BlueFire plays the China card? Ex-Im Bank of China issues $270M LOI for Mississippi biofuels project

October 26, 2014 |

bluefire-graphicIn California, BlueFire Renewables has received a Letter of Intent from The Export Import Bank of China (China EXIM) to provide up to $270 million in debt financing for its 19 million gallon bioenergy project in Fulton, Mississippi.

The companies said they will continue to work together to complete the standard due diligence procedures of the China EXIM bank and meet all credit criteria and condition precedent to reach definitive agreements in order to complete the financing as soon as possible. Once completed, China Three Gorges Corporation and its U.S. subcontractors will begin construction of the Fulton Project.

Earlier this month, BlueFire Renewables finalized a Master Engineering, Procurement and Construction (EPC) contract for its planned cellulosic ethanol facility in Fulton, MS. The contract is with the China International Water and Electric, subsidiary of China Three Gorges Corporation (CTG).

The BlueFire saga

But it has been a saga, getting to this point. One for the books.

BlueFire was established to deploy a commercially ready, patented and proven Concentrated Acid Hydrolysis Technology Process, developed originally by Arkenol back in the 1990s, or the profitable conversion of cellulosic waste materials to renewable fuel sources, including Cellulosic Ethanol, Biodiesel, BioJet Fuel, and cellulosic sugars produced under the SucreSource brand.

“At Arkenol,” said CEO Arnold Klann, “we were able to produce ethyl levulinate and levulinic acid, and with ethyl levulinate we could produce additives that could reduce particulate emissions  by 95-97 percent, with a 70 percent drop in NOx and a big drop in carbon monoxide. We did a lot of testing with Mobil before it merged with Exxon, and did it all at our pilot plant. So we still have all that.

A rendering of the BlueFire project in Fulton, Mississippi

A rendering of the BlueFire project in Fulton, Mississippi

The original DOE grant and loan guarantee app

BlueFire was awarded a grant totaling $88 million under the American Recovery and Reinvestment Act in December of 2009. So you’d think that would wrap things up, but what about debt?

In 2010, BlueFire Ethanol Fuels submitted an application for a $250 million dollar loan guarantee for the company’s planned cellulosic ethanol biorefinery in Fulton, MS.

So you’d think that would wrap things up, but what about an offtake agreement?

The big offtake agreement

Then in late 2010, BlueFire Renewables signed an off-take agreement with Tenaska Biofuels for all of BlueFire’s 19 MGY cellulosic ethanol production from its planned facility in Fulton, Miss. Pricing of the 15-year contract followed a market-based formula structured to capture the premium allowed for cellulosic ethanol compared to corn-based ethanol, giving BlueFire a credit worthy contract to support financing of the project. Despite the long-term nature of the contract, BlueFire was not precluded from the upside in the coming years as fuel prices rise.

Klann added that the 15 year term of the Tenaska deal reflected the 12-year term on project debt that the company is seeking, plus a 3-year tail. “Tenaska is getting unto biofuels, and really see the value of the RIN credits and the power of the Renewable Fuel Standard in creating a market for cellulosic ethanol. They see it as a win win for them.”

So you’d think that would wrap things up, but what about an feedstock agreement?

In late 2010, BlueFire announced a 15-year contract with Cooper Marine & Timberlands to provide feedstock for BlueFire’s 19 Mgy cellulosic ethanol project in Fulton. Under the agreement, Cooper Marine & Timberlands will supply BlueFire with locally sourced wood chips, forest residual chips, pre-commercial thinnings, construction waste, storm debris, land clearing, and wood waste from furniture manufacturing waste. Under the Agreement, CMT will pursue a least-cost strategy for feedstock supply made possible by the project site’s proximity to feedstock sources and the flexibility of BlueFire’s process to use a wide spectrum of cellulosic waste materials in pure or mixed forms.

The term of the agreement is tied to a 12-year financing of the proposed Fulton project, with a 3-year “tail” added to the feedstock contract in line with a 15-year fuel offtake agreement signed two weeks ago with Tenaska BioFuels.

So you’d think that would wrap things up, but what about a fixed-price contract from the EPC contractor?

Also in late 2010, BlueFire announced that it had finalized and signed an Engineering, Procurement and Construction (EPC) contract for its cellulosic ethanol project in Fulton, MS.  The facility will be engineered and built by Wanzek Construction, Inc., a wholly owned subsidiary of MasTec, Inc. (MTZ) , for a fixed price of $296 million which includes an approximately $100 million biomass power plant as part of the facility.

So you’d think that would wrap things up, but what the permits?

