Driving Bio-Economy Growth by Removing Financing Barriers
Insight Bio-projects faces significant issues, despite its huge potential.
When bio-projects are built in Canada, the Canadian economy enjoys a wide range of benefits. Recognizing this, the federal government has taken meaningful steps to promote Canada’s bioeconomy. However, there have been few initiatives, if any, that address the vital issue of biomass supply chain risk in a way that allows capital to flow easier, faster, and less expensively through our domestic bio-projects.
One of the key challenges to securing financing for bio-industry growth is that the risks associated with biomass supply chains are not well understood, and addressing this challenge is key to unlocking the huge potential for bio-project development in Canada.
Financing barriers to bio-projects in Canada
The lack of a standardized approach to evaluating the feedstock risk of bio-projects means that our debt and capital markets are unclear about the true quanta of project risk. This results in significant project financing barriers for bio-projects: debt costs can be an estimated 100 to 250 basis points higher than might otherwise have been required, which means millions of dollars of financial drag on projects.
The solution is to create an established protocol or set of standards that capital markets, credit agencies, commercial lenders, and insurance companies can utilize and rely upon to empirically price biomass feedstock risk.
The United States Department of Energy has recognized this key barrier to the rate of bio-industry development and in 2016, the Bioenergy Technologies Office (BETO) funded a multi-year project to develop new US National Standards for Biomass Supply Chain Risk (BSCR). BSCR Standard development is carried out by Idaho National Laboratory (inl.gov) and Ecostrat (ecostrat.com). The US National BSCR Standards provide bio-project developers and capital providers with guidance and best practices to better understand, quantify, and mitigate risks-- and eventually to rate the overall supply chain risk of bio-projects.
Will Canada step up to the challenge?
Ecostrat is working with the Canadian Federal Government to accelerate the bioeconomy by supporting the formation of the world’s first body to administer the BSCR Standards: The Institute for Biomass Supply Chain Risk (IBSCR). The institute will train bodies to guide companies through the certification process, act as the oversight body for applications, and award certifications of supply chain risk level.
In the near future, it will become common to talk about BB, A minus, or A-rated supply chain levels, which will clarify risk for the capital markets so they can more accurately price bio-projects.
By removing a key barrier to biomass project development, and decreasing bio-project debt costs, the Institute will:
job creation and economic development, particularly in rural Canada.
a greater investment in renewable energy projects across Canada.
the Canadian government’s decarbonization goals.
implementation of Canada’s Clean Fuel Standards.
Canada’s position as an innovative leader in the global bioeconomy.
Jordan Solomon is President of Ecostrat Inc and has been leading the development of Biomass Supply Chain Risk Standards in the US for several years.