By Bill Hagy, Executive Vice President of Federal Funding, Lee Enterprises Consulting
Special for The Digest
When considering applying for federal funding for a commercial-scale bioeconomy project, be aware that there are many types of federal funding available – grants, direct loans, loan guarantees, or combinations of any two of these funding resources. – each with different requirements. A trip through the maze is probably warranted.
The eligibility of the applicant is the first factor to consider. Depending on the federal program, eligible applicants may include small private businesses, some non-small private businesses, public agencies (state, regional, local), non-profit organizations, agricultural producers, cooperatives and entities tribal governments.
State of technology: Some programs only support “commercially available” projects, while other programs support “new innovative technology projects”. A commercially available system can be either:
(1) a domestic or foreign system that has (i) both a proven and reliable operating history and proven performance data for at least one year specific to the use and operation of the proposed application, and ( ii) it is based on a design and installation procedures and practices that are reproducible; and (iii) has professional service providers, trades, major construction equipment and labor suppliers who are familiar with installation procedures and practices; (iv) has proprietary equipment and a balance of system equipment and spare parts that are readily available; (v) has readily available service to properly maintain and operate the system; (vi) has an existing established warranty that is valid in the United States for major parts and labor; Where
(2) A domestic or foreign system that has been certified by a recognized industry organization whose certification standards are acceptable to the Agency.
Technologically new project: New or significantly improved equipment, process or production method to provide a product, or adoption of new or significantly improved equipment, process or production method to provide a new or significantly improved product, the first use of which at commercial scale in the United States is within the last five years and is in use in no more than three commercial scale installations in the United States.
Project location: To be eligible, a project must be located in one of the 50 states of the United States, the Commonwealth of Puerto Rico, the District of Columbia, the United States Virgin Islands, Guam, American Samoa, the Commonwealth of the Mariana Islands of the North, the Republic of Palau, the Federated States of Micronesia and the Republic of the Marshall Islands. For some programs, the project must also be located in a rural area. Each program has its own definition of “rural area”.
Eligible renewable raw materials: Eligible renewable raw materials include materials, pre-commercial thinning, or invasive species from National Forest System lands or public lands or any organic material that is renewable or recurring available on non-federal or tribal lands India, including the following items:
– Renewable plant material (including feed grains, other agricultural products, other plants and trees and algae); and
– Waste (including crop residues, other vegetable waste (including wood waste and wood residues), animal waste and by-products (including fats, oils, greases and manure ) and food and yard waste.
Eligible direct debit(s)): Eligible offtake includes biofuels, renewable chemicals and bioproducts and can generate electricity for sale as a secondary offtake.
Limits on the amounts of the federal participation in the project: Several programs have statutory or regulatory limits regarding the maximum amount of project per project.
Here are some examples: USDA Business and Industry Loan Guarantee and Rural Energy Loan Guarantee Program for America (REAP) The maximum loan amount is $25 million. The USDA Loan Guarantee for Biorefinery, Renewable Chemicals, and Biobased Products Manufacturing Assistance (Section 9003) is $250 million. The community facilities grant, direct loan or loan guarantee program or a combination thereof has no limit on the size of the direct loan or loan guarantee. The DOE Title 17 Innovative Energy Loan Guarantee Program has no loan guarantee amount limit.
The grant portion of a REAP-funded project cannot exceed 25% or $500.00 of the eligible project cost, whichever is less. For the Community Facilities Program, the grant portion cannot exceed a maximum of 75% of eligible project costs (for the project to be eligible for this grant amount, numerous demographic and income criteria must be met and funds available).
Eligible project costs: Project costs eligible for participation in the federal program may include CAPEX, initial working capital, professional consultant fees (application package, engineering, technical reports, feasibility study, business plan, environmental assessment, appraisals, etc)
Cash contribution: Most programs require that a portion of the total project costs come from some form of cash contribution. Cash contribution (generally between 20% and a minimum of 25% of total project costs) for most programs must come from sources other than other federal funding sources, unless specifically authorized under the statutes/regulations of the program.
Eligible cash contribution sources include New Market Tax Credits, Qualified Empowerment Zone Funding, Commercial Property Assessed Clean Energy (CPACE), Private Investors, Crowdfunding, Funding Community Development Financial Institutions (CDFIs) and cash on hand from the applicant.
THE CONTENT OF AN APPLICATION
The app content is listed below. It is important to note that some of these identified components should be completed by an independent source of advice.
- Project summary. A brief summary description of the project.
- Federal Funding Application Form. Each federal program has a standard application form to be completed by the applicant and, if a lender (in the case of loan guarantee programs) is involved, the lender.
- Financial state). These would include:
- Current balance sheet acceptable to the Agency and cumulative income statements for the year of the applicant.
- Borrower’s historical balance sheet, income statements and cash flow statements acceptable to the agency.
- Pro forma financial statements that reflect a project’s ability to generate sufficient revenue, credit and cash flow to sustain the project financially over the long term and service all debts. Projected balance sheets, income statements and cash flow statements or a financial model from current financial statements up to a specified minimum number of years of the project running at full operational capacity or stable operations.
- Business plan. A comprehensive document clearly describing the ownership structure and management experience of the borrower, including, if applicable, a description of a parent company, all subsidiaries and affiliates of the borrower and a description of how the borrower will operate the proposed project. If a business or industry is in decline or in financial difficulty, the business plan should describe in detail how the project differs from current industry trends or improves the borrower’s financial situation. The applicant must document and explain how the company has overcome or will overcome adversity and distress from business and industry.
- Feasibility study. A report including an opinion or conclusion written by one or more independent qualified consultants assessing the economic, commercial, technical, financial and managerial feasibility of the proposed project or operation in terms of the likelihood of success.
- Technical report. A report sufficiently detailed to enable the Agency to determine the technical merit of the project. Design drawings and process flowcharts are encouraged as exhibits. For most programs, technical report requirements can be provided in the technical feasibility section of a feasibility study, instead of completing a separate technical report.
- Environmental assessment. Normally, depending on the scope of the project, an independent consultant will be required to carry out the assessment. Each program has guidelines for the content of the assessment and the process for conducting the assessment.
- Evaluation. Must be carried out by an independent qualified appraiser.
- Rating of program priorities. Each program has published priority areas of interest on the type of projects that will be considered. Each project application should score the identified criteria using the information provided in other components of the application.
- For “new innovative technology” applications, in addition to the application components above, the results of an integrated demonstration unit test documenting the “proof of concept” must also be provided.
- Some programs have a two-phase application process: Phase I is to determine entity and project eligibility; Phase II is the most comprehensive application.
CALENDAR OF APPLICATIONS
Some program applications can be submitted throughout the federal fiscal year (FY) (October 1 through September 30), while other programs have windows during FY during which applications are received. Normally, the federal agency will post a notice in the Federal Register or other news media sources notifying the public of the funding request.
About the Author: Bill Hagy is a member of Lee Enterprises Consulting. He retired from USDA Rural Development, where he rose from assistant county supervisor administering loans, loan guarantees, and grant programs to acting undersecretary for rural development. He spent his last three years as Special Assistant for Renewable Energy to US Secretary of Agriculture Tom Vilsack advising on policy issues relating to alternative/renewable energy development. Bill has been recognized in the past as one of the top 100 bioenergy people by Biofuels Digest. Lee Enterprises Consulting is the world’s leading bioeconomy consulting group, with over 150 consultants and experts globally. The opinions expressed here are those of the author and do not necessarily reflect the views of LEC.