Active Energy’s Michael Rowan talks Lumberton progress and future plans
After a challenging 2018, Active Energy Group Plc (“Active Energy” or the “Company”) has kicked off this year with steady progress in its efforts to commercialise CoalSwitch its flagship alternative fuel product and its complimentary biomass operations. Here, the Company’s Chief Executive Michael Rowan updates us on construction progress at Active Energy’s new Lumberton production site and his plans for the firm’s future
Transforming biomass into efficient renewable fuels
Active Energy is a London-listed international biomass-based renewable energy and forestry management business. The Company’s principal offering is a proprietary technology called CoalSwitch, which transforms biomass material into high-calorific, high bulk density and hydrophobic biomass pellets. According to Active Energy, CoalSwitch is a leading drop-in biomass fuel that can be mixed at any ratio with coal or other waste biomass and has the potential to replace coal in existing coal-fired power stations, without requiring plant modification.
Unlike coal, the CoalSwitch pellets are produced primarily from forestry waste, other industrial cellulose waste products and other waste biomass, meaning they release far fewer harmful emissions (including Co2, Nox and Sox) than coal when burned. As a result, they can allow coal-fired power plant operators to fulfil their increasing environmental obligations without having to change the way they currently operate.
Primary Focus – Lumberton, North Carolina
Active Energy’s share price has sat below 1p throughout 2019 so far following a difficult 2018 that saw it fall from above 4p. However, recent months have seen the Company take some critical steps forward in its strategy to prioritise near-term revenue generation. Rowan hopes this will see the share price recover lost ground.
In March 2019, Active Energy announced that it had entered into an agreement with a private US business to acquire an industrial site in Lumberton, North Carolina, for c.£2.5m (the “Lumberton Site”). Active Energy bought the Lumberton Site, which covers a massive 415,000sqft of covered factory space and c.151 acres of surrounding land, to use it as the base of all of its US CoalSwitch and biomass operations. The Lumberton Site will house the firm’s first permanent production facility and has the potential for significant expansion. In the medium term Active Energy aims to employ up to 50 personnel as part of a project finance investment plan in Lumberton.
The Lumberton Site was strategically chosen and includes all the necessary ancillary facilities for CoalSwitch’s production, including compatible power supplies, water treatment facilities, an analysis lab and offices. Alongside this, Rowan says Active Energy was attracted to the Lumberton because of its location. Indeed, the Lumberton Site sits in the heart of North America’s lumber production region and is based near established export routes for sales of biomass and lumber to Europe and South East Asia.
‘A problem we previously had in Utah was that we struggled to ensure a ready supply of feedstock and have a centre with access to all requisite ancillary facilities. This has now been completely resolved with Lumberton,’ he says. ‘I think it is safe to say that, within a 50-mile radius, there is probably about 3 million tonnes of wood that we can instantly access and there are an estimated 1 billion tonnes of biomass in the whole of North Carolina. Meanwhile, the site is 60 miles away from Wilmington port that has modern handling facilities for pellets and biomass fuels.’
To fund the Lumberton acquisition, which completed shortly after being announced, Active Energy raised new funds through the subscription of Convertible Loan Notes (“CLNs”) by new and existing institutional investors based in the UK and the US. These CLNs have a maturity date of 15 March 2022 and accrue interest at 8pc per annum, payable quarterly in arrears.
Commencement of Operations at Lumberton
Following the acquisition of the Lumberton Site, Active Energy’s operations have got off to a solid start. Notably, the Company was awarded a US$500,000 building re-use and renovation grant for the site in April after receiving support from the North Carolina Rural Infrastructure Authority & Robeson County. The news was received warmly by the market, prompting a 24.3pc leap in Active Energy’s share price following the announcement.
Shortly after being awarded this grant, Active Energy announced that the test reactors required to produce CoalSwitch had arrived at Lumberton and installation on-site is commencing. At the beginning of June, the firm then confirmed that the delivery of all required ancillary equipment was imminent. Once this has completed, the company will get to work on constructing a five tonne per hour plant. It expects construction to commence in Q3 2019.
Alongside this, Active Energy will also construct weighbridges and other infrastructure items required for the handling of biomass and CoalSwitch at Lumberton. Finally, the business revealed that it had signed a five-year contract for the supply of up to 800,000 tonnes of feedstock a year to Lumberton.
With this momentum now in place, Rowan says he hopes that Lumberton can be production-ready in as short a timeframe as possible: ‘Our goal and focus is to get that plant up and running and producing CoalSwitch for delivery to customers by Q4 2019. We are moving as fast as possible.’
Moving forward, Active Energy expects the sheer scale of its Lumberton site to allow it to expand its initial plant by constructing additional biomass production facilities. With this in mind, the business is targeting the manufacturing capacity of up to 400,000 tonnes a year over the next two years through the creation of an integrated forestry-to-energy supply chain. Furthermore, Active Energy expects to create additional value from the Lumberton Site, with the addition of near-term commercial opportunities, such as complementary biomass production and saw logging.
Once production at Lumberton reaches its initial goals, Rowan expects Active Energy to move into EBITDA-positive territory. He adds that the business has already enjoyed significant interest from potential commercial partners in the US and in Europe that could further improve its commercial and financial position in the future.
‘We are working towards hitting that EBITDA-positive position,’ he says. ‘We have been actively marketing CoalSwitch and related biomass products to customers in the US, the UK, and Europe and there is a positive reception from prospective customers saying ‘I am really interested in this, I have never seen a black pellet be delivered in scale and I would really like to get a sample’. We believe the customers are there, they want to see this pellet produced, and they want to burn it and test it in their power plants. That’s truly encouraging and we are looking forward to delivering supplies of biomass fuels to them.
‘Meanwhile, we have also been approached by several commercial partners to work on developments of derivative biomass fuels. These could provide us with additional revenue streams. Once we are EBITDA positive, we expect a range of additional commercial options to become available to us.’
Image from recent operations on the ground for Active Energy
The author was remunerated but does not hold shares