DALLAS – A company that will convert landfill methane gas to electricity for the city of San Antonio will use $9 million of taxable revenue bonds to finance the project, officials said.

The city of San Antonio authorized the issuance of the unrated bonds through the nonprofit Mission Economic Development Corp. in a negotiated deal with Dallas-based Friedman, Luzzatto & Co. and Duncan Williams Inc.

The power plant, expected to begin operations by the end of the year, is under construction at the city-owned Nelson Gardens Landfill. The cost of the project, including debt and equity is about $14.8 million, the companies said.

The project is designed to capture the methane emitted from the decomposing waste in the landfill to produce electricity.  San Antonio’s public utility CPS Energy has agreed to buy power from the plant for 15 years.

The city authorized the issuance of the taxable revenue bonds through MEDC, which doesn’t guarantee the bonds. The proceeds were loaned to Nelson Gardens Energy, a Texas limited liability company formed by New York-based Greenfield Energy.

“There have been very few methane gas power projects financed through the bond market,” said Barry Friedman, president of Friedman, Luzzatto. “However, because landfill gas projects are a growing sector in the alternative energy sector as utilities look for viable ways to capture unused sources of renewable energy and put them to use, I believe you will see more entities turning to the bond market for financing.”

Nelson Gardens is expected to produce 4 megawatts of electricity per year. Nelson Gardens is one of three landfill gas-to-electricity projects developed by Greenfield.

“This project will add additional electric capacity for the citizens of San Antonio and turn what was a waste product into an additional source of income for the city,” said Gary Craig, a Nelson Gardens member. “But more importantly, it will help the city achieve its goal of implementing green initiatives to reduce its carbon footprint by capturing methane instead of releasing it to the atmosphere.”

Landfill gas energy projects have gained traction in recent years thanks to government incentives and their inclusion in renewable programs, according to Fitch Ratings.

For LFG projects looking to put long-term financing in place, achieving an investment-grade rating requires substantial credit strengths and risk mitigation.

“The unproven supply of LFG at a given project site, along with the composition of the gas extracted, usually represents the largest risk to bondholders,” Fitch noted. “Projects may face heightened supply risk if the landfill is closed with no new additional waste added over the project life. As the LFG resource depletes over time, the risk of debt repayment increases, absent structural features that compensate for decreased supply.”

Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.