Frustration, under the optimism and hoopla of the National Biodiesel conference

Peter Brown, one of the more astute and well-connected communications pros in the biofuels industry, filed a report based on the mood and outlook “from the floor” of the National Biodiesel Boards’ annual conference in Phoenix. His report reflects more uneasiness over financing and recovery opportunities than the bullish “Advance” theme which the NBB adopted for this year’s gathering. We found this a useful contrast to some of the reporting (including ours) from the conference.

Show Me The Money!

Walking the floor at the NBB last week, speaking with exhibitors, buyers and sellers, and the broad Biodiesel community in general, one topic was raised time and again: the parlous state of project financing.

While the US banking system is sitting on billions of dollars of bailout money, according to this CNN report (), very little of it is flowing into the biodiesel world.  Business plans are drawn up, repayment schedules are drafted, blender’s credit calculated, provisions are made for alternative feedstock, and demand for biodiesel is proven with signed offtake agreements.  It is all there, and it is all in place. What is missing is the cash.

The NBB, advanced several reasons for biodiesel producers to be bullish in 2011; fulfilling the requirement of RFS2 means soaring sales, and the renewed tax incentive has improved the bottom line. Plus higher oil prices and pipeline access for B5 will help revitalize the industry. All true, but where is the money?

Over the last two years, numerous plants have been mothballed. And many no longer meet EPA and other regulatory requirements.  It will cost money to get them restarted.  According to the attendees, that money is not available. And they should know.  They have tapped into any financial source they could identify, from government grants to offshore lenders, all without success.

Show me the money was the refrain, and, in case after case, the response was, no money is available.

Bottom feeding predators

The worst part of this black hole credit void is the bottom feeding predators that it has created. For a modest monthly retainer (ranging from $3,500-$20,000 per month!) financial brokers will peddle a project to present projects  to “Russian” petroleum investment groups interested in clean technology, or to “Swiss” groups that supposedly have “Chinese” money to create biopure production companies.  Since these brokers are not earning fees on funded loans, obviously they have to make money somewhere! Of course there is no guarantee that any actual funding will result. Biodiesel project developers, who cannot get any traction with conventional banks, and who have already put out hundreds of thousands of dollars in preliminary project costs, are proving to be easy prey.  Not only are their wallets much lighter, but they are left, once again, asking “Show me the money?”.

Where is the money? It was reported here that $31.2 billion was put in play to finance 93 renewable energy projects in 2009.  That is an impressive number and yet the biodiesel share of that amount was less than $3 billion. Over the next few years, much larger amounts will be required to meet the mandated B5 requirements and that funding appears to be missing. Where is the money going to come from?

We cannot expect venture capital to step into the void. It is funding advanced new technologies, whereas the value of a biodiesel project is not in its technology, which is static, but in the production figures of each facility that starts producing biodiesel, providing jobs and making impressive or not returns on investments.

American regional banks may provide the solution. As a recent Reuters news story pointed out, they are the logical solution for renewable energy projects. They can do private placements for equity, own 5 percent of the companies in voting stock, work with local communities to develop jobs and carry out job creating activities and funding community development (including being a Community Development Entity), and arrange for municipal debt. And they actually could show the money if they knew what it was for. Biodiesel has had its public image tarnished. It has become conventional wisdom that biodiesel will increase the price of food; reduce the jungles of the Amazon , and require more energy to produce than is actually provided.

So faced with a clean ethanol plant costing $100 million and more and an environmentally suspect biodiesel facility, the cash goes to the alcohol.

The realities of biodiesel plant development

On the other hand, the development of a biodiesel facility is a fairly small investment compared to an ethanol, nuclear, solar or any other energy producing plant. If the planets align themselves correctly, local financing and government loan guarantees could lead to the development of a large number of new medium sized biodiesel plants over the next few years. But what do we need to do in order to be shown the money now?

One thing everyone agreed with is the need to change perceptions of our industry, products and benefits. We need the NBB and other national Biodiesel Boards worldwide to tell the real story of biodiesel to the world, and the banks. And the story will have to cover all the bases starting from the need for biodiesel through what it is, what it does, where it comes from and why it fits into the real world of business.

Someone once said that there is nothing more skittish than a million dollars. So the answer to show me the money is probably come out come out wherever you are