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US biomass developers move upstream
14 February 2013
Biomass generators in the US and Canada have struggled to gain a footing in debt markets. Now US developers are turning to fuel projects, driven by European demand for wood pellets. Brian Eckhouse reports.
Fuel risk often hampers US biomass developers. Yet instead of switching sectors, some of them have now decided to shift their business upstream. Sponsors of the few biomass projects in North America have been able to limit the risks from variable fuel costs by insisting that these costs are passed through in power purchase agreements. “The biggest risk is the fuel supply,” says Rahul Culas, co-head of the Carlyle Group’s energy mezzanine opportunities group. “A pass-through contract is the golden ticket.” A senior banker in New York adds: “You could come to me with a rock-solid 20-year PPA with Southern California Edison, and I’ll immediately respond: ‘Do you have a fuel pass-through contract?’”
The original developers of the 37.5MW Plainfield biomass project in Connecticut did not have one. A new set of sponsors was able, improbably, to get close to closing a commercial debt financing in mid-2011 despite the absence of...
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