BlueFire CEO: We're in the homestretch

By Kris Bevill | September 23, 2010
Posted Sept. 27, 2010

BlueFire Renewables Inc. has cemented two significant contracts in the past week that should guarantee the company's U.S. DOE loan guarantee approval for a planned 19 MMgy cellulosic ethanol facility in Fulton, Miss. On Sept. 20, the company announced a 15-year offtake agreement with Tenaska Biofuels LLC for the purchase and sale of all ethanol produced at the Fulton plant. On Sept. 27, BlueFire said it also secured a 15-year feedstock supply contract with Mobile, Ala.-based Cooper Marine & Timberlands, a Cooper/T. Smith company that specializes in all areas of forest products.

"It's really coming down to the homestretch for us in terms of getting the project in Mississippi buttoned up," said BlueFire CEO Arnold Klann. "There's no reason for this project not to get financed, save for the governmental loans not getting through due to bureaucratic hold-ups. We have met and greatly exceeded every criteria that we know of that has been set by the DOE loan guarantee program."

BlueFire filed an application to acquire a $250 million federal loan guarantee in February, but Klann said BlueFire has reduced the request to $215 million. In July, the project advanced to Phase II of the program. According to Klann, it has been difficult to meet the DOE's loan guarantee requirements, which include secured matching feedstock and offtake agreements, because of cellulosic ethanol's uniqueness within the industry. Long-term contracts aren't typical for ethanol because it is a commodity, he said. Corn ethanol producers can at least hedge risks on feedstock and the end product, but that option is more difficult for cellulosic producers. "In the case of cellulosic, you really have nothing to hedge your output production against because you don't have a feedstock contract by a credit-worthy company because, in most cases, you have farmers trying to harvest the feedstock coming in. In our case, we were able to work out a deal with Cooper Marine, so we were able to create in essence what is normally done—a feedstock contract with price points in it that effectively matches what we're selling to Tenaska with a spread in between for our conversion efficiency."

No earlier than December 2012, Cooper Marine will begin delivering 770 dry tons per day of locally sourced wood waste, including wood chips, forest waste, construction waste and storm debris, to the Fulton ethanol plant. In addition to ethanol, the facility will generate 8.5 megawatts of power, which will provide all the facility with all of its energy needs. Most of the feedstock will be acquired from within a 40-mile radius of the Fulton plant, according to Klann, and will cost BlueFire $25 per ton.

When production commences at the Fulton facility, Tenaska Biofuels will acquire all of the fuel produced based on a pricing contract that includes rack ethanol prices for the area to which the fuel is being delivered, minus transportation costs. The contract also includes a kicker for renewable identification numbers (RINs) credits, Klann said. The offtake agreement was arranged quite rapidly, in less than eight weeks. Klann said he believes Tenaska plans to expand its alternative fuels business to include more ethanol marketing and vertical integration.

Now that feedstock and offtake agreements are settled, Klann is optimistic that financing will be finalized by the end of the year, although the loan guarantee process is difficult to predict. BlueFire has invested $19 million into the $293 million project so far and has obtained an $88 million federal grant, of which approximately $81 million remains to be used for plant construction. Klann told EPM earlier this year that the project could not move forward without some type of federal loan guarantee, but he is now confident that the project will advance regardless. Offtake agreements and feedstock contracts give strength to the project and could make it possible to finance in the commercial marketplace, when it otherwise would not be possible. "There's an opportunity that we may be able to do that given certain conditions on guaranteeing the technology yield," he said. "There's opportunities out there."

Klann said site work is scheduled to begin by early November, prior to the close of financing.