The company processes organic waste, which includes agricultural residuals and manures, food processing waste, wastewater, crop waste and sewage sludge. “We have the ability to accept and process someone’s liability that’s either going to a landfill or is being managed in another way that’s expensive,” says Smith. “We put it in our system and allow the system to go through the biological process whereby it breaks down organics in the material, and, in that process, methane gas is released. We capture that methane and, from that, generate energy.”
Smith says that the difference between this form of renewable energy and others is that the cost to generate that energy is less; its capital investment to generate a kilowatt of energy is the least expensive compared to any other technology.
Fueling the Future:
The process of anaerobic digestion is not new — it’s a natural process that’s been around for eons — and building facilities to support the process is not new, either. Smith says that these kinds of buildings have typically only existed on farms as a way to manage livestock waste, but most of those structures are not being used. “Farmers received incentives to build them, but there was no engineering or laboratory support to help operate the facilities once they were up and running,” says Smith. “A farmer has to farm, has to run his business, and he doesn’t have the human resources to ensure that the process works. As a result, a lot of structures are up, but they are not operational.”
quasar hopes to change that by training the next generation to run such facilities. It has invested in engineering and biological support and has a full-scale laboratory at the Ohio Agricultural Technical Institute at The Ohio State University’s
Wooster campus. The facility — the only biogas lab in North America — is managed by professors, with assistance from students. The company is also working with the university to design a management curriculum for students to learn to operate quasar’s plants.
“It’s a new business and we have great resources at OSU,” says Smith. “This industry we’re creating has the wherewithal and the vision to succeed, and we’re going to need a qualified staff to operate it and maintain it.” The program will prepare students for jobs in the growing anaerobic digestion renewable energy industry through classroom training and hands-on experience in the lab to meet the need for workers.
Based on a study supported by The Ohio State University, Ohio has the capacity to support 7,721 anaerobic digestion waste-to-energy facilities capable of producing $1.92 billion of natural gas, $1.62 million of electricity or $2.53 billion of vehicle fuel, and it will take a lot of skilled workers to keep them up and running. The study says that the $15.3 billion investment would promote energy independence, create green jobs and reduce greenhouse gas emissions. Those numbers are not unrealistic, says Smith. As landfill space becomes scarcer and the cost of disposing of waste continues to increase, the demand for the eco-friendly systems of quasar will also continue to increase in the United States, as it has in Germany, where there are about 4,000 operational facilities. The difference in that country, Smith says, is that the government has put in place incentives for the efficient processing of waste.
“They want to create a repeatable, expandable, renewable energy source because Germany doesn’t have the natural resources under their land mass for energy like we do,” says Smith. “Unlike Germany, our business model today is not energy sales, but it will be eventually.”
Partnering for Success:
The company’s success and rapid growth are, in large part, the result of the relationship that its leadership has built with
FirstMerit Bank, says Smith. “No banks were lending, especially to a development company that doesn’t have operations,” says Smith. “We went to everyone, and the reality is that we found the right loan officer in the right location. The way that FirstMerit is different is that, while others weren’t willing to take a risk, FirstMerit has partnered with us on grant applications to allow us to secure capital for projects to offset construction costs.”
Smith says FirstMerit Bank has spent a great deal of time with the company, going back to before it even had any facilities up and running, investing time and talent for a very minimal return. “They understand it’s a marathon, not a sprint, and they’re getting their team educated on this newer industry and how it operates, so that when we get the results we say we’re going to, they will be in the best position of everyone,” says Smith.
quasar's loan through FirstMerit Bank is 100 percent cash collateralized, but without the bank’s support, the company would not be in the position that it is. “Through the USDA, there is a combined loan and grant program, and you have to apply for both together,” says Smith. “Without the loan guarantee portion of the equation through FirstMerit, we would not have been able to secure the grant, which is pretty significant. FirstMerit worked with us to put the loan in place, which is guaranteed by cash for the application for the grant. And because of that, we were able to secure about half-a-million dollars per project.”
And as quasar continues to show results, the money guaranteeing the loan will come back to the company. “Once they see operating results, they will eventually release that cash, so we can take it and invest it in other projects,” says Smith. “FirstMerit has definitely stepped outside the comfort zone for them with a plan to get to a more traditional relationship.”
Smith says that as that money is released, the company will continue to gain traction in the marketplace. It already has three facilities up and operating in Ohio — in Wooster, Akron and Zanesville — and another is under construction in Rutland, Mass. And quasar also has projects in New York, Florida and Indiana, Smith says. In addition, the company has a facility in Columbus that is under commission and, when finished, will be able to generate renewable energy in the form of 9,208 mega watt hours per year of electricity, enough to power 803 homes; or 83,000 million cubic feet of natural gas per year, enough to heat 1,239 homes; or 664,000 gasoline gallon equivalents per year of vehicle fuel, enough to fuel 1,142 vehicles.
The company also has nine other facilities in Ohio in the permitting phase. “Our pipeline is significant, but the reality is that the capital markets will only permit us to do so much,” says Smith. One of those projects in the pipeline, through a relationship with Forest City Enterprises, is slated for the Collinwood area of Cleveland. quasar has a relationship there with Ginn Academy and plans to get the students involved in taking care of the digester and the community involved in watching out for the property.
Building Relationships:
Under quasar's current business model, the company is targeting capital investments to operating income of 4-to-1, so that for every $1 million of capital deployed, it expects to have recurring operating income of at least $250,000 of revenue from tipping fees, energy and residual products. And to get those facilities built, it is not only relying on its partnership with FirstMerit Bank but also is taking advantage of a federal program in which, for every dollar of capital expenditure made, the federal government will return a tax-free grant equal to 30 percent of that amount. In addition, at least for this year, the company is able to depreciate 100 percent of its assets in the first year they are placed into service. Smith said quasar plans to take advantage of every opportunity, and it is counting on FirstMerit Bank to continue to be a part of its growth.
“The key is that we’re really starting to establish a relationship so that as our business continues to gain some history and our operating budgets are achieved, they are in a position to help us leverage those businesses so that we can continue to grow,” says Smith.
“The biggest attribute of FirstMerit is that they were willing to invest time in the long term to see if we can develop a relationship. Everyone else was just saying, ‘We don’t want you right now.’ They’ve spent a lot of time investing in us to understand the business, to understand the people and to be in a position that, when we have bankable results, they will be the first relationship we’re going to turn to. Without their participation, we would not have been able to secure other nontraditional sources of financing that have allowed us to do the things that we’re doing.”
Steven Smith is the CFO of quasar energy group
Reach him at ssmith@quasarenergygroup.com |
