Applying for Commercial Scale Bioeconomy Federal Funding?

By Bill Hagy, EVP Federal Funding, Lee Enterprises Consulting

Special to The Digest

In considering applying for federal funding for a commercial scale bioeconomy project, one should know that there are many types of federal funding available – grants, direct loans, loan guarantees or combinations of two of these funding resources – each with different requirements.  A journey thru the maze is probably warranted.

THE BASICS

The Applicant’s Eligibility: 

The applicant’s eligibility is the first factor to consider.  Depending on the federal program, eligible applicants can include small private businesses, some other than small private businesses, public bodies (state, regional, local), non-profits, agriculture producers, cooperatives, and Tribal government entities.

State of the Technology: Some programs only support projects that are “commercially available” while other programs support “new innovative technology projects”. A commercially available system can be either:

(1) a domestic or foreign system that has (i) both a proven and reliable operating history and proven performance data for at least one year specific to the use and operation to the proposed application, and  (ii) iIs based on established design and installation procedures and practices and is replicable; and (iii)  has professional service providers, trades, large construction equipment providers, and labor who are familiar with installation procedures and practices; (iv)  has proprietary and balance of system equipment and spare parts that are readily available; (v)  Has service that is readily available to properly maintain and operate the system; (vi)  Has an existing established warranty that is valid in the United States for major parts and labor; or

(2)  A domestic or foreign system that has been certified by a recognized industry organization whose certification standards are acceptable to the Agency.

Technologically New Project: New or significantly improved equipment, process or production method to deliver a product, or adoption of equipment, process or production method to deliver a new or significantly improved product, of which the first Commercial- Scale use in the United States is within the last five years and is used in not more than three Commercial-Scale facilities in the United States.

Project Location:  To be eligible, a project must be in any of the 50 States of the United States, the Commonwealth of Puerto Rico, the District of Columbia, the U.S. Virgin Islands, Guam, American Samoa, the Commonwealth of the Northern Mariana Islands, the Republic of Palau, the Federated States of Micronesia, and the Republic of the Marshall Islands.   For some programs the project must also be in a rural area.   Each program has its own definition of “rural area”.

Eligible Renewable Feedstock:  Eligible renewable feedstocks include materials, pre-commercial thinning, or invasive species from National Forest System land or public lands or any organic matter that is available on a renewable or recurring basis from non-Federal land or land belonging to an Indian tribe including the following items:

–   Renewable plant material (including feed grains, other agricultural commodities, other plants and trees, and algae); and

–  Waste material (including crop residue, other vegetative waste material (including wood waste and wood residues), animal waste and byproducts (including fats, oils, greases, and manure), and food and yard waste.

Eligible Off-Take(s):  Eligible off-takes include biofuels, renewable chemicals, and biobased products and may produce electricity to sell as a secondary off-take.

Project Federal Participation Amounts Limitations: Several programs have either statutory or regulatory maximum project amount limitations per project.

Here are a few examples: USDA Business and Industry Loan Guarantee and Rural Energy for America (REAP) Loan Guarantee Programs maximum loan amount is $25 million.  USDA Biorefinery, Renewable Chemicals and Biobased Products Manufacturing Assistance (Section 9003) Loan Guarantee is $250 million.  Community Facilities Grant, Direct Loan or Loan Guarantee Program or combination of these has no limitation on the size of either the direct loan or loan guarantee.  DOE Title 17 Innovative Energy Loan Guarantee Program has no loan guarantee amount limitation.

The grant portion of an REAP funded project cannot exceed 25% or $500,00 of eligible project cost- whichever is the lesser amount.  For the Community Facilities program, the grant portion cannot exceed a maximum of 75 % of the eligible project costs (for project to qualify for this amount of grant assistance numerous demographic and income criteria must be met and funds available).

Eligible Project Costs: Eligible project costs for federal program participation may include CAPEX, initial working capital, professional consultant fees (application packaging, engineering, technical reports, feasibility study, business plan, environmental assessment, appraisals, etc.)

