Energy Center Project Feasibility / Risk Management

The chief benefit of the tolling arrangement is the equitable division of risk.  The division of risk is best thought of in terms of the partners involved. 

The partners in this case are the financing partner, the customer partner, the engineering (EPC) partner, the component partner, the operator partner, and of course ZEEP who can be thought of alternatively as the plant coordinator, owner and operator (although plant operation may be based on a turnkey arrangement with an experienced operations party initially).

The potential customer/ partner position is, “I welcome the end product and am willing to sign a long term contract to purchase said end product (the desired fuel or fuels), but am unwilling to underwrite the risk of the construction and eventual performance of the project.  I am capable, as it is a natural part of my business process, however, to take positions in the underlying commodities (i.e. coal and the end product they are particularly interested in the desired fuels).  I am taking the commodity risk and the market risk”.

The EPC partner is underwriting the risk of the engineering design, procurement and construction.
The Component partner is underwriting the risk of the manufacturing and performance of the individual components (i.e. the gasifier, or the air separation unit, etc.)

The Operations partner is underwriting the risk and specific performance of the plant operation.
The plant owner operator, ZEEP, is guaranteeing their performance with respect to plant oversight, coordination, etc. in addition to providing the equity in the project.

The financing partners position is, “I am comfortable with the viability and credit worthiness of the parties underwriting the technical risk, the construction risk, the component risk and the operation risk owner risk and the market/ commodity risk and am willing to make a loan for the construction of the project to ZEEP.  I recognize that my only recourse is the assumption of the project itself should one or more parties be incapable of fulfilling their responsibilities or risk roles”.

It is very important to realize that there will be more than one Customer-Partner.  This diversifies the risk somewhat as well as makes each Customer-Partner not linked on a one-to-one correspondence to a gasifier, thus mitigating their need to speak for the entire output of a gasifier or force them to match their fuel requirements on a one for one basis with the gasifier plant output.

Another way of saying this is that a tolling arrangement, when applied to energy centers, allows for building of the energy center when no individual parties were willing or capable of making the project happen before.  This is an important point.  In short this makes all of the other benefits of the energy center possible.