I am pleased to update you on the ongoing progress at Blue Sphere. Our Company is operating at an unprecedented pace, functioning within various levels of our development cycles. As environmental and regulatory concerns continue to make Blue Sphere's assets, experience and business model more relevant than ever, we are, needless to say, very busy. To start off our update, we thought it would be helpful to our shareholders to provide a description of our development process as well as an update of our activities.
A common question that we get from shareholders and other parties interested in Blue Sphere is for a simple explanation of our development process. Blue Sphere functions with two different project cycles – New Developments and Acquisitions. The New Development project cycle is typically broken into four phases.
We call the first phase Pre-Development. In this phase, the Company's business development team is evaluating project opportunities that may come from various sources, including other developers, utility companies, strategic partners and land owners. In this phase, the Company is investing in site research, preliminary feedstock parameters, preliminary availability for offtake agreements and regulatory issues surrounding a particular location.
In the second phase, the Development Phase, Blue Sphere deploys capital and commits to projects. The first part of this phase generally includes the issuance of term-sheets or letters of intent for the development of assets. Blue Sphere begins the formal, in-depth due-diligence process to further these projects. Once due diligence is complete, the Company begins to assemble the various elements of the project by selecting technology, commissioning engineering studies, creating development plans, engaging EPC operators, commencing environmental studies and permitting, negotiating feedstock and power purchase agreements, and securing project financing. The Development Phase can take well over a year depending on the project size and complexity.
The third phase, the Construction Phase, takes us through a financial closing with our project finance partners, the property is officially purchased or leased and a ground breaking occurs. After this site prep begins, we order materials and equipment and construction begins. Over the next year or longer, skilled technicians, laborers and managers build an advanced power plant that turns various forms of harmful waste into useful clean energy.
In the fourth and final phase, the Operating Phase, the power plant can begin to accept waste materials and connect to electrical and gas grids or directly to a large end user. Once the connection is in place, the plant is fully operational. Management now will keep up with feedstock intake, equipment monitoring and maintenance.
The Acquisition project cycle is essentially the same as the New Development cycle, except there is no Construction Phase. When Blue Sphere is evaluating acquisitions, the Company typically looks for fully constructed and operating facilities where no construction is required.
If we have not made it apparent to any of our shareholders, we would like to point out that the development cycle described above is dramatically oversimplified. There are many complex and detailed elements in a project cycle that require the dedication and expertise of the entire Blue Sphere management team to bring a project to successful completion.
In the United States, as previously reported, we are nearing completion of our North Carolina and Rhode Island biogas projects. These projects are in the "home stretch" of their construction phase and are now approximately 95% complete. Work has even begun on the more cosmetic elements of the construction phase. We look forward to announcing successful interconnections to the electrical grid at each facility once the remaining construction has been completed. Blue Sphere owns 25% of the 5.2 megawatt North Carolina project and 22.75% of the 3.2 megawatt Rhode Island project. In addition to any dividend participation from these facilities once they come online, we expect to receive the remainder of a one-time milestone payment under our development contract of nearly $2.3 million of which 100% will go to Blue Sphere. To date, the Company has received $4.5 million in milestone payments.
In Italy, as previously reported, Blue Sphere is the 100% owner of four biogas facilities that are fully operational and collectively producing approximately 4 megawatts of electricity. These assets also have long-term power purchase agreements (PPAs) with the state-owned electrical authority, Gestore del Servizi Energetici (GSE). These facilities are operating as expected and we are very happy with their performance. As the acquisition costs of these projects are retired, the long-term value of our predictive revenue model will become more apparent.
As a developer and operator of waste-to-energy facilities, a robust pipeline of opportunities is critical to our success. We have been fortunate in our ability to attract the attention of various industry players who are working with Blue Sphere to keep our opportunity pipeline completely full. The Blue Sphere management team is proceeding in a disciplined manner and insisting on IRR's that range from 15% to 25% or higher for development projects. In addition to the projects listed below, our pipeline includes projects at earlier stages.
In the United States, we have a robust pipeline of over 10 megawatts emphasizing greenfield development. These developments are similar to our Rhode Island and North Carolina projects.
We recently signed a letter of intent to acquire a site in Wallace, North Carolina, where we intend to develop an Anaerobic Digester plant to help solve the pressing environmental problem of disposing of swine effluent. This issue has become a leading problem for hog farmers around the country, and in North Carolina, legislation has been passed requiring energy be produced from such waste. In addition to the site in Wallace, North Carolina, the Company is developing two additional sites in other areas of North Carolina where we intend to introduce this technology. This represents a tremendous opportunity for Blue Sphere to bring advanced technologies from Europe to the United States to help fulfill this increasing demand. We expect to have announcements regarding these developments later in 2016.
We are also very excited about the growing opportunity of converting coal fired energy plants into clean energy biomass facilities. Since 2012, there have been over 300 coal plant closures in the United States for various reasons, including environmental issues. The conversion of coal fired plants into clean energy biomass plants is environmentally significant and an economic opportunity for Blue Sphere. Converting a coal fired energy plant into a clean energy biomass plant costs up to six times less than constructing a new biomass plant. Blue Sphere is exploring coal plant conversions in various part of the United States and is in the pre-development stage of one such facility located in Illinois. As these projects progress, we will make an announcement outlining in more detail to opportunity at hand.