Cash Contribution:  Most programs require a portion of the total project costs to come from some form of a cash contribution.  The cash contribution (usually between 20%-25% minimum of total project costs) for most programs must come from other than other federal funding sources unless specifically allowed under the program statutes/ regulations.

Eligible cash contribution sources include New Market Tax Credits, Qualified Empowerment Zones Funding, Commercial Property Assessed Clean Energy (CPACE), Private Investors, Crowd Funding, Community Development Financial Institution (CDFI’s) funding, and Applicant Cash on Hand. 

THE CONTENT OF AN APPLICATION

The application content is listed below.  It is important to note that certain of these identified components are required to be completed by an independent consulting source.

• Project Summary. A brief summary description of the project.
• Federal Funding Application Form. Each Federal program has a standard application form to be completed by the applicant and if a lender (in cases of loan guarantee programs) is involved, the lender.
• Financial Statement(s). These would include:
• Current Agency acceptable balance sheet and year-to-date income statements of the applicant.
• Agency-acceptable historical balance sheet, income statements, and cash flow statements of the borrower.
• Pro Forma financial statements that reflect the ability of a project to achieve sufficient income, credit, and cash flow to financially sustain the project over the long term and meet all debt obligations. Projected balance sheets, income statements, and cash flow statements or a financial model starting from the current financial statements through a minimum specified number of years of the project performing at full operational capacity or stable operations.
• Business Plan. A comprehensive document that clearly describes the borrower’s ownership structure and management experience including, if applicable, discussion of a parent company, any subsidiaries and affiliates of the borrower and discussion of how the borrower will operate the proposed project. If a business or industry is in decline or financial distress, the business plan must describe in detail how the project differs from the current industry trends or improves the borrower’s financial position. The applicant should document and explain how the business has overcome or will overcome business and industry adversity and distress.
• Feasibility Study. A report including an opinion or finding conducted by an independent qualified consultant(s) evaluating the economic, market, technical, financial, and management feasibility of the proposed project or operation in terms of its expectation for success.
• Technical Report. A report providing sufficient detail to enable the Agency to determine the technical merit of the project. Design drawings and process flowcharts are encouraged as exhibits. For most programs, the technical report requirements can be provided in the technical feasibility section of a feasibility study, instead of completing a separate technical report.
• Environmental Assessment. Normally depending on the scope of the project, an independent consultant will be needed to complete the assessment. Each program has guidelines for content of the assessment and the process for conducting the assessment.
• Appraisal. Must be conducted by an independent qualified appraiser.
• Scoring Program Priorities. Each program has published areas of priority interest on the type of projects that will be considered. Each project application must score the identified criteria utilizing information provided in other components of the application.

NOTES:

1. For “new innovative technology “applications- in addition to the above application components, an integrated demonstration unit test results documenting the “proof of concept” must also be provided.
2. Some programs have a two-phase application process: Phase I is to determine eligibility of the entity and project: Phase II is the more comprehensive application.

TIMING OF APPLICATIONS

Some programs applications can be filed throughout the federal fiscal year (FY) (October 1- September 30) while other programs have windows during the FY that applications are received. Normally, the federal agency will publish a notice in the Federal Register or other new media sources to notify the public of the application for funding window period.

About the author: Bill Hagy is member of Lee Enterprises Consulting.  He is retired from the USDA’s Rural Development, where he progressed from Assistant County Supervisor administrating loans, loan guarantees, and grant programs to serving as Acting Under Secretary for Rural Development. He spent his final three years as the Special Assistant for Renewable Energy to United States Secretary of Agriculture Tom Vilsack advising on policy matters relating to alternative/renewable energy development.  Bill has been recognized in the past as one of the Top 100 People in Bioenergy by Biofuels Digest. Lee Enterprises Consulting is the world’s premier bioeconomy consulting group, with more than 150 consultants and experts worldwide. The opinions expressed herein are those of the author and do not necessarily express the views of LEC.