Biorefinery assistance program changes now in effect

A few changes have been implemented in the Biorefinery, Renewable Chemical and Biobased Product Manufacturing Assistance Program, writes John Kirkwood. This column appears in the December issue of EPM.
By John Kirkwood | November 10, 2015

On Feb. 7, 2014, President Obama signed into law the 2014 Farm Bill, which includes $881 million in mandatory funding for energy programs. In June, an interim final rule was published in the Federal Register for the Biorefinery, Renewable Chemical and Biobased Product Manufacturing Assistance Program, known as the 9003 Program, by the USDA’s Rural Business-Cooperative Service. The subsequent interim rule, which took effect Aug. 24, incorporates changes required by the 2014 Farm Bill, includes additional clarifications and modifications, and addresses comments published in 2011.

Here are some of the changes that have been implemented. 

It is no longer required that a biorefinery produce primarily advanced biofuel in order to participate in the 9003 Program. Some amount of advanced biofuel must be produced, but no specific minimum production level is established. It also allows for the funding of biorefineries that primarily produce renewable chemicals and biobased product manufacturing facilities.

The program now includes a project finance framework to supplement the traditional commercial lending framework. This provides the lender of record with additional flexibility in its credit evaluation process and in response to the types of projects that have been previously accepted into the 9003 Program.

The application process has been separated into two phases. This includes an initial phase-one application, which requires general project information, including preliminary economic and technical feasibility. Next, subject to invitation from the agency, applicants are required to turn in a phase-two application with detailed planning, engineering, environmental, technical and financial information, including the lender's credit evaluation. This is similar to the two-phase application process used by the U.S. DOE’s loan programs office.

The need for the lender of record to obtain and rely on certain written materials from qualified third parties has been emphasized. Some examples include independent engineers, accountants, appraisers, and consultants.

A credit rating is no longer required from all applicants for loans of $125 million or more. Instead, an evaluation and rating of the total project's indebtedness is now required from all projects with total eligible project costs of $25 million, which have submitted phase-two applications.

A few common questions regarding the changes to the 9003 Program:

Were there any material changes to the existing advanced biofuel portions of the 9003 Program? While the definition of advanced biofuel has remained unchanged, the agency has eliminated the requirement that a biorefinery produce mainly advanced biofuel in order to qualify. Instead, a biorefinery is only required to produce some advanced biofuel (a minimum production level is not specified) in order to apply for the 9003 Program. Furthermore, a biorefinery that produces biofuel need not sell the advanced biofuel as biofuel.

Did it change the definition of biorefinery? The subsequent interim rule left unchanged the definition of biorefinery, which is “a facility (including equipment and processes) that (A) converts renewable biomass into biofuels and biobased products, and (B) may produce electricity.” The agency has interpreted this definition to mean that the facility must produce an advanced biofuel and may produce biobased products, including renewable chemicals, and electricity.

What is a renewable chemical? The subsequent interim rule implemented the 2014 Farm Bill's definition of renewable chemical to mean “a monomer, polymer, plastic, formulated product or chemical substance produced from renewable biomass.”

Did the subsequent interim rule change the definition of renewable biomass? No. Corn kernel starch is still excluded from the list of organic matter considered to be renewable biomass.

What is the two-phase application process and how will it affect applicants? For one thing, the application deadlines have been changed from Nov. 1 and May 1 of each year to Oct. 1 and April 1. And, only those applicants with higher phase one-priority scores, out of a scale of 125 possible points, will be invited to submit phase-two applications. A minimum score of 55 points is required in order to be considered for a guarantee.

The agency expects that this two-phase application process will increase the cost to some applicants, namely those invited to participate in the second phase. However, it is expected to decrease the overall cost to the public and to many applicants, namely those not invited to participate in the second phase.

What are the project funding requirements? The subsequent interim rule clarifies that total federal participation under the 9003 Program in a project (the loan guarantee plus any other federal funding) is not to exceed 80 percent of a project's total eligible costs. The remaining 20 percent must be funded from nonfederal sources.

Author: John Kirkwood, Partner
Faegre Baker Daniels LLP
Energy & Natural Resources Industry Group