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Manufacturing Facility, Capital Cost Planning

Posted by Matt in General - July 08

Now that more new ventures are developing cutting edge technologies, instead of software, capital costs are becoming a significant percentage of a start-up’s funding. Investment firms and government grantors are requiring more thorough capital cost evaluations for establishing manufacturing facilities. In particular, companies such as clean tech start-ups working in biofuels, photovoltaic production, energy storage, and green materials manufacturing can have significant initial capital costs and therefore must provide detailed explanations of both capital costs and the overall plan to bring their product to pilot scale manufacturing. We’ve worked with many government and VC funded clients (including Itaconix and Anellotech) on these comprehensive project proposals. By helping our clients develop their scale up plan, these clients have gained access to vital funding.

Key information outside funding sources are looking for:

A clear process narrative with a good level detail
A capital plan for all stages of manufacturing
A realistic schedule to reach commercialization for pilot production
Project plan that includes where you plan to build and subcontractors you plan to work with
Proof that you are working with an engineering firm with requisite experience

Venture capital firms and the government have similar concerns regarding what they need to see in these capital cost plans. In addition to detailed manufacturing processes and capital estimates funding providers want to see market research, industry demand, and economic forecasting to demonstrate not only how the company plans to manufacture their product, but also the need for it and why they have chosen a particular volume. These factors affect the size of the facility, the urgency with which they need to build it out, and thus the level of investment in capital costs the company actually requires.

A good example of the higher level of detail funding sources are requiring is the response the DOE had to a photovoltaic manufacturer’s application for funding. Specifically, the DOE had the following concerns:

Capital cost plans for the Photovoltaic manufacturing facility showed a lack of analysis of the demand and therefore made it unclear if the output of the proposed facility was appropriate.
Other operating factors such as stages of commercializing their product and a more thorough description of the technology were also lacking in detail.

Another common mistake start-ups can make is to simply use a generic multiplier to estimate costs. This type of estimating can result in very inaccurate budgets. And once your funding source realizes you have used this method of calculation, they will likely question your entire plan or request a more realistic budget.

Most experienced engineering firms know that the best way to arrive at a realistic budget is to develop preliminary scope documents that can be used to develop preliminary bids with vendors and subcontractors. A capital plan based on actual bids is far more likely to withstand scrutiny than one developed using a multiplier. Combining these other strategic elements of a business plan with the detailed manufacturing plan and capital cost planning can help win over most funding sources. And by hiring an engineering firm with experience in creating these capital cost plans for companies working in emerging technologies, these companies can gain the funding and investment they’re seeking much faster.

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The Value of Early Engineering

Posted by Jennifer in General - April 30

Clients often question us about our unique approach to executing design/build projects. Specifically, they question the value of the preliminary design package (Design Basis Report) we create very early in the project, typically for a small fixed fee. It’s not that we’re adding extra cost to your project, or trying to differentiate ourselves in some artificial way from the competition. It actually comes from our understanding that a round of preliminary engineering makes everyone much happier in the long run.

By happier I mean that SPEC and the client are on the same page from a much earlier point in the project. We, the engineering firm, have a better understanding of the client’s needs, and the client has a much better idea of what they’re getting at the end of the project. It’s really a win-win situation, and if you’ve executed any type of manufacturing or industrial process project, you can probably appreciate our approach.

Specifically, the Design Basis Report gives the client some very real benefits:

Ensures the client and SPEC are the same page for everything: project scope, deliverables, schedule, and budget (before the client has spent a lot of money having detailed engineering done).
Reduces permitting time because the preliminary design documents can be submitted early, as a preview, to the town (avoiding nasty surprises later on). It also lets potential permitting issues be worked out during detailed design, not after it’s already been completed.
Saves the client money because they know exactly what they’re getting early on, and they don’t have to waste money changing construction level drawings when they realize the scope isn’t what they wanted.
Potentially reduces the schedule by allowing the SPEC to identify and order long lead equipment, if the client agrees.

So the overall benefit of Design Basis Report is a better executed project. Clients find that it requires much less effort on their part to ensure that budget and schedule parameters are met, and the result is a successful project.

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Case Studies on Air Emissions Control Technologies

Posted by Jennifer in General - April 02

SPEC has worked with several clients in their efforts to comply with EPA regulations. We have supported our clients in various capacities from providing calculations for permit applications to actually evaluating control technology and installing it at the client’s site.

Some case studies are below:

One client who had already hired an environmental consultant to help prepare their emissions permit as part of their expansion project, when SPEC was brought on to provide calculations and emissions estimates as well as documents to estimate the size and specifications of the control technology required. During the evaluation, it was determined that although the client had already implemented scrubbing technology for their ammonia emissions, their expansion would increase the levels of ethanol which would need to be controlled by a regenerative thermal oxidizer. After helping provide the emissions documentation for the application, SPEC installed the regenerative thermal oxidizer on site to bring the client into compliance.