Towards the end of 2010, BlueFire obtained its final air, wastewater, and storm water permits from the Mississippi Department of Environmental Quality (MDEQ) to start construction. Other permits issued related to the Project include a wetlands permit from the U.S. Army Corps of Engineers, and a Certificate of Permit Coverage under Mississippi’s storm water general permit  from the MDEQ.  The Fulton Project will be constructed within an industrial park where infrastructure exists or requires only minimum upgrades to serve the project.

So you’d think that would wrap things up, but it didn’t, so off BlueFire went to China.

By late 2011, the company entered into a Memorandum of Understanding with China Huadian Engineering Co. to finance its integrated Power Plant and Biorefinery in Fulton, MS and up to 5 additional plants in the United States.
Under the MOU, Huadian would invest equity by purchasing an interest in the BlueFire Fulton Renewable Energy LLC and, optionally, debt for the Fulton project to complete financing and construction for this cellulosic ethanol facility.  Additionally, upon the initial success of the Fulton Project, the agreement intends for Huadian to invest equity and/or provide debt for the development of five (5) additional plants in the United States. The MOU also contemplates the formation of a Development Joint Venture to develop similar projects in China.

So you’d think that would wrap things up, but it didn’t, and BlueFire delayed on Fulton as it concentrated on a project in South Korea

In Spring 2013 BlueFire Renewables halted work on the Fulton plant, where construction began in 2009. The $300m project had made progress on permitting and site preparation. BlueFire director of business development and marketing Richard Klann responded in Ethanol Producer Magazine to concern that construction at the Fulton plant has recently stopped. Klann clarified that the company is still actively working to complete the 19 MMgy wood waste-to-cellulosic ethanol plant. Klann added that the company has been attempting to source the debt for the project after their application for a DOE loan guarantee fell through. Klann expressed hope that financing will be in place in the third or fourth quarter this year with construction restarting a few months after that.

So you’d think that would wrap things up, but it didn’t, so BlueFire broadened the scope.

Last October, BlueFire integrated a synergistic wood pellet production plant to its facility in Fulton. The reconfigured design will be a 9 million gallon per year ethanol plant integrated with a 400,000 ton per year wood pellet plant. The pellets will be sold under long term contracts into the European mandated renewable energy market.

So you’d think that would wrap things up, but it didn’t, in fact, DOE pulled the grant plug.

On December 23, 2013, Bluefire received notice from the Department of Energy indicating that the DOE would no longer provide funding under the Company’s DOE grant for the development of its cellulosic waste facility in Fulton, Mississippi, due to the Company’s inability to comply with certain deadlines related to providing certain information to the DOE with respect to the Company’s future financing arrangements for the Fulton Project. The Company is seeking to re-establish funding under the DOE Grant and has initiated the appeals process with the DOE. The Company shall exhaust all options available to it in order to reverse the DOE’s decision.

At the time, BlueFire advised: “The Company cannot make any assurances that the DOE’s decision will be reversed on appeal or that such an appeal will be heard at all. If the Company’s attempt to appeal the DOE’s decision is unsuccessful, we will devise a new strategy with respect to financing the Fulton Project. The Company will deploy any remaining funds from previous DOE funding for the development of the Fulton Project as planned.

Whew! It really has been a saga…

Reaction from BlueFire

“This is a significant feat, not just for BlueFire as it also provides a model for the U.S. small business community because it is a strong indication of China’s commitment to support and fund U.S. renewable energy technologies to improve the environment and build a strong foundation for cooperation between China and the U.S. in the field of renewable energy,” stated BlueFire CEO Arnold Klann.

Klann said that BlueFire has been working with China EXIM in response to the China Strategic and Economic Dialogue with the U.S., which encourages U.S./China cooperation in the renewable energy field. Due to the difficulty in obtaining financing for capital-intensive energy projects, many renewable energy projects do not get past the pilot phase and into the full commercial development stage. Dozens of renewable energy projects in the U.S. are languishing because of the debt-financing problem and the BlueFire solution could be the path to commercialization for many of these projects.

Because Loan Guarantee programs offered by U.S. Federal agencies (the Department of Energy and the Department of Agriculture) were not structured for small businesses, the BlueFire/China EXIM framework with major Chinese companies will open the door for more businesses in the U.S. to finance and build projects, not only in the U.S., but in China.

“There are significant opportunities for replicating the BlueFire Fulton size or larger facilities in China and the U.S. to deal with problematic agricultural and urban waste currently being burned or buried.” Klann said. “Debt financing has been the most difficult part of the financing to obtain for the cellulosic biofuels industry. BlueFire’s business model and relationships with China EXIM will set the standard for future debt financing arrangements and could be the spark that leads to the more beneficial use of cellulosic wastes in the biofuels industry in the U.S. and China. We are cracking the code when it comes to striking a win-win business deal for China, the U.S. and energy consumers.”

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