Deutsche Bank in Belgium won’t fund biomass power plants without long-term contracts

2010-07-09 11:38:00

German investment bank Deutsche will not finance biomass power plant proposals unless they have long-term supply contracts locked in and secured.   Deutsche have been inundated with applications from a wide-range of biomass technologies, and are in talks on a 1mn t/yr biomass project. But they say feedstock issues remain the biggest concern for investors.   “Feedstock supply is critical. We see people coming to us with 3-5 year feedstock plans, but it is not bankable. We look for feedstock being locked in for at least the duration of financing,” Deutsche Bank director of renewable energy financing Paul Battelle said at the European Bioenergy conference in Brussels today.   “Energy markets are dynamic and difficult to predict, so anyone who says in five years they can still get feedstock at current prices has a high probability of changing factors. Plus, with some bioenergy projects, you get 100 truck movements a day delivering wood and for a financier, this is a scary thought.”   When analysing the credibility of biomass projects, Deutsche and other banks look at five key areas — feedstock supply, storage and logistics, conversion to energy, construction risks and energy sales contracts. Banks will want a minimum of four of them covered adequately before proceeding.   “Historically, power and energy projects that have undertaken unhedged commodity risk such as electricity price risk and biofuel related price risks have performed poorly for banks. We like green certificates, but especially feed-in tariffs, as they have historically offered good certainty.”   A lack of sizeable suppliers capable of fulfilling long-term contracts beyond five years leaves many prospective biomass power generators with no option but to secure the entire chain.   “We are seeing more and more fully integrated projects, with developers owning the land themselves in order to control the supply better,” Battelle said. “From a finance perspective, this also reduces the risk as counterparties need to be credible but also replaceable if something goes wrong.”

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