INSIDE: NEW MARKET TAX CREDIT BOLSTERS BIOMASS BUSINESS
January 2012
Expanding for
Exports Maine Ports Prepare to Capitalize on Europe's Pellet Market Page 18
Plus: Keys to Successful Biomass Conversions Page 24
www.biomassmagazine.com
INSIDE ¦
ADVERTISER INDEX¦
JANUARY 2012 | VOLUME 6 | ISSUE 1
2012 International Biomass Conference & Expo
33
2012 Pacific West Biomass Conference & Trade Show
29
2012 Pellet Producer Map
35
Agra Industries
5
Bruks Rockwood
21
Buhler, Inc.
20
Continental Biomass Industries, Inc.
12
CPM Roskamp Champion
6
Detroit Stoker
26
Eide Bailly
16
Fagen Inc.
2
Hurst Boiler & Welding Co. Inc.
22
Indeck Power Equipment Co.
13
Jeffrey Rader Corporation
32
KEITH Manufacturing Company
31
Morbark, Inc.
23
Nesco
27
PHG Energy
36
West Salem Machinery
17
Williams Crusher
FEATURES 18 PELLETS Positioned for Pellets Maine’s three deepwater ports are gearing up to help feed Europe’s growing demand for wood pellets. By Lisa Gibson
24 PROJECT DEVELOPMENT The Power of Punctilious Planning Proper planning, experienced personnel and strong partnerships are crucial to the success of biomass projects. By Anna Austin
CONTRIBUTION 30 FINANCE Does Your Alternative Energy Project Qualify for the New Market Tax Credit? Necessary capital is available, but not simple to obtain. By Tom Ritchie and Jim Schmidt
7
Wolf Material Handling Systems
15
Vecoplan
28
DEPARTMENTS 03 ADVERTISER INDEX 04 EDITOR’S NOTE Saying Goodbye, but Leaving You in Good Hands By Rona Johnson Stepping Up, and Getting Down to Business By Lisa Gibson
06 INDUSTRY EVENTS 08 POWER PLATFORM BPA’s Letter to Santa By Bob Cleaves
09 THERMAL DYNAMICS Wood Energy Call to Arms By John Karakash
10 ENERGY REVIEW The Importance of Due Diligence for Algae Startups By Peter A. Letvin
11 LEGAL PERSPECTIVE Time to Assess Biomass Project Funding Options By Emily Chad and Todd Taylor Biomass Power & Thermal: January 2012, Vol. 6, Issue 1. Biomass Power & Thermal is published monthly. Principal Office: 308 Second Ave. N., Suite 304, Grand Forks, ND 58203. Application to Mail at Periodicals Postage Rates is Pending at Grand Forks, ND and additional mailing offices. POSTMASTER: Send address changes to Biomass Power & Thermal/Subscriptions, 308 Second Ave. N., Suite 304, Grand Forks, North Dakota 58203.
12 BUSINESS BRIEFS 14 FIRED UP 34 MARKETPLACE JANUARY 2012 | BIOMASS POWER & THERMAL 3
¦EDITOR’S NOTE
Saying Goodbye, but Leaving You in Good Hands
RONA JOHNSON Editor
It is never easy saying goodbye, but it’s more pleasant when I know my absence will not leave a huge void. So even though I have accepted a position as the editor of Agweek magazine and will be gone by the time you read this—my final Editor’s Note for Biomass Power & Thermal magazine—Lisa Gibson will be taking the helm as the editor of Biomass Power & Thermal and Pellet Mill Magazine, making for a seamless transition. It was tough to choose between agriculture and biomass. But I believe I’m getting the best of both worlds by moving because of agriculture’s ties to the biomass industry, namely in the crop residue, energy crop and animal waste areas. I will continue to be a proponent of renewable energy and plan to keep track of all the projects that we’ve covered over the years. In my new position, there will be many opportunities to cover biomass power and thermal, so some of you may be hearing from me again in the near future. It has been a pleasure working in such a dynamic industry that has such potential for growth, and I’m so lucky to have had this opportunity.
Stepping Up, and Getting Down to Business When I began covering the biomass industry two and a half years ago, I knew it was a sector with enormous growth potential, but was unaware it would hold so much opportunity for me personally. I have traveled the country, attended biomass-related events and made valuable professional connections in this industry that will undoubtedly help smooth my transition to editor of Biomass Power & Thermal and Pellet Mill Magazine. I am happy to keep Associate Editor Anna Austin as a crucial contributor to our content, and I welcome Associate Editor Luke Geiver, whose work will appear in the February issue. Luke already has experience in the biomass industry, writing for other BBI International publications, so he will be a great addition to our team. I’ll miss working with Rona Johnson, but I wish her all the best. I am excited and very proud to take the reins and guide the broad, reliable industry coverage these two publications provide their readers. This issue is certainly no exception, so if you skipped my editor’s note and jumped right in, I don’t blame you.
LISA GIBSON Editor lgibson@bbiinternational.com
For more news, information and perspective, visit www.biomassmagazine.com Associate Editor
ANNA AUSTIN
Associate Editor Anna Austin explores several measures that can keep biomass projects on a successful path, sharing words of wisdom from experienced biomass power developers and operators. A recent mishap at one college campus’s biomass plant has some developers on edge, but Austin explains simple ways to avoid a similar fate.
4 BIOMASS POWER & THERMAL | JANUARY 2012
Contributors
EMILY CHAD
TODD TAYLOR
In this month's Legal Perspective column, Fredrikson & Byron attorneys Emily Chad and Todd Taylor explore options for biomass project funding. They lay out a list of programs, but warn of restrictions.
FROM CHOPPING EDITORIAL EDITORS Rona Johnson Lisa Gibson lgibson@bbiinternational.com ASSOCIATE EDITOR Anna Austin aaustin@bbiinternational.com COPY EDITOR Jan Tellmann jtellmann@bbiinternational.com
ART
TO MATERIAL HANDLING
ART DIRECTOR Jaci Satterlund jsatterlund@bbiinternational.com GRAPHIC DESIGNER Elizabeth Burslie bburslie@bbiinternational.com
PUBLISHING & SALES CHAIRMAN Mike Bryan mbryan@bbiinternational.com CEO Joe Bryan jbryan@bbiinternational.com
TO WET OR DRY STORAGE
VICE PRESIDENT Tom Bryan tbryan@bbiinternational.com VICE PRESIDENT, SALES & MARKETING Matthew Spoor mspoor@bbiinternational.com EXECUTIVE ACCOUNT MANAGER Howard Brockhouse hbrockhouse@bbiinternational.com SENIOR ACCOUNT MANAGER Jeremy Hanson jhanson@bbiinternational.com ACCOUNT MANAGERS Marty Steen msteen@bbiinternational.com Chip Shereck cshereck@bbiinternational.com Bob Brown bbrown@bbiinternational.com Andrea Anderson aanderson@bbiinternational.com Dave Austin daustin@bbiinternational.com
AGRA HAS A CUSTOM-DESIGNED BIOMASS SOLUTION FOR YOU!
CIRCULATION MANAGER Jessica Beaudry jbeaudry@bbiinternational.com ADVERTISING COORDINATOR Marla DeFoe mdefoe@bbiinternational.com SENIOR MARKETING MANAGER John Nelson jnelson@bbiinternational.com
Subscriptions Biomass Power & Thermal is free of charge to everyone with the exception of a shipping and handling charge of $49.95 for any country outside of the United States, Canada and Mexico. To subscribe, visit www.BiomassMagazine.com or you can send your mailing address and payment (checks made out to BBI International) to Biomass Power & Thermal Subscriptions, 308 Second Ave. N., Suite 304, Grand Forks, ND 58203. You can also fax a subscription form to (701) 746-5367. Back Issues & Reprints Select back issues are available for $3.95 each, plus shipping. Article reprints are also available for a fee. For more information, contact us at (701) 746-8385 or service@bbiinternational.com. Advertising Biomass Power & Thermal provides a specific topic delivered to a highly targeted audience. We are committed to editorial excellence and high-quality print production. To find out more about Biomass Power & Thermal advertising opportunities, please contact us at (701) 746-8385 or service@bbiinternational. com. Letters to the Editor We welcome letters to the editor. Send to Biomass Power & Thermal Letters to the Editor, 308 2nd Ave. N., Suite 304, Grand Forks, ND 58203 or e-mail to rjohnson@bbiinternational.com. Please include your name, address and phone number. Letters may be edited for clarity and/or space.