Another client who hired SPEC for a relocation and process expansion project, for which they knew there would be some emissions to address but hadn’t yet defined the scope of what the emissions were (toluene, acetone, and methyl ethyl ketone (MEK)) or how to control them. While they were investigating their emissions, the client found out they fell under a regulation that required them to perform a BACT (Best Achievable Control Technology) analysis – to determine not only the technology that would control the emissions best, but would also be cost effective (i.e. reduce how many tons of emissions/dollar spent). SPEC helped the client perform the BACT analysis, supplying the calculations and then recommending the technology that best fit with the BACT guidelines.

A client who had been fined by the DEP and were told they had to take action to reduce their emissions. They already had a scrubber in place to control their process emissions; however, they were required to install a control technology to reduce their emissions further. They chose a regenerative thermal oxidizer because they couldn’t recycle the air in their facility, so when they discharged the emissions they were also losing the heat that was in their air. Installing a regenerative thermal oxidizer allowed them to pass the air with their emissions through it so that it burned off the emissions and then discharged “clean” air while also retaining the heat in their facility so that it isn’t wasted. SPEC specified and purchased the RTO for the client as well as completed the design and installation of the associated HVAC system improvements.

Companies establishing new plants or modifying their processes should always err on the side of caution: installing control technology, such as, a thermal oxidizer preemptively, before high levels of toxic emissions are produced. Although EPA regulations and state environmental regulations are often confusing or difficult to implement, the alternative of a fine plus required compliance with regulations means that it is almost always more cost effective to implement the control technology during an expansion, renovation, or change to a manufacturing process.

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Rhode Island Business Incentives, Part 2

Posted by Bob in General - January 27

SPEC has built several large manufacturing facilities for clients in Rhode Island, one of whom received a grant to locate their new facility in the ocean state.

Aspen Aerogels contacted SPEC to build their new facility in Rhode Island after receiving $5 million in government aid to build their $30 million facility. The employment opportunities that this project afforded the state, in combination with Aspen’s status as a green manufacturing company, awarded them other considerable financing and tax reductions as well.

SPEC’s other work in Rhode Island includes:

Creating a specialty coating manufacturing facility for Arkwright, 5,000 sq ft with a $4.7 million budget, including:

Complete design/build of facility up to performance specifications
Blast resistant/relief construction, Class I, div. I & II due to solvents used
Completing project on strict time schedule and according to budget

Finding a new location for DSM Neosol’s RI manufacturing plant and upgrading their entire polyurethane manufacturing operations, including:

Complete design/build of facility up to performance specifications
Assisting with relocation, building out office and laboratories at new location
Working with local authorities and environmental consultants to obtain permits

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Rhode Island Business Incentives Explained, Part 1

Posted by Bob in General - January 13

Rhode Island currently offers a number of incentives for businesses to build manufacturing facilities in the state. Grants and tax breaks for certain types of businesses are available under the following building incentive plans:

Rhode Island Industrial Facilities Corporation

Gives un-taxed revenue bonds of up to $20 million to manufacturing businesses, primarily to green and high tech manufacturing businesses (renewable energy solutions, advanced materials, etc.)

Enterprise Zone Business Tax Credit

Companies located in the “enterprise zone” that build employment opportunities by 5% each year are eligible for state funding

Rhode Island Economic Development Corporation (RIEDC)

Supports a Renewable Energy Fund (REF) that this year has distributed $681,875 in grants to 17 local projects that will increase employment in green technology and green energy industries.
Offers companies that have been designated “Project Status” construction (new facilities approved by RIEDC, with company wages 5% above average) and companies that use state offered bond financing programs exemptions from sales tax on machinery, materials, equipment, and other supplies purchased for facility use.

Job Development Act

Businesses that can offer new employment opportunities for three years in a row are eligible for reductions in corporate income taxes, reductions persist as long as same number of jobs is maintained; amount of tax reduction proportional to number of jobs created.

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SPEC Works with NY State Funded Start ups: Part 2

Posted by Jennifer in General - December 16

With so much available funding from the state government, many businesses are now able to build new or retrofit existing facilities in New York State. For many small to mid-sized companies, these grants have allowed them to begin their first demonstration or commercial-scale building project. Determining the best course of action, however, can be a daunting task for these companies attempting to scale-up.

Some common pitfalls:

Failing to hire an engineering company that has all necessary disciplines in-house: Too often, companies have to hire more than one engineering firm to complete a project because most firms don’t have engineers versed in all disciplines. For new companies, having an all-inclusive engineering service keeps the design-build process organized, efficient, and cost effective.
Neglecting to hire a company that has performance, not just mechanical, completion written into the building contract: Young companies often don’t realize that their construction contract is for mechanical completion only (i.e. if the project is built according to the drawings but the process doesn’t work, it’s the client’s responsibility to fix it, not the contactors’). Building to performance completion ensures the final responsibility rests with contractor.
Not ordering long lead equipment and obtaining local permits in early project phases: The time it takes to complete these crucial tasks is typically under-estimated; failing to order long lead equipment early on and obtain local building permits can halt project progress, ultimately postponing project completion.

SPEC Process Engineering & Construction is a design/build firm that can help companies avoid these pitfalls.

