Green Bonds Offer Cheaper Debt for First Advanced Biofuel Plants

Alternative forms of financing such as so-called green bonds may spur companies to build their first advanced-biofuels plants, the head of environmental finance at Citigroup Inc. said.

Green bonds for carbon-reducing projects, issued by bodies such as the World Bank, don’t require collateralization and securitization, so bondholders are shielded from risk, Managing Director Michael Eckhart said today by phone. This may encourage lending for next-generation biofuel projects, which can cost $200 million to $400 million, he said.

"We see this as a very interesting win-win scenario," Eckhart said. "The large corporates can be recognized for deploying capital into green purposes and having this capital raised at very reasonable rates in today’s debt markets, and then the biofuels companies would benefit from having much lower cost of capital than they could have raised independently."

Advanced biofuel production is expected to almost triple this year to nearly 200 million gallons from 68 million gallons last year, according to BNEF estimates. Twenty-seven "significant" advanced biofuels processing plants will be built by 2015, Eckhart said.

Reviving Demand

Shares in biofuels makers including Amyris Inc., Solazyme Inc., and Kior Inc., have lost more than half their value since they started trading. Measures such as the U.S. Renewable Fuel Standard will boost investor confidence in the fuel and improve makers’ profitability, Eckhart said. The RFS requires gasoline and diesel producers to blend 36 billion gallons of biofuel a year into their products by 2022.

Kior opened the first commercial cellulosic biofuel plant in the U.S. in October. Abengoa is expected to open a plant this year in Kansas and Poet LLC and Fiberight LLC plan to open facilities in Iowa. DuPont Co. is scheduled to open a plant next year and Chemtex International, a unit of the Italian chemical company Gruppo Mossi & Ghisolfi, also plans to open facilities.

Biofuels production in Southeast Asian nations such as the Philippines, Indonesia and Malaysia will probably surge in the next decade as Asian nations seek to free themselves from heavy dependence on oil imports from the Middle East, he said.

"They will be growing the biofuels feedstock resources and then gradually over this decade adding processing plants by licensing technology from the U.S. and Europe."