Anaerobic Digestion Finance Mechanisms Pros and Cons
Keep watching and in under 5 minutes you will learn from this video 6 popular ways to arrange for your Anaerobic Digestion project finance, with the main advantages of each method and disadvantages.
The funding approaches we are about to describe, are not mutually exclusive.; a mixture of different approaches may be adopted.
Funding Instrument 1 - Private Equity Financing
This involves an investor who is willing to fund all or a portion of the project in return for a share of project ownership.
Private equity financing has the advantages of lower transaction costs and usually the ability to move ahead faster than with other financing approaches.
However, private equity financing can be more expensive.
Funding Instrument 2 - Project Finance
Project Finance is a popular method for financing private power projects in which lenders look to a project’s projected revenues, rather than the assets of the developer, to ensure repayment.
This approach allows developers to retain ownership control of the project while obtaining financing. Disadvantages of project finance are high transaction costs and a lender’s high minimum investment threshold.
Funding Instrument 3 - Municipal Bond Financing
Municipal Bond Financing is applicable for municipal projects such as municipally owned landfills and municipal end users. It may also be possible to use this bond type to fund landfill gas extraction and utilization projects.
This involves the local government issuing tax-preferred bonds to finance the Anaerobic Digestion, or LFG energy project. This approach (if available) is the most cost-effective way to finance a project because the interest rate is low and the terms can often be structured for long repayment periods.
However, municipalities can face barriers to issuing bonds, and therefore it may be better to look at:
Funding Instrument 4 - Direct Municipal Funding
Direct Municipal Funding, possibly the lowest-cost financing available other than Municipal Bonds, uses the operating budget of the city, county, landfill authority or other municipal government to fund the project.
This approach eliminates the need to obtain outside financing or project partners, and it avoids delays caused by the extensive project evaluations usually required by lenders or partners.
However, many municipalities may not have a budget that is sufficient to finance a project, or may have many projects competing for scarce resources.
Delays and complications may also arise if public approval is required.
Funding Instrument 5 - Lease Financing
Lease Financing provides a means for the project owner or operator to lease all or part of the energy project assets.
This arrangement usually allows the transfer of tax benefits or credits to an entity that can best make use of them.
Lease arrangements can allow for the user to purchase the assets or extend the lease when the term of the lease has been fulfilled.
The benefit of lease financing is that it frees up capital funds of the owner or operator but allowing them control of the project.
The disadvantages include complex accounting and liability issues and loss of tax benefits to the project owner or operator.
Finally, there may be the possibility of grant programs for some anaerobic digestion and renewable energy projects:
Funding Instrument 6 - Grant Programs
Grant Programs, offered by many federal and state programs may provide funding for LFG, biogas and anaerobic digestion energy projects.
Read our article at:
https://anaerobic-digestion.com/anaerobic-digestion-finance
