Woody biomass, cereal straw, corn production waste and other agricultural waste can become a valuable fuel for biomass thermal power plants. Agriculture and forestry has enormous potential for the production of biomass for the generation of electricity and heat. Modern biomass energy projects are able to produce natural gas from silage and manure, which is especially important for countries that are heavily dependent on hydrocarbon imports. However, the cost of project financing for biomass energy varies widely from 1 to 5 million euros per 1 MW of installed capacity, which requires a flexible professional approach to financing biomass energy projects.
From the angles of growing interest in renewable energy sector, companies are increasing biomass energy project financing around the world.
Viola Funding Limited offers long-term financing for large energy projects, including loans for the construction of biomass thermal power plants.
Our experienced financial underwritten team is ready to provide you with comprehensive support at all stages of the investment project, guiding you from the stage of pre-investment studies and contracting to the operation of the finished facility.
Investment aspects of biomass energy projects
Companies should also take into account the growing competition in the fuel market due to the gradual replacement of natural gas in heat production. This means rising prices for organic waste and the continued complexity of logistics processes.
Of course, the cost of biomass is not commensurate with the current prices of natural gas and fuel oil, which skyrocketed amid the geopolitical upheavals of 2022, but each project requires an individual approach to comparing LCOE and determining economic feasibility.
Electricity generation from biomass thermal power plants is considered to be one of the most challenging businesses in the green hydrogen energy sector from an economic and operational point of view.
- biomass energy projects are heavily dependent on a continuous supply of large volumes of organic waste. Unlike solar power plants and wind farms, which operate on “endless” natural resources, a biomass thermal power plant is very demanding in terms of logistics, which includes the interconnected processes of harvesting, transporting and processing agricultural or wood waste.
- high technical complexity and operating costs. Compared to other renewable energy projects, biomass thermal power plants are the most difficult to operate. For example, the 10 MW thermal power plant mentioned above may require the installation of about 2000-3000 sensors of various types, which, combined with sophisticated control systems, will require hundreds of thousands of euros for maintenance, periodic repairs and upgrades.
Biomass thermal power plants require annual scheduled repairs, as well as the training and maintenance of a significant number of personnel, including highly qualified engineers. This is similar to the processes that take place at any thermal power plant in the conventional energy sector.
3) important aspect is the construction period. The construction of a biomass thermal power plant requires 2-3 years, including the stages of engineering design, construction and installation of equipment.
Benefits of biomass energy for investors and local economy
The first of the benefits of such projects is considered to be a stable mode of operation. Thermal power plants on biomass and biogas generate a relatively stable amount of energy during the day and, unlike solar and wind energy, do not require replacement capacities. This is extremely important for developing agricultural countries, where the lack of flexible capacity is one of the potential barriers to renewable energy.
Biomass thermal power plants have a number of parameters that make their development highly desirable both for business and for the energy system and for the economy as a whole.
The development of the regional economy is also important. In this context, companies should develop the collection, delivery and preparation of organic waste (eg drying and crushing).
According to leading experts, the minimum distance between biomass TPPs should be 200-250 km, since the economically viable distance for the supply of organic waste for energy generation should not exceed 100-150 km.
In the solar and wind energy sectors, it is mainly based on imported equipment, but in the biomass energy sector, the share of the local component is extremely high.
The third benefit of such projects is, of course, the substitution of natural gas. For example, the Eastern European states, which are heavily dependent on imported hydrocarbons, can diversify their energy mix by financing biomass thermal power plants. Agricultural countries such as Poland or Ukraine annually produce several tens of millions of tons of agricultural biomass, in addition to millions of tons of logging residues.
Project financing for biomass energy projects
Financing is carried out through specially established financial structures with a high proportion of borrowed funds. Since lenders rely only on future profits from the sale of electricity and heat, the partners conduct an in-depth study of the risks at the stage of planning and preparation of financing.
The PF is applicable to large-scale projects involving the private or public sector, including the construction of thermal power plants using biomass and biogas.
On the one hand, project finance for energy projects looks attractive given that the deal is off the balance sheet and the sponsor’s creditworthiness remains unchanged (something that does not happen with conventional loans).
The main disadvantage of the PF is the high cost of debt capital, which makes this scheme suitable only for large projects with strong cash flows sufficient to service the debt. It also implies the need for complex project structuring, including adequate collateral and insurance to mitigate risks.
Hereunder, project finance contracts structuring are below;
Construction contract: The key to success in EPC contracting is the experience of contractor, which largely determines the quality, adherence to schedule and the risk of cost overruns.
Administration Operations: maintenance of assets can lead to their failure, which will affect future cash flows, in addition to a direct impact on the life of the equipment and on project lifespan.
Supply contracts: Since biomass thermal power plants are highly dependent on the supply of fossil fuels from nearby farms, long-term contractual relationships with these suppliers are critical for future investment projects of this type of a take-or-pay basis, meaning the buyer’s obligation to pay whether the company currently needs the product or not.
Power Purchase Agreement (PPA): Contracts for the sale of electricity and heat will allow project participants to predict future cash flows and ensure their safety.