2014 Farm Bill Provides New and Expanded Funding for Section 9003 Biorefinery Assistance Program
February 20, 2014
On February 7, 2014, President Barack Obama signed into law the Agriculture Act of 2014 (2014 Farm Bill). The 2014 Farm Bill is a $956 billion legislative package that includes $881 million in mandatory funding for energy programs, as well as noteworthy amendments to Title IX of the Food, Conservation, and Energy Act of 2008 (2008 Farm Bill). Since the changes surrounding the Section 9003 Biorefinery Assistance Program of Title IX (9003 Biorefinery Assistance Program or the program) are the most substantive and have been the most difficult for industry to interpret, this alert summarizes those changes and provides insight with respect to how the United States Department of Agriculture's (USDA) Rural Development office will interpret and apply those changes. This alert also provides an anticipated timeline for release of future Notices of Funding Availability (NOFAs) from the program and recommendations for companies preparing to apply to the program.
As outlined in our previous alerts, Section 9003 of the 2008 Farm Bill authorizes the USDA to guarantee loans of up to $250 million for the development and construction of commercial-scale biorefineries that produce advanced biofuels.1
In October 2013, the program released a NOFA to support an estimated $181 million in loan guarantees to eligible applicants. The budget authority made available under that NOFA originated from amounts originally allocated in the 2008 Farm Bill that had yet to be conditionally committed to projects.
Prior to the October 2013 NOFA, 11 conditional commitments had been issued by the program, of which only 4 have achieved financial close. An additional 5 of the 11 conditional commitments remain in process. The remaining two conditional commitments have been officially deobligated, including one recently after the project's restructuring fell outside of the program's parameters.
|2011||Fremont Community Digester||$12,825,000||Closed|
|2013||Notice of Funding Availability Issued October 2013||$181,000,000||Open for Applicants|
|Total Obligated Loan Guarantee Authority||$899,925,000||Funds to Loan Authority Ratio|
|2008 Farm Bill: 9003 Mandatory Funding*||$279,306,000||3.22|
|*H.R. 3547, the Consolidated Appropriations Act of 2014, also known as the 2014 Omnibus Spending Bill, rescinded $40,694,000 from the $320,000,000 in mandatory funding provided the program. See Table 2 below for further comparison.|
Key Eligibility Changes in the 2014 Farm Bill
The most significant changes to the program in the 2014 Farm Bill pertain to the expansion of the program to enable loan guarantees for renewable chemical and biobased product manufacturing facilities. Most notably, the 2014 Farm Bill:
- changes the program's name to the Biorefinery, Renewable Chemical, and Biobased Product Manufacturing Program;
- expands the purpose of the program to include the development of renewable chemicals and biobased products manufacturing (in each case as defined below);
- requires that the USDA ensure diversity in the types of projects approved for loan guarantees to make certain that a range of technologies, products, and approaches are assisted, to the extent practicable;
- defines "biobased product manufacturing" as the development, construction, and retrofitting of technologically new processing and manufacturing equipment and required facilities used to convert renewable chemicals and other biobased outputs of biorefineries into end-user products on a commercial scale;
- limits the funds that the USDA can award to projects that promote biobased product manufacturing to no more than 15 percent of available funds for fiscal years 2014 and 2015;
- defines "renewable chemical" as a monomer, polymer, plastic, formulated product, or chemical substance produced from renewable biomass; and
- expands the term "renewable biomass" to include any organic matter from a renewable or recurring basis, including feed grains, other agricultural commodities, other plants and trees, algae, and waste material.
|Table 2: Mandatory Funding for 9003|
|2008 Farm Bill|
|Consolidated Appropriations Act of 2014|
|2014 Farm Bill|
Current and Expected Program Funding
The 2014 Farm Bill provides mandatory budget authority of $100 million for the current fiscal year ending September 2014 and $50 million for each of fiscal years 2015 and 2016. This budget authority will remain available to support the issuance of loan guarantees until expended. In addition to the mandatory funding, the 2014 Farm Bill provides discretionary authority of $75 million for each of fiscal years 2014 through 2018 for the program, but only if and to the extent specifically appropriated by Congress in the future.
