Below is an op-ed from Michael Rowan, chief executive of Active Energy Group.
In the wake of the historic devaluation of Enviva (NYSE:EVA) resulting from its third-quarter financials, many shareholders have reached out to me with one simple concern: are the challenges facing Enviva company-based or industry-wide?
I am not an executive at Enviva so it would be inappropriate to comment specifically on that company’s issues, but I tell my shareholders that demand for clean energy has never been stronger.
According to the International Energy Agency (IEA), “modern bioenergy is the largest source of renewable energy globally today, accounting for 55% of renewable energy and over 6% of global energy supply”. The IEA defines modern bioenergy as “a source of energy from the organic material that makes up plants, known as biomass”.
RED III strengthens criteria
Indeed, earlier this year the European Union agreed to update the Renewable Energy Directive (RED III) to strengthen sustainability criteria for biomass energy. In the United States, federal legislation including the Inflation Reduction Act and state legislation incentivising the use of clean fuels also recognize the benefits of biomass energy.
Collectively, these developments (among others) are why bioenergy has increased on average by about 3% per year between 2010 and 2022 and continues on an upward trend, according to the IEA, which projects a rapid increase in the use of bioenergy to displace fossil fuels by 2030 in its Net Zero Emissions by 2050 (NZE) Scenario.
So, if demand isn’t the problem, what is?
The problem is that today’s white pellets – produced by Enviva or anyone – are not capable of delivering on the level of performance, sustainability and compatibility needed to be a truly transformational energy source. We’re simply asking too much from a fuel that has a lower energy density, does not work in existing equipment and whose lifecycle sustainability is increasingly being questioned.
If countries, industries and companies are to meet their stated goals and pledges for rapid CO2 emissions reductions they will need a high-performing, verifiably carbon-reducing and capital expenditure (CapEx) light solution.
We believe that solution exists in our CoalSwitch product. Made from lumber mill waste and other residuals, CoalSwitch reduces CO2 emissions on a lifecycle basis by more than 90% compared to coal. It has been shown to burn nearly as hot as coal (93%) and can be blended at any rate without modifications to equipment or fouling. Best of all, there is no CapEx, and users start reducing CO2 on Day One after fuel delivery.
Let's talk about coal
Lest you think this is all about CoalSwitch, let’s spend some time talking about coal. Our UK readers will know it’s already been banned in the UK. And whilst the US is gradually phasing out coal, the country still burned about 513 million short tons (MMst) in 2022. We all know about China’s use of coal (at more than 4 billion MMst in 2021 it’s the largest), but even economies like Vietnam (where 47% of energy is currently coal-fire-powered) will remain heavily dependent on coal for some time to come.
But coal doesn’t just provide grid power. In many cases, it powers heavy industry, like cement, steel, pulp/paper and others. Companies in these industries have onsite coal boilers and/or furnaces (depending on need). In the US, according to the Energy Information Administration (EIA), the industry consumed about 51 MMst of coal in 2022 – about 10% of national consumption.
These coal users all have something in common – they are extremely price sensitive either because they have contracts (utilities) that mandate rates or are in extremely tight-margin industries (steel, cement). None have the luxury of being able to invest millions in new equipment or carbon capture technology (not to mention they can’t afford downtime for the changes).
So, if the goal is rapid decarbonization, any solution must be cost-competitive, easy to integrate and must have impeccable “green” credibility.
We believe the fastest way to help decarbonize the power sector and other hard-to-abate industries is by innovating our technology platform to utilise a wider set of feedstocks to produce a wider array of products in a wider set of geographies. Here’s how.
Feedstocks
One of the “knocks” on energy derived from biomass is that the carbon accounting doesn’t add up: that using whole trees releases more carbon than planting new ones absorbs. We avoid this conundrum by only using waste forest biomass and lumber residuals today. We’re taking steps through our own intellectual property as well as through partnerships and technology licensing to further evolve our platform to not only use any kind of wood, but anything that contains lignin. This allows us to continue to deliver on our sustainability commitment.
Products
By incorporating pre-treatment systems into our production platform, we can be increasingly agnostic of feedstock sources and have much greater control over the carbon content of the resulting fuel, enabling CoalSwitch to be used in everything from a coal substitute to a coal coke substitute. We can also tune the production process to manufacture biocarbon for customers seeking a sustainable, organic fertilizer that fixes carbon in the soil. Last, we are currently exploring markets for additional by-products, such as syngas, of the proprietary pre-treatment process.
Geographies
Our core technology has been proven at a commercial scale as part of our first demonstration at the Ashland reference plant in 2021. Its modular design, which leverages “off the shelf” equipment, allows it to both operate a small and large scale. This flexibility is important for three reasons. First, we can locate our plants near feedstock availability; second, we can scale the size of the plant relative to available feedstock; third, our plants can be located at/near end-user customer locations.
These innovations will enable Active Energy Group PLC (AIM:AEG, OTCQB:ATGVF) to meet our customers “where they are” with a fuel that reduces lifecycle emissions and a host of other pollution; that works with existing equipment and infrastructure; and can be deployed quickly.
Although the spotlight is shining on Enviva, it’s really the entire biomass industry that will feel the heat as customers increasingly demand a clean energy solution that is affordable, verifiably sustainable and scaleable.