their demonstration plant, putting off their participation in GBC’s proposed bio-coal plant until their demonstration plant is up and running. So, project development activities have now been scaled back to maintaining contact with prospective buyers of bio-coal.

Through disappointment, rays of hope

Going forward, our Pennsylvania partner has announced that their demonstration plant will be commissioned by December 2012, and bio-coal for test burns in the EU will be available shortly thereafter.

Their demonstration plant will test various mixes of hardwood and soft wood chips, forest residues and pre-commercial thinning, obtained from the timber areas surrounding this plant in Northwestern Pennsylvania. At a later date, it will also test other forms of cellulosic materials, such as switch-grass.

Already, they are developing a set of detailed plans for a scaled up version the plant, and will make this design and engineering work available for use on the our project also, they will serve as lead technology adviser, lead the EPC team and consider obtaining an equity interest in the our project.

By December, S&ampA’s will organize an operating entity and incorporate it as the Georgetown Bio-coal Company, solicit help to obtain seed capital , lock in potential end users of GBCP bio-coal by offering ownership opportunities in the project, and work on site selection in co-operation with the wood procurement consortium.

Financing and proof of technology

Our objective is to have offtake and feedstock locked in, and proof of the technology prior to seeking finance. The recent proof of market survey showed that there was sufficient demand for bio-coal, to absorb the plant’s capacity at feasible prices, especially in those northwestern European countries that have imposed heavy taxes and /or are imposing heavy penalties on plants that generate significant amounts of CO2.

Potential buyers have made it clear that test burns must prove to be satisfactory, pricing must be in line, and that feedstock agreements must be in place to assure supply. In our case, the wood consortium has assured that its members will be able to provide feedstock, but the consortium may have to assist with raising working capital and capital investment.

In discussions with a law firm that specializes in bio-fuels project financing, preliminary assurances have been received that financing can readily be obtained for qualified project sponsors who will provide seed equity. This law firm is positioned to obtain additional investors from private equity funds and facilitate the sale of insurance wrapped corporate bonds through investment banking institutions. They are also experienced in obtaining government loan guarantees.

But getting seed capital from existing parties-in-interest is likely to prove inadequate, so we look for affinity investors as equity holders, and co-guarantors of debt. Otherwise, financing is still possible, but it will be slow to happen and costly.

Lingering Uncertainties (The Known Unknowns)

Primarily, it’s the technology that presents the riskiest challenge.  Producing energy dense bio-coal pellets of a consistent quality from woody biomass of varying characteristics has proved to be elusive and problematical. If our chosen technology runs into the same kind of difficulties, Letters of Interest from potential bio-coal users could be withheld for many months.

Another open issue is whether potential bio-coal buyers will accept bio-coal produced in demonstration plant for their test burns  or whether they insist on only testing bio-coal produced at our project. If they all insist on the later option, the minimal impact will be a further two-year delay.

Even if test burns take place in early 2013, much time will be consumed in negotiating with potential bio-coal buyers, as firm commitments will only be made after they believe their terms and requirements can be met, and uncertainties surrounding The GBCP project are adequately answered.

Not only will the technology have to be “proven” and the bio-coal meet required specifications and price thresholds, our project must also prove that it can get adequate financing, including contingency financing to become a reliable supplier.

In yesterday’s Digest, part I of the series, here. For more information about the project itself, contact Tim Sklar here.