biomass project development and financing: “ from woods to watts” presented by: thomas suffield,...

BIOMASS PROJECT DEVELOPMENT AND FINANCING:“FROM WOODS TO WATTS”

Presented by: Thomas Suffield, Principal, Cedars Capital, LLCPresented to: Renewable Power Project Finance: The TutorialInfocast: Houston, TexasMarch 12 , 2008

2www.cedarscapital.com [email protected] Houston, TX (713) 554-3017

Thomas Suffield, Principal: Cedars Capital LLC

Education:

Background:

Cedars Capital, Houston, Texas based boutique Investment & Project Advisory Firm Downstream Power Plant Development and Financing

Development of gas, coal and renewable fired power projects Equity and Debt Project Financing and Capital sourcing for Commercial Entities

Track Record: Developed, Acquired or Financed over 2,500 MWs, valued at over

$3.5Billion. www.cedarscapital.com [email protected] (713) 554-3017


Project Description

24 MegaWatt biomass power plant being constructed within the Abitibi recycled newsprint paper mill in Snowflake, Arizona. 2 year pre-construction development timeline Financial Close and Construction Start,

September, 2006 $55MM Project Financing led by CoBank,

represents the U.S. Farm Credit System Projected Commercial Operations, December

2007 Capture ½ of Eligible Production Tax Credits

Good mix with AZ’s wind and solar power


Stakeholders, Players Project Developer

www.renegy.com

Robert M Worsley: Entrepreneurial and Corporate Experience Owner’s Rep: Scott Higginson

Approval Authorities: Permitting, Tax Exempt Bond Financing Financing Sources

Thornton Farish Owner’s Engineer: Evergreen Lender’s Engineer: Stone & Webster Technical Advisor: Carlson Small Power Consultants Owner’s Counsel: Bracewell & Giuliani Lender’s Counsel: Latham & Watkins Operator: Abitibi Consolidated


Power Purchase Agreements Request for Proposal from Salt River Project (SRP) for Electricity Off-

take from Biomass Fueled Power sourced within Arizona AZ has a renewable portfolio standard increasing to of 15% from renewable

generation by 2025 Successful Bid, Negotiation of Preliminary Commercial Terms and Power

Purchase Agreement (PPA), Sept, 2004 20 year term for 10MWs, with incremental 10 megawatts for years 16-20

Negotiation with Arizona Public Service (APS) for an additional 10-14 MWs of Biomass Fueled Power for a 15 year term Off take fluctuates as a function of the plant’s auxiliary load

Both regulated utilities with strong financials/credit worthy off takers (SRP government owned) Differ from a commodity reseller or ‘non finance-able/credit worthy entity’

Green Credits: From Wood Waste to MegaWatts Both Utilities are purchasing Snowflake’s Renewable Energy Certificates


Project Location Bidding Constraints

Deliver to SRP interconnection points in Arizona Close proximity to biomass fuel, existing infrastructure Abitibi Paper Mill Cost Effective Synergies

Capital Cost Savings Existing systems: Transmission Substation, Dedicated Transmission

Line, Control Room, Plant Security, Truck Weigh Station, Fuel Laydown area, Fuel Processing, existing Natural Gas line

Plant will actually backfill the transmission line, producing additional value

Operating Cost Savings Fuel Sourcing: Previous Pulp operation and continuous Paper Sludge

being landfilled Redundant Systems

Water Sourcing and Treatment, Black Start capability


Equipment Procurement and Construction

Engineering Plant has increased in size 3 fold since original

sizing, given higher elevations Mix of New and Used Equipment

Abitibi Plant in Sheldon, Texas Conveyors, screw presses, etc. Forged steel steam drum

Technology New Babcock and Wilcox bubbling fluidized bed

boiler designed for this fuel application Procurement


Fuel Sourcing June 20, 2002 Rodeo-Chediski wildfire started that ultimately

burned almost 500,000 acres of National Forest land in Eastern Arizona

Renergy (Wholly owned Subsidiary): Fuel Procurement, Processing and Logistics of woody waste material from surrounding area Business Plan: capture value from whole logs, aggregate fuel

sourcing (marketing/logistics) Government (USFS, BLM, Native American Sovereignty) owned

forest lands typically pays for forest stewardship Privately owned forest lands, typically is paid for forest stewardship

