How to Finance Your Biochar Projects with Debt Finance

How to Finance Your Biochar Projects with Debt Finance

Biochar Carbon Removal (BCR) is increasingly recognized as one of the most effective industrial carbon dioxide removal (CDR) technologies available today. With its potential to lock away carbon in a stable form for centuries, biochar plays a crucial role in combating climate change and enhancing soil health. However, despite its significance, many project developers face substantial challenges in securing the necessary funding to bring biochar production projects to life.

While the technology and its benefits are well understood within the environmental sector, the broader financial community is still catching up. As a result, financing these projects, particularly through debt financing, remains a significant hurdle. This article will delve into the current state of biochar projects in Europe, the challenges associated with financing these initiatives, and how project developers can overcome these challenges to scale the biochar industry to the gigatonne level.

The Current State of Biochar Projects in Europe

The biochar industry in Europe has seen remarkable growth over the past few years. As of 2023, Europe is home to 171 biochar production plants, a number that has been growing at a Compound Annual Growth Rate (CAGR) of 54% from 2020 to 2023. Europe also boasts around 30 technology providers, many of whom have reached Technology Readiness Level (TRL) 8 or 9, indicating that biochar technology is not only proven but is also on the verge of full commercial deployment.

Looking ahead, the momentum in the biochar sector shows no signs of slowing down. There are 54 new facilities planned for 2024, and if current growth rates are maintained, Europe could see the construction of more than 1,000 new biochar systems by 2030. This would represent a significant scaling up of the industry, paving the way for biochar to become a major tool in the fight against the climate crisis in Europe.1European Biochar Industry Consortium (2024). European Biochar Market Report 2023/2024. https://www.biochar-industry.com/market-overview/.

Challenges of Financing Biochar Projects

Despite its promising growth, financing remains a significant challenge for biochar project developers. Institutional lenders like banks and credit funds are often hesitant to lend due to several factors that make these projects appear risky.

Firstly, biochar is relatively new outside the environmental sector, and many financiers lack familiarity with the technology and its benefits. This leads to cautious lending, as institutional lenders fear the unknown risks of an emerging industry.

Additionally, biochar production equipment is often classified as “special machinery,” triggering stricter lending criteria, including the need for a higher equity ratio from developers.

Lastly, the novelty of biochar as a technology creates a lack of standardization in how these projects are evaluated. Without established benchmarks or a proven track record, biochar developers often face challenges in securing the debt financing needed to grow.

Role of Debt Finance to Scale the Biochar Industry

Carbon projects usually begin with equity financing, where early-stage investors accept higher risks for ownership. Vehicles like carbon streaming and pre-sales of carbon credits also help secure early capital but often come with high costs and limit available funds. These methods extract significant value from developers due to deep discounts on carbon credits.

As Europe’s biochar industry matures with increased technical readiness and contracted off-take demand, many projects now qualify for institutional investment. Debt financing offers project developers flexible capital with lower costs without sacrificing project and future carbon credit ownership. Unlike equity, debt financing uses future revenue streams, like off-take agreements, as collateral, helping developers scale more efficiently.

To scale biochar projects, two forms of debt are especially important:

Working Capital

This refers to short-term funding that covers operational expenses. For biochar projects, working capital might be used to manage feedstock costs or maintain operations during periods between carbon credit issuance and credit sales.
Project Finance

This involves long-term funding for large-scale infrastructure or expansions. For biochar projects, project finance can be used to purchase specialized machinery or construct new facilities, leveraging future carbon credits and off-take agreements as collateral.

This combination of working capital and project finance solutions helps European biochar developers scale operations efficiently, addressing both short-term liquidity needs and long-term growth ambitions.

biochar zero and Kumo Partner to Fund European Biochar Projects at Scale

biochar zero and Kumo are partnering to support biochar projects to access funding via institutional debt. They support with subject matter expertise in creating successful and profitable biochar projects and the software, tools, and expertise to navigate the process of securing debt. Together, they are set forth to overcome the current financing challenges and to amplify the growth of the European biochar industry.

About biochar zero

biochar zero is a German consultancy specialized in biochar project development. The focus is on the commercial side of biochar projects including biochar market & products, carbon credits and funding.

About Kumo

Kumo provides software and frameworks to facilitate institutional debt financing for the carbon removal industry. The company’s proven carbon debt financing platform combines financial expertise with software infrastructure to connect high-quality carbon project developers with capital providers.

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    European Biochar Industry Consortium (2024). European Biochar Market Report 2023/2024. https://www.biochar-industry.com/market-overview/.

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