June 8, 2011
By Reg Renner
Our latest federal election in Canada has shown that numerous politicians and supporters are willing to spend many hours knocking on doors looking for your support.
Our latest federal election in Canada has shown that numerous politicians and supporters are willing to spend many hours knocking on doors looking for your support. So too must you prepare if you are to obtain suitable government support for your project.
First of all, government support, like political parties, can come in many shapes and sizes, and you need to do your research before you cast your vote or fill out the appropriate grant application form. It is also advisable to recognize that governmental support could be in the form of an approved environmental permit, a biomass fibre award, or a new piece of legislation such as the Ontario Green Energy and Green Economy Act.
If you are involved in bioenergy, you are probably aware that there are many challenges with pursuing and finding the appropriate government grants. The list of potential challenges includes tight timelines, limited eligibility, long approval delays, and untimely cash flows. When I think of all the time that has been spent by project developers pursuing government grants in spite of these challenges, it can seem like a poor return on their time investment. Yet I often come across groups that have just received a substantial grant from a previously unknown governmental agency. Remember, you can only get a government grant if you are willing to put in the work and apply to the appropriate programs. Many people say this about grants: “There is no free money.” They are right; you will have to work for it, just as a politician will have to earn your vote to get elected.
So allow yourself sufficient time to meet the requirements and deadlines, as it is a competitive process and you must submit a compelling argument as to why your project should be supported. I recommend that you start by calling your Regional Economic Development Officer, as they are often very well connected and may know which programs are best suited for your specific requirements. The executive director of a Provincial Innovation Council once told me that his staff was tracking more than 100 government grant programs. It is a lot easier to call a couple of well-placed experts than it is to start the process from scratch, especially with new programs being added, deleted, and changed monthly.
It is also advisable to treat the government grant as only part of your finance package and to continue working with other financial groups to obtain a complete funding package. There is nothing worse than waiting 12 months to be awarded only one-third of the required project financing and then have to start looking for the remaining required financing. No matter how good the government grant is, you will need equity capital to get the project off the ground, and you must be careful not to spend all your equity during the grant process and subsequent waiting period.
Also early in the process, find out how the proposed grant is paid out during the project construction phase. I remember a project developer who called and told me that he had just been awarded a grant for $2.3 million, but the funds were not available until 90 days after the project was completed. That was the end of that project developer’s dream, as unfortunately he did not understand the cash flow requirements until after the long awaited “good news” announcement. Timing can be more important than the dollar amount.
Given these various challenges, it is often advisable to look at other forms of government support that can be just as valuable as a non-repayable loan or grant. Government support can come from various levels of government, including municipal, provincial, and federal, so do not lose focus by only being concerned with one agency. Check out all the levels of governmental involvement, make sure that you understand all the rules and regulations,
and create a regulatory checklist. As an example, can you get a timely building permit and an acceptable environmental impact study from your local building inspector? No matter how much money you might have, a project can be stopped in its tracks if the proper authorities have been ignored or bypassed.
Another critical role for governmental support can be in the awarding of a supply contract. As an example, the recent Ontario Ministry of Natural Resources’ allocations of wood fibre have been key to launching new value-added sawmills and wood pellet plants. Without a secure wood supply contract, there would be no business case for the local entrepreneur. In this context, local provincial ministry staff may be very important to the success of your project. Sometimes it is hard to be patient, but you must understand their issues while continuing to move your project forward during the inevitable waiting periods.
Governmental support can also come in the form of new policies and initiatives that are designed to launch a new industry. A great example of this is the Ontario Power Authority (OPA)’s Feed-in Tariff (FIT) program and micro-FIT, which created immediate demand for small solar generation systems. In less than 12 months, OPA had 3,000 applications and had to put the program on hold temporarily due to the unexpected uptake from individual power producers. The great part about the huge success of this program is that it showed that entrepreneurs are willing to make decisions and invest in a new industry with the right support from government.
At the same time, the challenge for governments is to predict the level of support required and acceptance needed to make a program successful. With too much support, the program can get out of control quickly, and subsequent dramatic changes can create uncertainty. An example is the U.S. Department of Agriculture’s Biomass Crop Assistance Program (BCAP), which initially gave biomass producers a matching subsidy of up to $45.00/ton of biomass. BCAP was designed to encourage new biomass producers to start delivering biomass feedstock to pellet plants, co-generation facilities, and ethanol producers. It was budgeted for only $70 million in the first fiscal year, but about $230 million was actually allocated in the first fiscal quarter alone.
The program has since been suspended, reworked, and now restarted, yet the resulting uncertainty and delays have caused many complaints and problems. Government support programs can be very beneficial, but they can also be damaging if they are not well crafted and controlled.
In closing, I encourage you to research the various government grants that are available by contacting your local experts. Then make an informed decision about whether they are worth pursuing based on the risk and reward and your current situation. Even if you do not need or receive a grant, you will still need other kinds of government support if you plan to be successful. So, instead of complaining about government like so many others do, check it out and work hard to see how it can help you achieve your goals.
Reg Renner of Atticus Financial in Vancouver, BC, finances machinery ranging from biomass boilers to densification equipment. With 38 years of horticultural experience, he recently helped secure carbon offset credits for four greenhouse clients. E-mail: email@example.com.
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