Active Energy Group plc (LON:AEG, OTCQB: ATGVF), a producer of sustainably-sourced, energy-dense clean carbon products and technologies, has announced its unaudited interim results for the six months ended 30 June 2023.
HIGHLIGHTS
Operational highlights
· Added industry skills and significant experience to senior leadership team in the US driving the future growth of the Company:
o In March 2023, appointment of Steve Schaar as Chief Operating Officer for the Group to focus on the specific development of CoalSwitch® production facilities in the United States and Canada.
o In July 2023, appointment of Barron Hewetson as Chief Technology Officer to focus on the future development of CoalSwitch® products and production methods.
· Continued focus on increasing the intellectual property (“IP”) portfolio with Patents and Trademarks for CoalSwitch® awarded in the US, Canada, Europe (including the UK) and additional trademark applications have commenced in the US and throughout Asia.
· Accelerated the development of CoalSwitch® product types and manufacturing methods to meet future customer demands for sustainably sourced, energy-dense clean carbon products.
· Developed commercial relationships to provide a shortlist of new potential commercial partners and locations in the US and worldwide for additional CoalSwitch® production.
· Continued development of sales pipeline with a strategic focus on certain industries for the future use of CoalSwitch® production.
· Progressed towards first production of CoalSwitch® via confirmation that permits were granted in May 2023 to Player Design, Inc (“PDI”) through its associated entity Player Holdings, LLC for the construction and operation of a CoalSwitch® reference facility in Ashland, Maine (the “Ashland Reference Facility”).
· PDI has confirmed that first production of CoalSwitch® is targeted to commence in November 2023 at the Ashland Reference Facility.
Financial highlights
· Operating loss from continuing operations of US$1.6 million for the period (H1 2022: US$1.3 million).
· Net cash position of US$1.2 million (H1 2022: US$3.9 million).
Post period end activity and Outlook
· The new management team has been actively developing new production partnerships in the US and internationally with the aim to expand CoalSwitch® production volumes.
· Active Energy has been developing new opportunities for CoalSwitch®, both in terms of future derivatives of CoalSwitch® fuel and improved production processes, as the Group focusses on larger scale production goals for CoalSwitch® fuel by 2025.
· PDI’s confirmation of the additional delays toward production from the Ashland Reference Facility has been disappointing. However, the delays have not impeded the interest from future customers for CoalSwitch®, who remain eager for fuel at the earliest opportunity.
· Active Energy joined the International Biomass Torrefaction and Carbonization Council (“IBTC”) working alongside many of the key global players in the biomass supply chain.
Michael Rowan, CEO of Active Energy, said:
“Despite the recent confirmation by PDI of the delays in completion of construction of the Ashland Reference Facility, the new executive team, assembled in the first half of 2023, has already developed a new and expanded technology roadmap designed to create new opportunities for CoalSwitch® fuel.
“Specifically, the roadmap includes modifications and upgrades to the existing proven technology as well as the addition of new technologies that will improve efficiencies, create new product offerings, and expand the depth and breadth of the clean carbon products that Active Energy could produce to meet customer needs. The creation of this additional IP will also open up new opportunities to partner with industry leaders worldwide for future CoalSwitch® production.
“The world needs sustainably sourced, energy-dense clean carbon products, like CoalSwitch®, and technologies to meet Net Zero goals, mandates, and regulations. We believe that CoalSwitch®, with its planned technology developments and expanding in-house expertise can help deliver on the future needs of customers globally.
“Through 2023 Active Energy has been preparing for growth and, with the current level of customer engagement, we look forward to reporting on significant commercial progress and product development in the remainder of 2023 and beyond.”
CHIEF EXECUTIVE’S STATEMENT
Introduction
The first half of 2023 has seen a significant step change in activity for Active Energy Group. The Group’s strategy remains to commercialize CoalSwitch®, a proprietary production technology which, in the first instance transforms lower value wood waste products into higher-value renewable fuels that can either co-fire with coal to produce immediate environmental and emissions benefits or replace existing biomass feedstock supplies.
However, Active Energy’s routes to the commercialization of its next generation solution, CoalSwitch®, (the “CoalSwitch® Program”) are multiplying as increasing Net Zero commitments are being made by companies and countries. Aligned to that, biomass fuel itself is under increasing focus and Active Energy continues to believe that CoalSwitch® has the operational and environmental benefits to become a leading fuel of the future.