In Italy, as previously announced, we anticipate making acquisitions of additional operating facilities, each around 1 megawatt in size, under similar terms to the four we already own, including guaranteed EBITDA arrangements and outsourced plant management. We have signed letters of intent or term sheets for three facilities; one in the Cortona region, one in the Lombardy Region and one in the Molise region. Each acquisition has in place long term PPA agreements with the state-owned electrical authority, Gestore del Servizi Energetici (GSE). We are currently evaluating over 40 other opportunities in Italy at various stages of development.
In the Netherlands, our third focus market, we previously announced that we entered into a letter of intent to develop a $24 million waste-to-energy facility in the Brabant province. Assuming we close the financing for this project, the development has an estimated construction time of 12 months and forecasted annual EBITDA of $4 million once operational.
We have been active in the Netherlands for two years and have several other project developments that we are advancing, including a project where the Company has entered into a non-binding letter of intent to develop a waste-to-energy facility near Odiliapeel. The proposal is to develop a 2.7MW Anaerobic Digestion facility on the site of an existing manure fertilizer plant. The energy produced for the Blue Sphere anaerobic digester would be used to power the fertilizer plant.
Blue Sphere shall receive a preferred return equal to a 25% IRR prior to any other distributions to any other shareholders.
The proposed facility has already been granted a 12 year SDE subsidy for approximately €39.5 million. The SDE+ is an operating (feed-in-tariff) subsidy. Producers receive a guaranteed payment (subsidy) for the energy they generate from renewable sources (as opposed to funding for any equipment or services they need to make this production possible, as in the case of an investment subsidy). The contemplated facility would take approximately twelve months to build, post development phase.
Blue Sphere recently signed a letter of intent with a British developer to complete four projects in the United Kingdom, which, if completed, are projected to collectively generate 43MW of electricity and 56MW of heat. Each project will use pyrolysis as the waste-to-energy technology. The feedstock for two of the plants will be municipal solid waste, which will be provided by the operator of a separation and recycling plant, and the other two plants will use shredded tire waste, which will be sourced from five different suppliers. These projects already have certain permits and an EPC contract in place, as well as power purchase agreements with national utilities, including Northern Power Grid. We will provide further updates about this project at a later date if and when the project advances.
We have no certainty that any of the projects in our pipeline will come to fruition and delays in our industry are all too common, but we are pleased with the opportunities before us and optimistic that we will have additional progress to share in the months ahead.
Recent Financial Information
We thought it would be helpful to clarify certain items on our balance sheet of June 30, 2016, the most recent reported.
We want to point out that the current liability on our balance sheet of approximately $10.4 million in deferred revenues from joint ventures will be eliminated when our Rhode Island and North Carolina projects reach development completion. Once this occurs, the shareholder deficiency on our balance sheet will be eliminated.
The total number of shares issued and outstanding including shares issued in the subsequent events section of the June 30, 2016 10-Q is 261,376,552. The total number of Warrants outstanding is 57,302,668 with an average exercise price of $0.0928. The total number of Options outstanding is 778,761 with an average exercise price of $0.576.
I continue to be very proud of Blue Sphere's current portfolio of assets. We are proactively meeting with investors and presenting at investor conferences to help introduce the Company's success and potential to a wider audience. As the CEO of the Company, I firmly believe that Blue Sphere is much more than the current undervalued portfolio of cash flow-generating assets and will continue to introduce the Company to potential investors. Our pipeline, experience, relationships and execution show that we are a strong growth company creating attractive investments with long-term return potential.
I thank you for being part of the Blue Sphere story.
Shlomi Palas, CEO
About Blue Sphere Corporation
Blue Sphere Corporation is a diversified independent power producer that develops, owns, and operates clean-tech, waste-to-energy facilities in the United States and abroad. The company primarily converts organic waste into electricity, but also has the ability to generate heat, natural gas and organic byproducts through various technologies.
Blue Sphere facilities eliminate waste that would normally be disposed in landfills, reduce greenhouse gas emissions and protect water quality, helping to solve important global environmental issues. Blue Sphere is headquartered in Charlotte, North Carolina and has operations in the United States and Europe. For further information about Blue Sphere, please visit the Company's website: www.bluespherecorporate.com.
This press release contains certain forward-looking statements (within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995), which are subject to risks and uncertainties and may change at any time. Because such statements include risks and uncertainties, actual results may differ materially from those expressed or implied by such forward-looking statements. These statements are only predictions and involve known and unknown risks, uncertainties and other factors including, without limitation, (i) uncertainties regarding general economic and market conditions, (ii) uncertainties regarding changes in the clean tech sector, (iii) uncertainties regarding implementation of the Company's business strategy, and (iv) other risk factors as outlined in the Company's periodic reports, as filed with the U.S. Securities and Exchange Commission. As such, there is no assurance that the initiatives described in this press release will be successfully implemented or meet expectations. Forward-looking statements in this document speak only as of the date on which such statements were made, and we undertake no obligation to update any such statements that may become untrue because of subsequent events.
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SOURCE Blue Sphere Corporation