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Sunday, 14 May 2017 13:05

California firm buys, plans to reopen Fremont bioenergy facility

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Generate Capital acquired the Fremont Community Digester out of receivership for $4.4 million, with plans of reopening the renewable energy facility later this year. Generate Capital acquired the Fremont Community Digester out of receivership for $4.4 million, with plans of reopening the renewable energy facility later this year. Courtesy Photo

FREMONT — After closing abruptly two years ago, a state-of-the-art biodigester facility in Newaygo County is getting a second life from one of the nation’s leading clean energy investors.

San Francisco-based Generate Capital has purchased the renewable energy facility after the former owner, NOVI Energy, lost the plant to receivership when it failed to cover its upfront costs.

Court filings show a Newaygo County Circuit Court judge approved the sale of the assets for $4.4 million on Jan. 3 to Generate Fremont Digester LLC. Generate Capital was co-founded by Jigar Shah, who helped transform solar energy financing in the U.S. The firm specializes in equity and debt facilities for “sustainable infrastructure.”

The Fremont Community Digester, which cost $22 million to build, opened in 2012 to widespread praise as the first large facility in Michigan to take organic waste from companies and turn it into renewable energy. NOVI Energy also formed a company in 2013 to commercialize a brand of garden fertilizer made from the waste of the organic material that fueled the digester.

A representative for the Southeast Michigan-based NOVI could not be reached for comment.

Shah, who serves as president of Generate Capital, told MiBiz that the company remains in the “early stages” of a “stakeholder engagement” process after closing on the sale. He hopes to reopen the plant by the end of the year. 

A power purchase agreement for the energy the plant produces remains in place with Consumers Energy, but the next step will be finding firms in the area to provide feedstock to power the facility. When in operation, the facility depended on various companies — including baby food giant Gerber Products Co. of Fremont — and nearby farmers to provide food waste.

“Now we’re in the process of figuring out what to do moving forward and the best way of working with the community,” Shah said. “This is really about resource efficiency — there is a lot of organic waste and no one, including corporations producing it, wants it to end up in a landfill. The next question is: What do the community and stakeholders want? By owning the asset, we only exist if producers of organic waste want us to take it.”

Shah said the plan is for organic waste producers to pay the company to take organic waste, which is a revenue stream in addition to the power-purchase agreement.

“All of those conversations occur after you own the plant,” he said.

The plant also will need upgraded components after sitting idle since May 2015, a process that could take several months, Shah said.

‘SECOND MOUSE GETS THE CHEESE’

Scott Eisenberg, who oversaw the process as the court-appointed receiver at Amherst Partners LLC in Birmingham, says he’s optimistic that the new owners will be able to make the economics work. 

Despite the fanfare with which it opened five years ago, the $22 million facility — which came with a $12.8 million federal loan guarantee — was “overbuilt,” said Eisenberg, a partner and co-founder of Amherst.

“What happened with the Fremont Community Digester is (NOVI) built this magnificent facility, but it was way overbuilt and way over-engineered,” he said. “The thing was somewhat destined to fail from the beginning in terms of that kind of spending. A lot of tax credits went to support it, but the economic model was very challenged.”

Regarding Generate’s $4.4 million acquisition of the assets, Eisenberg said: “We’ve all heard the expression that the early bird gets the worm, the second mouse gets the cheese. This is a great example of that.”

While abruptly shutting down in 2015, NOVI reportedly faced a lawsuit from the construction company that built it, claiming NOVI only paid $14.4 million of the $19.4 million cost.

The case went on to generate a flurry of claims and counterclaims with more than 50 unsecured creditors.

Court documents show there are also $362,080 in outstanding tax liens against the property from the city of Fremont and Newaygo County as of Dec. 27, 2016.

“(Fremont Community Digester) just plain ran out of money and it shut down suddenly,” Eisenberg said.

Amherst was appointed as the receiver in September 2015 and “immediately” began efforts to sell the facility, Eisenberg said. The site required some cleanup and repairs, which “was a bit of a disaster in that sense,” he added.

The sale process went forward, but failed with two potential buyers before the deal closed with Generate, Eisenberg said. He predicts the new owner will have to spend “several million dollars” to bring the facility back into operation, in addition to finding firms with organic waste.

“It’s not like they’re buying it and turning the switch on,” Eisenberg said.

Proceeds from the sale will be shared by Comerica Bank, DeMaria Building Co., Dynalectric of Michigan and Andy J. Egan Co. Inc. in Grand Rapids.

DIGESTER ECONOMICS

As the founding CEO of national solar company SunEdison and a player in finding global climate change solutions, Shah brings strong experience in clean energy financing. Generate Capital focuses on proven technologies in the energy, food and water sectors, often solutions that haven’t seen widespread installation.

One 2015 report said Shah innovated solar financing that “laid the foundation for the explosive growth of not only SunEdison, now worth more than $5.5 billion, but also Elon Musk’s SolarCity and others.”

Organic waste digesters are more widespread in Europe than in the U.S., where they still struggle to compete with the costs of other forms of renewable energy, he said. 

Instead of focusing just on animal waste or manure as the U.S. sector has, Shah sees potential for the plants by incorporating more food waste.

“We want to come in and own these assets for the betterment of resource efficiency,” Shah said. “This technology has been operating successfully in Europe for several years, but not so much in the U.S. — we want to figure out the reasons for that. This will be a good project in Michigan and will really provide an extraordinary outlet for producers of organic waste.”

Eisenberg says there are two parts to making the business model work: a power-purchase agreement to sell the energy and a revenue stream from organic-waste producers. The $55 million power-purchase agreement with Consumers was to last 20 years at 19,000 megawatt-hours annually, and the facility set out to process 100,000 tons of waste a year.

“That (power-purchase agreement) part of the equation is fine,” Eisenberg said. “What you don’t have is customers giving you the feedstock you want.”

Once that happens, though, these biodigesters can reduce costs for companies that produce food waste by diverting their materials from landfills, which Shah says is becoming increasingly expensive.

“If you’re a producer of food waste, this is becoming a real problem for you,” he said. “The cost of doing business is going up and their ability to be profitable in Michigan is going down. We’re providing a very cost-effective way (to deal with that). And it gives investors like us the confidence that it’s a formula that can be replicated again and again.”

Eisenberg is similarly optimistic.

“The investment was right-sized,” he said. “I think there really is a need for (the facility). It will take some time, but they will win back a lot of the feedstock customers they lost. I think the business model can be successful if executed properly.” 

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Editor’s note: This story has been changed to clarify a statement from Scott Eisenberg about the Fremont Community Digestor running out of money and shutting down, not NOVI Energy.

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