Carryover funding from the 2008 Farm Bill may still be made available through upcoming NOFAs as well. As outlined in Table 1, approximately $211 million in loan guarantees supported by the 2008 Farm Bill's mandatory funding have closed, while approximately $500 million in loan guarantees remains tied to the five remaining conditionally committed projects. In light of the recent deobligations and the current status of the remaining five conditional commitments, Wilson Sonsini Goodrich & Rosati expects that the USDA may deobligate at least one additional conditional commitment from its current funding level as well. The USDA has received approval to re-deploy funding that it deobligates from earlier-granted conditional commitments, so participants in the October 2013 NOFA and applicants in future NOFAs can expect that a greater amount of loan guarantees will be awarded than would otherwise be expected based solely on the October 2013 NOFA and 2014 Farm Bill allocations.
Availability of Loan Guarantees for Renewable Chemicals and Biobased Products
Conflicting alerts and information have been provided to potential applicants regarding the amount of loan guarantees that will be available to fund renewable chemicals and biobased product manufacturing projects under the program. A strict interpretation of the changes made to the program by the 2014 Farm Bill would limit funding for biobased product manufacturing projects to no more than 15 percent of the program funding for fiscal years 2014 and 2015, which translates into roughly $45-$60 million of loan guarantees becoming available in fiscal year 2014 and $22.5-$30 million of loan guarantees in fiscal year 2015. Note that the funding does not mean that the loan guarantees must close in the applicable fiscal year, only that the funding enabling such loan guarantees becomes available in that year.
As of this writing, WSGR believes that the 15 percent limitation will apply only to biobased product manufacturing projects and not to renewable chemical production facilities. This is because the USDA defines biobased product manufacturing facilities as those that will be used to convert renewable chemicals and other biobased outputs into end-user products (such as biobased plastic cups and utensils), implying that renewable chemical facilities stand on the same footing as biorefineries with respect to eligibility for future loan guarantees.
However, since the USDA Rural Development team has not yet received formal direction from its internal legal counsel, the USDA has yet to confirm that the 15 percent limitation will apply only to biobased product manufacturing and not to renewable chemical production facilities. Assuming, however, that the limitation is as we expect, then the next step will be for the USDA to determine how it will implement the 2014 Farm Bill in future program NOFAs. As of this writing, WSGR expects that the USDA will allocate up to 15 percent of eligible funding to biobased product manufacturing projects and split the remaining funding evenly, to the extent practicable, between biorefinery and renewable chemical loan guarantees to ensure the diversity of projects and that the intent of the program and the directives contained in the 2014 Farm Bill continue to be met.
Upcoming NOFA and Application Materials
Wilson Sonsini Goodrich & Rosati expects the USDA to release a NOFA in the next two to three months that announces available program funds and how such funds will be distributed across technology sectors. In the meantime, companies interested in pursuing loan guarantees via the program should begin their work now by confirming eligibility under the program and beginning dialogues with financial institutions that qualify as Lenders of Record under the program.
Jumpstarting an application in advance of a NOFA provides companies the opportunity to work more closely with USDA officials in the application process and ensures time to overcome the obstacles that inevitably arise throughout the daunting application process. Furthermore, potential applicants should be aware that applications received by the USDA on or before May 1 of each year can be considered for funding for that fiscal year. Therefore, in order to be well positioned for upcoming loan guaranties under the program, WSGR encourages interested companies to begin the process of preparing project-related materials for new facilities or retrofits and upgrades to existing facilities, initiate discussions with financial institutions that can act as Lenders of Record for applications, and consult with the USDA to determine the program's interest in a company's project in the near future.
For more information on the program, how to begin the process of applying, and the benefits to beginning this process in advance of a NOFA, please feel free to contact:
Energy and Clean Technology
Project Development & Finance
Energy and Clean Technology
1 For more information, please see "USDA Announces $181 Million Loan Guarantee Authority Under the Section 9003 Biorefinery Assistance Loan Guarantee Program" at http://www.wsgr.com/WSGR/Display.aspx?SectionName=publications/PDFSearch/wsgralert-section-9003.htm; "Department of Agriculture Issues Interim Final Rule for Biorefinery Assistance (Section 9003) Loan Guarantee Program" at http://www.wsgr.com/WSGR/Display.aspx?SectionName=publications/PDFSearch/wsgralert_biorefinery_assistance.htm; and "Overview of the USDA Biorefinery Assistance Loan Guarantee Program (Section 9003 of the Food, Conservation, and Energy Act of 2008" at http://www.wsgr.com/WSGR/Display.aspx?SectionName=publications/PDFSearch/section9003.htm.