Fulcrum advances in DOE loan process

By Kris Bevill | November 15, 2010
Report posted Nov. 19, 2010

Future cellulosic ethanol producer Fulcrum BioEnergy Inc. has reached a significant milestone in the U.S. DOE's extensive loan guarantee process. The company has entered into the negotiation phase of the program and is currently working with DOE program officials to create terms for the $70 million loan it requested earlier this year. Fulcrum is the first cellulosic biofuels project to advance this far in the DOE loan program.

"We have worked hard to have developed a very strong technical and financial project," said Jim Macias, president and CEO of Fulcrum. "DOE has a very rigorous and extensive technical and financial review process and we are quite pleased to have passed such review and progressed to term sheet negotiations."

Fulcrum plans to construct a 10.5 MMgy cellulosic ethanol plant near Reno, Nev. The facility will use approximately 90,000 tons of municipal solid waste annually to produce ethanol as well as 16 megawatts of power. Waste Connections Inc. has agreed to supply Fulcrum with some of its feedstock from a waste processing facility located about an hour away from the plant in El Dorado County, Calif. Rick Barraza, vice president of administration at Fulcrum, said the company has signed a feedstock supply contract with another company as well, but was unable to release the name of the company. Specific details regarding price paid for feedstock or volumes being supplied by each provider are also not being released. "The feedstock is locked in at a fixed, very low price, which makes our project very attractive," Barraza said. Fulcrum has also signed a long-term offtake agreement for ethanol produced at its Sierra Biofuels Plant, but is not yet releasing details of the agreement.
Upon successful completion of the term negotiations, DOE officials will calculate a credit subsidy score for every aspect of Fulcrum's project before sending it to a credit review board for approval. From there, the application needs to be approved by Energy Secretary Steven Chu before a conditional commitment can be offered for the project. The Office of Management and Budget and U.S. Treasury must also review and sign off on the project. "We recognize that until the loan is closed, there is no assurance that a loan guarantee will actually be issued," Macias said. "However, as we move ahead and negotiate the terms of the loan with DOE, and as DOE continues its technical, commercial and financial due diligence through the closing of the loan guarantee, we are optimistic that a conditional commitment and loan guarantee will be issued." Barraza said it's difficult to predict when the loan might be finalized, but he anticipates a closing sometime in the first quarter of 2011.

The DOE has received extensive criticism for its treatment of biofuels applications with regards to its requirements for loan guarantees. The Renewable Fuels Association has repeatedly called out for reform for the program, stating that requiring long-term supply and offtake agreements are nearly impossible for transportation fuels projects and, as such, the program is skewed toward power generation projects. RFA communications director Matt Hartwig said so far, no action has been taken to modify the loan guarantee program. "That said, we are encouraged to see that some biofuel companies are making it deeper into the vetting stage than before," he said. "We hope this is a trend that will lead to several qualifying companies obtaining guarantees."

Barraza said Fulcrum's success in the program so far is due to a short list of factors. "Our long-term contracts were a strong part of the application," he said. "We spent a lot of time on our technology, making sure our gasification process and synthesis gas process work. We demonstrated that to the DOE. We also signed up one of the country's most prominent EPC firms - Fluor Corp. - to do the engineering, procurement and construction of our project. We've got a project that has been sited, the permits are in place, our equity capital is committed to the project. We came to the DOE with a fundamentally sound project."

Engineering work began at the Sierra Biofuels Plant site earlier this year. Fluor will proceed with procurement and construction activities by the end of the year. The facility is slated to begin producing in 2012. Meanwhile, Fulcrum is also working on a development program to construct similar facilities in locations throughout the U.S., including Houston, Colorado, Florida, Oklahoma and Tennessee.