Active Energy Group Plc (LON:AEG, OTCQB:ATGVF), the international biomass based renewable energy business, has provided an update on its commercial activities during H2 2022 and the Company’s ongoing strategy and goals for 2023
CEO Michael Rowan talks us through the 2023 Business Update.
Highlights
Ashland update
· Player Design Inc has commenced building of the future CoalSwitch® production facility at Ashland, Maine.
o Work on the new reactor designs completed.
o Component specifications for the CoalSwitch® manufacturing process, including liaison with various key component manufacturers in the US, completed.
o Delivery dates for the final components to the Ashland CoalSwitch® Facility are scheduled through Q1 2023.
· PDI is working with the State of Maine to finalise the requisite permit amendments to allow CoalSwitch® production to commence.
o These will complement PDI’s existing production operations at Ashland.
· PDI has informed AEG that it anticipates construction will be completed toward the end of Q1 2023 with first production volumes now being generated in Q2 2023.
· Initial CoalSwitch® production volumes targeted at a rate of 35,000 tons per annum, with the aim to increase this during 2023 toward an annualised production rate of 100,000 tons per annum utilising existing production equipment owned by AEG.
Marketing activities
· Sales teams established in the US and the UK during H2 2022.
· Commercial discussions for CoalSwitch® sales (including fuel testing) continue in a number of countries.
o Active discussions with 17 prospective CoalSwitch® customers.
o CoalSwitch® test samples have been delivered to 8 prospective customers.
· Prospective customers range from power generators, pulp and paper operators and cement producers in the US, to established domestic heating fuel pellet suppliers in the US and internationally.
o CoalSwitch® samples provided to three European utilities for evaluation.
o Letters of Intent signed in the UK for future CoalSwitch® sales with a number of prospective customers in the biomass heating fuel market. Initial amounts under LoIs total over 3,000 tonnes, with fuel deliveries to commence in Q2 2023.
o In the US, first CoalSwitch® fuel order from Carolina Stalite, an aggregates producer based in North Carolina, has been received.
· Increasing commercial interest in the production technology for CoalSwitch® should lead to complimentary future revenue opportunities for both Active Energy and PDI.
Additional accreditation activities
· In December 2022, Karbone Inc. completed a full US and Canadian analysis on the economic opportunities for CoalSwitch®.
o This analysis concluded that CoalSwitch® will qualify for a range of incentives and benefits in the US.
o These benefits can either reduce CoalSwitch cost to customers (in the form of rebates/incentives), or drive additional income streams to AEG in the form of carbon credits on the voluntary carbon market.
· Trademark filings for CoalSwitch® brand currently being completed in Canada, Europe, UK, and Japan.
Michael Rowan, CEO of Active Energy, commented: “2022 was an extremely productive year for Active Energy. Through PDI, the program to build CoalSwitch production has made important progress. The production processes have been finalised to enable scaled production at the Ashland CoalSwitch® Facility in greater volumes than originally anticipated and AEG’s goal is now to commence fuel deliveries during Q2 2023.
“Throughout the year AEG has been able to accelerate its marketing activities and has delivered test fuel samples to prospective clients worldwide. CoalSwitch’s® performance superiority to existing biomass fuels is being consistently demonstrated through its testing program. The environmental benefits of CoalSwitch®, particularly when co-fired with coal, are also being confirmed. AEG is developing a long-term customer pipeline for deliveries beyond 2023 and the first CoalSwitch® LoI’s from the UK and recent order from the US just represent the start of this process.
“AEG’s prime focus will remain on generating long-term supply contracts whilst PDI complete the construction and operation of the forthcoming Ashland CoalSwitch® Facility. We look forward to establishing CoalSwitch® as the market standard for next generation biomass fuels in the coming years.”
Development of the Ashland CoalSwitch® Facility and future CoalSwitch® production capability
PDI has been progressing the future CoalSwitch® production operations at Ashland throughout the second half of 2022. PDI has also led the redesign and configuration of the revised production reactor to re-establish CoalSwitch® production.
Manufacture of the key components required to build the Ashland CoalSwitch® Facility is well underway, with key delivery dates through Q1 2023 finalised. PDI has informed the Company that it is confident that the construction of the Ashland CoalSwitch® Facility will be completed during Q1 2023, slightly later than previously anticipated. Nonetheless, CoalSwitch® is expected to be available for delivery to prospective AEG customers in Q2 2023. Initial production volumes are targeted at a rate of 35,000 tons per annum, with the aim to increase this during 2023 toward an annualised production rate of 100,000 tons per annum. The Ashland CoalSwitch® Facility will utilize existing production equipment owned by AEG and currently situated in Maine to accelerate the increase in production capacity.
PDI is working with the State of Maine to finalise the relevant permissions to allow operation of the new CoalSwitch® production facility in line with its existing production operations at Ashland. The Ashland CoalSwitch® Facility will also allow AEG and PDI to demonstrate an operational CoalSwitch® production facility to customers, prospective production joint venture partners and technology licence partners, both in the US and internationally.
Sales activities by AEG through H2 2022
During H2 2022, and in particular Q4 2022, AEG saw a substantial increase in the number of commercial enquiries for CoalSwitch® fuel. This reflects both increasing market interest for an improved biomass pellet, assisted by changes in environmental regulation in the US, and continuing market supply issues requiring alternative long-term sources of biomass supply. A number of prospective customers have informed the Company that they wish to visit the operational Ashland CoalSwitch® Facility at the earliest opportunity, once operational, to confirm their long-term commercial interest in CoalSwitch®.
