The U.S. Department of Agriculture (USDA) has officially announced opening its first round of loan guarantee funding availability under the revised 9003 Biorefinery, Renewable Chemical, and Biobased Product Manufacturing Assistance Program (9003 Program). Formerly called the Biorefinery Assistant Program, the 9003 Program now provides guaranteed loans for the development and construction of commercial-scale facilities or the retrofitting of existing facilities for the development of advanced biofuels, renewable chemicals, and biobased products. Despite its changes and the delayed release, the program remains relatively more attractive than other federal loan guarantee programs for bioenergy-related technologies (such as those under the Department of Energy’s Title XVII Loan Guarantee Program) due to the relatively low cost of applying and competitive lending terms.

USDA formally published an Interim Final Rule to the Federal Register on June 24, modifying the 9003 Program to incorporate administrative improvements based on the Agency’s experience in implementing prior rounds. Unlike previous notices of funding availability for this program, the rule contains all necessary information to begin applying for the 9003 Program.

9003 Program Application Cycles

The 9003 Program will have two application cycles each fiscal year until 2014 Farm Bill appropriations have been expended. The new application process will include a Letter of Intent followed by Phase 1 and Phase 2 submissions. The upcoming Letter of Intent deadlines are September 1, 2015, and March 2, 2016. The upcoming Phase 1 submission deadlines are October 1, 2015, and April 1, 2016. USDA will invite eligible, competitive proposals to submit a Phase 2 application, following a positive determination of a Phase 1 submission.

The 2014 Farm Bill appropriated $130 million in mandatory funding for this upcoming round, which, given the historical appropriated funds-to-loan authority ratio and potential left over funding from prior rounds, may translate into upwards of $600 million in available loan guarantees to competitive applications. Under the 9003 Program, applicants can receive up to a 90% guarantee for loans under $125 million, an 80% guarantee for loans $125 to $150 million, a 70% guarantee for loans $150 to $200 million, and a 60% guarantee for loans over $200 million for up to 20 years or 85% of the useful life of the project. The 9003 program has no application fees and the credit subsidy cost (risk premium payment) is covered by USDA.

Important Points for USDA 9003 Program

The new 9003 Program comes with some important points to consider:

  1. Integrated demonstrations and projects with raised equity are most attractive to USDA.
  2. While the application requirements seem more daunting on their face this year (i.e. Letter of Intent, Phase 1, and Phase 2 submissions), the application process is largely the same as past years but has been improved to be more company friendly, to ensure that companies don’t invest significant resources until provided an “Eligible to Proceed Letter” from USDA.
  3. USDA is attempting to keep larger, more sophisticated Lenders, which are subject to more regulatory scrutiny, engaged in the program by supplementing the commercial lending framework used for project evaluation with a project-finance based framework and by creating a more standardized process that can support ongoing application cycles.
  4. Eligible proposals will include renewable chemical production (with a minimal biofuels component), advanced biofuel production, and biobased product development projects.
  5. Eligible advanced biofuels include fuels derived from renewable biomass such as ethanol (from eligible feedstocks), biodiesel, hydrocarbons, biogas, and butanol. Eligible types of renewable biomass are specific to the definition of advanced biofuels and include cellulose, hemicellulose, or lignin; sugar and starch (except for corn kernel starch); waste including crop residues, forest residues, and other vegetable, animal, food, or yard waste; vegetable oil and animal fat; and landfill gas and sewage waste treatment gas.
  6. Eligible renewable chemicals must also come from renewable biomass but which is defined more broadly than with advanced biofuels to include any organic matter that is available on a renewable or recurring basis such as plant material, feed grains, and other agricultural commodities. Since corn kernel starch falls under this broader definition, it would therefore be eligible for renewable chemical production but not for advanced biofuels. Further, the minimum biofuels component required of a biorefinery project producing renewable chemicals could also be derived from corn kernel starch.
  7. This will be the largest pool of funding available from the 2014 Farm Bill, but it is also likely to be highly completive.

Interested parties should immediately begin preparing to respond to the Phase 1 application. Indeed, the USDA has streamlined the process for interested parties and given applicants sufficient time to prepare a quality application, but the application requirements still include obtaining a Lender of Record, developing a feasibility study, and providing a significant amount of project and company information, which collectively require a substantial amount of lead time. Since there is not an official list of eligible lenders or independent engineers and because some application guidelines are difficult to discern, beginning the application preparation process now helps mitigate the risk of missing submission deadlines.