Largest forest logging operation in Arizona Numerous US Forest Service contracts being let to remove

biomass Green forest thinning activities, Forest Rehabilitation

Waste material from the region’s existing saw mills


Fuel Sourcing Continued Abitibi produces 250 bone dry tons/day of waste recycled paper

Sludge Will provide 25% of the fuel for the plant

Acquire a 3 year fuel supply prior to start up Fuel will be chipped, typically has 7-10% moisture content from

the field Disposal site for wood waste Logistics: Rail and Trucking of biomass

Fuel Costs, distance traveled Dis-aggregation of vendors: individual jobbers/truckers

Snowflake will consume: 125,000 tons/year of forest thinnings @ 20% moisture 168,000 tons/year of paper sludge @ 50% moisture

Competitive Uses: Fuel pellets for wood stoves, garden mulch Most is burned in place/side of the mountain


Project Financing Process of Identifying Financing Sources

Equity: Sponsor Contributed approx. $20MM Debt: Project Financed/avoidance of personal guarantee

Sizing constraints: Debt/Equity Ratios Debt Service Coverage Ratios Bonds: Limited by statute on what assets they can fund

CoBank: Lead arranger and underwriter JPMorgan/Chase: provided credit support to CoBank’s LCs Thornton Farish

Tax Exempt Bond Underwriter of Waste Projects Financing Structure

Project Debt: Construction and Term Loans Industrial Development Bonds (Backstopped by Letters of Credit)

Production Tax Credit Availability Developer Support Creative Nuances


Approvals Permitting: Minimal given existing Abitibi footprint

Air Quality Permit issued by AZ Dept of Environmental Quality, without reopening the existing permit for the Abitibi Plant

Construction permit issued by Navajo County for buildings Large Generator Interconnection Permit and Transmission

Agreement Bond Approvals

Western States typically don’t utilize all of their tax exempt bond issuing capacity granted by U.S. Treasury/I.R.S.

AZ Dept. of Commerce awarded Private Activity Bond allocation Bonds issued by the State Show Low Industrial Development Authority was able to authorize up

to $39.25MM in bonds Project qualified under IRS guidelines as a “Solid Waste Treatment

Facility” Project was able to incorporate the authorized amount


Risk/Reward Analysis Development Risk

Developer Provided Consideration/Credit Support to Power Off-takers Equipment/Development Risk Permitting Risk Financing/Interest Rate Risk

Construction Risk Construction Guaranties/General Contractor Wrap Developer Support

Operating Risk Equipment, Fuel Sourcing, Payment Risk, Performance/Operator Risk (PPA

compliance) Financial Risk

Bonds are swapped, eliminating interest rate risk PPA escalation: fixed rate, inflation adjusted Pricing Risk: Costs may still increase faster than revenues Abitibi Viability/Operational Risk

Regulatory Risk FERC, AZ utility regulation and environmental laws Tax law

Investor Risk Bond Holders are only exposed to JPMorgan/Chase credit risk, not project risk


Market forces and Lessons Learned

Market Timing Early in latest wave of the Biomass Power Development life

cycle Market Forces

Price increases in capital cost components of source material including Commodities: steel, cement, anything with a high fuel cost

component Finished equipment and lead times: Lack of

Manufacturing/Infrastructure Capacity Boiler, generator, bag house, etc.

Market Strategy From Woods to megaWatts to projectWonder


Social/Strategic Components

Environmentally Beneficial Healthy Forest Initiative

Forest Density (Crowding, Beatle Infestation, Drought) Lack of fuel degradability at altitude/humidity

Forest Beautification Abitibi: save landfill space, burn paper sludge

Economically Viable State and Utility diversification of fuel risk Job creation

Renewable Energy CO2 Neutral Secure supply of charred timber

biomass project development and financing: “ from woods to watts” presented by: thomas suffield,...

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