Partners seek private investors for £330m UK ethanol projects

Two wheat-based ethanol plants being planned in the UK are to be financed through an unusual approach aimed at private investors.

Bioethanol Partners wants to raise £330m ($590m) to build plants in Grimsby and Teesside, in north-east England, that will have a combined ethanol production capacity of about 300,000t/year. The plants are expected to begin operating in 2010.

The project will seek to raise £195m from debt and £135m from equity investors, said London-based Future Capital Partners, a finance and investment firm involved in the project.

FCP chief executive Tim Levy said that private investors would receive some protection under UK capital allowance rules. They would own land and capital equipment and the capital allowances would protect 60% of their principal investment. For example, in the worst case scenario of a complete failure of the business, a high-rate UK taxpayer investing the minimum sum of £40,000 would in theory only lose £16,000, since the rest of the loss could be offset against their tax bill.

Levy said that this structure had been used previously to raise equity for projects, and he could see it becoming an increasingly common means of financing renewable energy projects.

FCP said it has already invested £1m in bridge financing and expects to provide a further £1m of principal financing. Other equity investors include Ethanol Ventures and Vireol.

Vireol will build the first plant in Grimsby and has already submitted plans. It will use technology from Austrian biotechnology plant specialist Vogelbusch. Two years ago, Vireol announced its intention to raise £80m, through a listing on London's Alternative Investment Market, to finance this project.

Levy predicted that the project would return a net internal rate of return of 40% over five years, assuming average wheat prices of £130/t over the next three years, and an oil price of $80/barrel. Each plant would require 1,500t/day of wheat.

Levy expected most of the ethanol to be sold in the UK, and perhaps some exported to Continental Europe. UK legislation will require 5% biofuels in transport fuels from April 2010 and fuel suppliers failing to meet the requirement will pay a penalty of £0.15/litre.

Furthermore, biofuels attract a duty £0.20/litre, compared with the duty of £0.55/litre on mineral petrol. The UK requirement for ethanol to be blended into petrol is expected to lead to a demand for 1m tonnes/year of ethanol, according to FCP.

Levy said he expected fuel buyers to favour locally-produced ethanol. "I believe that European transport fuel companies will be far more focused than US companies on carbon footprint and sustainability issues. I don?t think that importing Brazilian ethanol is a satisfactory solution," he said.

He added: "We don?t believe European fuel companies will buy their out of their obligation [as it would be bad for their reputation]. It will take an enormous drop in the oil price to make it worthwhile."

The carbon footprint of the ethanol produced at the plants would be 107% less than that for petrol, according to FCP.

By: www.bioenergy-business.com

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