First commercial project in Nevada scheduled for completion in 2015; dramatic drop in operating expense.
In California, Fulcrum BioEnergy announced that it has successfully secured commitments and is proceeding toward closing $175 million in financing to fund construction of its first municipal solid waste to low-carbon fuels plant, the Sierra BioFuels Plant and to fund the development of future projects. The project is expected to be completed in 2015.
USDA loan guarantee and other sources
$105 million of the $175 million is the USDA loan guarantee, which the company secured in a conditional commitment in August 2012.
As Fulcrum VP of Administration Rick Barraza confirmed to the Digest “We’re are continuing to move forward with this and I’d expect to see this close during the first half of 2013. The remaining $70 million is also a first half event.”
Dramatic reductions in opex; capex rising?
Fulcrum’s engineering and technology teams have recently made numerous enhancements to the design of Sierra and to its proprietary MSW to ethanol process. The Company expects these improvements will dramatically reduce its operating cost to produce renewable fuel to less than $0.75 per gallon at Sierra, down from approximately $1.25 per gallon as previously disclosed.
On capital expenditure for the first commercial plant, “we are still looking at $180 million [as overall project cost],” noted Barraza.
Note to readers: Yes, that’s not a typo. The project cost for the plant, which was projected last year at $120 million [at the time of the closing of Fulcrum's $75M Series C financing round], appears to have jumped.].
The cost of production at future Fulcrum plants is now expected to be less than $0.50 per gallon, down from $0.70 per gallon as previously disclosed. “These enhancements underscore our confidence in the attractive economics of our business model while further advancing Fulcrum as the industry’s low-cost producer of low-carbon transportation fuels,” added Macias.
Looking at the numbers
Generally speaking, capex is amortized over 15 years by most close observers of the industry – and with that, the company is looking at $1.14 in capex and $0.75 for opex, or $1.89 per nameplate gallon of capacity on plant #1- well under the market price of ethanol.
That compares to $2.01 per nameplate gallon, last year at the time of the Series C financing, when the figures were projected at $120 million for capex and $1.25 per gallon for opex.
For future plants, the company is projecting that costs will decline to $1.64 per gallon – and perhaps more, if there are economies of scale in capital expenditure, or reductions in the engineered cost as design redundancies are reduced after operation at scale.
The December ethanol contract at the Chicago Board of Trade was $2.40 last week.
The January wholesale contract for RBOB gasoline last week on NYMEX was $2.73 per gallon. Generally, drivers consider that ethanol prices balance out with gasoline at around 70% of the price (owing to lower BTU values), which would put the break-even mark at $1.91 per gallon.
Withdrawal of IPO registration
With the news that financing has been identified, outside of the IPO process, for the company’s first commercial-scale project, Fulcrum confirmed (as hd been widely expected) that they are pulling their IPO registration, for now.
Fulcrum President and CEO Jim Macias stated, “With our recent success in securing attractive sources of capital, we are proceeding with our planned development program. The current IPO market environment remains challenging, especially for development stage companies like Fulcrum. Because of this we have secured commitments from alternative capital resources to advance our MSW to renewable fuel program and we have withdrawn our registration statement. We intend to pursue an initial public offering in the future when market conditions are more favorable.”
Fulcrum is privately held and financed by US Renewables Group (USRG) and Rustic Canyon Partners (Rustic Canyon). USRG manages a portfolio of renewable power and clean-fuel assets, and Rustic Canyon is one of the largest venture capital firms based in Southern California.
Fulcrum’s proprietary process converts MSW into ethanol. This process, built around numerous commercial systems available today, has been tested, demonstrated and will be deployed on a commercial scale at facilities that Fulcrum will build, own and operate. Fulcrum utilize sorted, post-recycled MSW and convert it into ethanol using a two-step thermochemical process that consists of gasification followed by alcohol synthesis.
Fulcrum’s gasification system is comprised of a down-draft partial oxidation gasifier, a Plasma Enhanced Melter (PEMTM) and a thermal residence chamber that Fulcrum have purchased from InEnTec. Fulcrum’s first plant, Sierra, will utilize three trains of this gasification system to convert the organic material in the MSW feedstock to a syngas consisting primarily of carbon monoxide, hydrogen and carbon dioxide.
Alcohol Synthesis Process
Fulcrum’s proprietary alcohol synthesis process incorporates a catalyst that was developed and is owned by Nipawin and SRC. The Nipawin/SRC catalyst is very similar to hydrotreating catalyst used in almost every refinery in the world. The catalyst contains no precious or rare earth metals and can be recycled by the catalyst manufacturer.
The Bottom line
The announcement puts Fulcrum very much on the fast track – and confirms that waste-to-energy continues to be one of the hottest sectors in all of biofuels – with a combination of low carbon fuel, a feedstock that even the most ardent biofuels opponent is delighted to find a better use for, willing strategics like Waste Management, and project traction.
More about Fulcrum via our 5-Minute Guide, here.
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