Chicken or the Egg: Project Development from Feedstock to Output

Developers have to juggle at least a dozen issues in order to turn a project into a reality. They need an offtake agreement, a feedstock agreement, land for the facility, air permit, financing, etc. It’s enough to make anyone’s head swim and frequently begs the question “what do you concentrate on first?”

Like the timeless question of which came first, the chicken or the egg, you can make a similar query with regard to biomass projects. Do you determine the output and then try to find the feedstock and technology to fit or do acquire feedstock first and then focus on finding the best technology to process it and suitable applications?

There is no right way to approach a project and developers tend to begin with one of three angles: the feedstock, the output or the site. While it makes sense that end users would look at output first (an example would be a factory looking to use biomass to make steam), a third-party developer has more freedom with where to begin. Since there are several project developers with a background in commercial real estate, we see that as a popular starting point.

The purpose of this blog post is to discuss the importance of feedstock and encourage project developers to pay more attention to it earlier in the process.  We’ve seen too many examples of entrepreneurs becoming excited by an offtake agreement, only to find several years down the road that it can’t deliver because they can’t secure a large enough feedstock agreement at an economical price.

 Determining the quality of gas you can produce and the application of your output are crucial factors in project planning. For example, if you want to put the gas in a genset, you would ideally try to use MSW, end-of-life plastics or shredded tires. While still possible, woody biomass and agricultural waste produce a lower BTU gas regardless of the technology used to process it and is better suited for use in a boiler.

Loose pile of chopped material next to bales of biomass
feedstock to be used for bioenergy projects.
Courtesy: U.S. Department of Energy

Feedstock is extremely important for three reasons:

1. You can’t get a project financed without a feedstock agreement.

2. The chemistry of the feedstock should affect the technology you choose.

3. The economics of a feedstock can determine feasibility of an entire project.

Now let us tell you the story of Joe*, a developer attempting to start a second career:

Joe is a project developer who learned the importance of feedstock the hard way. After more than 20 years at a manufacturing plant, Joe lost his job when the recession forced the plant to close. Joe has lived in the same town his whole life and through his connections he learned that another facility 50 miles away was looking to become involved in a sustainable energy project.

After doing some research and crunching numbers, Joe worked up a proposal for the plant. He suggested using the agricultural waste that was readily available from nearby farms to make a syngas that could be put in a genset. The facility signed an offtake agreement for 1 MW of electricity as well as any heat waste that was created in the process.

Joe spent the next year touring the country to check out prospective technologies, filing permits and drafting formal feedstock and power purchase agreements. It wasn’t until the engineering firm that he hired to help with the design pointed out that the gas produced wouldn’t be of high enough quality to use in a genset that Joe realized he had a problem. He tried to alter his plans to incorporate a boiler and use steam to make electricity but found the project was too small to be economically viable for a steam system.

Joe spent another year trying to find additional customers for his output so he could increase the size of the project and make it economically feasible. He found he wasn’t able to secure the additional feedstock needed and the entire project fell through, but not before it took half of Joe’s savings.

Joe’s predicament isn’t an unusual one and it could have been prevented had he done a more thorough feedstock analysis at the beginning. A feasibility study and full feedstock analysis in addition to a mass and energy balance at the beginning will save time and money as it determines the likelihood of the project succeeding.

*Name has been changed to protect the embarrassed former developer, who now serves fries at the local McDonalds.

One great place for determining the best regions for biomass resources as well as the location of existing biopower and biofuels plants is the interactive map on the National Renewable Energy Laboratory’s website.  Check it out here.