Financing Options for Woody Biomass Production and Utilization Projects

Wood Energy March 12, 2010 Print Friendly and PDF

By: B. Crain, A.W. Hodges, and M. Monroe

There are several loan and grant programs that can help fund bioenergy projects in the U.S. Following is a brief summary of some of these programs. See the financing handout in chapter 6 for more details. Resources and regulations concerning financial support change often; so it is wise to check frequently for updated information.

Contents

The Food, Conservation, and Energy Act of 2008

The Food, Conservation, and Energy Act of 2008 provides $320 million in loan guarantees for biorefineries using biomass to produce advanced biofuels. There are a number of other grant programs established by this act such as the bioenergy program, biodiesel fuel education program, and the rural energy for American program.

Business and Industry (B&I) Guarantee Loan Program

The B&I Guarantee Loan Program provides up to a 90 percent loan guarantee to banks for businesses located in areas with 50,000 in population or less. The primary objective of the program is creation or preservation of jobs in rural areas. Personal guarantees are required along with a minimum of 25 percent tangible equity for companies that produce energy from renewable sources.

Rural Utilities Service (RUS)

Approximately $200 million in direct loans is available through USDA’s Rural Utility Service for electricity produced from biomass energy that is generated for sale to rural utilities and power companies with a significant “rural customer load.” The technology must be “proven” and “renewable.”

Renewable Energy Grant and Loan Program

The USDA Rural Business Service offers entrepreneurs a grant-and-guarantee loan program. Commercial entities and agricultural and forestry producers are eligible. This program has $11.4 million available for grants and $176 million in guarantee loan authority available for projects that produce energy from renewable sources. Grants can cover 25 percent of eligible project costs and guarantee loans can be for up to 50 percent of project costs. Loan terms are similar to B&I loan terms and conditions.

Value-Added Agricultural Product Market Development Grants

In 1994, the Rural Business-Cooperative Service began offering grants to help independent producers, such as forest owners, enter into value-added activities. The primary objective of this grant program is to help eligible applicants develop business plans and strategies for viable marketing opportunities. Grants of up to $500,000 are available. All applicants must be producers of agricultural commodities or products, including aquaculture and wood lot enterprises. Grants are available for planning and working capital.

Biomass Research and Development Initiative (BRDI)

As mentioned previously, USDA and DOE jointly administer the BRDI to provide assistance for research, development, and demonstration of biomass-based products, bioenergy, and biofuels. The intent is to promote greater innovation and development related to biomass. Approximately $15 million is available for grants in each fiscal year. The maximum grant amount is $2 million and requires a 20 percent match by the applicant.

Cooperative Services

For cooperative-owned businesses, there are special programs by USDA that may include grants for projects that support the use of renewable fuels. This may involve a partnership with a nonprofit or university if further research and development is involved. These programs are typically for energy projects involving farmer or producer-owned entities. However, even a utility can access these programs if an alliance with producers is established to provide the necessary feedstock to produce energy.

Economic Action Program

The U.S. Forest Service has in recent years offered funding for projects utilizing woody biomass for value-added purposes. The Economic Action Program is designed to assist projects that promote rural economic development, assist rural communities recovering from changes in natural resource management, and provide new ways for rural communities to rebuild or replace transportation and recreation infrastructure while stimulating markets for local wood products.

Additional Financing Resources

In addition to these USDA programs there are other economic development programs that can be accessed to provide grants, equity, and favorable rates and terms for debt financing. Following are descriptions of some of these programs.

DOE Tribal Energy Program Grant

This federal grant program administered by DOE’s Office of Energy Efficiency and Renewable Energy (EERE) provides financial and technical assistance to Native American tribes for feasibility studies and shares the cost of implementing sustainable installations that use renewable energy sources on tribal lands. Eligible technologies include the use of passive-solar space heat, solar water heat, photovoltaics, wind, biomass, hydroelectric, geothermal, electric, and geothermal heat pumps. The program provides approximately $2.7 million in funding to selected tribal governments through a competitive grant process.

Revenue Ruling 63-20 Bonds

These tax exempt bonds can be used to provide long-term fixed rate loans for projects that are “public in nature.” Bonds are issued by local governments on behalf of a nonprofit entity. The political subdivision issuing the bonds must have a beneficial interest in the nonprofit entity while the indebtedness remains outstanding. The political subdivision must obtain full legal title to the property upon debt retirement.

Tax Increment Financing (TIF)

Bonds can be issued by local governments for infrastructure improvements in an area predetermined to be part of a “tax increment financing district.” Bond proceeds are used to entice businesses to bring revenue-producing properties to an area. Bonds are retired by the property and/or sales taxes generated by businesses locating in the tax increment district. These bonds are an excellent way to offset the costs of infrastructure associated with projects that produces energy from renewable sources.

General Obligation and Revenue Bonds

General Obligation/Revenue Bonds issued by the state, county, or municipality provide long-term, fixed rate financing at tax exempt bond rates. These bonds provide funding to governments to enable them to attract new industry and economic development to an area.

Political and economic support for bioenergy and biofuels will be increasingly important as the United States moves towards goals of energy independence and sustainability. There are many policies, incentives, and resources at the federal, state, and local level that can encourage and support the production and utilization of biomass and bioenergy.

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USDA / NIFA

This work is supported by the USDA National Institute of Food and Agriculture, New Technologies for Ag Extension project.