U.S. DOE Loan Programs Office taps $1.63B Texas Renewable Fuels loan for loan guarantee Part II app

In Arizona, USA BioEnergy’s signature project, Texas Renewable Fuels, has been invited by the U.S. Department of Energy (DOE) Loan Programs Office (LPO) to submit a Part II application for a proposed $1.63 billion loan guarantee under the Title XVII Innovative Clean Energy Loan Guarantee Program. The Part II Application is part of the LPO’s review and evaluation process and must be completed prior to the potential issuance of a conditional commitment for a U.S. Department of Treasury Federal Financing Bank loan guaranteed by the Department of Energy.

This news comes on the heels of USA BioEnergy’s announcement of an industry-leading 20-year offtake agreement with Southwest Airlines for Sustainable Aviation Fuel (“SAF”) with a volume sufficient to produce more than two billion gallons of net zero fuel. Under the agreement, Southwest may purchase up to 680 million gallons of neat sustainable aviation fuel. Once blended with conventional jet fuel, the SAF could produce the equivalent of 2.59 billion gallons of net zero fuel and avoid 30 million metric tons of CO2 over the agreement term. Net zero is determined by a fuel with a carbon intensity of zero (0) gCO2e/MJ or lower on a lifecycle basis.

DOE’s invitation to submit a Part II application is not an assurance that DOE will invite an applicant into the due diligence and term sheet negotiation process, that DOE will offer a term sheet to an applicant, that DOE will issue a loan guarantee, or that the terms and conditions of a loan guarantee will be consistent with terms proposed by an applicant. The foregoing matters are wholly dependent on the DOE review results, a Part II Application evaluation, and DOE’s determination whether to proceed.

The Texas Renewable Fuels backstory

Life Cycle Associates examined the life cycle GHG emissions for USA BioEnergy’s Biomass to SAF plant under CORSIA. The analysis identifies model inputs and Life Cycle GHG emissions calculations. CORSIA defines the requirements for the minimum lifecycle assessment (“LCA”) emission values for selected SAF pathways. The Greenhouse Gases, Regulated Emissions, and Energy in Transportation (“GREET”) model has become the standard in the life cycle analysis of transportation fuels. The carbon intensity results for USA BioEnergy’s Biomass to SAF plant utilizing carbon capture and sequestration (“CCS”) are estimated at -292.6 gCO2e/MJ.

Mark Riedy, Patrick McShane, and the Kilpatrick Energy Practice Group represent USA BioEnergy in negotiating and drafting all project financing agreements (including all equity placement and municipal tax-exempt bond and DOE Title 17 loan guarantee financings), tax and corporate structuring, federal governmental affairs, including federal energy, environmental tax policy initiatives, among other matters. USA BioEnergy advocates for clean fuel and low-carbon policies that incentivize the renewable fuels industry. USA BioEnergy is an active Alternative Fuels and Chemical Coalition (AFCC) member. This leading Washington, DC-based bioeconomy trade association, which Mr. Riedy co-founded and serves as General Counsel, advocates for cutting-edge public policies to promote the development and production of alternative fuels, renewable chemicals, biobased products, and sustainable aviation fuels. Mark J. Riedy is also a Partner at Kilpatrick, Townsend & Stockton, LLP.

USA BioEnergy and Ecostrat previously announced the issuance of ‘AA’ rated Bioeconomy Development Opportunity (BDO) Zone designation for Bon Wier, Texas. ‘AA’ and ‘A’ BDO Zone ratings identify the country’s best-positioned low-risk bioeconomy project development areas. Bon Wier’s ‘AA’ rating for forest residues and Pulpwood & Sawmill residues is North America’s first ‘AA’ rating. The Bon Wier BDO Zone is rated ‘AA,’ or very low risk, based on numerous positive indicators such as a substantial surplus of available biomass, a large number of potential anchor suppliers, and a healthy forestry labor market. Approximately 13.6 million green tons of woody biomass per year are generated in the Bon Wier BDO Zone, defined by a 75-mile radius of Bon Wier.

USA BioEnergy’s project-level company, Texas Renewable Fuels, was one of the very last to be awarded the Chapter 313 incentive from the State of Texas before the program ended on 12/31/22. The combined total of State and Local Incentive was in excess of $150M and are largely property tax abatement and job training reimbursement.

Reaction from the stakeholders

“Provided that our application is approved, we plan to combine it with Tax-Exempt Bonds through our lead underwriter, Citigroup, and our co-underwriter, Stifel. The appeal of the loan guarantee program funding is that it offers the lowest cost of capital, which becomes monumentally important when funding infrastructure-sized projects,” said USA BioEnergy’s CEO Nick Andrews. “Getting invited to Phase II is no small undertaking as the LPO does not extend invitations lightly and believes the Company and the Project have the potential to join the LPO portfolio.”