You just can’t beat the financing of renewable fuels for all-out zaniness. Tragicomedy, anyone? Consider the case of BlueFire Renewables (BFRE).
Sometimes, the financing of renewable fuels can start to sound a little like an Abbott & Costello routine.
The planned BlueFire plant
Allow us to summarize. You can finance a liquid renewable fuel as long as the market is solid, especially if you are making solids, and the market for solids is liquid, and your liquidity is solid. Adding solids to your liquids will make you more solid, and eventually more liquid. If you know what I mean.
In other words, to get altitude, what you need is a little more grounding.
So that clears up that.
Fuel financing paradoxes and BlueFire Renewables
The paradoxes of financing renewable fuels come to mind with the news, from BlueFire Renewables (BFRE), that they have conjured up a new configuration for their long-contemplated cellulosic biofuels project in Mississippi. To which they have added wood pellet production.
The process well, it’s been proven at pilot scale for more than a decade is based on the old Arkenol technology that has been in place in Japan since 2003 an acid pretreatment that releases cellulosic sugars for fermentation. BlueFire has long demonstrated production of biofuels from urban trash (post-sorted MSW), rice and wheat straws, wood waste and other agricultural residues.
Back in 2009, BlueFire was one of six companies to receive large DOE grants aimed at stimulating the cellulosic biofuels markets in time for the large cellulosic targets that were a key part of the Renewable Fuel Standard.
Given that the technology was already long-in-place at pilot scale, it had an advanced state of technical readiness compared to other technologies just then coming along companies like KiOR, for example, were just getting underway. So, it landed $88 million under the American Recovery and Reinvestment Act, in December of 2009 (largely still untapped, at this stage, as the grant money is staged and most of it tied to future project milestones).
After the 2009 grants, the financing process started for that generation of technologies that BlueFire found itself amongst. It’s a script right out of the Marx Brothers.
“Cowcookies”, the lost Marx Brothers script
Scene, an office on Wall Street. Enter a lender, Harold P. Cheesebreath and his prospective borrower, Al Cohol.
Cohol: (confidently) See here, it’s a no-brainer. Mandated fuel, pilot-proven technology, no food crops, carbon-friendly.
Cheesebreath: I don’t care about carbon.
Cohol: (brightly) OK, here’s a mandated fuel, demonstrated technology, and no food crops.
Cheesebreath: I don’t care for mandated markets.
Cohol: (chastened, but unbowed) OK, here’s a demonstrated technology, and no food crops.
Cheesebreath: Why can’t you use crops with a track record?
Cohol: (sighing) Because those would be food crops.
Cheesebreath: Food vs fuel? Well, I won’t finance that.
Cohol: (sadly) OK, here’s a demonstrated technology.
Cheesebreath: I don’t do first commercial projects. I’ll do your next one.
Cohol (brightening): You mean you’ll finance my second plant?
Cheesebreath: No, your next one. If you’re planning your second, I’m only interested in your third. If you’re ready for your third, I’m only interested in your fourth.
Cohol: (distressed) But that will take at least five years, to get to a fourth.
Cheesebreath. And that’s another thing, your sector is always five years away.
Cohol glumly leaves the building.
Of course, most project owners give up at this stage. Which appears to be the point of the process.
But some carry on. In doing so, they remind us of the character of Boxer, an impressively strong and dedicated horse who plays a leading role in George Orwell’s Animal Farm. At a time when the pigs running the farm had become completely corrupted, and the farm went through a great crisis, Boxer reflected:
“I would not have believed that such things could happen on our farm. It must be due to some fault in ourselves. The solution, as I see it, is to work harder.”
BlueFire soldiers on
And so, those project owners that carry on, carried on as if the fault lay within themselves and simply worked harder. In the case of BlueFire, it has been a half-decade of structure the deal, re-structure the deal, and re-re-structure the deal until you’d think that Joan Rivers had fewer facelifts.
“While the rumors, hopes and comments about our death have swirled about,” CEO Arnold Klann reflected with a sigh, “we have been trying to figure out how to finance a first of its kind commercial project without any corporate, venture, cash flow or other financial support.
“I can say with great confidence, we know at least 50 ways on how not to finance a project. I am thinking about writing a song about it to the tune of “50 ways to leave your lover” by Paul Simon. The other thought is to write a book,” Fifty shades of no financing”.
As Paul Simon wrote in 50 Ways to Leave Your Lover:
She said it grieves me so
To see you in such pain
I wish there was something I could do
To make you smile again
I said I appreciate that
And would you please explain
About the fifty ways
But Klann demurs in explaining the fifty ways. One of those optimistic types who generally insists on putting the past in the past. Instead, he’s focused on the next structure, the next financing. You have to admire that indefatigable quality; it’s the quality that Edison had.
“While it has not been easy nor fun,” he told the Digest, “I think we may have discovered the way for a pure project finance that stands alone.”
Option #51: The pellet story
What is it? BlueFire has integrated a synergistic wood pellet production plant to its proposed facility in Fulton, Mississippi. 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.
Traditionally wood pellets are used for electricity generation and can be sold under long term, fixed price contracts to credit worthy utilities thereby adding financial stability to a project.
Klann explains. “This restructure provides a more robust economic model for the Fulton facility with a significant increase in projected revenues. It has become apparent in our attempts to obtain financing for the project that the right synergies and revenue model would be needed to build this first of a kind facility.
“The optimum use of biomass in the integrated facility strikes a much better balance of revenue with costs and a better utilization of resources. The more profitable use of capital and the enhanced security of projected revenue streams more closely match what the banks have been requiring in the very conservative and
restricted credit markets.”
Ah, you see, there’s the lignin to be considered. A byproduct of most cellulosic biofuels processes especially those of the enzymatic kind (as opposed to the thermochemical companies that blow through lignin’s complex bonds by meting them with heat).
And you know what they say about it. “You can make anything with lignin except money.”
But here’s the exception to the rule, Klann says. Blended with lignin from BlueFire’s process, the wood pellets create a market advantage under the international mandates for renewable energy, especially for power in the European Union.”
The state of play
BlueFire has previously announced start of construction in Mississippi and has completed the preliminary site work for the ethanol facility. The engineering and other development activities needed are already under way to add the pellet plant. Synergistic partners will be announced once the definitive agreements are signed.
The Bottom Line
Will this approach work? Only those with access to the complete data will ultimately be able to tell. But it’s significant that we haven’t heard a media-ready peep out of BlueFire for nearly 17 months as they have gone through their financing cycles. Klann and his clan are the opposite of hypesters.
So, that they are prairie-dogging this approach and sticking their heads out of the dark tunnels of financing and showing themselves to the outside world well, it’s a good sign.
And we wish them well. More about BlueFire here.