American Renewables’ Gainesville biomass plant was always an ambitious project. Developing one of the largest biomass plants in the US (and the biggest ever built in Florida) at a time of economic uncertainty and through an ever changing regulatory landscape presented a complex network of problems.

Those problems were not just confined to the financing of the US$500 million project when few lenders had the experience, let alone appetite, to fund a US biomass facility. Since being awarded the contract in 2009, American Renewables has also had to face down a number of legal challenges that resulted in potentially costly redesigns.

It reached financial close earlier this year and has already gone out to the syndication market, but whether the success of the Gainesville experiment ushers in a future where biomass power generation becomes a significant part of the US energy mix remains to be seen.

The Project

American Renewables won the right to develop the 100MW project following a competitive bid process held by the city of Gainesville in Florida. Chris Smith, a consultant brought in by American Renewables, to assist with technical and financial advice in the bid and financing process, said that the bid won the contract thanks to its larger scale than competing proposals, meaning the plant would ultimately be more affordable.

The wood-fired plant is being built on a site, known as the Gainesville Renewable Energy Center (GREC) around right miles northwest of downtown Gainesville, adjacent to an existing coal-fired facility. A local by-law meant that this location, chosen to reduce the geographical spread of emissions, rendered the plant subject to tighter regulation than it would have otherwise been.

The 130 acre site includes the following facilities:

• A wood fuel handling system
• A bubbling fluidised bed boiler
• A condensing steam turbine generator with an evaporative cooling tower
• Auxiliary support equipment

The project will require around one million tonnes of fuel per annum. This will be taken from forest residue, wood processing residue and clean municipal wood waste. As with all biomass projects, fuel sourcing, supply and cost is a critical issue at Gainesville. The fuel, all provided by forestry waste, will be sourced locally, with none coming from outside of a 75 mile radius of the project site – an area including more than 5.5 million acres of timberland.

With forestry waste, in terms of cost and supply, one of the more volatile fuels on the market, American Renewables agreed a fuel cost pass through with its sole offtaker. This ensures that adjustments in the future cost of timber will be reflected in a price paid for power generated. Municipal utility Gainesville Regional Utilities (GRU) has agreed a 30-year PPA for the entirety of the power generated from GREC.

GREC will create approximately 400 jobs during its construction phase, which is already underway. Once operational, the facility will create approximately 40 full time positions at the site and will also generate approximately 700 jobs throughout the region. The project is anticipated to be commercially operational in late 2013.

Challenges

Almost immediately after being awarded the contract to develop the site, developer American Renewables began to face a range of problems, not least of which was a series of extensive litigations that had a major impact on the shape and cost of the project.

With Florida’s emissions targets among the most stringent in the US, it is not surprising that a range of environmental groups had their say. The Florida Public Service Commission delayed a vote on approving the plant early in 2010, although it did approve the plans later that year. However, by that point, to comply with local air permitting rules, American Renewables had to replace the boilers it had first envisaged using with the far more expensive Metso boilers and, in addition, made other modifications to the original design.

Financing

Environmental concerns and the expense of answering them, combined with the relative absence of biomass as an asset type in the US, meant that the Gainesville facility was never likely to be an easy one to find debt financing for. Smith, who also worked on the financing of American Renewables’ Nacogdoshes biomass plant in Texas, describes the deal as both “incredibly challenging” and “one of the best structured projects I have ever seen.”

Having the experience on the Nacogdoshes project held the sponsor in good stead when looking to find takers for the US$400 million debt package. Although not the biggest debt pile around, the unusualness of the facility limited the number of potential lenders, increased the risk factors and made finding the debt by no means an easy prospect.

Bank of Tokyo Mitsubishi (BTMU) – a bank with which American Renewables already enjoyed a good relationship and which was familiar with biomass as a technology – was mandated in May as the MLA. Two further banks, in the shape of Natixis and Rabobank, soon joined as MLAs – both of which were also involved in Nacogdoshes .

The full club of lenders was rounded out by three more European banks:

• Crédit Agricole
• ING Group
• Société Générale

The seven-year term loan was priced at 225bp over Libor. This price included a premium to account for the added risk of lending to a project with both political and supply risk. The loan included a US$20 million debt service reserve facility and a US$10 million working capital facility.

American Renewables was the sole equity provider – around US$90 million – to the project, with the capital coming from their three parent companies:

• EMI (also the developer of Cape Wind [Projects Database])
• Baycorp (US firm with hydro and oil assets)
• Tyr energy (Owned by Japan’s ITOCHU)

Financial close came at the end of June 2011, with the total debt almost immediately hitting the syndication market in order for tax credits to be secured for the project. Sources suggest that the syndication is progressing smoothly but the sponsor has not set a target on the number of tickets it hopes to be taken.

A future for Biomass?

Although some market observers looked at Gainesville as a bellwether for the future of biomass projects in the US, the success in financing it so quickly and, relatively, cheaply is unlikely to see a rush of similar projects.

While plants in Connecticut and New Hampshire are progressing, the extra risks and costs of the technology, coupled with the lack of experience of it among domestic lenders in the US, means that Gainesville – successful syndication or otherwise – will go down as a curate’s egg rather than a trendsetter.