In July 2022, the Board and PDI agreed to split responsibilities on the CoalSwitch® Program, with PDI becoming responsible for the engineering and production of CoalSwitch® and Active Energy taking responsibility for marketing and sales. Commercial arrangements for the sale of fuel from the Ashland Reference Facility were established between the Company and PDI within a Take or Pay agreement. Whilst these arrangements remain in place, during the latter half of 2022, it became apparent to the Board that Active Energy had to expand its senior management team in the US to acquire relevant expertise in both fuel production and product development in-house and to assist PDI.
Alongside this, the political environment changes in the US during the second half of 2022 with the notable approval of the Inflation Reduction Act (“IRA’) meant that Active Energy was seeing increasing enquiries from potential customers for the development of alternative low carbon technologies that can help dramatically reduce emissions for ‘hard to decarbonize’ industries. The Board became aware that, whilst the development of the Ashland Reference Facility by PDI would result in CoalSwitch® becoming available for customers’ initial orders in the short term, the indicative production volumes from the Ashland Reference Facility may quickly become insufficient to accommodate the anticipated needs of Active Energy’s future customers.
In each instance, Active Energy needed additional expertise to not only support PDI (if required) but also provide a new perspective and additional industry experience toward the CoalSwitch® Program and to develop fuels toward meeting the ever-increasing demands of future customers, both in the US and internationally.
Strengthened Leadership Team
To execute on this strategy, Active Energy is extremely encouraged that it was able to hire both a Chief Operating Officer and Chief Technology Officer to help drive and execute the future strategy.
In March 2023, the Company appointed Steve Schaar as Chief Operating Officer to focus on the development of CoalSwitch® production in the United States. Steve has more than 25 years’ experience of operations (including senior management roles at two of Enviva’s largest production plants), project development, program management and new product launches from a broad range of industries.
This appointment was followed shortly after, in July 2023, by the appointment of Barron Hewetson as the Company’s Chief Technology Officer. Barron joined Active Energy from Enviva Biomass Inc. At Enviva, he served in a number of roles, most recently as the Director of Innovation and Product Management. During his time in that role, Barron diversified Enviva’s production portfolio by negotiating contracts in new industry sectors and assisted in contract negotiations totaling over $12.5 billion.
Both Steve and Barron have already made a significant impact for Active Energy to achieve both existing and new goals under the CoalSwitch® Program. The Company is in discussions with a number of additional senior executives within the biomass sector in the US and intends to make further hires at the appropriate time. The Board believes that the future growth of Active Energy will require further investment in a US management team and corporate infrastructure in the coming months.
Operational review during the period
1. CoalSwitch® Program & Product Development
The energy market requires a scalable solution to produce next generation fuels in the volumes required by customers and which can also accommodate the current volumes demanded for traditional carbon intensive fuels, such as coal.
CoalSwitch® offers a new pathway for heavy, hard-to-decarbonize industries in the US and globally, who remain under pressure to reduce emissions and pollution. CoalSwitch® provides a unique ability to achieve these goals without requiring costly, complex, and yet-to-be-proven mitigation technologies. In this regard, Active Energy has particularly focused its marketing activities on the pulp & paper and cement industries. Testing conducted with industry partners earlier this year has confirmed that CoalSwitch® can be burnt in existing furnaces without the need for additional capital expenditure and produce emissions improvements.
It has been clear to Active Energy’s Board that there is significant demand for sustainably sourced, energy-dense clean carbon products and technologies. To meet that demand, Active Energy needs to accelerate production of CoalSwitch® and create variants of the fuel. Under the guidance of the Chief Technology Officer, Active Energy is developing its CoalSwitch® fuels to meet specific customer specifications that are now being presented to Active Energy in commercial discussions.
To that end, Active Energy will now refer to the CoalSwitch® product line going forward as three separate technologies which can produce fuel to meet specific customer requirements: –
CoalSwitch® Program:
CoalSwitch® 1.0: This production process refers to the original manufacturing process which successfully produced fuel at Ashland in 2021. This process is based on a small-scale static reactor producing small volumes of fuel and which Active Energy may continue to use for future research and development activities.
CoalSwitch® 2.0: This revised production process is the basis of the Ashland Reference Facility currently under construction by PDI and to be operated by its operating company, Maineflame Inc. This facility should be able to produce increased volumes of CoalSwitch® fuel utilizing steam technologies.
