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 counterparty and a highly qualified management team, the project is accepted. The capital requirements – construc-tion, start-up costs and working capital – are determined and the CEF is struc-tured as a limited partnership with in-vestors 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 ex-ceeding the hurdle rate are generally split between the project developer and the in-vestors 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 manage-ment) contract with an investment-grade counterparty. 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 de-ciding how to finance their projects. CEF financing is an attractive alternative to tradi-tional 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 [email protected]. KEEP uP TO DATE WITh canadianbiomassmagazine.ca, through our weekly Bio-Blast e-news, and on Twitter @canadianbiomass. EXCLUSIVE DISCOUNT for Canadian Biomass Magazine Readers Use discount code CANB2012 at checkout Save $250 on full conference registration April 16-19, 2012 Colorado Convention Center Denver, Colorado CONTACT US: 866-746-8385 | [email protected] | Follow Us: twitter.com/biomassmagazine Canadian BIOMASS 27
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