Please recycle this magazine and remove inserts or samples before recycling
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JANUARY 2012 | BIOMASS POWER & THERMAL 5
¦INDUSTRY EVENTS Pacific West Biomass Conference & Trade Show January 16-18, 2012
ONE SOURCE, ONE AUTOMATED SOLUTION You can count on our knowledge and experience for a cost-effective, integrated solution for your green energy plant. Our engineered system combines quality equipment and process management to control product flow from start to finish, with automated solutions for: • Grinding • Conditioning • Pelleting • Cooling • Sifting
San Francisco Marriott Marquis San Francisco, California With an exclusive focus on biomass utilization in California, Oregon, Washington, Idaho and Nevada—the Pacific West Biomass Conference & Trade Show will connect the area’s current and future producers of biomass-derived electricity, industrial heat and power, and advanced biofuels, with waste generators, aggregators, growers, municipal leaders, utility executives, technology providers, equipment manufacturers, investors and policy makers. (866)746-8385 www.biomassconference.com/pacificwest
International Biomass Conference & Expo April 16-19, 2012 Colorado Convention Center Denver, Colorado A New Era in Energy: The Future is Growing Organized by BBI International and coproduced by Biomass Power & Thermal and Biorefining Magazine, this event brings current and future producers of Bioenergy and biobased products together with waste generators, energy crop growers, municipal leaders, utility executives, technology providers, equipment manufacturers, project developers, investors and policy makers. It’s a true one-stop shop—the world’s premier educational and networking junction for all biomass industries. Early Bird registration rate expires March 5. (866)746-8385 www.biomassconference.com
Call us today, and hold us accountable for your cost-effective solution.
International Fuel Ethanol Workshop & Expo June 4-7, 2012 Minneapolis Convention Center Minneapolis, Minnesota Evolution Through Innovation Now in its 28th year, the FEW provides the ethanol industry with cuttingedge content and unparalleled networking opportunities in a dynamic business-to-business environment. As the largest, longest running ethanol conference in the world, the FEW is renowned for its superb programming—powered by Ethanol Producer Magazine. Presentation ideas are being accepted online through Feb. 10. (866)746-8385 www.fuelethanolworkshop.com
International Biorefining Conference & Trade Show November 27-29, 2012
800-552-2382 | WATERLOO, IOWA
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CPM Roskamp Champion
6 BIOMASS POWER & THERMAL | JANUARY 2012
Hilton Americas - Houston Houston, Texas Organized by BBI International and produced by Biorefining Magazine, the International Biorefining Conference & Trade Show brings together agricultural, forestry, waste, and petrochemical professionals to explore the value-added opportunities awaiting them and their organizations within the quickly maturing biorefining industry. Contact a knowledgeable account representative to reserve booth space now. (866)746-8385 www.biorefiningconference.com
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¦POWER PLATFORM
BPA's Letter to Santa BY BOB CLEAVES
Dear Santa, We have been very good this year. Biomass Power Association members have generated millions of kilowatt hours from clean, renewable fuels. We have provided jobs across rural America, paid significant local property taxes and avoided millions of tons of greenhouse gas emissions. But 2012 promises to be challenging. We know you can’t change the price of natural gas, or order each of the 50 states to adopt a renewable portfolio standard. But there are a few items that we know somebody of your stature can deliver, so get to work, please. We just received the draft U.S. EPA boiler MACT rules. Was this Christmas come early or a large piece of coal? We’re not sure. This much we know—the EPA listened. The proposed Non-Hazardous Secondary Material rule includes an expanded list of feedstocks that will not be subject to the vagaries of the “legitimacy criteria” process. Of utmost importance, the type of fuels our industry consumes—forestry debris, agricultural residues, urban wood—all are considered fuels and not wastes under the draft rule. The draft rule also includes important changes to the boiler MACT rules. Dioxin and mercury limits are now work practice standards, and the EPA has eased the previously unworkable standard for carbon monoxide.
8 BIOMASS POWER & THERMAL | JANUARY 2012
Other aspects of the rule remain problematic, including the EPA’s “pollutant-by-pollutant” approach, which we think is fundamentally flawed. But Santa, there is a bigger problem. And that is the uncertainty created by pending litigation in the Washington, D.C., courts. No matter how improved these rules may be, the EPA’s ability to undertake this rulemaking, which is set to be finalized in April, is being challenged in court. And as long as litigation creates uncertainty around EPA’s ability to make the changes it now has proposed, our industry is at risk. The result is a chilling effect on growth and investment. Also, Santa, please convince the Congress this holiday season to extend 1603 and the Section 45 programs. Congressional support has resulted in thousands of new jobs in our sector, and more than $1 billion in new investment capital. And one more thing, the next time you are in Washington, stop by the EPA and remind the rule makers of the carbon benefits of biomass. You have a lot of credibility, given your familiarity with chimneys. Maybe the red suit and beard will make a difference. Author: Bob Cleaves President and CEO, Biomass Power Association www.USABiomass.org
THERMAL DYNAMICS¦
Wood Energy Call to Arms BY JOHN KARAKASH
Every segment of the wood heat industry—companies working together to design, manufacture, sell/ purchase, install, operate, maintain and supply fuel used for heating and cooling—will see increased revenue and respect, when (not if) wood fuel becomes a mainstream renewable choice for heating and cooling in commercial class buildings. The Energy Independence and Security Act of 2007 is just one of the laws requiring many buildings to use a larger share of renewable fuels and emit less fossil-source carbon. EISA is in force today, and modern wood thermal systems can help achieve those goals. Under EISA, all new commercial buildings must comply with Net-Zero Energy Building standards by 2030; 50 percent of commercial buildings need to reach NZEB performance levels by 2040, with 100 percent in compliance by 2050. The mix includes large stores and retail complexes, commercial office buildings, hospitals, high-rise apartments, resort hotels and casinos, and similar structures. While these buildings are among the most costeffective applications for biothermal energy, they have generally been overlooked by the industry. More than 10 billion square feet of floor space will undergo renovation over the next 20 years, according to the Department of Energy Commercial Building Technologies program, with 40 billion square feet more being built new. American companies wishing to capture that growth energy will need to take action, making investments in design, manufacturing facilities and staff development that take the best of today’s products and service offerings up a level. This is a choice, with the al-
ternative likely to be loss of sales to greater importation of fully automated wood equipment from Europe. One facility alone, which is operated by Frohling in Stritzing, Austria, employs hundreds of people to make 23,000 wood-fueled boilers a year. The equipment has capacity and convenience in the range needed for the U.S. commercial building market. Recent indications show growing acceptance from important players. Heating, ventilating and air-conditioning engineers and the U.S. DOE are the best examples. The change will require greater collaborative development among all companies, design engineers and fuel suppliers to seek and deserve assistance as an emerging green technology. Help can be available for companies wishing to adapt and enter this more difficult market, which has dollar savings further removed from decision makers than is the case with traditional markets, especially since engineers need to convince the public of the reliability, operational safety, and fuel supply security of woodfueled boilers. American firms can also achieve success, but not until one or more of the manufacturers decides to make it happen. Allies and advocates are willing to help in the effort but the true winners, the companies that will benefit most from that growth success, need to strike the match that lights the fire. I hope one of them starts the process soon. Author: John Karakash Resource Professionals Group BTEC member (570) 434-2300 John.karakash@resourceprofessionalsgroup.com
JANUARY 2012 | BIOMASS POWER & THERMAL 9
ÂŚENERGY REVIEW
The Importance of Due Diligence for Algae Startups BY PETER A. LETVIN