CoalSwitch® 3.0: The recent focus has been to further improve both the fuel quality and production processes with the next stage of CoalSwitch® fuel development. Active Energy has been working with Omega Thermal Solutions Group LLC, based in the US, to develop a new manufacturing process to create a variant of CoalSwitch® fuel focusing on a torrefaction production process with improved performance metrics, such as higher fixed carbon results that will enable Active Energy Group to participate in expanded markets such as soil amendments, air filtration, ferro silicon and the metallurgical steel industries. The anticipated scale of production volumes will also increase significantly.
Active Energy anticipates that each of these technologies will obtain appropriate IP protection in the US and internationally, and Active Energy will subsequently seek to license the relevant technology platforms to additional production partners both inside and outside the US.
Since Q1 2023, the management team have been focused on these product and production improvements and, led by Steve Schaar, Active Energy is currently in discussions with various commercial partners in the US to establish additional production facilities either on a proprietary or a joint venture basis. Steve has brought an immense operational knowledge to Active Energy and the Company is actively developing these skills toward new market opportunities. A shortlist of potential partners throughout the US has already been developed, each partner looking at decarbonization and Active Energy is focused on delivering a number of those partnerships in the near term.
2. CoalSwitch® production facilities
The strategy for Active Energy is to build out production operations, either on a proprietary basis or on a joint venture basis with existing operators, on both a small-scale and large-scale basis. During H1 2023, Active Energy commenced several commercial discussions with operating partners to produce CoalSwitch® fuel. These conversations are ongoing, nonetheless, the variant of fuel creating the greatest level of commercial interest is currently CoalSwitch® 3.0, with its higher heating value and capacity to be produced on a continuous basis at greater production volumes.
The Ashland Reference Facility
The Ashland Reference Facility is being constructed by and will be operated by the Company’s commercial partner, PDI, and its affiliates. AEG is responsible for sales of CoalSwitch® produced from the Ashland Reference Facility a under its take-or-pay agreement with PDI and entered into in June 2022. During H1 2023, PDI informed Active Energy of a series of delays in both component manufacture and permits. Whilst the permits were granted in May 2023, PDI has recently advised AEG that it now anticipates that construction of the Ashland Facility will not be completed and ready to commence production, during Q3 2023, as PDI had previously indicated to the Company. In light of this, a renegotiation of the existing take-or-pay agreement is underway between the parties to reflect the delays in production.
The Company understands that, while the key components are on site, the latest delays in completion of construction relate to continuing delays in receipt of certain other components and associated equipment for the plant. The Company has been informed that PDI continues to plan for operations at the Ashland Facility to commence as soon as possible and that PDI remains hopeful of commencement of production later in November 2023.
Active Energy remains wholly supportive of PDI’s efforts and is working with PDI to support and ensure that production of CoalSwitch® fuel will commence at the earliest opportunity.
3. Market development
Active Energy has been focused on market development activities, both in the US and internationally. Since mid-2022, the number of market enquiries for a ‘black pellet alternative’ for biomass fuels has increased dramatically as the biomass industry urgently seeks alternate sustainable solutions. Over the last 12 months, Active Energy has created a market presence which is expected to secure a future pipeline of fuel orders.
In the US, the first orders for fuel have been obtained and a future sales pipeline is being established. This includes the first US CoalSwitch® fuel order from Carolina Stalite (“Stalite”), an aggregates producer based in North Carolina.
The sales activities and potential customer interest have also focused beyond the conventional power generation industry and include various heavy industries including the cement and pulp & paper industries, where local and national emissions regulations continue to expand. An active sales program continues in anticipation of first fuel deliveries from the Ashland Reference Facility and Active Energy remains confident of future commercial success with prospective customers on the US East Coast now finalizing terms for initial test volumes of fuel at identified facilities.
To date, the Company has also obtained indications of interest for the supply of up to 10,000 tonnes of fuel from various parties based in the UK seeking the CoalSwitch® fuel as a supply alternate with improved heating performance properties. Marketing with future customers in the UK has indicated a future pipeline in excess of 50,000 tonnes of CoalSwitch® fuel per annum. Additional market interest has been received from Europe, Japan, and South-East Asia.