SPEC specializes in working on projects that are companies’ first substantial scale up and understands the specific needs of these projects
SPEC’s design/build process can streamline the schedule by ordering long-lead equipment early, securing early permitting, etc.
SPEC is the single point of responsibility for the entire project: engineering, construction, and start-up
SPEC contracts to performance, not just mechanical completion

Projects Receiving State Funds Completed by SPEC:

SPEC was commissioned by a confidential client, initially, to provide process engineering guidance for a fermentation section of a pilot scale, cellulosic ethanol, R&D line. SPEC’s involvement soon expanded to include:

A full pilot-line design
Procurement, delivery, and installation of skid based plant modules
Purchase of long lead equipment to meet the client’s ambitious deadline
Successful supply all the utility systems and piping, final check out, and commissioning and start up of the facility

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New York State Incentives Explained: Part 1

Posted by Jennifer in General - December 10

New York State’s robust business incentive programs make it an ideal location for green manufacturing and industrial businesses, and recently has attracted some of the industry’s key players. Below is an outline of some of the Empire State’s incentives:

Manufacturing Assistance Program (MAP) provides:

Grants of up to one million dollars to manufacturers locating companies in the state that will employ fifty to one thousand employees

Requirements for MAP:

Transform materials through mechanical, chemical, or physical means into new, value-added products
Export 30% of their goods beyond their region
Use environmentally friendly processes

Overlapping requirements for companies benefitting from MAP and New York State’s Industrial Effectiveness Program (IEP) have further encouraged the growth of green technology in NY State industrial business. New York State is motivating these businesses to use green technology in order to receive a high level of funding.

IEP Funding provides:

50,000 dollars in government assistance to identify, develop, and implement improved management and production processes

The Empire Zone program has been another driving force of business growth, giving incentives to businesses located in these zones that will create new jobs or beneficial investments.

Benefits for zone certified companies include:

Tax credits for equipment mainly used in manufacturing, processing, assembly, industrial waste treatments, air pollution-control facilities, and R&D or financial institutions
A state sales tax refund for materials purchased and used in construction, expansion, or rehab of industrial or commercial properties
Reduced energy costs for new facilities

Mascoma is a prime example of how New York State programs have brought green, high tech facilities to the state. Mascoma creates cellulosic ethanol from non-food alternative energy sources from the material found in the cell walls of plant fiber.

Their feedstock is often considered a waste or by-product, consisting of woody substances such as switchgrass. This is a characteristic of all cellulosic ethanol that makes it an economically attractive fuel source. As a requisite of their large state grant, Mascoma must create ten to fifteen jobs over the next three years in high-paying, high tech positions.

Mascoma received extensive state grants to build this biorefinery, including:

Tax refunds under the Empire Zone plan
Capital from biotechnology state funding
$14.8 million in funding from the state budget allocated to the development of cellulosic ethanol-- this funding is part of a larger initiative promoting the development of high technology industries like biotechnology, which are expected to be a major source of economic revenue in years to come.

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SPEC Process Engineering: Thoughts on a Better Project Approach

Posted by Jennifer in General - November 06

If you’ve been in the industrial or facilities side of the world for a while, you’re probably familiar with the headache that starts about the time you find out you have an expansion or maintenance project coming up. You don’t have time to make sure the engineers and architect coordinate their work or to babysit the subcontractors while they’re working on site. More frustrating is that even if you wanted to hire someone to manage your project, most of the big industry players wouldn’t look twice at your “small” (read: under $20 million) project.

All that being said, it doesn’t mean engineers haven’t figured out ways to solve some of these problems. Based on the experiences of engineers and clients, the following ideas have emerged as good rules of thumb for managing your process engineering project.

Find an engineering firm that has your project’s key disciplines in-house, including mechanical, electrical, controls, and process engineering. Some firms even have an architecture department that specializes in damage limiting and industrial construction.
Make sure your contract designates a single point of responsibility for ALL areas of a project, all the way from design, permitting, procurement, construction, to start up. This helps ensure you’re not left holding the bag with subcontractors, etc. after the job is finished.
You can often “expedite” a project by using preliminary design drawings to specify and order long lead equipment, start early permitting, and work with local authorities to ensure there are no surprises down the road, all before the final construction drawing set is complete.
Use a firm that employs their own site superintendents and site engineers who can work with the subcontractors to make sure equipment is handled and installed correctly and who can work out any design issues as they occur.
Write your contract to include performance, rather than mechanical completion; this will ensure that your plant is running according to your specifications by the time the job is complete.

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New Blog Launched for SPEC Process Engineering & Construction

Posted by Jennifer in General - September 04

SPEC Process Engineering & Construction would like to announce the launch of our new blog. Contributors will include all of SPEC\'s engineers from disciplines including process, mechanical, chemical, electrical, and controls. Topics will include useful tips as well as solutions and lessons learned from specific projects. We hope that our wide range of experiences will provide a helpful resource to our readers and we look forward to your comments and questions.

SPEC Process Engineering & Construction