Express Energy Ltd

Express Energy is a developer of renewable power stations within the UK. The company receives backing from a Dutch investment group BDI (Nederland) BV along with a minority shareholding by Cargill Inc. a large international company with expertise in so called “massive agriculture”. Cargill Inc. were involved with the founding project that Express Energy have been involved with – Tilbury Green Power although for most purposes the company is led by the Dutch main shareholders. Express Energy Ltd are a subsidiary of Express Energy Holdings, the holdings company employs Express Energy Ltd for the development responsibilities of power projects, the holdings company usually then sets up a special purpose vehicle to manage the actual development costs, this de-couples financial risk between different projects and the holdings company. For instance Tilbury Green Power is the special purpose vehicle that is in charge of developing the Tilbury Green biomass power station.

Express Energy Ltd has a public target to develop 450MW of biomass and waste electricity generation capacity by 2015 although progress is well behind meeting this target. The business model for the company is to identify suitable sites and develop projects to a pre- construction stage. Pre-construction means a point where all contracts and details of construction and operation have been clarified, agreed, specified and the projects are effectively ready to build. Importantly the projects must also have full planning permission

with all planning conditions discharged and in most cases (depending on the project buyer) a feasible mechanism for financing the project. A project at this stage becomes a very valuable asset and Express Energy can aim to negotiate some on-going shareholding in the final project leaving the company with an on-going income. Alternatively Express may decide to sell the project outright and cash in a large return. Each project is sold or constructed on a case by case basis but the development towards planning permission and pre-construction is managed internally with the assistance of consultants.

Due to the size, capital expenditure and risks involved with this sort of construction project most schemes are financed using some level of debt, therefore Express Energy aim to make their schemes as attractive to banks and financers as possible. Minimising risks to the project in a transparent and clear way is therefore very important during the development process. There are four key elements to a successful project: Technology suitability, location suitability, feedstock suitability and economic viability. Dedicated biomass power schemes are generally viable under the existing set of incentives and policies, unlike other renewable technologies bioenergy schemes can have most of their project cost wrapped up in future costs i.e. the price of fuel, as opposed to wind, solar or geothermal power sources where the fuel is free and the capital is the major expense. This said, dedicated bioenergy power stations are expensive to build, costing between £2m and £3.5m per MW of installed capacity.

Three main components required for a successful biomass project are: The technology to be used, the feedstock or fuel supply and the site location. These aspects are interrelated. Technology selection will depend on the location and feedstock available, the feedstock suitable for the technology will depend on where the facility is located, its size and the technology selection. A good location will depend on the suitability of feedstock for a chosen technology and so forth. This triple approach is summarised in Figure 1.15. Plus, of

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course, for a project to be built it must convince potential investors that it will make a reasonable profit whilst operating.

Figure 1.15: Venn diagram showing the three main selection decisions required for a successful bioenergy project

Express Energy Ltd takes a wide-ranging approach to site finding which is typical for developers in general. Guidance from government encourages development of all types on brownfield sites that have been previously developed. Express use a set of screening criteria that developers use when selecting a site, access for construction and fuel, electricity grid connection access and enough area for the plant and fuel storage footprint amongst others are important factors to look for in a good potential biomass site. Beyond these criteria there is a general aim to develop in areas with a good supply of feedstock. Developers will generally deal with land agents and land owners to identify suitable sites.

Technology selection is more straightforward for most developers. Usually previous projects, experience and existing relationships or business deals may partly influence a developers selection of technology provider. All biomass power stations (and power stations in general) are slightly different in their final design and require an extensive detailed engineering design process. The general technology selected however usually follows from

Technology

selection

Feedstock

selection

Location

selection

a developers particular business strategy, some firms look to develop more advanced technologies such as pyrolysers or gasifiers. Express Energy Ltd choose a more tried and tested combustion technology provider in an effort to give potential investors more confidence through reduced perceived risk of technology failure.

Feedstock selection is a more complex problem and is the focus of this thesis. Investors require the developer to provide evidence of a suitable fuel contract for a large percentage of the fuel that will be required by the power project. From conversations with Express Energy and other developers this percentage is between 70% and 90% of the total fuel required. The type of fuel is also very important. There are two main approaches for developers to take when contracting with suppliers, either they can use a single supplier who they trust and meets the necessary requirements for finance deals to supply all of the material required. Or developers can contract with a number of different suppliers, de-risking themselves from a single supplier being unable to provide material but exposing themselves to mode complex relationships and more complex delivery, quality assurance, certification and contractual arrangements. The second approach appears to be favoured by finance groups and developers in general, however there are disadvantages. The main drawback is that using more, smaller suppliers means that it may be difficult to persuade investors that lost revenue can be recovered through contractual remedies in the event of supply failure. Put simply, if a supplier cannot be fined or sued for the value of at least a years’ worth of contracted supply the whole project may become unattractive to investors. Without any fuel, the plant cannot operate.