4. Continued extension of IP Protection
As Active Energy continues to develop and expand its product portfolio, it has become more important to ensure appropriate IP protection. In the period under review, Active Energy was awarded multiple patents for turning forest waste into clean energy. This included two Patents from the United States Patent and Trademark Office and one from the Canadian Patent Office. Post period end, a further CoalSwitch® production patent was awarded by the US Patent and Trademark Office.
In addition, Active Energy received trademarks from the United States Patent and Trademark Office, the UK Intellectual Property Office, the European Union Intellectual Property Office and the Canadian Patent and Trademark Office for the CoalSwitch® brand.
The award of the trademarks and patents remain an important step for Active Energy as it grows its intellectual property portfolio through the continued development of its CoalSwitch® technologies. The increasing brand awareness for CoalSwitch® is further assisting Active Energy in all its marketing activities.
Post period end activities and outlook
Active Energy is actively addressing all the obvious sustainability concerns for biomass fuels focusing on utilizing low value waste feedstocks and producing high-grade fuels which can be co-fired and consistently demonstrate improved burn and emissions test results.
Post-period end, Active Energy’s activities have accelerated substantially both in terms of product development, including the development of the various CoalSwitch® production technologies, but also in respect of future production opportunities in the US and internationally. The level of engagement from prospective commercial partners seeking joint venture co-operation with Active Energy has provided the Board with encouragement that Active Energy’s corporate strategy is the right one.
In September 2023, Active Energy was elected to join IBTC, an organization promoting the sustainable production of vital torrefied or carbonized technology products on a global scale, with an aim to efficiently replace carbon-emitting fuels such as coal. The organization aligns wholly with Active Energy’s energy mission to increase the awareness and education around cleaner, carbon neutral fuels and their benefits.
Whilst the delays at the Ashland Reference Facility are frustrating, Active Energy remains wholly supportive of PDI in its efforts and anticipates that the new production and sales opportunities for CoalSwitch® will prove all the hard work and effort over the last two years will be commercially successful.
I would like to thank all my colleagues and commercial partners for all their work and commitment toward the CoalSwitch® program and look forward to achieving commercial success in the remainder of 2023 and 2024.
Michael Rowan
CEO
26 September 2023
FINANCIAL REVIEW
Performance
The operating loss for the period was US$1.6 million (H1 22: US$1.3 million), comprising administrative expenses.
The loss for the period includes unrealized foreign exchange losses of US$1.1 million (H1 22: gains of US$3.2 million), resulting from the weakening US Dollar relative to Sterling.
The basic and diluted loss per share were 1.67 cents (H1 22: earnings per share of 0.82 cents).
Cash Flows
The Group reports a cash position at 30 June 2023 of US$1.2 million (31 December 2022: US$2.6 million).
Operating cash outflows of US$1.2 million (H1 22: US$1.4 million) reflect the Group’s efforts to reduce expenditure and preserve available cash resources.
Investing inflows in H1 22 of US$3.8 million comprised property sale proceeds. There were no investing cash flows in H1 23.
Aside from minor loan repayments of US$9k (H1 22: US$7k) there were no financing cash flows during the period.
Going concern
The interim financial statements have been prepared on a going concern basis. Note 3 to the interim financial statements expands on the directors’ considerations relating to the Group’s ability to continue as a going concern. At 30 June 2023 the Group had cash of US$1.2 million (31 December 2022: US$2.6 million).
PDI has been granted the permits required to construct and operate the Ashland Reference Facility. Uncertainty around the timing of production still remains which directly affects the timing of revenue cash generation from sales of CoalSwitch® and therefore the Group’s future cash requirements. PDI has advised that production is expected to commence in November 2023.
The Board has concluded that additional funding will likely be required to execute the Board’s strategy of commercializing CoalSwitch®. While there can be no guarantee that funding will be available on terms that are acceptable to the Company, or at all, the Directors remain positive that the Company will be able to secure sufficient equity finance at the required time.
The financial statements do not include any of the adjustments that would arise if the Company were to be unable to continue as a going concern.
Directors’ Responsibility Statement
The Directors confirm that to the best of their knowledge the unaudited interim financial statements have been prepared in accordance with IAS 34 ‘Interim Financial Reporting’.
A list of the current Directors is available on Active Energy’s website: www.aegplc.com
Michelle Fagan
CFO
26 September 2023
