Flying High in the New Carbon Economy with Commercial Scale Renewable Jet Fuel and Gasoline



KEY POINTS
  • Renewable hydrocarbons are seeing clearer paths to commercialization amid carbon emissions reductions driven by increased regulatory scrutiny and corporate responsibility.
    • Gevo has a proven technology and production process that is scalable today with key short-term target markets in sustainable aviation fuel (SAF) and renewable gasoline. The company’s potential offtake agreement pipeline is approaching $20 billion, with ~$1.6 billion inked to date.
    • Gevo is developing its first Net-Zero project expected to be located in Lake Preston, South Dakota. This project is expected to produce renewable hydrocarbon products that when burned, have the potential to yield net-zero greenhouse gas emissions when measured across the entire lifecycle of the products.
    • Net-Zero 1 is progressing with initial engineering work well underway and the next phase of engineering work expected to be completed by year-end. The closing of debt financing and commencement of construction is expected to occur in the 1H22.
    • Gevo is well funded at this point, with ~$567 million in cash, cash equivalents, restricted cash, and marketable securities as of June 30, 2021. This essentially enables the company to self-fund the equity portion of Net-Zero 1 without a partner.
    • The company estimates annual plant capacity at 340 million lbs. of high-value nutritional products, 30 million lbs. of corn oil, and 46 MGPY of hydrocarbons for jet fuel and gasoline. Annual EBITDA for Net-Zero 1 is expected to exceed ~$150 million based on engineering work completed as of July 2021 and Gevo’s internal financial projections. The plant is expected to come online in 2024.
    • The company is currently constructing a renewable natural gas (RNG) project expected to produce 355,000 MMBtu annually, resulting in $9-16 million per year in distributions beginning in late 2022.

    CATALYST MONITOR

    • Complete the engineering work on Net-Zero 1 to determine the final construction contract price and resulting project economics.
    • Upon completion of this work, Gevo will need to secure debt financing and commence construction.
    OUR INSIGHTS

    The Opportunities

    Gevo is approaching the tipping point in terms of the commercialization of its renewable hydrocarbon technology. Building off of the Net-Zero concept, the company believes it has a clear pathway to significant cash flow. This is no longer just an idea but is being validated by the company’s inking of ~$1.6 billion in offtake agreements as part of a ~$20 billion pipeline of contract negotiations. Facilitating even part of this pipeline would require multiple Net-Zero plants with each producing an estimated $150-160 million in EBITDA per year at the plant level based on the company’s current assumptions. This is backed by over $550 million in cash, cash equivalents, restricted cash, and marketable securities on the company’s balance sheet. The company also expects its RNG plant to begin generating cash flow in late 2022 providing a near-term source of cash.

    The Obstacles

    A Net-Zero plant has not yet been constructed and will be a significant undertaking. Although commercial production has been proven, this is still a major step and plants at this scale can experience unforeseen problems. This is especially noteworthy given it is the first of its kind. Another problem is simply the long runway to production and sales. Investors will have to be patient as Net-Zero 1 is not expected to begin production of hydrocarbons until 2024.

    Renewable hydrocarbons are seeing clearer paths to commercialization amid carbon emissions reductions driven by increased regulatory scrutiny and corporate responsibility.

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