A company that plans to make diesel fuel out of plant waste has won Louisiana authorization to issue up to $1.1 billion of tax-exempt revenue bonds.
The Louisiana Community Development Authority’s executive committee voted unanimously Thursday to adopt a resolution granting final approval for the private activitybond issuance to finance a large share of the Louisiana Green Fuels project.
In August, the state Bond Commission gave its approval to the bond issuance, which is to be priced by Citigroup early next year for plant developer Strategic Biofuels LLC through LCDA as conduit issuer.
Privately held Strategic Biofuels is focused on building negative carbon footprint plants in northern Louisiana to convert forest waste materials into renewable diesel fuel and a renewable version of naphtha, another refined crude oil product.
The project in Caldwell Parish at the Port of Columbia is to produce renewable diesel fuel from renewable fuel standard compliant forestry waste and produce all its own green power from sawmill and forestry waste materials.
Using waste materials to produce fuel allows for the use of tax-exempt municipal bonds.
“This latest bond cap approval substantially enhances the project financing structure by providing low interest rate project debt,” said Paul Schubert, CEO of Strategic Biofuels.
“We expect the capital stack to be composed of approximately 70% debt, 30% equity. The equity is expected to be a combination of institutional equity and possibly tax equity. The project has a term sheet for the tax equity from a large institutional tax equity investor,” Schubert told The Bond Buyer.
“With the recent passage of the Inflation Reduction Act and its provision for direct pay the advantages of a tax equity investment have changed and are under review by the company,” he said. “A large portion of the debt on the project is expected to be financed by the tax-exempt bonds. The company can now issue up to $1.1 billion in tax exempt bonds as allocated by the state of Louisiana.”
The estimated total cost of the plant is $2.8 billion.
Schubert said the “Qualified Carbon Capture Facility Exemption” allows for the issuance of four times the allocation as long as the funds are spent specifically on the carbon capture equipment.
“However, the IRS rules for choosing this election are not yet finalized. A decision to use this exemption must be made specifically for individual allocations from the state,” he said.
The project has received two carry forward bond allocations from Louisiana’s bond volume cap, Schubert said.
The first allocation in January 2021 was $200 million carried over from 2020, which was the largest allocation of any in the state. The available carry forward amount was $488 million.
The second allocation was $250 million for 2021 and was allocated in February 2022.
The project will be eligible for another carry forward allocation for 2022 that should be allocated in January or February 2023 and then another one during the actual 2023 calendar year, Schubert said. During the actual calendar year the allocation must be used within 90 days, while the carry forward allocations are allowed to accumulated and used for up to three years after the grant of the allocations.
In Louisiana, it is the governor who has direct authority to determine the amount of tax-exempt bonds that can be allocated, he added.
Gov. John Bel Edwards has been publicly supportive of the project and has allocated PAB authority to it.
“The project’s negative carbon footprint fuel production continues to keep Louisiana at the forefront of innovation in the renewable fuel industry,” he said in February when he announced the bond allocation.
The fuel that is to be produced from the plant would qualify for carbon credits under the Federal Renewable Fuel Standard Program and under the California Low Carbon Fuels Standard, the firm says.
The company said its plant and its accompanying Class VI carbon capture and sequestration wells will produce renewable diesel fuel with a carbon footprint that is nearly a 400% reduction compared to fossil diesel, making it the most deeply carbon-negative liquid fuel in the world.
“The mission of the LCDA is to assist municipalities, 501(c)3, and private activity entities, like Louisiana Green Fuels, in issuing bonds for the construction of economic development projects, infrastructure and environmental facilities. This project fits in perfectly with our mission,” David Rabalais, Chairman for the Executive Committee of the LCDA, said in a statement.
The Louisiana Green Fuels Project takes thinnings which the EPA classifies as waste from the sustainable plantation forestry industry and converts them into renewable diesel fuel, Schubert said.
“The primary initial product is renewable diesel fuel (pure synthetic diesel, not biodiesel) — a drop-in fuel. It generates its own power primarily from using sawmill waste,” he said. “The carbon dioxide (greenhouse gas) from both the fuel production and the power production is captured and permanently geologically sequestered about a mile underground.”
Schubert noted that all of the carbon dioxide sequestered and all of the carbon in the fuel produced originally came directly out of the atmosphere to grow trees, so he says the project removes CO2 from the air.
“The plant will produce approximately 32 million gallons per year of renewable fuel (87% renewable diesel and 13% renewable naphtha),” he said. “The plant will sequester about 1.4 million metric tons of CO2 per year.”
The LCDA’s approval bolsters the financial impact on the LGF project that will come from the federal government’s Inflation Reduction Act.
Under the IRA, the IRS Section 45Q sequestration tax credits the project will receive has risen to $85 from $50 a metric ton of CO2 for the roughly 1.4 million tons of Co2 that is expected to be sequestered annually.
“This adds to project revenues from the sale of the 32 million gallons of renewable fuel, credits under the Federal Renewable Fuel Standard (RINs), credits under the California Low Carbon Fuels Standard (LCFS), and applicable Federal Blender’s Tax Credits (BTC) or Production Tax Credits (PTC),” the company said in a press release.
These revenue streams will provide the project with exceptionally robust economics, according to the company.
In addition, Act 163 signed by Gov. Edwards went into effect on Aug. 1, expanding the eminent domain authority to acquire the pore rights necessary for underground CO2 storage in Caldwell Parish for the project.
In August, the federal government gave a $1 million grant to the project. The money was provided by the Department of Homeland Security and Federal Emergency Management Agency through the Port Security Grant Program.
The money was part of a series of grant programs created by Congress and implemented by DHS to help strengthen defenses around the nation’s critical infrastructure. The grant specifically provides funds to state, local, territorial, and private sector partners to help ports protect their risk management and transportation infrastructure.
“This funding commitment from DHS and FEMA recognizes our deeply carbon negative footprint LGF project as a key contributor to our country’s energy transition and worthy of federal investment into its security,” Schubert said. “The Columbia Port Commission’s leaders have been strong advocates for us from the beginning and have been exceptionally effective in securing state and federal funds that enhance the port’s infrastructure and support our project.”
The project is expected to create an estimated 151 direct jobs and about 750 indirect jobs in Louisiana’s 5th Congressional District, the seventh poorest in the nation.
The district’s average annual household income is $36,000 and Caldwell Parish’s is even lower at $32,000 for its 10,000 residents. Nationally, the average annually family income is $68,000. The average salary for jobs at the plant is expected to be $69,000, not counting benefits.
“We are happy to play a part in this important transaction for the economic impact it will have in Caldwell Parish and the entire Northeast portion of the state of Louisiana,” Ty E. Carlos, LCDA’s executive director, said in a statement.
Construction is expected to begin at the port this fall, funded by an earlier $15 million Louisiana Port Priority Program grant through the state Department of Transportation and Development. The Port of Columbia is managing the preliminary work.