Wasabi Energy: Green investment with a kick

John Byrne made a fortune for investors by developing Western Coal, which he sold to Walter Energy for US$3.3 billion earlier this year.

Said quickly it sounds quite easy. Of course it wasn’t. He spent US$500 million building six coal mines in the US, Canada and the UK, and of course considerable time and energy, creating a mid-ranked corporation from the junior market upstart Cambrian Mining.

In December last year Byrne came to AIM with his latest venture, Wasabi Energy (LON:WAS, ASX:WAS), and his backers will be hoping he can repeat the success of Western Coal.

Many of those investors - outfits such as Audley Capital, Artemis and Blackrock – could have been culled straight from the Western Coal share register.

And this is a huge endorsement of Byrne and his ability to make money.

Yet Wasabi is as far away from coal as you could possibly get - it is focused on green energy.

Its main operating business, a company called Global Geothermal Limited (GGL), designs Kalina Cycle power stations, which operate at much lower temperatures than traditional Rankin Cycle plants, which require superheated steam of around 200 degrees centigrade.

It means electricity can be generated using waste heat and natural heat sources such as volcanic springs.

It is a cheap source of electricity as it costs US$1.5 million per megawatt to build a Kalina Cycle generator compared with US$2 million per megawatt for a traditional coal-fired plant.

But where the coal-fired plant requires fuel, the Kalina Cycle system does not as it is recycling heat.

This may be excess heat from a cement factory, oil refinery or steelworks. In fact they are the three markets the Wasabi unit GGL is targeting.

There are demonstrable savings of up to 30 per cent off the electricity bill where a Kalina Cycle plant is installed.

It means the average payback on the kit is around two years. However the model is only really sustainable at a price above 10 cents per kilowatt hour.

Even so there are plenty of opportunities out there. But to gain access to the oil refineries, steelworks and giant cement operations, GGL has teamed up with companies such as FL Smidth and other major engineering companies who are involved in maintaining and installing the capital equipment used in these giant operations.

“We are targeting a big installed base,” Wasabi director Stephen Morris told Proactive Investors.

“We have a first cement plant in Pakistan where they are trucking the fuel and electricity is costing 30 cents per kilowatt hour so payback is in months rather than years.”

It has taken a decade of work and tens of millions of pounds to prove up the technology to the point where it can be marketed, sold and crucially is trusted by the end user.

In fact it was first tested in the 1990s by GE and Siemens, which became two of the first licensees. The problem at this point of course was that power prices and oil costs were low, while the pressure to reduce carbon emissions didn’t exist as it does today.

“The great thing about our technology is that it has been tested in the market for 10 years now, which is the minimum period of time needed to become accepted technology in the power business. In many countries Kalina Cycle plants are now economically viable without subsidies,” Morris adds. 

Japan became an early champion of the technology and today provides a mouth-watering opportunity to grow the business. 

GGL will make its money in two ways. The first income stream will come from designing plants and licensing the technology. The company also wants to be an independent power producer.

There are several ways it might fund this. It has around $13 million in the bank following the IPO and a fundraising in February, while it might also sell its 50 per cent stake in Australian Renewable Fuels worth around $16 million at the current market prices.

Anything more ambitious will be done via project financing which means investors don’t have to worry about being diluted out of sight. 

 “If tomorrow we were to add 20 megawatts on our own balance sheet – that’s $30m – we might sell our shares in ARW,” Morris reveals.

“But if we have a more significant project, then we may look for investment at the project level.”

The stake in AR Fuels was an opportunistic acquisition done after the company hit difficulties after running out of cash.

"It’s not really a scaleable business model buying biodiesel plants for one cent in the dollar,” Morris concedes.  “At some stage it (the ARF stake) will be sold giving $15-20 million of cash to the business.”

The other leg of the Wasabi business is Aqua Guardian Group, which has come up with an innovative means of preserving water in arid climates and where it invested $3 million for a 50 per cent stake.

It has invented a hollow plastic device 1.6 metre in diameter, which looks like a giant bin lid and half fills with water.

One on its own has precious little impact on evaporation, but when there are hundreds covering a lake, it cuts the losses to the sun’s rays by 90 per cent.

It is cheaper than the current solutions – plastic sheets and a rather messy oil – not to mention, easier to use.

The potential of Aqua Guardian shouldn’t be under-estimated. “This thing costs $300,000 per hectare to deploy and we make $100,000 per hectare profit on it,” says Morris. “We should have our first significant commercial order soon.”

 However the real value generator is likely to be Global Geothermal. And don’t underestimate the ambition of Byrne and his team. 

"John isn’t building a small company here," says key lieutenant Morris. “He is talking about having a significant installed base inside a few years as well, which will allow him to build up a company the size of Western Coal.”