Blue Sphere is a small company with a big future and that future starts now. Over the last two weeks Blue Sphere Corp. (OTCQB: BLSP) has announced commitments for over $25 million dollars of financing for their Charlotte, North Carolina based 5.2 Mega Watt (Mw) anaerobic digestion facility. Blue Sphere, in two press releases, announced a commitment for $17.785 million in debt financing from Caterpillar Financial Services Corporation, the financial services arm of Caterpillar Inc. (NYSE: CAT) and $7.5 million in an equity commitment from a leading environmental finance fund.
Blue Sphere's management has been planning the Charlotte facility since it first signed a term sheet in respect of the project in 2012. These financial commitments from substantial financial partners signal that management's work of bringing the project to fruition is nearly completed. The debt and equity are scheduled to close by the end of August 2013. If the closings are on schedule, then Blue Sphere's management anticipates breaking ground on the project by the end of the 3rd quarter 2013.
An anaerobic digestion plant is a facility that converts organic waste to electricity. In the case of the North Carolina project, Blue Sphere is planning on using food-waste in a contracted steady stream. Food-waste constitutes 18% of the waste in the U.S., which is the second largest component of trash. The North Carolina project will receive "tipping fees" for accepting the food-waste and processing it. The project will also receive revenues for delivering electricity to the local grid through a power purchase agreement currently in place with Duke Energy. A third stream of revenues will be derived from the sale of the remains of the digestion process as fertilizer in pre-arranged contracts. The plant acts as an "endless, clean landfill" for organic waste materials, waste in; electricity and fertilizer out. This is truly a clean energy process.
Blue Sphere's role in the North Carolina project is as project developer and manager. Blue Sphere has partnered with Biogas Nord, AG of Germany on all of its U.S. development projects. Biogas Nord has designed and built over 400 waste-to-energy plants in Europe, Africa and the Middle East. Together through its joint venture, Bino Sphere, Biogas and Blue Sphere will own 50% of the North Carolina project, with Blue Sphere's ownership expected to be at 37.5%. Blue Sphere will get this ownership position when the equity partner receives an Internal Rate of Return (IRR) of 20%. According to the Blue Sphere Executive Summary from December 2012, Blue Sphere expects an IRR of around 25% on its projects.
Blue Sphere is planning a second facility in Rhode Island. Management believes it will be able to break ground on that project by the end of 2013. This makes two plants that Blue Sphere will be collecting both operating and management revenues from, as well as cash flow participation. Blue Sphere will begin to receive management revenues upon the closing of the financings in September.
Blue Sphere has not been very promotional about the company or projects since they have been working towards the commencement of construction on the first two projects, which is one of the reasons their stock price has been undervalued and trading low volumes until recently. Since the stock has not moved in the face of these valuable developments in Blue Sphere's business, investors stand to become the beneficiaries. It is very possible that Blue Sphere could begin to make well over $1 million per year from their first projects. Blue Sphere's management is planning several more projects over the next couple of years. With financing and manufacturing partners in place, Blue Sphere plans to replicate the North Carolina project over and over. If Blue Sphere executes on its plans, early investors could benefit greatly. Blue Sphere is a speculative investment, but investing along side a leading industry focused fund and Caterpillar is a good way for investors to speculate. These are two groups that assuredly have done their due diligence before risking their money. Blue Sphere is intent on becoming a leader in the waste-to-energy market in the United States, and they are getting off to a strong start.
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