Hi Lea, thanks for the warm welcome. It is exciting to see how decentralized finance is quickly changing. I look forward to discussing with the community the many benefits DEFI can have on previously traditionally funded sustainable infrastructure projects.
Let’s start with the financial questions…
How do you currently finance these types of projects?
REI creates an SPV (Special Purpose Vehicle) for each of the projects. Where the Investment is secured by Project assets, we then arrange junior to Project senior debt. The project is a long-lived asset, lasting 20++ years, that will be financed and paid for over ~4 years, resulting in large residual values. Maintenance of project asset values and system performance is budgeted and provided for during operations REI Global, with its partners, provide best in class management, operations, and risk management services. We intend to promote the development of our Plastic to Syngas technologies as a new asset class adding value to investors across a broad spectrum of opportunities and geographies.
How do traditional funders determine the rates?
Traditionally the financing rate varies based on foreign investment and local debt rates. The Philippines has a strong regulatory and legal framework supporting renewable energy and international investment. Macro-economic conditions are favorable. The PHP/USD exchange rate has been relatively stable in recent years. The underwriting of the project determines the required equity investment. If underwriting for example requires the SPV to deposit 30% to facilitate the debt contract. REI would raise the amount through syndication partners that would take the equity position alongside REI.
As for REI’s typical development process? It goes through a detailed SOP but here are the main points and I’ve also included where the Syngas project stands in the development phase.
Observe an energy/ waste problem
The Philippines government has mandated the Philippine National Oil Company (PNOC) to provide affordable fuel for the country.
It’s clear that recycling is not working and requires cutting edge solution. Plastics from 3-7 categories are generally tougher to recycle and for the most part not recycled at all. Our pyrolysis system that converts plastic to SYNGAS system is the highest quality combustion equipment with the lowest emissions (BACT) and the highest efficiency level in the world at the present time.
Find technology, design a sustainable solution, and validate it.
The Pyrolysis technology or Plastic to Syngas system that will be used in this project has been perfected and installed in 25 sites globally and REI has written various white papers using diverse input data to validate its effectiveness.
Joint Venture with a field partner
JV partners are found through the trade commissioner of Canada or the United States. These government agencies then validate corporations based on project success.
REI’s performance model has been used for a variety of projects and been vetted by qualified financial modelers.
The product is a premium diesel. Our financial model is modeled conservatively to determine the viability of the project and our threshold of the plus/minus. Our intention is to capitalize on a much higher price once we negotiate the long term supply contract. Diesel is always going to sell, unlike other commodities.
This project has an IRR of 25.87% with a payback period within 4 years of a 20-year production contract.
Secure the site and build the facility
Initial funds are raised to secure the site and build the facility or it is part of the JV. Its value is then used as collateral for the project.
Partial finance (the building) has been secured and construction of the building should be finished in the spring. The land asset is valued at $1 million and building at $500,000 to a total of &1.5 million used as initial collateral to start the project.
Currently, the project has a potential large-scale off-taker based on the quality of the fuel produced by the 25 TPD (tons per day) facility.
Also, there is various interest from the private sector that are also interested in the long term supply contract.
I look forward to furthering the discussion.