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UK biomass project funding accelerates

3 May 2012, 12.40 pm GMT

London, 3 May (Argus) — Financing for UK biomass plants is starting to accelerate with biomass power plant developer Helius Energy the latest to confirm a number of banks are keen to provide funds.

Helius aims to secure an equity arrangement for its 100MW plant that will give it some form of development fee and let it retain an interest in the project. The developer confirmed it is working with a number of banks including RBS, Lloyds and Santander.

Helius, like many firms that have proposed UK plants, is awaiting results on the government's Renewables Obligation banding review. An announcement is expected before the end of June with financial close expected to come soon after for many of the proposed projects.

Financing on the supply side for new production plants is emerging with Barclays and Deutsche Bank just two of the many investors exploring opportunities in the biomass sector.

Risk management issues are critical to funding production and power plants with feedstock availability and pricing key components. Potential backers of new large-scale production plants are keen to know supply availability in case construction is delayed or the plant experiences problems during start-up.

“All new production plants are looking to have sizeable offtake agreements in place in addition to a number of supply deals,” a Europe-based bank told Argus. “But we have already seen the problems a number of large plants have experienced in getting output up quickly or delays during the construction, so investors need to know the size of the spot market and what is available should problems arise and we need to buy elsewhere to fulfil contracts.”

On the other side, financiers need to know new power plants have long-term supply contracts locked in and secured. “New power plants need to demonstrate that they have the feedstock supply in place and have gone to the necessary length to mitigate price risk,” the bank said. “But we and everyone else knows energy markets change and nobody can look ahead and guarantee feedstock prices, so we look to see what hedging is in place and the risk management involved.”

Other key areas relate to storage and logistic costs, conversion to energy and energy sales contracts and potential construction or plant risks.

Helius said it has completed due diligence on all the key issues and expects to conclude financing shortly with the facility due to start operating in 2015.

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