Algae holds promise as a next-generation biofuel, both for heat and electricity and especially for transportation fuels. Algae could potentially be a game changer for biofuels in the future. Critical to algae entering this game as a true contender is productivity. Energy & Environmental Research Center research has shown that algae may be able to produce 100 times more gallons of oil an acre per year than soybeans. This is the one metric that has driven the algae-to-fuels industry to where it is today. Metrics are important, especially to biofuels. Of course, many important metrics must enter the conversation and be understood in order to determine if algae will be a successful biofuel feedstock of the future. Water usage, chemicals and byproducts produced, nutrient utilization or removal, CO2 capture, capital expenses, operating expenses, and energy balances are all metrics of great importance. Some metrics have been poorly used and reported by algae-to-biofuel startups in the recent past. For example, several years ago when I started working at an algae biofuels startup, the main metric was gallons of fuel an acre per year. At the time, this was the golden number. The higher the advertised fuel productivity, the more attention one received. As more and more startups joined the race, it became a runaway number. The largest number I remember hearing advertised was around 175,000 gallons an acre per year. In a situation like this, it is important for investors, journalists and scientists to know what is even possible. For a time, the investment community seemed to freeze new investments because new startups were making more and more dramatic claims, into the hundreds of thousands of gallons an acre per year. The rapid change slowed or nearly stopped investments. These rising productivity claims, however, were simply not possible
10 BIOMASS POWER & THERMAL | JANUARY 2012
based on photosynthetic algae production and the annual average amount of energy that the sun provides at a given spot on the globe. Due diligence suddenly became extremely important. A white paper published in 2009 walked through the calculations to arrive at 4,350 to 5,700 gallons per acre a year (realistic).1 This paper helped the industry as a whole by plainly stating a theoretical possibility. That kind of order-of-magnitude analysis is important for investors, the media, and government regulatory and funding agencies to know what productivity can be expected. Besides productivity, other metrics are important for defining the success of an algae startup. These metrics are not always the result of simple calculations. It will take a well-organized and technically diverse team of engineers and scientists to determine all of the intricacies of water usage, energy usage, CO2 capture, product generation or overall economics for an algae facility. In summary, it is important to get all the facts straight about an algae project before diving in. Productivity and other metrics related to the life cycle of an algae biofuel must be carefully determined. The EERC has conducted several due diligence studies and research projects related to algae biofuels, tapping into a wide variety of expertise from mechanical and chemical engineers, microbiologists, and chemists to ensure project success. This approach, if repeated by good project developers, will at least give algae a chance to be a contender in the world of biofuels. Author: Peter A. Letvin Research Engineer, EERC (701) 777-5040 pletvin@undeerc.org
1
Weyer, K.M.; Bush, D.R.; Darzins, A.; Willson, B.D. Theoretical Maximum Algae Oil Production. Bioenerg. Res. 2010, 3, 204–213, Published online 8 October 2009 (accessed 2011).
LEGAL PERSPECTIVE¦
Time to Assess Biomass Project Funding Options BY EMILY CHAD AND TODD TAYLOR
With winter approaching and the credit crunch still bearing down on us, many might be inclined to write off biomass projects right now. But there is good news and reason for hope. A veritable alphabet soup of government funding programs exist that can help you get your project off the ground. These programs include: • USDA Biorefinery Assistance: loan guarantees for development, construction and retrofitting of biorefinery facilities (other than corn ethanol). • USDA Repowering Assistance: grants for retrofitting fossil fuel facilities to process biomass. • USDA Advanced Biofuels Production: grants and guaranteed loans to expand advanced biofuel production facilities. • USDA Rural Energy for America Program: grants and loan guarantees for agricultural producers and rural small businesses to improve energy efficiency, produce renewable energy and conduct energy audits. • USDA Biomass Research and Development Grants: grants for research and development focused on cellulosic biofuels, including demonstration facilities. • USDA Biomass Crop Assistance Program: matching payments to producers who sell crops to biomass facilities, and startup funding for purchasing perennial crops. Feedstock crops are not eligible. • USDA Business and Industry Guaranteed Loan Program: low-interest loans for rural businesses that create jobs and reduce reliance on nonrenewable energy sources. • DOE Improved Energy Technology Guaranteed Loans: low-interest loans for projects that reduce greenhouse gases and air pollution, including biofuels. Up to 100 percent of loan can be guaranteed. • Tax Credits: Volumetric Ethanol Excise Tax Credit, Small Ethanol Producer, Biodiesel (both virgin and recycled), Small Agri-Biodiesel Producer, and Cellulosic Biofuels Production tax credits In addition, the Defense Advanced Research Projects Agency provides assistance for biofuel research with military applications. The U.S. DOE’s Advanced Research Projects Agency-Energy office has similar funding programs for research with civilian application. The Federal Aviation Administration recently announced $7.7 million in funding for renewable jet fuel research and development. Other federal agencies have programs as well. Many states also have funding programs, and construction of biomass facilities may qualify for subsidies meant to
stimulate economic development, such as the New Market Tax Credit, historic rehabilitation credits, superfund cleanup funding, hiring incentives or angel investment credits. Will all of these programs continue despite the U.S. budget crisis? Maybe not, but many of these programs existed before the stimulus package and have a good chance at continued funding, albeit at reduced levels. Now, the bad news—this money comes with strings attached. Each program has a different set of requirements and different amounts of available funding, geared toward the size and complexity of the targeted projects. For instance, most REAP grants are less than $20,000, while the Biomass Research and Development grants average $3 million to $7 million. Applicants may also be able to apply under more than one program. Just navigating through these programs to identify which ones work for you can be a major challenge, not to mention the cost and time required to apply. One significant burden often overlooked by developers is the requirement for most of these programs to conduct a National Environmental Policy Act environmental assessment. While a NEPA assessment can be completed in a month, two to three months is a more reasonable estimate. A NEPA assessment usually has to be completed prior to beginning any construction, so it is important to start that process early. Another often unexpected pitfall is the tax consequence of receiving “free” money. Some grants are taxable income; others decrease a developer’s tax basis in the project, causing lower depreciation deductions and increasing taxable gain on sale. Tax credits like the New Market Tax Credit generate taxable cancellation of debt income at the end of the financing term. These tax issues can significantly alter the financial return of a project and must be managed up front to avoid unpleasant surprises later for you and your investors. These incentive programs should not be dismissed, despite all of their complexities. For a developer willing to spend the time and effort, these funding sources can mean the difference between realizing your dream, or applying for a job with the group that did seize the chance. Authors: Emily Chad Attorney, Fredrikson & Byron (612) 492-7397 echad@fredlaw.com Todd Taylor Attorney, Fredrikson & Byron (612) 492-7355 ttaylor@fredlaw.com
JANUARY 2012 | BIOMASS POWER & THERMAL 11
Business Briefs PEOPLE, PRODUCTS & PARTNERSHIPS
Baker-Rullman supplies drying system for Crabbe & Sons Watertown, Wis.-based Baker-Rullman Manufacturing Inc. has supplied a complete drying system to Crabbe & Sons of Bristol, New Brunswick, Canada, for the purpose of producing wood sawdust and shavings. The system included BakerRullman’s 110-34 Triple-Pass Rotary Drum Dryer and was installed by Renewable Solutions of Fredericton, New Brunswick. H.J. Crabbe & Sons is a family-owned supplier of sawmill lumber, chips, sawdust, shavings and bark. Young, Schultz and Sturgis join Vecoplan Vecoplan LLC has added Kevin Young to its engineering department. After a three-month apprenticeship with Vecoplan, he has been appointed to the
position of product engineer. Young’s position includes coordinating the design and development of turnkey shredding systems for the recycling sector. In order to ensure continuous quality conKevin Young trol, he will also oversee the manufacture and implementation of his projects once the engineering phase has been completed. Jason Schultz and Chris Sturgis have been hired as service technicians and will be responsible for installation and startup of new machines and systems, as well as service and maintenance on machines, systems and control panels already in the field. Schultz has two decades of experience in the installation and maintenance of large industrial machinery and systems. Sturgis has a combined 18
years of technical experience in industrial and military machinery applications. NDARE hires coordinator Denise Spanjer has been selected to coordinate activities for the North Dakota Alliance for Renewable Energy. Spanjer will be responsible for member recruitment, organizing the membership’s strategic goals discussions and expanding NDARE’s broad network of renewable energy and energy efficiency stakeholders. Spanjer has previously directed the N.D. Small Business Administration’s Women’s business center, created curriculum for a statewide technology education program, provided startup support and administration for a number of producer-owned food processing cooperatives, and served as long-time state education director for N.D. Farmers Union.
