BIOMASS: THE PLACE TO BE
The global renewable energy industry is expected to reach more than $250 billion by 2017. Worldwide initiatives and government mandates including the 2009 American Recovery and Reinvestment Act are driving the implementation and utilization of renewable sources of energy and fuel. In addition, Europe’s use of biomass as a source of energy, which is led by France, is expected to rise tenfold in ten years. Global power generated from biomass, the most renewable energy source in the world, is expected to grow from roughly 1% 3 years ago to nearly 6% in 2035. The market value of electricity generated from biomass in the U.S. is steadily increasing to $53 billion by 2020, up from roughly $45 billion in 2010.
Bioenergy is considered renewable and sustainable since its source, biomass, is a replenishable resource as vegetative matter will grow when planted. Additionally, biomass energy recycles carbon dioxide during the plant photosynthesis process and uses it to make its own food. In comparison to fossil fuels such as natural gas and coal, which take millions of years to be produced, biomass is easy to grow, collect, utilize and replace quickly without depleting natural resources.
Source: WIH Resource Group
Using biomass power replaces the need to burn use coal to generate electricity. Additionally, the use of biomass power also reduces the need for oil to mine and deliver coal to distant power stations, thereby significantly reducing greenhouse gas emissions.
Cleantech Transit, Inc. is well-positioned to serve as an emerging player in the alternative, clean energy sector. The Company has focused its investments and expertise directly into power projects that will result in meaningful market share and economic value for its shareholders. The near term focus of the management is in the construction, operation, and in some cases, acquisition of alternative energy power generation plants, primarily in the biomass arena.
The initial project, slated to be launched soon, is a 500KW biomass plant in Merced County, California, in which the Company is a 40% partner with Phoenix Energy, which is providing equipment and some operational expertise as well. It should be noted that this project, in green energy-leading California is one of the first biomass projects of its kind in the state. The Merced County plant literally sits adjacent to a landfill making access to biomass feedstock high and costs of goods extremely low. Management has recently stated that it plans to add plants in the 1MW and 2MW size to its portfolio via acquisition along with the construction of other facilities.
The Company’s model is diverse yet straightforward. As the power stations produce green energy the Company will sell the power to the grid via a standard 15-year power purchasing agreement, such as the one it has in place for the CA-based biomass plant. As a result, as energy is generated, so is a consistent revenue stream. In addition, management may elect to sell the char, or the remains of solid biomass that has been incompletely combusted, to agricultural or other buyers, bringing EBITDA margins to the mid-teens, in our estimation.
The Company just announced that it has received a Letter of Interest from a United Nations Sponsored Intergovernmental Agency representing 28 member states to implement and operate biomass power plants. This agency would facilitate the creation of a public private partnership with CLNO to implement and operate up to 47, 1MW biomass power plants. This could be a huge opportunity for CLNO that places Cleantech Transit as a major player in the global, renewable energy and power generation provider, in one fell swoop.
Conversion from Biomass to Power
According to the U.S., Department of Energy, there are four primary methods of converting biomass to energy. The one that CLNO is using, known as gasification, is one of the most widely deployed in the industry.
Gasification is a chemical or heat-based process by which a carbon-based, high-caloric material such as municipal solid waste goes through a thermal transformation process in an oxygen-deprived environment in which it is converted into a variety of products: an inert ash, various chemicals, and synthesis gas. The images below provide a glimpse into both a typical facility and the roadmap CLNO will use to generate revenue, along with its partner Phoenix Energy.
Kenneth Bosket – President & CEO
K. Lowell Holden – CFO & Director
In our view, Cleantech’s biggest risk is the timing of signing deals or acquisitions of other facilities. A secondary concern would be the typical delays associated with long-term project financing and potential construction delays. Execution risks could push meaningful revenue generation out to a later date, or in a smaller initial ramp, thus impacting the Company’s revenue ramp or time to profitability. Competition from larger firms or even from newer entrants is a typical concern and is also consistent with firms of Cleantech’s size and standing.
Given its relatively low risk, recurring revenue strategy and clever tactical execution, we believe that Cleantech is a great way to play the renewable energy space. With an enviable signature and soon to be operational biomass power station in environmentally tough California, we expect a number of additions to be added to the CLNO power portfolio. As a result, we project that the Company will generate millions in revenue and a healthy profit on a recurring basis, which will only increase over time as more facilities are brought on line. Thus, growth will come both organically and through acquisition, giving CLNO meaningful market share in the space very quickly.
CLNO has significant, inherent advantages in the space, starting with its strategy and model, and the tremendous opportunity abroad, which is a credit to management’s vision. The stock is likely to be news-driven in the near-term, but a number of milestones, including new deals, should drive the stock higher as the Street begins to learn the story. We rate these shares Speculative Buy.
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Analyst: Robert Goldman
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