Tapping into BCAP

Traditional and cellulosic ethanol plants can qualify as biomass conversion facilities under the USDA's Biomass Crop Assistance Program.
By Anna Austin | April 15, 2010
The Biomass Crop Assistance Program final rule will soon be out, and many are anxious to see program adjustments, further clarification on vague components, and an end to the current freeze on program sign ups.

The main impetus in BCAP, which was first introduced to the public in the 2008 Farm Bill, is to assist nonfood biomass crop development. The first part of the program, initiated in June 2009, provides matching payments for collection, harvest, storage and transport (CHST) to eligible material owners who are selling and delivering materials to a qualified biomass conversion facility using the biomass for the production of heat, power, biobased products or biofuels.

Though a coal-fired, corn-based ethanol plant won't qualify under BCAP, ethanol plants producing heat or power from biomass beyond their historical base line capacity can qualify, as can cellulosic ethanol producers. The process for applying for matching CHST funds is relatively simple, but a supplier and a biomass conversion facility must be partnered in order for either to benefit from BCAP.

Basics and Blemishes
CHST funds allow matching payments to eligible material owners of one dollar per dollar paid per ton, up to $45 per dry ton, for a period of two years after the first payment is made. As of Feb. 8, the USDA stopped accepting CHST applications, and will not begin accepting them again until the final BCAP rule is in place.

To qualify, a facility must first enter into an agreement with the USDA's Commodity Credit Corp. and Farm Service Agency, establishing that it is a biomass conversion facility by submitting related forms and documents to the state FSA office for approval. This agreement and CHST qualification will become effective only when the facility and feedstock supplier sign a memorandum of understanding—a contract that says the biomass grower will supply the facility with material for conversion into bioenergy, biofuel or bio-products by the facility according to BCAP rules.

Initially, BCAP required biomass purchases to be made only on a dry ton weight basis. The facility was to provide the supplier with a signed scale ticket clearly indicating the actual total tonnage delivered and total dry-weight tonnage equivalent purchased. The USDA reported that many respondents didn't agree with measuring biomass deliveries moisture levels to meet the dry-ton measurement standard. Currently, the common industry practice is to use green tons, which are generally assumed to possess a moisture level of about 45 percent. It appears the final BCAP rule will be modified to adopt the industry standard.

As the proposed rule currently reads, the biomass conversion facility is required to convert green tons to dry weights. "This requirement may result in the need for facilities like our demonstration facility in Upton, Wyo., to purchase additional equipment or have facility personnel to perform additional tasks," says Steve Corcoran, CEO of KL Energy Corp. KL Energy operates a qualified cellulosic ethanol demonstration facility, Western Biomass Energy LLC, which utilizes wood waste as a feedstock. He says he is supportive of the suggested woody biomass sampling methodologies that follow standard probability sampling of materials, and moisture analysis that follows standard test methods for wood fuels.

Benson, Minn.-based ethanol producer Chippewa Valley Ethanol Co. also disagrees with the dry ton requirement. "There should be some type of allowable moisture to the program and we would certainly support moisture of around 30 percent," says Chad Friese, CVEC commodities manager and biomass delivery coordinator. CVEC gasifies wood waste and corn cobs for power and steam at its 48 MMgy ethanol plant. "Forty to 50 percent seems a bit high. We currently have to use a shrink in order to bring the tons in line with the zero moisture, and we're doing that with a straight moisture correction shrink, not a shrink factor, as no studies that I'm aware of have detailed what a shrink factor would be for biomass," he says. "Due to the low density and high moisture of biomass products, transportation is one of the biggest costs, so by shrinking excessively, we limit the value that can be offset to transport and reduce the effective draw area of a conversion facility."