The Biofuel Experts CBI’s Magnum Force 6400 — one of the most productive and reliable drum chippers in the global market today. With the push of a button, the unique clamshell design of the hog box provides service-friendly full access for easy daily maintenance. Available in stationary, wheel or track-mounted versions, the 6400 produces a uniform, precision chip from 4-30 mm, suitable for biofuel, pulp and wood pellet production. With throughput of up to 200 tons per hour... it will challenge even the best loader operators! To learn more about CBI’s rugged line of chippers, grinders, shredders and flails, please call 603-382-0556 or visit us online at www.cbi-inc.com. Continental Biomass Industries, Inc. 22 Whittier Street, Newton, New Hampshire 03858 USA
BUSINESS BRIEFS¦
Babcock named ISU’s Cargill Chair, leader of the Biobased Industry Center Bruce Babcock is ready to focus on the bioeconomy as Iowa State University’s next Cargill Endowed Chair in Energy Economics and director of the university’s Biobased Industry Center. Babcock, an Iowa State professor of economics and current director of the university’s Center for Agricultural and Rural Development, succeeds James Bushnell, who is now an associate professor of economics at the University of California Davis. An interim director of the Center for Agricultural and Rural Development is expected to be named soon. As director of the Biobased Industry Center, Babcock will also work with 15 companies and organizations—from fuel producers to agribusinesses to auto manufacturers— interested in the latest bioenergy research.
The center was established in 2008 and is part of Iowa State’s Bioeconomy Institute. It supports interdisciplinary studies of the business, policy, infrastructure and supply chain issues facing the bioeconomy. Ross joins Polsinelli Shughart Energy Polsinelli Shughart Energy welcomed attorney Matthew E. Ross as a shareholder in its business department, where he will focus his practice on all aspects of energy law including assisting clients with developing renewable energy projects and in achieving energy efficient business practices. Ross holds Leadership in Energy Efficient Design profes- Matthew E. Ross sional accreditation,
the leading professional designation for the green building, construction and development industry. Ross focuses his practice on energy law and has extensive experience in renewable energy, from both transactional and regulatory perspectives. He advises project developers, lenders, tax equity investors, private equity funds and technology suppliers and distributors on developing and financing renewable energy projects and on other energy transactions. Ross earned his law degree from the Brooklyn Law School and his bachelor’s from The Johns Hopkins University.
SHARE YOUR INDUSTRY NEWS: To be included in the Business Briefs, send information (including photos and logos, if available) to Industry Briefs, Biomass Power & Thermal, 308 Second Ave. N., Suite 304, Grand Forks, ND 58203. You may also e-mail information to lgibson@bbiinternational.com. Please include your name and telephone number in all correspondence.
FiredUp Defining Biomass
ACORE presents its unified, simplified biomass definition to Congress.
When the American Council on Renewable Energy’s Biomass Definition Subcommittee pitched its unified biomass definition to members of Congress in early November, the consensus was clear: no one could remember ever seeing a biomass definition itself as a piece of legislation. So that’s the next step for the subcommittee. “We’re going to have to find a way to get [our definition] in a piece of legislation to get introduced,” says Charles Brettell, subcommittee member and principal of Energy Asset Advisors. “So that’s sort of the blocking and tackling piece that needs to get done and that’s something we’ll be working on, trying to find the right entrée to BREAKING IT DOWN: ACORE has developed a unified biomass get that in front of people legislatively.” definition it hopes will serve as a reference for all biomass-related policies ACORE’s subcommittee developed the definition using aspects and legislation. of the 2008 Farm Bill. The goal is to unify all 16 current definitions in federal legislation, thereby simplifying policy progress for the biomass ACORE’s biomass definition states: industry. “’Biomass’ is any organic material including: While in Washington, D.C., the subcommittee members also (a) Materials, pre-commercial thinnings, or invasive species from talked with lawmakers about ACORE and its function to provide reU.S. Forest Service, National Forest System lands, Departnewable energy information, and the importance of such an umbrella ment of Interior, Bureau of Land Management, Department organization developing the crucial biomass definition. Last, they of Defense lands or public lands (as defined by federal law) discussed issues that the members of Congress had on their minds. that: “Unsurprisingly, the tax-oriented financial structure that is evi(i) are byproducts of preventive treatments or removed: dent everywhere in the renewable sector was one of the things they (A) to reduce hazardous fuels; wanted to chat about,” Brettell says. “The spectra of Solyndra hung (B) to reduce or contain disease or insect infestation; or over some of those meetings because a lot of them don’t necessar(C) to restore ecosystem health and resiliency; and ily understand what specific programs do what things.” Solyndra is (ii) are harvested in accordance with applicable forest mana nonissue from a renewable energy standpoint, he adds, as it is not agement laws, rules and regulations, and directly related to energy production. California-based Solyndra was (b) From private land, non-Federal land or land belonging to a a solar panel manufacturer that declared bankruptcy in August after it Native American or Native Tribe that is held in trust by the received $528 million in federal loan guarantees. United States or subject to a restriction against alienation The Investment Tax Credit, Production Tax Credit and Section imposed by the United States, including 1603 were also discussed, Brettell says, as the subcommittee tried to (i) residual materials, including get a feel for whether the programs would be extended. Specifically, (A) crop residue; Section 1603 has bipartisan support and is one of the most effective (B) other vegetative materials and oils (including wood programs to come out of the American Recovery and Reinvestment waste and wood residues); Act, he says. “I think most of the members will get there in spite of (C) animal waste, bedding materials, and byproducts political differences,” he says. “I hope that’s the case.” (including fats, oils, greases, and manure); and The definition will also be put in front of the Congressional (D) the biogenic fraction of municipal materials including Biomass Caucus, as ACORE continues to help build that group. “The all residuals segregated, after reasonably practicable good news is we got a chance to get it in front of staff, who actually efforts, from waste material, food waste, yard waste, understands it on a granular level,” Brettell says. “The reception from and wastewater treatment plant biosolids; or staff was pretty positive. Overall, they understand what we are trying (ii) plant materials, including to accomplish. They understand why we wanted to go about it in the (A) grains; way we did.” (B) other agricultural products; Although the definition was well-received, members of Congress (C) trees harvested in accordance with applicable forest have a lot on their plates right now, Brettell acknowledges. “We’re just management laws, rules and regulations; going to have to keep grinding away at it,” he says. “Everybody agrees (D) other plants; and it’s good for the country; it’s good for baseload renewable energy. It (E) algae, aquatic plants and byproducts (including oils).” makes sense, it’s just a matter of how you get it out there.” —Lisa Gibson
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FIREDUP¦
Green Gizmo A Michigan-based company says it has developed a unique solution to trimming trees in confined, inaccessible areas. The telescopic Tree Trimmer 100, which looks like a circular saw mounted on the end of a long pole, has been in development for the past two years, according to Harvest2Energy CEO John Robitaille. He says his company's primary objective is to provide products that focus on wood as a renewable resource, initially for pellet production, and eventually for ethanol as the technology matures. The idea for the trimmer was formed when he saw maintenance workers attempting to trim branches beyond their reach. “They had to resort to using scaffolding, which is costly and time-consuming,” he says. “There was no way of getting heavy equipment into that area.” There are other situations, besides general tree maintenance and preservation, where the trimmer would be useful, he adds. “I live in Connecticut, and the devastation caused by an unusual snowstorm here—850,000 customers without electricity, which included 100 percent of my hometown—in October really heightens the need for this, especially the truck-mounted version.” The first trimmer demo achieved a height of 25 feet, while the production unit will reach about 37 feet, according to Robitaille. It can be quickly disassembled and stored for transporting to the next job site, and an optional electric chain saw can be attached. The company is also designing a flat-bed truck accessory that can rotate 360 degrees
RECEIVING
PROCESSING
PHOTO: HARVEST2ENERGY
Telescopic tree trimmer is designed to reach inaccessible biomass.
