Monday, September 17, 2007


Canadian Government sets up C$500 Million biofuels fund

The Canadian government has set up a C$500MM fund to support the construction of next generation biofuel production facilities. Read the press release. This announcement is encouraging. But after closer examination, I could see some concerns. First, you have to pay the money back:
The NextGen Biofuels Fund™ will support up to 40%, of eligible project costs for the establishment of first-of-kind large demonstration-scale facilities for the production of next-generation renewable fuels. The contribution will be repayable based on free cash flow over a period of 10 years after project completion.
This amounts to a loan of sorts. It's not clear that there is any interest paid, etc. But it amounts to a 10 year loan or bond. That's actually a good thing if it's low-interest (the lower the better). But coming from the government, it begs the question why they don't just give the money to projects in the form of a grant. Even the U.S. DOE does that. I mean, if there's a social benefit to Canada, why not? Maybe they don't have the money. But if it means more business for their population, then they should find it. Second, this would seem to advantage companies like Iogen over others. They're really the only Canadian company that is in a position to develop another 1st gen plant (although they could potentially not qualify). One might wonder if this fund was set up because Iogen is starting a U.S. operation to build cellulosic facilities - using free grant money from the U.S. DOE. But that not withstanding, at least some of this money might already be tagged by a leading player in that market. Third, this seems like money that would feasibly compete with venture capital money. While low-cost debt is certainly good U.S. VC money has its own set of benefits. However, U.S. Venture money can make its way into Canada for the right investment. There's so much money in U.S. VC funds that they would jump at a company that has a sound technology that is ready for its first manufacturing facility. So when matched with the opportunity to have access to U.S. VC money and the benefits thereof (access to great managers, other technologies, other debt financing and others). So while this fund sounds like a great opportunity, it doesn't seem better than other options. GreenCarCongress posting.

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