Sign Up to our mailing list

The Voice of Canada’s growing pellet sector
  • Video: Heating with Wood Pellets

    Heating with wood pellets is an effective way to help in the fight against climate change.

  • Video: Wood Pellet Association of Canada

    Existing coal plants can be cost-effectively repurposed to use wood pellet fuel to help the environment and reduce air pollution.

  • Pellets

    Made from renewable forest byproducts and unmerchantable material, wood pellets from Canada provide a renewable, sustainable fuel source for generations to enjoy. | Read More

  • Sustainable

    Only 9% of the world’s forest are certified. Over 42% of them are in Canada, making it an ideal source for sustainable wood pellets. | Read More

  • Renewable

    WPAC members rely on sawmill waste and forest harvest residuals for the bulk of their fibre supply, allowing 100% resource use. | Read More

  • Fossil Fuel Alternative

    Whether on their own or co-fired with coal, wood pellets provide a lower carbon footprint and renewable energy source. | Read More

  • Innovative

    WPAC continues to support R&D in key wood pellet areas like safety, efficiency, fuel stability, energy content and more. | Read More

These alternatives to bank financing are an innovative way to finance pellet plants, and can help move a product forward when traditional lending sources aren't accommodating.

Now that you have a long-term off-take agreement and a secure fibre supply, all that remains is to build your plant. And that should be easy if you can just raise enough money, yet arranging sufficient financing can be difficult.

Traditional banks won’t lend for bioenergy projects because they don’t understand them, are averse to risk and won’t finance startups. They want to see at least three years’ worth of profitable financial statements before lending and often require project developers to put in as much of their own cash as they want to borrow from the bank. They also usually require more security than the assets being financed, meaning that the borrower has to sign a personal guarantee and put up his/her home for security.

AN ALTERNATIVE TO FINANCING
Thanks to WPAC associate member Ulrich Hainzl KG a new alternative to bank financing is now available: the closed end fund (or CEF).

A CEF is like a mutual fund where the capital of hundreds or thousands of investors is pooled and invested in assets. But unlike a mutual fund, for each CEF, the amount of capital raised is limited to the amount required for each project, and the term of each project is finite. Once the capital has been raised, the fund is closed for the term of the project. The return on investment is derived from profits earned by the project plus the proceeds received when the project is sold at the end of the CEF’s term.
CEFs are used for investing in real estate, shipping, aircraft and many other related market segments, and a pellet plant would be an ideal project for CEF financing.

HBI GMBH
Founded 15 years ago and based in Hamburg, Germany, HBI GmbH is a financial services company and CEF specialist which has developed projects, mediated in negotiations and invested several billion euros for its clients.

Yvonne Büttner, one of the managing directors of HBI, said that the company primarily acts as a designing house for private and public placements. “We provide project developers and product providers with customized concepts for the realization of large investment projects, which we then accompany from the first thoughts at the “green table,” on to their implementation, to their operation and finally to the fund’s liquidation.”

HBI GmbH’s current ambition is to design funds to be invested in Canadian renewable energy projects and this presents a serious opportunity for Canadian pellet producers and other bioenergy-related project developers.

LIFE CYCLE OF A FUND
Generally, there are six steps in the life cycle of a CEF:

A project developer prepares a convincing business plan demonstrating attractive and safe returns and presents it to HBI. As long as it has a secure fibre supply, a long-term take-off agreement with investment-grade counterparty and a highly qualified management team, the project is accepted.

The capital requirements – construction, start-up costs and working capital – are determined and the CEF is structured as a limited partnership with investors as the limited partners and the project developer as the general partner. The project developer is the outward face of the project, while the limited partners remain behind the scenes as the actual project owners.

There are two different models:

  1. The project developer acts as a long-term manager and operator of the plant and pays a fixed annual rent to the CEF for the duration of the CEF. The rent could be temporarily lowered until the project begins to make a profit, for example, after five years.
  2. The CEF provides for the project developer to be paid a management fee, while the profits up to the hurdle rate are paid to the investors. Any profits exceeding the hurdle rate are generally split between the project developer and the investors and the CEF term is set, usually from six to 12 years. As well, the CEF may provide for the project developer to buy out the project at the end of the term for a predetermined amount, or for the project to be sold to a third party. HBI seeks regulatory authorization to distribute shares, and markets the CEF shares to private investors, which takes between nine and 18 months.

The project is constructed, which must be assured by an EPCM (engineering, procurement and construction management) contract with an investment-grade counterparty. This ensures that the project will operate as intended and not go over
budget.

The project developer operates the project for the term of the CEF, reporting to a board consisting of limited partners.

Finally, the project is sold at the end of the CEF term. The return on investment is derived from the profits generated during the CEF term, plus the proceeds received upon the final sale of the project.

Canadian bioenergy project developers should seriously consider CEFs when deciding how to finance their projects. CEF financing is an attractive alternative to traditional bank financing, especially for talented management teams that have great projects, but lack sufficient financial resources to meet the banks’ security demands.


 

Originally published in Canadian Biomass - All rights reserved. Gordon Murray is executive director of the Wood Pellet Association of Canada. He encourages all those who want to support and benefit from the growth of the Canadian wood pellet industry to join. Gordon welcomes all comments and can be contacted by telephone at 250-837-8821 or by e-mail at This e-mail address is being protected from spambots. You need JavaScript enabled to view it .

Industry Links

Industry Links

Markets

Markets

Become a Member

Become a Member

Safety

WPAC Safety Committee

The Board of Directors has appointed the Safety Committee to manage the safety objectives of the Wood Pellet Association of Canada ("WPAC"). The Safety Committee works in close cooperation with the BC Forest Safety Council.

Read more...
t

Power Generation

t

Sustainable power

The vast majority of Canadian wood pellets are made from sawmill residuals - sawdust. The rest are made from the residuals from harvesting operations for sawmills and pulp mills, or low-grade timber from forest industry harvest sites that has no other economic value. Think firewood. Read more...

Breathing easier - pellet emissions vs coal

Sustainability should be top of mind for any company that wants to stay in the game in today’s world.

As important a role as Greenhouse Gas (GHG) emissions play, we also need to focus on noxious emissions versus coal.

Read more...

Industry News

t

  • Montreal building biogas plant to process organic waste

    Montreal has officially announced its plans to build a…

    Read more...
  • FPAC supports forest ministers’ focus on the ‘big picture’

    At the close of the 2019 annual meeting of…

    Read more...

The Pellet Advantage

Efficient and Plentiful Production

Wood Pellet Association of Canada members are world leaders in the design and operation of modern pellet plants.

Read more...

Innovating our way to a safer, better product

Wood pellets are a safe, reliable modern fuel. But they are still a fuel, requiring care in producing, shipping and storing.

Read more...

Renewable and sustainable? Energy really can grow on trees.

There is no single energy source capable of solving our dependence on fossil fuels. Instead we need to look to a mix of new fuels, including wood pellets.

Read more...

Argus Wood Pellet Index

US$ per metric tonneArgus Wood Pellet Index

We are using cookies to give you the best experience on our website. By continuing to use the site, you agree to the use of cookies. To find out more, read our Privacy Policy.