Now that you have a long-term off take agreement and a secure fibre supply, all that remains is to build your plant. And that should be easy if you can just raise enough money, yet arranging sufficient financing can be difficult. Traditional banks won’t lend for bio energy projects because they don’t understand them, are averse to risk and won’t finance startups. They want to see at least three years’ worth of profitable financial statements before lending and often require project developers to put in as much of their own cash as they want to borrow From the bank. They also usually require more security than the assets being financed, meaning that the borrower has to sign a personal guarantee and put up his/ her home for security. An alternative tO Financing Thanks to WPAC associate member Ulrich Hainzl KG a new alternative to bank financing is now available: the closed end fund (or CEF). A CEF is like a mutual fund where the capital of hundreds or thousands of investors is pooled and invested in assets. But unlike A mutual fund, for each CEF, the amount of capital raised is limited to the amount required for each project, and the term of each project is finite. Once the capital has been raised, the fund is closed for the term of the project. The return on investment is derived from profits earned by the project plus the proceeds received when the project is sold at the end of the CEF’s term. CEFs are used for investing in real estate, shipping, aircraft and many other related market segments, and a pellet plant would be an ideal project for CEF financing. Hbi gmbh Founded 15 years ago and based in Hamburg, Germany, HBI GmbH is a financial services company and CEF specialist which has developed projects, mediated in negotiations and invested several billion euros for its clients. Yvonne Büttner, one of the managing directors of HBI, said that the company primarily acts as a designing house for private and public placements. “We provide project developers and product providers with customized concepts for the realization of large investment projects, which we then accompany from the first thoughts at the “green table,” on to their implementation, to their operation and finally to the fund’s liquidation.” HBI GmbH’s current ambition is to design funds to be invested in Canadian renewable energy projects and this presents a serious opportunity for Canadian pellet producers and other bio energy-related project developers. liFe cycle OF a Fund Generally, there are six steps in the life cycle of a CEF: A project developer prepares a convincing business plan demonstrating attractive And safe returns and presents it to HBI. As long as it has a secure fibre supply, a long term take-off agreement with investment grade counter party and a highly qualified management team, the project is accepted. The capital requirements – construction, start-up costs and working capital – are determined and the CEF is structured as a limited partnership with investors as the limited partners and the project developer as the general partner. The project developer is the outward face of the project, while the limited partners remain behind the scenes as the actual project owners. There are two different models: A. The project developer acts as a long term manager and operator of the plant and pays a fixed annual rent to the CEF for the duration of the CEF. The rent could be temporarily lowered until the project begins to make a profit, for example, after five years. B. The CEF provides for the project developer to be paid a management fee, while the profits up to the hurdle rate are paid to the investors. Any profits exceeding The hurdle rate are generally split between the project developer and the investors and the CEF term is set, usually from six to 12 years. As well, the CEF may provide for the project developer to buy out the project at the end of the term for a predetermined amount, or for the project to be sold to a third party. HBI seeks regulatory authorization to distribute shares, and markets the CEF shares to private investors, which takes between nine and 18 months. The project is constructed, which must be assured by an EPCM (engineering, procurement and construction management) contract with an investment-grade counter party. This ensures that the project will operate as intended and not go over budget. The project developer operates the project for the term of the CEF, reporting to a board consisting of limited partners. Finally, the project is sold at the end of the CEF term. The return on investment is derived from the profits generated during the CEF term, plus the proceeds received upon the final sale of the project. Canadian bioenergy project developers should seriously consider CEFs when deciding how to finance their projects. CEF financing is an attractive alternative to traditional bank financing, especially for talented management teams that have great projects, but lack sufficient financial resources to meet the banks’ security demands. Gordon Murray is executive director of the Wood Pellet Association of Canada. He encourages all those who want to support and benefit from the growth of the Canadian wood pellet industry to join. Gordon welcomes all comments and can be contacted by telephone at 250- 837-8821 or by e-mail at gord@pellet.org. Canada’s Bioeconomy The International Bioenergy Conference and Exhibition is Canada’s longest- running conference devoted to the global bioenergy sector and provides opportunities for bioenergy experts, existing businesses and organizations, and new entrants to explore leading-edge concepts and current applications in bioenergy. Conference Host city Prince George is located in British Columbia, a province that has a natural abundance of wood fibre and is the largest producing and exporting region in Canada for forest and bioenergy products. Prince George is a North American leader in bioenergy, whose businesses have a record of industrial achievement, entrepreneurial activity and leadership in bioenergy technology and forest fibre management. The BC Interior is the largest pellet-producing region in the world and the University of Northern BC is a research intensive university connected by research networks to the innovation capacity of all BC universities, and by partnerships with businesses in the bioenergy industry. The conference runs from June 13 to 15, 2012 at the Prince George Civic Centre. The theme for this year’s conference is “Growing the Bioeconomy.” It will include a focus on timely topics affecting British Columbia and global bioenergy stakeholders, including: • Forest Products and Bioenergy: Industries in Transition • Around the World in Half a Day: Global Game Changers • The Integrated Biorefinery • Developments in the BC Bioeconomy • Carbon: the International Experience • Distributed Energy – Partners, Payback, and Potential • Technologies for Today, Technologies for Tomorrow The conference will once again feature an International Partnerships Forum and Business-to-Business meetings, bringing together businesses from Europe and Southeast Asia with their Canadian counterparts to engage in detailed discussions about potential and emerging business opportunities. A more detailed program is expected in early 2012. The Northern Bioenergy Partnership, Canfor Pulp Limited Partnership, University of Northern British Columbia, and Transtrata have already confirmed their participation as sponsors. Look for more on the conference in future issues of Canadian Biomass, as well as online at www.canadianbiomassmagazine.com.