BlackRock-Backed Biofuel Firm Says Timid Lenders Slow New Tech

Source: By Esteban Duarte, Bloomberg • Posted: Monday, September 19, 2022

Enerkem CEO says lenders struggle with lack of historical data Company on track to reach positive cash flow in 2023: CEO

Enerkem Inc.’s waste-to-clean energy technology has attracted big name shareholders like BlackRock Inc. and Suncor Energy Inc. but its running into a roadblock in a quest for commercial loans. 

Enerkem Inc.’s waste-to-clean energy technology has attracted big name shareholders like BlackRock Inc. and Suncor Energy Inc. but its running into a roadblock in a quest for commercial loans.  Photographer: Andrew Harrer/Bloomberg

Enerkem Inc.’s waste-to-clean energy technology has attracted big name shareholders like BlackRock Inc. and Suncor Energy Inc. but its running into a roadblock in a quest for commercial loans.

“It’s very difficult to find banks or ESG funds, which are willing to support new technologies,” said Dominique Boies, the biofuel company’s chief executive and financial officer in an interview. Lenders want to see a decade of data on production, but “it’s new technology, so it’s not been operating for 10 years.”

The closely-held Canadian company has raised close to $1 billion, mostly through five equity financings with the most recent in April. Holders also include Westly Group, a California venture capital firm that was an early investor in Tesla Inc., and Spanish oil and gas giant Repsol SA. But Enerkem is looking to tap the debt market to move forward on projects that will grow its revenue, as well as returns for investors.

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Enerkem’s Alberta Biofuels Plant. Source: Enerkem

Without loans Enerkem’s pipeline of around 30 potential projects, including a new plant in Quebec and projects in Asia and Europe, will stall.

Boies views the situation as similar to the early days of the wind and solar power industry. The market for biofuels needs to scale up, but without debt financing to roll-out new technology, the pace of projects and the learning curve to bring it into the mainstream will slow.

While financial markets are flush with cash on what institutional investors have labeled as ESG, companies like Enerkem, which produces low-carbon fuels from non-recyclable solid municipal waste, are facing skepticism from lenders.

Biofuels are still more expensive to produce than conventional fuels, low-carbon ethanol for instance can be sold for around C$4 per gallon versus about C$1 per gallon for conventional. The market is limited to places like California or British Columbia where regulations to incentivize buying biofuels are stronger. Similar incentives are also being implemented in Europe.

The Montreal-based company, which was founded in 2000, has operated a bio-fuel plant in Edmonton since 2016 where it produces methanol and ethanol. The company is also building a biofuel plant in Varennes, near Montreal, with Shell Plc, Suncor and Proman AG.

That project which was valued at C$875 million ($760 million) when it was announced in December 2020, is around 70% funded with equity. “The rest is government loans, because bankers were unable to get their heads around technology risk and lack of historical data on the product,” said Boies.

In Tarragona, Spain, the company is planning a 590 million euro ($596 million) project with a group of companies including Repsol. Banco Santander SA is advising on the financing structure of the project, of which about 30% of the funding maybe debt. The remaining would be equity from project owners and grants provided by the European Union.

After April’s financing arranged by JPMorgan Chase & Co. Enerkem is valued at around $1 billion and is fully funded at a corporate level, Boies said. He expects the firm to reach positive cash flow in 2023.

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