Eligible Materials: Owners and List
While facilities work to meet moisture standards, suppliers have their share of requirements in making valid and efficient BCAP transactions. The owners of eligible materials—defined by USDA as renewable biomass and excluding things such as algae, animal waste, mulch, municipal solid waste or finished wood products—must provide copies of written sales contracts, purchase commitment agreements, or nonbinding letters of intent for eligible material delivery and sale, to the county FSA office before a CHST application is approved. The supplier must also apply for CHST matching payment at the county FSA office before the sale or delivery of the material.

After each eligible material sale and delivery under arms-length sale transactions, an eligible materials supplier then submits a Request for Payment at the FSA county office where the original application was approved. Multiple sales and deliveries can be made under the initial approved CHST matching payment application. Payments will be disbursed after all required documents, including original scale tickets and invoices, are submitted to the county office.

A complete list of eligible and ineligible materials can be found on the USDA Web site, but some adjustments are being made in light of comments on the proposed ruling, including a possible prohibition on wood waste and residues not just on federal land but also nonfederal land that otherwise might be used for higher-value products. Kent Politsch, public affairs branch chief for USDA-FSA, says the prohibition proposal resulted from concerns voiced by segments of the wood industry, specifically the pulp and pressboard/fiberboard manufacturers. "They say that the BCAP collection, harvest, storage and transport matching funds were paying for forest items—chips, bark, excess wood, stumps and limbs that were knocked down in the forest that were generally cleaned up afterward—and therefore directly increasing prices and competition for a market that was already established, mostly the fiberboard industry," he says. In the case of particleboard makers, CHST funds could essentially double the price paid for materials they utilize in order to maintain their material streams. Politsch said the original intent of Congress allowing wood waste and residues to qualify for CHST funds was to appeal to the wood supply industry to clean up unwanted debris that they assumed had no or little market value. "The fiberboard industry responded by saying that was an incorrect assertion, and that there was already a market value for that stuff," Politsch says.

Composite Panel Association President Tom Julia says that initially the industry didn't pick up on the BCAP program's threat to industry members, as the organization doesn't typically track things that come out of the USDA. "We support BCAP; it's a great idea—but not if all that is really going happen is that you'll pay companies double for the materials they're already selling to somebody. There'd be no incentives to go out and develop a new fuel source when someone can get double what they're getting now by selling it to somebody else."

Corcoran says though KL Energy doesn't typically use wood materials used for higher value-added production (for the production of cellulosic ethanol), he believes there needs to be clarification of on what exactly is meant by "higher value-added production."

Establishment Payments
Beyond CHST payments, there is a second aspect of BCAP funding, which has not yet been initiated, that seeks to facilitate long-term growth of the biomass crop industry. Part two of BCAP, establishment payments, will cover up to 75 percent of the cost of planting eligible woody and non-woody perennial crops, and annual payments for up to 15 years. To be eligible, production activities must take place in designated project areas—areas which may be proposed by conversion facilities or by groups of producers. Qualifying for establishment or annual payments requires a description of the eligible land and crops to be grown, including maps showing current land use, roads, railroads, rivers, barge access, cost of land preparation, and evidence of a need for sufficient equity. A letter of intent from a biomass conversion facility indicating it intends to utilize the crops must also be provided, as must solid evidence that the biomass conversion facility has enough equity to operate in the future, if it isn't operational at the time of the proposal.

Although not definitive, BCAP does have an estimated cap. The USDA reported it intends to cap the cost of the BCAP program at $2.6 billion, including $2.1 billion for matching payments for biomass materials over the next four years, $306 million for crop establishment over the next three years, and $219 million for annual payments over the next 17 years.

The public comment period for the proposed ruling ended at the beginning of April, and the final rule should be published this summer. Meanwhile, the USDA is confident the kinks will be worked out in the long term, and that BCAP will fulfill its purpose. "It will take some time, there will be some hills, valleys and bumps in the road," Politsch says, "(but) it will settle down and be a very successful program." EP

Anna Austin is a BBI International associate editor. Reach her at aaustin@bbiinternational.com or (701) 738-4968.