Biogas projects require large upfront capital investment and, in most cases, the use of financing. Low-cost financing is critical to creating a favorable economic environment for biogas projects. In order for the pay-back period for a biogas project to be within an acceptable time frame, the project must be financed at a low interest rate. Due to the perceived high risk of biogas projects, low interest rates are difficult to obtain. Given the economic potential and public health benefits of capturing methane from waste, state leaders should consider improving access to low-cost capital for these types of projects by creating a dedicated and streamlined loan program for biogas projects. The government could issue bonds at a very low rate using a guarantee under the state’s Clean Water State Revolving Fund program and pass the savings on to consumers in the form of lower borrowing costs.
The New York State Energy Efficiency Research and Development Authority (NYSERDA) issued $24.3 million in revenue bonds that were guaranteed by the New York Clean Water State Revolving Fund (SRF) program and earned a AAA rating. NYSERDA successfully petitioned the New York State Environmental Facilities Corporation for assistance with energy efficiency projects under the SRF program due to the fact that energy efficiency programs can reduce fossil fuel consumption and air pollutant deposition in water bodies.
Biogas projects protect waterways and drinking water from runoff waste and replace coal-burning generation. As a result, the use of a state SRF for the biogas industry is justifiable. The revenue bonds could be issued by an appropriate state entity and backed by a guarantee through a special-purpose vehicle under the state SRF. The bonds could also take advantage of a federal bond interest subsidy. The issuing authority, in conjunction with a private partner, could use the revenue from the bonds to establish a loan program dedicated solely to the biogas industry. As loans are repaid, the fund would continue to invest in new projects. Thus, the initial funding would last indefinitely. Public financiers will need to partner with local finance experts and collaborate to streamline the process, improve the availability of data, and standardize documentation.
Establishing a formal biogas loan program will send a signal that states are serious about cultivating biogas projects, growing their manufacturing base, and attracting good-paying jobs.
Earmark Loan Funds for Factory Retooling
States that are home to several companies that produce farm equipment and electrical generators can still face the significant barrier of cost associated with retooling a factory. States could overcome this barrier by earmarking a portion of the biogas loan program for state manufacturers to purchase machinery and equipment, upgrade or build facilities, or to use as initial operating capital. To receive a loan, firms could be required to meet certain metrics, such as a minimum number of jobs produced in the state. The state could model its factory retooling initiative after a successful program in Wisconsin.
In 2009, Wisconsin established the Clean Energy Manufacturing Revolving Loan Fund (CERLF) to provide low-interest financing (up to $1 million) to private companies for manufacturing facility upgrades. For example, Gearbox Express, a Wisconsin-based manufacturer of wind turbine components, utilized CERLF funding to expand and grow its advanced energy operations.