HIGH HARVEST: The telescopic Tree Trimmer 100 can trim tall and confined trees.
for street and highway use, he says. “This can be used for cutting back branches near telephone/power lines or for removal of storm-damaged branches that may represent a liability risk.” The trimmer could be used in municipal parks, backyards, courtyards, golf courses and college campuses. The price, which includes three storage containers, is $18,500, not including optional accessories. —Anna Austin
CONVEYING
RECLAIM
DELIVERY
JANUARY 2012 | BIOMASS POWER & THERMAL 15
¦FIREDUP
Landfill Gas on the Rise Two landfill gas-to-energy plants have recently begun operating in Virginia and Georgia. One is powering U.S. Marine Corps Logistics Base Albany; the other is selling power to an electric utility. The U.S. Department of Navy’s Albany, Ga., facility is located at the Fleming/Gaissert Road Landfill. The 1.9-megawatt (MW) facility was designed and developed by Chevron Energy Solutions, and consists of a dual-fuel engine generator, a stack heat recovery steam generator and two dual-fuel boilers. Chevron will maintain the plant, pipeline and processing equipment, and co-operate the generator and steam-producing equipment with MCLB Albany. Besides helping MCLB Albany meet its renewable energy goals, the plant is providing Dougherty County with new revenue, as the county extracts and sells the landfill gas to MCLB Albany. Chevron has guaranteed system performance for 22 years and arranged financing for the project, which is being repaid through MCLB Albany’s avoided energy costs. Jim Davis, president of Chevron Energy Solutions, says the fact that the plant is being funded entirely by energy savings demonstrates how military bases and local governments can work together with the private industry to meet federal mandates without increasing taxpayer costs. In Virginia, the 6.4-MW landfill gas-to-power plant, Richmond Energy LLC, was built in partnership with Republic Service Inc., Old Dominion Electric Cooperative and Fortistar, which now has more than 20 landfill gas-to-energy projects operating in Republic Services landfills. The new plant is at Republic Services’ Old Dominion Sanitary Landfill in Henrico County and consists of four reciprocating engine generator sets that will meet the total electrical energy needs of 4,500 residences.
16 BIOMASS POWER & THERMAL | JANUARY 2012
PHOTO: RICHMOND ENERGY LLC
Landfill gas-to-energy plants open in Georgia and Virginia.
GAS TO POWER: Richmond Energy LLC in Virginia provides 6.4 MW of power from landfill gas.
David Comora, Fortistar’s chief information officer, says the project is large compared to other landfill gas-to-energy projects, but by no means the largest. “We have several over 15 MW, and we are completing another one for Republic Services that will come on line early next year, that is 11.5 MW.” The size of the plant typically depends on the size of the landfill, Comora says. “They can get up there if the landfill is pretty big, and if they have a large acceptance rate, they produce more landfill gas.” The construction timeline for Richmond Energy was only about seven months, which is fast for a project of this type, Comora says. Building a plant on a large, active landfill isn’t easy. “Putting up an energy project is one thing, but putting one up on a living, breathing landfill that has stuff going on every day is tricky,” he says. —Anna Austin
FIREDUP¦
1603 Packed a Punch After three years of aiding renewable energy projects, the 1603 program is set to expire.
While the qualification deadline for the U.S. Department of the Treasury’s 1603 program nears, the renewal outlook doesn’t look good, despite the efforts of renewable energy sectors attempting to convince Congress to extend it. The deadline for applications is Sept. 30, but only projects that began construction by the end of 2011 will qualify. Since its inception, the impact of 1603 on renewable energy development has been tremendous. Sandra Salstrom, a spokeswoman for the U.S. Department of the Treasury, says more than 24,000 projects have been funded. The bulk of them have been wind and solar, but the 46 biomass projects funded received $171.3 million. “The 1603 program has helped dramatically expand and accelerate renewable energy development across the country, enabling companies to create and retain tens of thousands of jobs,” she says. “The program has provided more than $9.3 billion in muchneeded capital to [qualifying] renewable energy projects, including some that otherwise might not have moved forward without this funding.” One developer who has been able to take advantage of the program is Kevin Maas, founder of anaerobic digestion project company Farm Power. Farm Power has two completed projects in the Northwest U.S. that received aid from 1603, and has two in development that will also qualify. A typical Farm Power project costs about $3 million to $4 million, and 1603 has provided close to $1 million for each. “It’s made a huge difference,” Maas says, adding that he is appalled at the low number of biogas projects that took advantage of 1603. “It’s been such a huge benefit, but we had three solid years of
treasury grants and we didn’t get more than 40 projects done. It’s something the industry should have taken advantage of.” One reason more projects didn’t utilize 1603 could be the uncertainty surrounding the availability of manure feedstock. “It’s hard to get into the manure digester business if you’re worried about farms going out of business, which is an ongoing issue that we can’t really solve,” Maas says. “There are larger problems with the U.S. milk market.” Maas says another possible reason is that biomass projects are more complicated than other renewable projects. “Some in this industry try to use the wrong business model, treating these projects like wind or solar projects, where you can build them and walk away—the wind will blow and the sun will shine. They aren’t like that though; they require a lot more coordination and building of trust to get a project to move forward.” While Salstrom says it’s difficult to predict what effect the expiration of the 1603 program will have on renewable energy development next year, she says the two underlying tax credits the 1603 program provides a payment in lieu of—the production tax credit and investment tax credit—will still be available. “It's possible that some renewable energy developers pulled their investment forward in anticipation of the expiration of the 1603 program, meaning there may be a bit of a spike in development as the deadline approaches,” she says. After that, Maas says he sees development slowing down for a while. “It won’t go to zero, because there are creative people out there that can make things happen, but it’s going to be a lot harder.” —Anna Austin
JANUARY 2012 | BIOMASS POWER & THERMAL 17
¦PELLETS
INFRASTRUCTURE UPGRADE: The Port of Eastport will soon be capable of exporting wood pellets to Europe. PHOTO: JAMES LOWE
18 BIOMASS POWER & THERMAL | JANUARY 2012
PELLETSÂŚ
Positioned for Pellets With port and rail expansions under development, Maine is on the cusp of entering the wood pellet export market. BY LISA GIBSON
JANUARY 2012 | BIOMASS POWER & THERMAL 19
¦PELLETS
T
he Port of Eastport in eastern Maine will be prepared this month to export wood chips to Europe, extending that capacity to wood pellets soon thereafter. It’s a significant milestone, as the wood pellet export industry has been delayed in the Northeast U.S., despite the fact that it has immense freight advantages to Europe over many other global pellet production hot spots, even the Southeast U.S. The Northeast has only three deepwater ports, all in Maine and none with the infrastructure to handle wood pellets. Until now.
All three of those ports are gearing up in some way to descend on the pellet export market, cashing in on numerous advantages, not the least of which being proximity to Europe’s growing demand. “Back in ’08-’09, we saw on the horizon this was going to be a market that was going to explode and we looked up and down the coast of the Eastern United States and said, ‘There’s an opportunity here,’” says Chris Gardner, executive director of the Port of Eastport. Construction on the port’s expansion was underway throughout all of 2011, with the in-
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stallation of a bulk yard and 800-foot bydirectional conveyor system capable of handling both import and export commodities. Currently, the system is designed for chips, but will most definitely be tailored to handle pellets, too, with the installation of covered storage. “We’ve made the design implementations necessary that we have stage two of the rocket, so to speak, and that’s for the pellet industry,” Gardner says. “We have set the system up so that we know when and where we need to pull the trigger. We can go to the next stage of our investment and put in the automated pellet storage.” The Port of Eastport is the deepest natural seaport in the continental U.S., with a 65-foot berth during the lowest running tide. Its approach channels are all well over 100 feet deep, with no dredging. It’s also the easternmost port in the U.S., making it a prime candidate for European exports. “We have not done a good enough job of telling people who we are,” Gardner says. In 2009, the pulp mill that represented the backbone of the Port of Eastport’s business was shut down, leaving a gaping
PELLETS¦ Port Planning It certainly seems as though everything is all happening at once, as the third Maine deepwater port, the Port of Searsport, also has invested in an expansion. George Soffron, CEO of Maine-based Corinth Wood Pellets LLC, knows that because Corinth plans to begin exporting this year through the mid-Maine port. “Maine has great potential for export of pellets to Europe,” he says. “All three of these ports are underutilized for dry bulk product.”
