Recipient of 2004 USDA Value Added Producer grant.
Patrick Van Haren launched Sunergie in 2003 out of a desire to bring marketing expertise to the agriculture sector and the renewable energy industry, specifically related to thermal energies such as solar thermal and biomass.
After weathering several setbacks over the years, the company is aiming for full implementation of its plans. Sunergie is now prepared to put $200 million in assets into bioenergy and compost production, with its sights set on other environmental efforts.
It was in the summer of 2004 that Van Haren was introduced to a group from Brady, Texas, that had been complaining about the cost of thermal energy. Van Haren met with them and discussed the feasibility of a solar thermal energy project, having previously been involved with a start-up solar thermal company in New York.
A USDA Value Added Producer Grant funded a more in-depth feasibility study for the facility. Rodney Behrens was a member of the group, and leased land where a solar thermal plant could be built. Behrens was the producer; Van Haren was the consultant.
But through that feasibility study, Van Haren and others in the group saw that the solar thermal industry was not going to come to rural Texas. The industry wanted projects that were bigger in size, from 50 to 100 megawatts. Their proposed plant would have been about 1 megawatt.
“We needed another solution,” Van Haren said. “And that’s when we saw biomass and another client there that would make a lot more sense.”
Advances and Setbacks
Van Haren and his partners “sort of bumbled along” in 2005 until several things came together in 2006.
Wind farms are able to receive hundreds of millions of dollars in financing because of their ability to secure a power purchase agreement from a utility, which has a very good credit rating. In turn, those involved in wind farm projects are spared the risk of personal loan guarantees and do not have to put up any of their own money for a project.
Van Haren’s group was able to figure out a way to put together a similar financing arrangement on a smaller scale (the project was about $20 million). They were prepared to secure the final $250,000 needed to conduct the last piece of due diligence.
That’s when the bottom fell out. The price of natural gas tumbled, creating worry among investors. Equipment prices then jumped 60 percent, a result of rapid growth in the ethanol industry, which required similar equipment components.
“That basically made our project non-viable in the eyes of investors, so it stalled for two years,” Van Haren said.
‘Back to the Drawing Board’
Those issues have since corrected themselves. The group found another equipment vendor, and Van Haren said the investor climate is “much friendlier.”
“It just took patience, and we were able to get another grant when that fell apart to look at another angle,” he said. “So basically we went back to the drawing board.”
In the model for biomass, Sunergie realized there were a couple of areas that had yet to be explored, one of those being a use for the byproduct.
A second value-added grant allowed them to focus on compost and how to create a product out of wastes that could then be used by local ranchers.
In Texas, ranchers typically amass large burn piles of wood debris as a result of land clearing mesquite, cedar and huisache trees, Van Haren said, because they have no other options to dispose of their wood. If the wood is ground into woodchips, what remains is a product that is unsuitable for use in a $20 million combustion system. It would also result in 7,000 tons of waste a year, when the local landfill had a limit of 5,000 tons for all of its residents.
“So we spent some time figuring out how to make a profit for ranchers out of that scenario,” Van Haren said.
One major hurdle for Sunergie was in its efforts to involve local investors. But that proved to be difficult because they are not classified as “sophisticated investors” by the U.S. Securities and Exchange Commission. Van Haren said raising money required even more work and due diligence because those investors required greater protection than did sophisticated investors.
“We really tried to go through the hoops to get them involved, but that just didn’t turn out to be feasible,” he said.
An investment banker outlined for Van Haren and his partners a way to fund the project in part through project financing.
“That was huge in saying that we didn’t have to worry about how to raise $20 million,” Van Haren said. “We only had to worry about how to raise $200,000. Now that’s a big challenge here, and we still haven’t solved that problem, although I know how we’re going to do it.”
He said the USDA’s Value Added Producer Grant program allowed Sunergie to maintain a minimum cash flow in order to sustain the business and keep the concept alive.
One of those grants, awarded in 2007 to Comanche Creek Farms, was a result of cold calling. Van Haren went into the community, presented his idea to people who had never heard of him, and within two months got one of them to sign off on a grant application.
“That was essential to keeping us alive, and we were successful in that sense,” he said.
Sunergie is now in a transition period, moving from the studying phase to the implementation phase. Based on the template created through the USDA VAPG funding, the company wants to put together $200 million worth of assets into central Texas for bioenergy and compost production. It would lead to approximately 600 million BTUs per hour of energy production and about 25,000 acres a year of wood chips from the region.
In early September, the company bought its first equipment for a pilot project that would show what it could do with compost. This fall, the company plans to begin fund-raising in order to begin its first bioenergy project.
Additionally, Van Haren wants to get established in the carbon credit market and facilitate the restoration of soil quality in central Texas.
“The cedar and mesquite are all the result of poor soil quality here, and if we’re going to produce more energy in the country, it’s land like this that has to come back into production,” he said. “It’s so degraded that it’s going to need a massive investment in terms of soil organic mater. That’s what the compost facility accomplishes. And if the market can’t do it, then we will figure out how to set up intensive grazing systems.”
Sunergie also hopes to obtain a $2.5 million matching grant from the U.S Treasury Department’s Economic Development Assistance Program. Van Haren said it would support a non-profit organization the company created by funding job development efforts.
“We hope to dramatically increase the profits and job potential of grazing cattle and sheep and goats in central Texas through grass farming,” he said.
About USDA VAPG
VAPG funding has been offered by the USDA periodically since the early 2000s. A new round of funding is anticipated to be announced in the coming months. To be considered value added, projects must show how products are differentiated in specific ways from commodity crops. Typically, projects must also show how they may deliver greater returns to producers.
Independent producers, farmer or rancher cooperatives, agricultural producer groups, and producer-owned business ventures, including non-profit organizations, may apply. In previous cycles, applicants were required to be producers of the raw commodity who will maintain ownership of that commodity through the process of creating a value-added product. Grants have been available for planning projects (such as marketing and business plans and feasibility studies) and working capital projects (which might include wages or packaging supplies). (http://www.rd.usda.gov/)