When Energy Secretary Steven Chu fast-tracked the long-stalled $25 billion dollars in loans and loan guarantees, created as part of the Energy Policy Act of 2005 and appropriated by Congress in 2006, it was a breath of fresh air for the clean power and green transportation sectors. But how long do government-backed loan guarantees actually take to get the wheels turning on helping a company raise funds?
More than a year — at least in the case of cellulosic ethanol startup Range Fuels. In January 2009 the company secured a conditional commitment for an $80 million loan guarantee from the U.S. Department of Agriculture out of the 2008 Farm Bill. And according to an SEC filing this week, Range Fuels has just filed to raise that $80 million in debt financing to build out its first commercial plant in Soperton, Georgia.
The Broomfield, Colo.-based company told us that the funds “will be used for both the current Soperton Plant project to be mechanically complete this month and for future phases at Soperton.” Range Fuels had completed half of its commercial facility at Soperton as of October 2009, according to the New York Times. Out of all the companies trying to reach commercial scale production of cellulosic ethanol in the U.S., Range Fuels is one of the farthest along.
But the commercial plant is still taking a long to build out. Range Fuels began construction of the planned 100-million-gallon-per-year plant in Soperton back in November 2007, with costs expected to reach hundreds of millions of dollars. Before the markets crashed in 2008, the company had been considering an IPO to raise money for the project, and raised $100 million in second-round financing from firms including Khosla Ventures and Passport Capital.
Scoring a loan guarantee is a crucial competitive edge for a company like Range Fuels, but it’s not money in the bank. As the DOE explained about its loan guarantee program last year, recipients still have to “secure their own share of financing — similar to earnest money in a home mortgage.” That fund raising takes time.
But a loan guarantee typically enables a company to finance projects with a better interest rate and at a lower cost than would otherwise be available to them. It serves essentially as promise by the government to back a loan if the company can’t make good on it. The USDA as well as the Department of Energy have been using this type of award to help nudge forward emerging energy technologies in a time of difficult debt and tax credit financing for clean power projects. At the time the USDA announced Range Fuels’ guarantee, the lead lending agency on the guarantee was slated to be AgSouth Farm Credit, a provider of agricultural and rural loans that’s part of Farm Credit Services.
At this point, Range maintains on its web site that the first phase of the plant is on track for completion by the first quarter of this year, and production of ethanol and methanol in low volumes (less than 10 million gallons per year) will begin during the second quarter of 2010. Now the company needs to bring in the investors, raise the debt, and finish the plant.