Bulk commodities were common once out of the Northeast, Wood says, but most ports have transitioned more toward break bulk and liquid fuels. “So this is a positive direction, to go back toward bulk transportation, even though it’s a little different, it’s certainly something the ports have always been capable of doing.” F.E. Wood & Sons, a fifth-generation sawmilling company that has no sawmills in operation currently, has built relationships over the years with many small private landowners. Those relationships will facilitate the supply
Automated Stockpile Solutions Eliminate the operational costs and issues associated with manual materials handling. OPPORTUNITY IN EXPORTS: Corinth Wood Pellets LLC will begin exporting this year from a Maine port.
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PHOTO: CORINTH WOOD PELLETS LLC
hole in operations. “It really exposed the fact that the Port of Eastport was overleveraged, some would argue, in one singular customer, which is never a good business model,” Gardner says. The Port Authority Board realized it needed to make a choice: settle on the inevitable and die or invest in other assets and find a way forward, he says. “We saw another opportunity. European interests would be screaming for fiber,” Gardner says. The East Coast of the U.S. lacked port automation, and Maine is the last place where forest touches the ocean, he explains. “It all seemed to add up and point to the same thing.” And managers at the Port of Eastport weren’t the only ones to notice. “There are plans that people have been discussing quietly,” says Tony Wood, vice president of F.E. Wood & Sons, which has proposed a 312,000-metric-ton wood pellet plant that would export to Europe through another of Maine’s deepwater ports, the Port of Portland. “I wouldn’t be surprised if everything all happens at once in this area.” JANUARY 2012 | BIOMASS POWER & THERMAL 21
¦PELLETS of raw material for the company’s first pellet mill. “If you’ve been in the business for five generations, you have something a lot more valuable than a contract you can work off of,” Wood says. “Primarily, we’re building off our relationships.” F.E. Wood & Sons’ port of choice, the Port of Portland, still needs the specialized infrastructure to handle wood pellets, such as storage and conveyors, and Wood says the company is in discussions to make that happen. “You do a lot better to make that up-front investment and put in equipment that’s going
to handle your product well,” he says. All in all, the proposed pellet mill and port expansion are estimated to cost $80 million and are operating on a loose completion deadline of 2013. Most ports are willing to work with new industries to expand their own capacities, Wood says. “It’s definitely a mantra for all the U.S. now to try new things in order to find that growth,” he explains, adding that wood pellet exports represent a promising industry. “The big barrier to entry is there isn’t infrastructure at the ports (in the Northeast) to do it current-
ly, but the ports themselves aren’t extremely busy so they’re willing to try pretty much any new industry to drive business.” Gardner says the pellet export industry is indeed attractive for Maine’s deepwater ports. “We think this would be a blossoming industry for the state of Maine and for the region,” Gardner says. “The Port of Eastport is positioning itself to be a marquee player.” Eastport has the advantage of being a natural deepwater seaport, which brings down the expansion cost to around $8 million, eased even more by $6.5 million in state funding. But to expand a port that needs to rebuild dredge and berth, along with installing handling and storage infrastructure, costs will linger between $10 million and $25 million, according to Pete Stewart, president and CEO of Forest2Market. “You need a lot,” he says. “It’s not an insignificant amount of capital.” Stewart adds that Maine does have a good port infrastructure, but the port must be near the source in order for an export business model to pencil out.
Rail Considerations So, it would seem port infrastructure is still only a piece of the process, albeit a large one. To have a successful pellet exporting operation, transportation to the port is vital and rail access in Maine is currently limited. But improvements are on the way in that arena, too. The site chosen for F.E. Wood & Sons’ pellet mill is 28 miles from the Port of Portland, with the Mountain Division rail line running directly between the two. While the state-owned rail line is deactivated, the state has slowly started the rehabilitation process with the pellet mill in mind. “It’s a great piece of support that the state of Maine has shown us,” Wood says. “They’re trying as hard as any government body ever does to give us some infrastructure to give us a competitive advantage.” In the face of nationwide budget cuts, the state has managed to continue working with F.E. Wood & Sons to find funding for the rail rehabilitation, although progress has been slow and is still not etched in stone, much like the rest of the company’s multifaceted project. “It’s a growing process,” Wood says. “I know the state supports businesses coming in 22 BIOMASS POWER & THERMAL | JANUARY 2012
PELLETS¦ like this, and this is a great way to put in infrastructure that’s been on their books, and has been sitting idle for 20 years, back to work to help western Maine grow some jobs.” The Port of Eastport is hoping for a rail infrastructure upgrade, as well, having asked the state to fund such a project in 2009. While that funding was not granted, Gardner says the investment would be justified for a bulk commodities market that is set to explode. The Port of Eastport has, in fact, never been connected by rail. “So the true potential in the deepest natural seaport, the easternmost seaport in the United States, is sitting here without rail investment,” Gardner laments. “It seems as though if rail investment were to be made anywhere, it would be a great chance for somebody to look at it.” Gardner likened the scenario at Eastport to a shiny, beautiful brass nozzle with no hose. “So we work the hell out of that nozzle and can’t understand why we can’t get water out of it.” The smartest way to save the rail industry in Maine is to “handshake” it with the state’s ports, he insists. “We can effectively save both industries.” Wood seems to agree. “There’s infrastructure that you can connect to make these things work,” he says. “It’s just a question of being able to get enough of the pieces to play together. “The forest resources are here in Maine,” Wood adds. “The labor resources are here and there are certainly a lot of people with the expertise to put them together.”
A Clear Advantage While a number of advantages for exports reside in the Northeast, and Maine in particular, raw material is much more expensive in the Northeast than in the Southeast, Stewart says, by between $4 and $6 per ton. “But they do have a shorter freight distance to Europe,” he says. Freight costs from the Northeast to Europe are favorable over the Southeast by $4 per ton, increasing to $7 per ton from the Gulf Coast, Stewart cites. The Northeast has a $4-per-ton advantage over northern Brazil, too. “So if a (Northeast) plant can get in a position where they have a favorable supplier, who can bring them the right material for a fa-
vorable price … they already have a freight advantage, so that would be a real value,” Stewart says. Soffron believes a large part of the reason the Northeast hasn’t seen a push to enter the export market until recently is because of its strong domestic pellet market in residential heating. “I also think nobody really knew how,” he adds. Wood says F.E. Wood & Sons is targeting the export market with its development plans to avoid the volatility of the seasonal residential market, and to take advantage of the stable
business model the creditworthy European utilities can facilitate. “We’re closer to Europe from a transportation standpoint than we are to the rest of the U.S.,” Soffron says of Maine. “I think we’ll see growth in the exporting business in general, but certainly we’ll see that from Maine.” Author: Lisa Gibson Editor, Biomass Power & Thermal lgibson@bbiinternational.com (701) 738-4952
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BUILDING EQUIPMENT THAT CREATES OPPORTUNITIES
JANUARY 2012 | BIOMASS POWER & THERMAL 23
ÂŚPROJECT DEVELOPMENT
AESTHETICALLY APPEALING: The Renewable Energy Center at Eastern Illinois University in Charleston replaced the original coal-fired power plant built in 1928.
24 BIOMASS POWER & THERMAL | JANUARY 2012
PROJECT DEVELOPMENT¦
The Power of
Punctilious
Planning Biomass power projects are not immune to failure, but with strong partnerships and careful planning, they can be successful. BY ANNA AUSTIN PHOTOS BY JAY GRABIEC
V
isiting Eastern Illinois University, one might have a difficult time finding its biomass energy plant. That’s because it’s housed in a beautiful, modern-looking building that’s a far cry from the typical appearance of a power plant. The facility, which burned its last ton of coal in December of 2010, was completed in October after many years of careful planning. In fact, EIU realized that it needed to replace its current energy system in the 1990s, according to Ryan Siegal, EIU campus and sustainability coordinator. This was due to deferred maintenance and ongoing operational issues of the coal boilers that were installed in 1950 and housed in a steam plant built in 1928.
JANUARY 2012 | BIOMASS POWER & THERMAL 25
Detroit Stoker Company
¦PROJECT DEVELOPMENT
® “Our Opportunities Are Always Growing”™
FUEL STORAGE: The EIU Renewable Energy Center uses locally sourced wood chips to fuel its biomass power plant.
