Farm Based Anaerobic Digestion Finance
Our client was introduced to us by one of our own equity investor contacts.
The client is a SPV formed to operate an Anaerobic Digestion (AD) facility capable of treating the annual cumulative agricultural feedstocks of 10,000 m3 of cattle farmyard manure, 2,000 m3 cattle slurry, 4,800 m3 of grass silage and 6,000 m3 of water.
The AD plant is situated on farmland in Stockton on Tees, Cleveland. The land consists of 800 acres and a dairy herd of 650 cows.
The client was seeking finance for a containerized CHP engine at a cost of approximately £400,000 including installation costs and certain ground works.
At the time of our initial introduction to the proposal the AD plant was well under way in terms of construction. A site visit was essential to better understand the workings of an AD facility.
Armed with wellies and other protective clothing needed to cope with a typical dairy farm yard and milking parlour a visit was arranged.
A meeting with the farmers, third generation farming family on the same site gave a good insight to the rationale behind the project.
A thorough risk assessment associated with the funding of an asset that is key to the performance of the overall AD facility was made. Risks associated with the completion of the construction of the plant, feedstock deliveries and delay of receipt of FIT were analysed.
In addition, potential outbreak of disease such as foot and mouth and the potential downfall of the UK dairy industry were also taken into account. After all, the credit risk was to be taken on an effective start up venture.
Course of Action
It was agreed to offer a sale and leaseback transaction providing real flexibility to the SPV to manage the suppliers of all equipment and services relating to the construction of the plant.
100% financing of the CHP engine and ancillary equipment served as an effective top up to the £3.2 million investment needed to build the plant.
Security for the financing was limited to the engine itself.
The facility is now fully funded and the plant is operating successfully.