Biomass Feasibility Project Final Report - Xcel Energy

CHAPTER XI: BIOMASS POWER PROJECT
DEVELOPMENT HANDBOOK
INTRODUCTION
A biopower project is a multifaceted endeavor which might take several years from start to
finish. The process requires expertise in a wide range of subjects, from agricultural practices and
power plant economics to the regulation and financing. Such a broad range of knowledge
can be found only in specialists in these areas. Whether those specialists are partners in the
project or independent consultants, their work in developing a bio-power project will require
substantial investments of time and money.
This Project Development Handbook provides a starting point for parties interested in developing
a biomass power facility. Its first section is a list of the Conditions Precedent typically required
prior to the financing of a project. These may vary for different projects, but the list gives an
indication of the many issues that must be dealt with to complete a project successfully. The
second section provides greater detail on some of the Conditions Precedent listed in the first
section. This is far from a complete “how to” guide for biomass power projects, but it does focus
on information on topics specific to biomass power.
CONDITIONS PRECEDENT
Certain Conditions Precedent will need to be met in order to obtain financing for a biopower
facility. These Conditions Precedent represent the current understanding of key requirements
typically imposed by bond insurers, rating agencies, letter of credit banks, and investors. They
may change, or new conditions may be added, as the project develops. Typical Conditions
Precedent are as follows.
Power Purchase Agreement: a Power Purchase Agreement with a credit- worthy, ratable utility.
The Power Purchase Agreement will be reviewed to verify that Project Economies properly
represent the contact and conditions through the full term of the financing. The agreement
should show annual rate escalators based on inflation.
Steam Off-Take Agreement: an agreement with a credit-worthy or ratable steam purchaser for
the full term of the financing, or, in the absence of a full term agreement, a cancellation penalty
that provides the energy island owner a revenue base sufficient to re-position the facility, find
alternative users or alternative sources of revenue from electrical generation. The steam off-take
agreement rate should based on indexes and adjustable to changing fuel costs and
uncontrollable circumstances such as changes in state or federal regulations.
Biomass Fuel Supply Contract: assurance of biomass fuel supply along with an indexed cost
structure with a ratable or credit-worthy fuel consolidator or generator. The contract with the
fuel supplier will need to be structured to avoid its characterization as speculative. The
agreement should be for the full term of the financing.
Ash Disposal: an ash disposal plan and facility to address Minnesota Pollution Control Agency
requirements.
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Identifying Effective Biomass Strategies:
Quantifying Minnesota’s Resources and Evaluating Future Opportunities