Enerkem raises $37.5M for landmark waste-to-biofuels plant in Edmonton

January 17, 2013 |

The long and sometimes perilous journey to financing Enerkem’s first commercial project appears to have reached the sunny shores of Completionland.

We look at what it took.

In Canada, Enerkem announced that it has closed a $37.5 million financing with Waste Management of Canada Corporation, a subsidiary of Waste Management, and EB Investments for Enerkem Alberta Biofuels L.P.

“We’re glad to see Waste Management and EB Investments strengthen their relationship with us by increasing their direct investment in the Edmonton facility”, noted Enerkem CEO Vincent Chornet. “This is further validation of Enerkem’s business model and leadership position in the market for waste-to-fuels and chemicals.”

At the same time, the company, which is currently constructing its first commercial facility in Edmonton, welcomed its first employees to the Enerkem Alberta Biofuels facility. It will use the City of Edmonton’s non recyclable and non compostable waste to produce 10 million gallons of renewable fuels and chemicals, and will create more than 30 permanent jobs, in addition to 200 jobs during construction.

Site prep at Enerkem's Edmonton (Alb.) first commercial plant, as of May 2012

Site prep at Enerkem’s Edmonton (Alb.) first commercial plant, as of May 2012

The City of Edmonton and Enerkem Alberta Biofuels have signed a 25-year agreement to convert 100,000 tonnes of the City’s municipal solid waste into biofuels annually. The garbage to be used cannot be recycled or composted.

“With plant commissioning expected to begin this summer, it’s exciting to see the facility’s first employees join the Enerkem team and start their technical training”, said Vincent Chornet, president and CEO of Enerkem. “We are impressed by the quality and calibre of the candidates we are attracting as part of our recruitment process.”

The Edmonton, Alberta facility

Type: Commercial
Status: Completed in 2013
Feedstock: Sorted industrial, commercial and institutional waste
Planned Product: Biomethanol, cellulosic ethanol
Expected Capacity: 38 million litres/ 10 million gallons per year

More on the project and the company’s technology in “Trash Spread, Enerkem heads for scale.”

Revisiting the financing

The Edmonton plant was long envisioned as a $75 million capital project — at $7.50 per gallon of capacity, it was on the “capital-light” side as far as first commercial projects in advanced biofuels.
But it was long expected that it would depend on the deep pockets of strategic and equity investors — as opposed to traditional project financing that would be available farther down the road when the technology was considered “proven at scale”.

Last spring, Enerkem filed for an IPO and, within 90 days, withdrew the filing after two rescheduled pricing dates. Company CEO Vincent Chornet noted, in speaking with the Digest last summer, that the company had a full order book, but the price was unattractive.

Enerkem had been the 15th company to file for an IPO in the industrial biotech boom when its F-1 was filed in February.

Among other items on the corporate agenda, the company had been attempting to fund the remaining share of the capital requirement for the Edmonton project. Previously, the project had secured $C23 Million in funding from the the Government of Alberta and the City of Edmonton.

And in December 2011, Waste Management of Canada and EB Investments ULC, each invested C$7.5 million in Enerkem Alberta Biofuels LP, the entity that will own and operate the Edmonton, facility. That left the project $37 million short of its $75 million price tag — and that’s the portion funded this week by WM and EB.

The financing structure was not announced this week, but we expect that, in return for the financing, EB and WM both chose a path with more seniority than ordinary equity – either a debt arrangement, or debt that is convertible to equity, or vice-versa. The financing negotiations could not have been easy – since in the previous deal documentation, both EB and WM were expected to reduce their ownership interest in the Edmonton project to 14.5 percent as other investment flowed in.

Who are EB Investments, by the way?

Waste Management needs no long introduction, but what exactly is EB? It’s a rather mysterious investment vehicle – we’re guessing that the EB stands for “Enerkem Biofuels”. What we do know is that Enerkem chairman Joshua Ruch (also one of three managing members of Rho Ventures — the largest shareholder in Enerkem), is the sole general partner of and owns a 15% interest in an entity that indirectly wholly owns EB Investments ULC.

Where is Enerkem on its timeline to commercialization?

The dates get slippery with first commercial projects, but clearly there had been a hope at one stage that Edmonton would have been completed as soon as late 2011 — and so, by any measure, the project is late. It is now expected to complete construction and begin commissioning over summer 2013.

Next projects

The timeline is looking tight, now, on some other Enerkem projects. A year ago, the Quebec provincial government invested $18 million in grants and $9 million in loans towards the Enerkem/GreenField Ethanol joint venture that will be fed by non-recyclable waste from institutional, commercial and industrial sectors. Its waste-to-fuel portion will produce 40 million liters of ethanol per year while a second-generation cellulosic ethanol unit will bring total plant output up to 200 million liters per year.

Construction of the $90 million facility was expected to begin in the spring of this year — but we are highly unsure as to whether Enerkem can commence the project before completing construction on its first commercial.

More on the Quebec project.

 

Also in the pipeline, a project in Pontotoc, Mississippi which has attracted $130 million in financial support from the U.S. Department of Agriculture (USDA) and Department of Energy (DOE) for a plant and was originally expected to break ground as soon as the end of 2011.

Mor eon the Mississippi project.

 

Enerkem’s economics

Enerkem confirms that it can reduce capex costs to $3.50 per gallon for a 38 Mgy facility – bolting together four of its Edmonton 9.5 Mgy modules, or $133 million per facility.

According to earlier analyses of Enerkem’s economics, the plant design is financially feasible at a zero feedstock cost, based on $80-$100 oil.

Enerkem’s product line up

In addition to ethanol, Enerkem can produce:

Methanol.
Around 40 percent of methanol is converted to formaldehyde, and, from there, into products such as plastics, plywood, paints and textiles. Methanol is also used as a solvent and antifreeze, as well as a transportation fuel. According to SRI Consulting, world demand for methanol is projected to grow at an average annual rate of 7.8 percent from 2008 to 2013. Today, methanol is generally produced synthetically from natural gas.

Acetic acid.
It is mainly used for the production of vinyl acetate monomer (VAM), but its fastest growing use is for its second largest derivative, purified terephthalic acid (PTA), which is driven by the demand in polyethylene terephthalate (PET) bottle resins and polyester fibre. According to SRI Consulting, Asia is expected to account for over 57 percent of acetic acid consumption in 2011 and the United States is expected to remain a major player, accounting for an estimated 19 percent of demand in 2011.

Acetates.
Ethyl acetate is used in a variety of coating formulations, such as epoxies, urethanes, cellulosics, acrylics and vinyls. Applications for these coatings are numerous, including wood furniture and fixtures, agricultural, construction and mining equipment, auto refinishing, maintenance and marine uses. Methyl acetate is mainly used as a chemical solvent for cleaning/coatings, and in its high-purity form, as a solvent for the pharmaceutical industry.

First up? Looks like methanol. Back in Q3 2011, Enerkem entered into an offtake agreement with Methanex for the sale of methanol to be produced at Edmonton.  The plant in Edmonton, is expected to initially produce and sell methanol. The plant will subsequently produce cellulosic ethanol from methanol.

The bottom line

Looks like Enerkem is there in terms of the final financing for Edmonton, and the company’s first commercial project is headed for commissioning this summer. Next steps will be the Quebec and Mississippi projects — and scaling up to a 38 million gallon capacity (where capex drops, according to the company, to $3.50 per gallon) may well be next on the agenda.

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