2017 Interim Evaluation of the Nextgen Biofuels Fund Sustainable
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Final Report 2017 Interim E valuation of the NextGen Biofuels Fund Sustainable Development Technology Canada Prepared for Submitted by Garry Sears, Managing Director Sustainable Development Technology Keith Vodden, Senior Associate Canada 45 O’Connor St., Suite 1850 Ottawa ON K1P 1A4 Attn.: Karen Mallory Manager, Industry November 30, 2017 Contents List of Abbreviations Used in Report .................................................. ii Executive Summary........................................................................... iii Background ................................................................................................... iii The 2017 Interim Evaluation ........................................................................ iii Findings ........................................................................................................ iv I Introduction ................................................................................ 1 A. The Foundation .................................................................................... 1 B. The NextGen Biofuels Fund ................................................................. 1 C. The 2017 Interim Evaluation ................................................................ 2 D. Findings of the 2012 Evaluation ........................................................... 2 E. 2017 Evaluation: Issues and Methodology ........................................... 3 II Profile of the NGBF .................................................................... 6 A. History and Rationale ........................................................................... 6 B. Key Features of the NGBF .................................................................... 8 C. Evolution of NGBF Applications and Approved Projects ................... 13 D. NGBF Expenditures ............................................................................ 16 III Evaluation Findings .................................................................. 17 A. Delivery of the NGBF .......................................................................... 17 B. Results of the NGBF ........................................................................... 21 C. Lessons Learned ................................................................................. 25 Appendix A: Evaluation Matrix ........................................................ 28 Appendix B: Documents Reviewed .................................................... 33 Appendix C: Interview Guides ........................................................... 35 Appendix D: Case Study Summaries ................................................. 44 i List of Abbreviations Used in Report AECN AE Côte-Nord RTP™ Project AFF Application for Funding BDC Business Development Bank of Canada BDMT Bone dry metric tonne Capex Capital expenditure CO 2e Carbon dioxide equivalent DOE US Department of Energy ecoABC ecoAgriculture Biofuels Capital Initiative ecoEBF ecoEnergy for Biofuels EDC Export Development Corporation EPA US Environmental Protection Agency GC Government of Canada GHG Global greenhouse gas IOI Indication of Interest ISED Innovation, Science and Economic Development Canada MDVB Mascoma Drayton Valley Biorefinery MSW Municipal solid waste NGBF NextGen Biofuels Fund NRCan Natural Resources Canada PAP Project Assurance Process PFC Project Finance Committee PRC Project Review Committee RFO Renewable fuel oil RFS Renewable Fuel Standard RTP™ Rapid Thermal Processing SDTC Sustainable Development Technology Canada ii Executive Summary Background In September 2007 the Government of Canada signed a funding agreement with Sustainable Development Technology Canada (SDTC) that established the NextGen Biofuels Fund (NGBF), with a funding level of $500 million. The main objective of the Fund is to facilitate the establishment of first-of-kind commercial demonstration-scale facilities for the production of next-generation renewable fuels and co-products from non-food feed feedstocks. The Fund operates as a repayable contribution, to be repaid by recipients from free cashflow once a facility is fully operational. The contribution to each project was capped at 40% of the total project cost, up to a maximum of $200 million. Applicants progressed through a stage-gate approval process called the Project Assurance Process (PAP). The ten-year NGBF sunset on March 31, 2017 as planned. Two projects (both SD Tech Fund graduates) successfully completed pre-construction planning in accordance with the PAP and received approval for final funding commitments by the SDTC Board of Directors. The Enerkem Alberta Biofuels Project (Enerkem) in Edmonton, Alberta converts municipal solid waste to cellulosic ethanol, replacing gasoline or first-generation ethanol in fuels in the transportation sector. The AE Côte-Nord (AECN) RTP™ project in Port Cartier, Quebec converts forestry mill white wood residuals and forestry waste materials to Renewable Fuel Oil (RFO) , replacing fuel oil from fossil fuels used in industrial boilers and furnaces. Two other Applications for Funding (AFFs), the Mascoma Drayton Valley Biorefinery (Drayton Valley, AB) and the Vanerco Project by Enerkem and Greenfield Ethanol (Varennes, QC) also made progress under the PAP but were discontinued. Over the period covered by the evaluation, i.e., from January 2012 to March 31, 2017, total expenditures of the NGBF were $87.9 million. Of this total, $81.2 million was associated with the four projects noted above, while the balance, $6.7 million, consisted of administrative expenses. The 2017 Interim Evaluation The NGBF Funding Agreement identifies the need for interim evaluations at specific periods during the life of the fund. The Foundation agreed to conduct and submit to the Government of Canada three evaluations to be carried out by an independent third party, by November 30, 2012, November 30, 2017 and November 30, 2022. The first interim evaluation was completed by Robinson Research on November 21, 2012. The 2017 interim evaluation covered the period following the 2012 interim evaluation to the present. The focus was on assessing the project delivery process, the short-term results iii achieved and to identify any lessons learned. Activities related to the repayment and close out of the NGBF will be examined by the final evaluation in 2022. The 2017 Interim Evaluation involved a review of NGBF documents and project files; interviews with various stakeholder groups including SDTC management and staff (current and former); Innovation, Science and Economic Development Canada; members of the Project Review Committee and the Board; an external expert adviser; and, representatives of the NGBF project proponents. Case studies of the Enerkem and AECN projects were prepared (summaries are included in Appendix D). Findings 1. Delivery of the NGBF a) The proposal review and selection process featured a high level of due diligence There is consensus that the level of scrutiny (due diligence) associated with the NGBF proposal review and selection process was extensive and very thorough, and comparable to what would be expected had proponents attempted to raise private financing instead. Two of the project proponents noted that the NGBF process involved a considerable amount of “back-and-forth”, many additional questions, and heavy data demands. A related factor was the NGBF organizational model that was in place until late 2015 that involved two program managers; having one manager in charge might have expedited the process. b) The PAP was an appropriate project management system The PAP stage-gate process was adapted from the front-end engineering approach used for large capex projects by engineering, procurement and construction (EPC) firms in the process industries (e.g., oil and gas, chemical processing). The stage-gate process is considered to be the industry standard for the management of large capital, complex projects of the type supported by the NGBF. Interviews conducted as part of the present evaluation confirmed that the stage-gate process was appropriate. The decision by the SDTC to use the PAP was well justified, given the Fund had resources to support only a handful of high-risk projects and the fact that the Board was highly cognizant of its responsibility for the stewardship of public funds. c) The PAP process was protracted but became more flexible over time The PAP process successfully identified and excluded from further support technologies that were not ready for full-scale demonstration or were not commercially viable. But for technologies that were selected for support, the PAP process could become protracted. The previous 2012 evaluation stated that smaller companies with no prior experience with a stage- gate process may have found it unduly complex and daunting. One of the smaller project proponents interviewed as part of the present evaluation agreed that a larger company with a large team might have found the process easier to deal with. For this smaller company, the problem was not with the PAP itself; the problem was more with the amount of time required to proceed through the process. iv One of the project proponents that did not proceed all the way through the PAP process indicated that the process should have been shorter. The problem was that the proponent and SDTC staff tended to get stuck on each phase, which raised the level of uncertainty and created some doubt about whether the end point would be reached. One of the larger project proponents found the PAP