AEG has established sales teams in the US and in the UK with the goal to build a sales pipeline of customers. In the US, the Company’s sales team already has established relationships with coal consumers in the pulp & paper, cement, aggregate and power industries. Many of these prospective customers have requested and already received CoalSwitch® fuel samples and have undertaken their own analysis on the fuel.
In the UK, AEG’s initial sales activities have focussed on the biomass heating market. Activities to date have resulted in signed LoIs from a series of UK based customers amounting to over 3,000 tons of CoalSwitch® for deliveries commencing in Q2 2023. AEG is confident that orders from this sector in the UK will continue to increase through 2023. The recent US order from Carolina Stalite, an aggregates producer based in North Carolina, reflects not only an underlying wish to use the fuel to co-fire with coal but also a wish to access the CoalSwitch® production technology once completed.
As well as increasing commercial interest from the US and the UK, international enquiries continue to expand. In Asia, active commercial conversations continue in Japan and regulatory approval process for the use of CoalSwitch® in Japan has commenced. The Company has also entered into discussions with several Japanese partners, including large scale utilities and financial institutions to examine the long-term commercial opportunities for the fuel in Japan.
In Southeast Asia, following the award of the patent in Malaysia in June 2022, additional commercial enquiries have also been received from other countries in the region. Finally, interest from customers in Southern Africa has commenced, primarily for production licenses for the CoalSwitch® technology in the region and for CoalSwitch’s® future potential as an alternative or complimentary fuel to coal.
Quality assurance & test program for CoalSwitch®
To date, CoalSwitch® has consistently demonstrated its premium heating value and environmental benefits. The testing program has focused on the underlying proprietary and performance metrics of CoalSwitch® itself and the co-firing properties, as a blend of coal and CoalSwitch®, which could be used in industrial furnaces and power generators.
In H2 2022, AEG completed a series of independent laboratory analysis of the fuel in the US, the UK and Europe using its remaining stocks of CoalSwitch® (produced at the Ashland in 2021). Additional samples of CoalSwitch® were delivered on a regular basis throughout H2 2023 to potential customers for further analysis. To date CoalSwitch® samples have been consistently demonstrated its premium heating value compared to existing biomass pellets and confirmed the positive environmental benefits of co-firing coal with CoalSwitch®.
The Company continues to work with Brigham Young University and the University of Utah on further co-firing test opportunities and developing a new test program for 2023 using new production volumes from the Ashland CoalSwitch® Facility. In the UK, CoalSwitch® fuel was delivered in August 2022 for independent testing and analysis by prospective customers requiring an enhanced heating biomass pellet fuel. The goal of these tests is to ensure that the CoalSwitch® fuel meets the regulatory ENplus A1 standards to permit sales not only in UK, but also throughout Europe. AEG is currently looking to complete final analysis as soon as new CoalSwitch® supplies are available.
Fuel samples have been analysed by prospective customers in Europe, Japan and Southern Africa during H2 2022. The quality assurance program will accelerate when new supplies of CoalSwitch® become available in Q2 2023.
Additional environmental accreditations for CoalSwitch®
In November 2022, AEG appointed Karbone, a financial services platform focussed on renewable energy and decarbonisation markets, to analyse the value of CoalSwitch® in its future use. The Karbone analysis report was completed in December 2022 and demonstrated that the consumption of CoalSwitch® creates opportunities for subsidies in the US and Canada in terms of renewable energy credits (RECs) and regional greenhouse gas (RGGIs) credits and the creation of carbon credits marketable in the Voluntary Carbon Markets (VCM).
In addition, the Karbone report shows that CoalSwitch® could qualify for significant subsidies from individual US states of up to $90 per ton in consumption which makes our fuel cost competitive with coal and which will open up some credible new commercial opportunities for CoalSwitch® in the US and Canada. This analysis is currently an important component in ongoing commercial conversations with power generators in US and Canada.
Financial update
Having completed the sale of the Lumberton site in Q2 2022, AEG received net proceeds of $3.9 million, as reported in the Company’s interim results announced on 28 September 2022. As of 31 December 2022, AEG’s cash balance was in excess of $2.5 million, which allows the Company to fund itself in the near term as production and sales activities for CoalSwitch® accelerate in H1 2023.
Lumberton litigation update
In addition to former operational issues at Lumberton, AEG had received a series of legal challenges from the Southern Environmental Law Center (the “SELC”), based in North Carolina, during 2021 and 2022, regarding alleged operational permit breaches from an existing wastewater treatment plant located within the facility, details of which have been previously announced. In November 2022, the North Carolina Department of Environmental Quality confirmed in writing that, during AEG’s ownership of the Lumberton site, AEG had been in full compliance with existing applicable permits and all procedures had been correctly complied with.
In the light of this, AEG continues to wholly refute all of SELC’s claims relevant to this or any additional claims. Based on the legal advice that it has now received, the Company strongly believes that there is not, nor has there ever been, any merit in any of the SELC’s claims and allegations made against AEG and its subsidiaries and AEG will now examine the various legal forms of redress against SELC.
Outlook
Active Energy has a number of key milestones to achieve in 2023. These include working with PDI to allow it to commence production of commercial volumes of CoalSwitch® at the Ashland CoalSwitch® Facility and for AEG to deliver fuel to prospective customers. With an operational facility at Ashland, PDI and AEG will finalise the path toward expansion of CoalSwitch® production volumes throughout the US with the construction of additional production facilities in the US and establish CoalSwitch® as the market standard for next generation biomass fuels in the coming years.