As more university energy systems become inefficient and need upgrades or replacements, all options are being explored, and some are looking at what other universities have done. For many, biomass is a local, inexpensive and environmentally friendly way to go. Unfortunately, not all projects have a happy ending. The University of South Carolina has recently made headlines for its biomass power plant failure, and not only has it raised questions regarding the effectiveness of some biomass power projects, but because of a series of small explosions at the plant, their safety has also been questioned. Those involved in successful and ongoing projects, however, know that it is not the technology that caused the issues at USC, and that problems can be avoided with proper planning and plant operator experience.
Performance Guarantees are Key
26 BIOMASS POWER & THERMAL | JANUARY 2012
While EIU’s plant performance is still being measured and confirmed, Siegal says so far, so good. “The key to our success has been an operating staff that is excited and passionate about making the systems work,” he says. “We have a knowledgeable engineering team for the design of the systems, and a good partner firm—Honeywell—that brought multiple partners together to make a successful project. Our long-term partnership encourages a quality, durable and long-lasting design.” In embarking on the quest of installing a new energy system, the first step in the planning process was determining how EIU was going to pay for it. Though the need for a new energy system was pressing, financing was an issue. “EIU placed the steam plant
PROJECT DEVELOPMENT¦ on their capital replacement requests for several years, with no recognition for state funding,” Siegal says. On the other hand, making repairs to the existing energy system was expensive and inconvenient. “The coal system still relied on some equipment built with the original plant in 1928 and parts have been unavailable for years, so when failures did occur, parts had to be manufactured, which was costly and time-consuming,” he says. Searching for a solution, EIU performed multiple feasibility studies of potential replacements using various clean coal technologies over the years, but all of them were cost prohibitive. In 2006, however, a law was passed that changed the game for EIU. “The law that allowed for energy performance contracts was modified to extend the allowable payback of projects from 10 years to 20 years,” Siegal explains. “This made consideration of large-scale central plants possible. Around this time, the issue of climate change came about and coal fell out of favor, so we broadened our horizons. As we explored various alternatives, biomass was found to be potentially available in our region at a cost-effective price.” The economics and environmental impact of biomass made it attractive to EIU, especially when compared with the alternatives. It had a lower cost than coal to construct, it appeared to be cost-competitive with coal with a much less volatile fuel price than natural gas, and it was much more environmentally friendly than either of the two alternatives. And, the biomass gasification system allows for more fuel flexibility, Siegal adds. “Wood chips won’t be the final answer,” he says. “Gasification allows for a broader fuel spectrum, so we can be prepared for whatever the new fuel down the road will be. We didn’t want to be stuck with just one option.” From groundbreaking to operation, the facility was completed in less than 24 months. This was due in part to the performance contract process, a key component in planning the project. “The performance contractor gets paid once the plant is performing as intended, and is a 20-year partnership,” Siegal explains. “This encourages the completion of the facility as quickly as
feasible, but also to construct a quality facility that will last, as a plant that fails to operate does neither partner good.” Robert Duringer, University of Montana, vice president of administration and finance says the school’s energy performance contract with McKinstry, a Seattlebased consulting firm, is a safety net for its proposed biomass energy project. “They’ve provided us with a performance guarantee that says the system will displace 70 percent of the natural gas we currently use,” Duringer says. “If it only displaces 65 percent, we will use the price of natural gas to figure out how much money they’d need to pay us.” Unfortunately, low natural gas prices prompted the university to indefinitely suspend its biomass power project, following Duringer's interview with Biomass Power & Thermal. Though some opposed to the project at UM pointed to the USC project as an example of why it shouldn’t move forward,
Duringer says it didn't discourage the university from biomass. Besides the safety net of a performance guarantee, the contract included an annual inspection to make sure all equipment was operating as it should. In addition, employees would have been put through a training program. Having a plant operator on staff at all times—24/7—prevents potential fuel flow or other problems, Duringer says.
Experience is Essential Trained, experienced operators are essential at plants that utilize biomass fuel, according to David Claus, energy manager at the University of Northern British Columbia. UNBC has been operating its biomass gasification energy plant for about a year, and utilizes hog fuel—unprocessed and nonuniform chips or mill residues—to heat the campus’s core buildings. When moving from one energy system to another, especially when hog fuel is used,
JANUARY 2012 | BIOMASS POWER & THERMAL 27
¦PROJECT DEVELOPMENT
TIPPING POINT: A truck tipper is used to deliver wood chips for the renewable energy system on the EIU campus.
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it’s a whole new ball game for plant personnel, Claus says. “It’s one thing to be aware that this kind of plant will mean higher operations and maintenance costs, but it’s another to actually get a handle on what it’s like to operate,” he says. University facility staff are used to working with natural gas boilers, heat exchangers and neat mechanical rooms, Claus says. “A bioenergy plant is quite different than what they’re used to dealing with. You’re moving hog fuel around, you have drag chains, conveyor belts, hydraulic systems … it is industrial infrastructure, so the university needs to decide if it is ready to take this on. Pellets are one thing, but straight up hog fuel requires knowledge of how to operate the plant. It has a difficult handling nature, so it’s important to hire somebody who knows how to do this.” Siegal says during the planning process, EIU wanted to get information straight from the horse’s mouth. To do that, it engaged in discussions with others already operating similar biomass energy systems to get a feel for what operating one requires, including how troublesome they are, maintenance requirements and any pitfalls. Claus says that in time, the system at UNBC will largely serve as a resource for others looking for information on the efficiency and environmental performance of biomass gasification systems. The university is collecting data, he says, and will be able to provide that in the future. While he’s confident the technology provided by Nexterra Inc. is quite clean, UNBC also installed an electrostatic precipitator (ESP) to go the extra mile, another part of the planning process
2 h`c]UhZUV ]VRUVc Z_ dZkV cVUfTeZ`_ eVTY_`]`Xj GVT`a]R_ h`c\d hZeY Z_UZgZUfR] Tfde`^Vcd e` UVdZX_ V_XZ_VVc ^R_fWRTefcV R_U Z^a]V^V_e eVTY_`]`XZTR]]j RUgR_TVU ^ReVcZR] daVTZWZT R_U Raa]ZTReZ`_ daVTZWZT dYcVUUZ_X WVcc`fd R_U _`_ WVcc`fd cV^`gR] dZkV R_U UV_dZej dVaRcReZ`_ dTcVV_Z_X R_U T]RddZWZTReZ`_ eVTY_`]`XZVd R_U ViecV^V]j VWWZTZV_e T`_gVj`c R_U Sf]\ ^ReVcZR] YR_U]Z_X ^VeVcZ_X de`cRXV R_U f_]`RUZ_X eVTY_`]`XZVd 4`_eRTe GVT`a]R_ e`URj e` ]VRc_ ^`cV RS`fe `fc ViZdeZ_X djdeV^d `c e` RccR_XV R gZdZe e` `_V `c dVgVcR] `W `fc Z_deR]]ReZ`_d
PROJECT DEVELOPMENT¦ that can help avoid potential problems, as public emission concerns commonly need to be addressed during planning and development of biomass projects.
