From California we received the news that Chicagoland has been selected as the site of Fulcrum BioEnergy’s second commercial-scale waste-to-fuels biorefinery.
We reported last month that the long-awaited financing was completed for Fulcrum Bioenergy’s highly-anticipated first commercial project near Reno, Nevada.
“Our bonds priced on the the 12th, and closed on the 27th and we got a very competitive interest rate,” said Fulcrum BioEnergy CEO Jim Macias told The Digest. “ We pulled in all the committed equity that was waiting for the financing, gave a notice to proceed to our contractors, and officially started the project. We’re off and going. Now it’s to build and operate.”
The expansion geography
“We have not publicly said what out program schedule is,” Macias noted, “but it is the Chicago area second, and that should be no surprise as it is major hub for United, BP and also Cathay is big there. Waste Management and and Waste Connections have big market shares there as well.
“The third one will be on the west coast because of how attractive the California market is, very attractive to sell fuel into, and it is also a tight fuel market and that makes it a high priority for our fuel partners. It could be in California, or we could transport into California. moving up and down the coast.
“So, we have two plants ready to go. In my experience, you want to make sure to have several projects in development, and let the cream rise to the top. Each of them has to have a good site, location, good labor market, but without being coy we want there to be competition between several potential sites, say, on the West Coast.
Faster to Europe, Asia now expected
What about Europe and Asia?
“Europe and Asia are nearer term than we had originally planned,” Macias told The Digest. “Our original plan was to get foundation here in the US before expanding overseas. Because the rules, and what it takes to build and operate — the legal and the unwritten rules. The conditions? What’s labor like, what’s business like, you need good partners who understand that, and also the supply chains have to support that expansion. In my career, I’ve seen plants overseas where because of an unexpected problem you’re airfreighting replacement parts and taking days instead of hours to get back online.
So, our plan was to do the US first, but our partners have a big desire for other markets, and that’s vital for us to su[port them and put their needs top-tier. So, Europe and Asia are on the top-tier of our list now.
Where in Asia or Europe? “If you look at what we need,” Macias said, “we need good supply of MSW and to be close to the fuel market, that is the airports. Every major city has major landfills or places where they are accumulating waste, and industrial infrastructure.
The expansion timeline
Last September, we reported that Fulcrum is planning to develop eight of its MSW-to-biofuel facilities by 2022, including the first 11 million gallon facility that is expected be online during the second half of 2018. Those new facilities, five of which will be developed by United Airlines as part of their investment deal sealed in June 2015, will be between three and six times the size of the Reno facility.
“If anything, we are under pressure to expand faster but for now, the plan is the same,” Macias told The Digest. We have the same plan and program size, but some of the prioritization of the plants has changed because of our fuel partner needs. Our investors are strategic United, Cathay, BP. They haven’t invested because of this project. They are helping us get through this first plant and proceed with others because they want large volume. And that’s been actually something that helped us very much with the bond market, because we are very much based in replication, in standardized and modular design.
“So, future plants qualify for same kind of investment, and bond investors want additional projects, and they will have first call for subsequent plants based on participating in this first one. The presence of the whole program has helped us get through this first one.”
The financing backstory: how it got done
In this sector, you’re always like water, following the path of least resistance, said Macias. “There’s always Plan B and Plan C and there are times when you shift to an alternative.
“For us, the financing goes back to the DOE loan guarantee program,” Macias recalled. “We competed for one, and were selected and were proceeding. But that process was frustratingly slow. Then, after the Solyndra problem, things got really bogged down. So we switched to the USDA program we applied and were successful in that. It was not as lengthy and frustrating as DOE, but there were differences in the program which caused problems. For instance, the USDA program requires a bank as the lender of record, and that is somewhat challenging.
“We had Bank of America and we thought it was a pretty good deal for them. But as a bank they were slow and frustrating, and cautious. We were ready to close last December when the election came, and then all these political issues came up. Would the new administration continue with the program. We got all our confirmations from everyone we needed, but it was just so frustratingly slow.
We always talked to a lot of people about financing, and finally we said ‘let’s get out’ via the bond market, which was
looking attractive for us. You see, all this time that its taken us to get the financing, we haven’t been standing still. We’ve still been adding pieces. And by this time, it was starting to look to the municipal bond market like an infrastructure project. We had secure fixed prices, the output is contracted is contracted and hedged, the process is guaranteed or highly reliable. So as we kept adding those pieces we found that we qualified for tax-free municipal bonds which are very attractive to investors. So we shifted, and we closed.”
Ratings? They’re not rated bonds. We wondered why.
“No, they’re not rated, it was a non-necessity, based on advice from Morgan Stanley that we didn’t need a rating for the type of bond investor that we ended up securing. These are very sophisticated investors and they don’t rely on ratings, they do their own work.”
“Start with infrastructure, you can really save on the costs,” Macias said, in reflection on the years developing Fulcrum. “When we started Sierra, that’s a greenfield project in many ways. Yes, there’s a kind of rough infrastructure: natural gas, power, road, rail, but there’s even more infrastructure that’s important to us. Such as access to oxygen and wastewater supply and there are other infrastructures that can be very helpful for the economics of the plant.”
“Also, we look for clarity on the permitting process. Nevada is not very lax, not at all, but very clear on process. It’s a case of, ‘do this and you’ll get your permit’. Other places they’re not clear, it can be a case of ‘we don’t know, we’ll have to get back to you’, and time is very expensive for us. Not having that kind of clarity is tough.”
“And In our case,” Mias told The Digest, “we are doing all the engineering, all the way through detailed design, what in the business is known as a FEL-2 package that gives us a good handle on the pro-forma projections. One of the problems that I think has happened elsewhere is that there have been a lot of FEL-1 packages, which cone at a lower cost, but the cost estimated is generally around plus or minus 50 percent. You really have to do more engineering to get a tighter control on the cost, and that’s how we do it. It is more expensive, takes more time, but it really helps because it gives us a plus or minus 30 percent which is enough in our case for a go/no-go decision.
The Fulcrum backstory: the investors
See it Now: The Multi-Slide Guide to Fulcrum BioEnergy
The Digest’s 2017 Muti-Slide Guide to Fulcrum Bioenergy is here.