Fulcrum: DOE cuts could delay its cellulosic project indefinitely

By Kris Bevill | March 16, 2011

Fulcrum BioEnergy Inc. is scheduled to break ground this summer on its 10.5 MMgy municipal solid waste-to-ethanol facility near Reno, Nev. The $120 million Sierra Biofuels Plant, which will also produce 16 megawatts of electricity annually, is one of a small handful of cellulosic ethanol plants to undergo construction this year - the first of the greatly anticipated new generation of domestic renewable fuels. But the fate of Fulcrum’s project, as well as 30 other renewable energy projects, hangs in the balance as Congress considers cutting off funds to the U.S. DOE’s loan guarantee program in an attempt to reduce the federal budget.

Fulcrum has applied for an $85 million DOE loan guarantee and is currently in the documentation phase of the application process, which indicates the company’s application has essentially been approved. The only other step remaining prior to official approval is the closing process, which consists of a final credit analysis. The company initially filed for the loan guarantee in 2009 and is the first cellulosic ethanol project to advance so far in the program. But the exhaustive, time-consuming process could be for naught if program funding is eliminated. More importantly, Fulcrum’s project would “grind to a halt,” according to CEO and president Jim Macias. “We’ve raised a lot of equity on our side—over $100 million—and a lot of it is contingent on having the loan guarantee being part of the project,” he said. If the company is unable to secure a DOE loan guarantee, Fulcrum would no longer have the funds to complete construction. “We’d have to put the project on hold indefinitely,” he added.

The DOE’s proposed FY 2012 budget includes a request for $200,000 in appropriations for the loan program offices as well as $36 billion for nuclear power loan guarantees. A DOE spokeswoman said proposed cuts to the DOE loan programs would “drastically decrease” the ability for the DOE to provide support to renewable energy projects. Six conditional loan guarantees would be withdrawn and an additional 25 projects that are currently in term sheet negotiations would never be completed. “These 31 projects are seeking $13.6 billion in loans to finance $24.5 billion in new energy infrastructure, which would put more than 25,000 Americans to work,” she said.

Macias said there is no other readily available option for funding for Fulcrum if the DOE loan guarantee falls through. The company hasn’t applied for a USDA loan guarantee because it was already accepted and making progress in the DOE program when USDA’s program became available. “That’s another repercussion of pulling the rug out so late in the game,” he said. “We would consider USDA, but that’s starting over.”

In the three years since funding was provided to launch the DOE’s 1705 loan guarantee program through the American Recovery and Reinvestment Act, the agency has earned a notorious reputation for its inadequate operation of the program. Macias said that has changed since the Obama Administration took over and he believes the program will play a vital role in the success of the advanced biofuels industry. “The loan guarantee has been very valuable for promising new technologies, for new project like ours,” he said. “It’s a valuable tool to help emerging technologies in normal times; absolutely critical in those financial times where the capital markets, including the debt markets, just close. This is going to be a year of construction for a lot of new technology renewable projects, not just ours. There is no option available to anybody in the normal banking capital markets, so this has played a very valuable tool to help projects move forward.”

While it remains difficult to predict Congressional action on a long-term federal budget, it is anticipated that a three-week extension will be passed by March 18 and details of the long-term budget, including the fate of the DOE loan guarantee program, will be determined during the next three weeks.