Going the Extra Mile “We spent $1 million to put in an ESP to keep our emissions, especially particulate matter, really low,” Claus explains. “I wouldn’t consider doing a project without it. A lot of people doing biomass projects seem to be looking for a technology provider that has a clean enough technology that they don’t need to spend the money on an ESP, but I’m not sure that’s a good avenue to take. You can bring your emissions way down, and you’re further ahead in the long run. With a gasifier, maybe our emissions will be lower and maybe they won’t, but we put in an ESP to make sure they will be.” Besides installing the best emissions control technology possible, there are other ways for universities to go the extra mile to avoid headaches, and one is thoroughly investigating multiple technology providers/contractors. UM did its homework when it came to selecting a vendor, according to Duringer. “We worked through every manner and style of biomass-fired boiler,” he says. Another way is to address public concerns early on. EIU took matters seriously, according to Seiger. Initially, there was some local opposition to the first design of the plant, which was fairly industrial-looking and bare bones, he says. “It was the minimum to get the job done, but after some substantial pushback from the local
community, we had it redesigned to something much more modern and aesthetically pleasing. After that, the community was very much behind it.” Finally, Claus says it’s also important for universities to provide a budget to allow a system that is going to work, including extras, rather than trying to cut corners with the bare minimum. “For example, with hog fuel, you’re going to have oversized or off-spec material, and it’s worth getting a system that will take that out,” he says. “We don’t have that at UNBC, but we should. If you get stuff too big for your augers, that’s a problem.” A metal detection device is also worth the investment, he adds. Siegal admits that while biomass projects aren’t perfect, EIU’s current system is much better than what it had before. He says the university hopes to utilize energy crops as a fuel source, as soon as they reach commercial scale. Overall, EIU is serving as an example of a successful, innovative university biomass project, he adds. “While there are other biomass projects planned and in the pipeline, we’re one of the only ones in operation. We’re on the leading edge, and hopefully the market will develop behind us.” Author: Anna Austin Associate Editor, Biomass Power & Thermal (701) 738-4968 aaustin@bbiinternational.com
JANUARY 2012 | BIOMASS POWER & THERMAL 29
¦FINANCE CONTRIBUTION
Does Your Alternative Energy Project Qualify for the New Market Tax Credit?
For the right project, in the right area, the New Market Tax Credit program can inject much-needed capital into expanding businesses. BY TOM RITCHIE AND JIM SCHMIDT
W
hat is the New Market Tax Credit? The NMTC program was established by Congress as part of the Community Renewal Tax Relief of 2000 to provide private investment capital to businesses and nonprofits located in qualifying low-income communities. The goal of the program is to spur revitalization efforts of lowincome and impoverished communities across the United States and its territories. The simplest explanation of the program is that it provides tax credit incentives to investors for equity investments. But nothing about the program is simple. The credit is equal to 39 percent of the total invest-
ment. Five percent of the credit is available in each of the first three years and 6 percent in the final four years. The NMTC program is facilitated by the Community Development Financial Institutions Fund through the U.S. Treasury. The CDFI Fund allocates the credits to qualified Community Development Entities and the CDEs must invest in the Qualified Active Low-Income Community Business. The investment made to QALICB is called a Qualified Low-Income Community Investment. The credits are monetized generally in conjunction with permanent financing. The NMTC is a complicated program whose bottom line can be cash injections up to 20 per-
The claims and statements made in this article belong exclusively to the author(s) and do not necessarily reflect the views of Biomass Power & Thermal or its advertisers. All questions pertaining to this article should be directed to the author(s).
30 BIOMASS POWER & THERMAL | JANUARY 2012
cent of the project’s total investment or capital need, or a lower interest rate on the project’s leveraged loan. In both cases, the cash or savings has a significant impact on the low-income community business. Biomass projects—as well as all other businesses—need to undertake several steps in order to qualify for the NMTC. 1. “But for” test: A key question in evaluating the NMTC program is whether the investment is likely to have taken place “but for” the NMTC subsidy. Making this assessment is difficult because it requires estimating the decisions investors and developers would have made absent the tax credits. The CDEs have developed several methods to address some of the difficulties in evaluating this test; however,
the need for capital will usually be enough to make an application to the CDE. 2. Check the Business Code: It is important to note that most projects in the biomass and alternative energy industry qualify for the NMTC. Furthermore, there are other credits and incentives that are available to the alternative energy industry that can be used in combination with NMTC. There are some restrictions in the farming industry and certain restrictions regarding holdings of intangibles, so biomass project leaders should confirm that their projects qualify for the credit. A qualifying project is referred to as a QALICB. 3. Check the Map: After establishing that your QALICB business code qualifies for the NMTC, the location of the
FINANCE¦ project should be checked to the New Market Map. The business should be located in a qualifying urban or rural low-income community, which is liberally defined to include roughly 40 percent of the country. If your biomass project is not “on the map,” another method may be used to qualify your project. This alternative method is referred to as a targeted population, and it adds additional complexity to an NMTC project. Your NMTC attorney and CDE will determine if an alternative method is viable. 4. Identify a CDE: The NMTC program is facilitated by a CDE, which is responsible for allocating a portion of its credits in the form of a qualified equity investment (QEI), which allocates its portion of the tax credits to the individual QALICB. The CDE receives its credit from the CDFI Fund. Biomass companies must choose a CDE that is either local or national and that has credits available for your project. Many factors
will be reviewed by the CDE to determine if it will allocate its allotment of credits to your project. 5. Choose an NMTC Attorney: The attorney is one of the keys to any successful NMTC transaction. The program is complicated and will require an attorney specializing in NMTC to navigate the business through the NMTC process. Typically the CDE can help with names of attorneys it has worked with in past NMTC projects. Attorney fees range between 1 and 1.5 percent of the total project costs. 6. Obtain Financing: Most NMTC projects are completed in conjunction with leveraged financing. Because NMTCs create many issues for banks and require flexibility from the lending institution, it is important to work with a bank that is familiar with NMTCs and their unique requirements. A typical NMTC loan is interest-only for seven years due to the compliance period associated with an NMTC transaction. The leveraged lender does not
Transaction Structure Diagram - NMTC
JANUARY 2012 | BIOMASS POWER & THERMAL 31
ÂŚFINANCE
U N I T E D STATES STATES UNITED
CCANADA ANADA
SSWEDEN WEDEN
Material Handling for Biomass Power Generation
Biomass Handling Equipment Complete Engineered Systems Pulverized Coal Boiler Conversions CFB Boiler Feed Systems Silos Wood Hogs Disc Screens Open Storage Closed Storage Truck Dumpers
Chain Conveyors Bucket Elevators Screw Conveyors Screw Reclaimers Pneumatic Conveying
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SWEDEN: Stockholm Jeffrey Rader AB Domnarvsgatan 11, 163 53 SPĂ…NGA Stockholm, Sweden Phone: +46 8 56 47 57 47 7 Fax: +46 8 56 47 57 48
CANADA: Montreal, Quebec Jeffrey Rader Canada 2350 Place Trans-Canadienne Dorval, Quebec H9P 2X5 Canada Phone: 514.822.2660 Fax: 514.822.2699
CANADA: Vancouver, BC C Jeffrey Rader Canada Unit 2, 62 Fawcett Road Coquitlam, BC V3K 6V5 Canada Phone: 604.299.0241 Fax: 604.299.1491
www.jeffreyrader.com 32 BIOMASS POWER & THERMAL | JANUARY 2012
have recourse to the assets of the QALICB if it were to default on its loan repayments. It can have recourse to the assets of the limited liability company formed to make the QEI. The QALICB generally has a put option for a nominal fee to purchase the tax credit equity from the tax credit investors. 7. Obtain Credit Investors: Many times this will be the bank or other financial institution involved in the NMTC financing, but it may also be large corporations or wealthy individuals. The credits are monetized for between 60 and 75 cents per credit. As noted earlier, the NMTC is a 39 percent credit where the credit investor receives 5 percent of the credits the first three years and 6 percent the next four. Eide Bailly specializes in matching NMTC projects with credit investors. 8. Close: Closing the NMTC program usually transpires concurrently with the financing or loan closing. The cash from the NMTC investors matches with the equity from the owners, along with the loan. Proceeds come together to create the total qualified investment that receives the 39 percent NMTC. The cash moves through the bank accounts of the different entities shown in the illustration on page 31. The illustration provides a picture of the complexities of a leveraged NMTC transaction assuming a $10 million project. In conclusion, there are virtually hundreds of issues that could arise in an NMTC transaction. Various fees can eat away at the NMTC proceeds, but for the right project, in the right area, the benefits are an injection of much-needed capital to expanding businesses. The typical NMTC project has a minimum of $5 million in total project costs. One reason for such a seemingly large entry amount is the legal fees, the CDE fees and other professional fees require a large investment to make the process worthwhile for the project developers and owners. Authors: Tom Ritchie CPA and partner, Eide Bailly (918) 728-2100 tritchie@eidebailly.com Jim Schmidt CPA and partner Eide Bailly (612) 253-6599. jschmidt@eidebailly.com
¦MARKETPLACE Biomass Power & Thermal Marketplace
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