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A tricky and seemingly biased policy environment for biogas use in the U.S. makes projects that are not generating electricity directly on-site difficult to finance and therefore develop.

That black mark against biogas production means projects cannot qualify for subsidies if the biogas is shipped down the road to another generator, according to Beau Griffey, director of account management for energy management company U.S. Energy Services Inc. “If you have a biogas project and you have a generator on-site and have electricity for sale, that can qualify for federal stimulus dollars and tax benefits,” he said. “However, if you have a biogas project and you are cleaning the biogas up and transporting it to another site, you don’t qualify for any of those subsidies.”

A second huge problem staring biogas developers in the face is the fact that they must compete with natural gas, Griffey said. They need a high premium on top of natural gas prices to make projects economically viable. “In order for these projects to work, you need a pretty high, bulletproof revenue stream over 10 to 20 years to satisfy the debt holders on a project,” he explained. “The only real market to get it to at this point is … California.” The state’s renewable energy goals, including a renewable portfolio standard of 33 percent by 2020, prime the market for such projects. “That’s the kind of deal an investor can get behind because they see bulletproof revenues on the back end.”

Investors don’t just hand out money and will need assurance that a project will have a concrete off-taker, Griffey said. “[Developers] can’t raise the money until they have a firm commitment to buy the gas,” he said. “And the people who are buying the gas don’t want to make a firm commitment to buy the gas until the developer has the money.” That makes securing an off-taker another one of the major challenges in biogas development, although the issue is not new in any aspect of the biomass industry.

But a biogas developer can always look to liquid fuels as an alternative to electricity, as that end-product brings more incentives from the federal government and can qualify for the alternative fuel mixture tax credit with the IRS, Griffey said. That plan, though, isn’t fail safe either, as deals under the U.S. EPA’s renewable fuel standard are few, and the IRS tax credit has to be renewed each year.

“It’s very tough for biogas projects to get up and running now because of these issues,” Griffey said. He does, however, have some advice for struggling biogas developers. “Seek to get that baseline deal in place but give yourself flexibility with some of the gas that you can switch off to some of those higher-value programs during the term of your commitment.”

Griffey will speak about this topic during his International Biomass Conference & Expo presentation Implementation Hurdles for Biogas Projects. He will be joined on the panel, titled Building and Maintaining Project Momentum for Biogas Developments, by Lee Smith, partner with Stoel Rives LLP; James Manning, lead of Renewable Energy Practice at Plante & Moran PLLC; and Robert Harper, general manager of KB Energy LLC. Kristy Moore, director of technical services for the Renewable Fuels Association, will moderate.

For more information or to register for the International Biomass Conference & Expo, click here.