ENER-CORE Powers Up: Pacific Ethanol Biorefinery Integrates the Power Station
ENER-CORE, a developer and licensor of gas conversion technologies for commercial and industrial facilities, took a major step forward late last month in powering up its first 2 MW Power Oxidizer at the Stockton Biorefinery site owned by Pacific Ethanol
ENER-CORE, a $7 million publicly traded startup [traded over the counter under the symbol “ENCR”], took a major step forward in late-January in powering up its first 2MW “Power Oxidizer” at a Stockton Biorefinery site owned by publicly traded Pacific Ethanol [traded under the symbol “PEIX”]. For context, Pacific Ethanol currently has a market cap of $330 million [again, to ENER-CORE’s $7 million]. ENER-CORE announced it has achieved mechanical completion AND initial start-up of its 2 megawatt [MW] “Power Station” [resulting from the integration of the Dresser-Rand KG2 gas turbine and ENER-CORE’s 2 MW “Power Oxidizer”].
“End-uses for the utility grade power created by the Power Oxidizer, in conjunction with a purpose-built turbine [in creation of a “Power Station”], help create the IRR value-prop of the Power Oxidizer technology [i.e. the ROI or payback period].”
For those unfamiliar, ENER-CORE licenses its proprietary, patent-protected “Power Oxidizer” technology. Prior to licensing opportunities, ENER-CORE spent the better part of a decade [and considerable capital: $32 million in Additional Paid-In Capital, $38.7 million in Accumulated Deficit as of last public filings] developing what it believes to be a disruptive technology. Post-licensing, notably with Dresser-Rand [now a SubCo of $103 billion market cap Siemens], ENER-CORE’s Power Oxidizer is an oxidization vessel that converts both rich and poor-quality greenhouse gases into utility grade power.
At its unique core, this is what the Power Oxidizer is and does. ENER-CORE’s Power Oxidizer [when coupled with purpose-built turbines via its licensing partner(s)] turns greenhouse gases of a wide quality spectrum, as noted above, into utility grade power. What differentiates the Power Oxidizer is its unique ability to operate at the far-ends of the quality spectrum. In particular, at the poor-quality end [i.e., the “non-rich” end].
In many cases, greenhouse gases are emitted as a by-product of the industrial processes of many industries: pharma, wastewater treatment, petrochemical refining, food processing, painting, etc. In these cases, these greenhouse gases are “weak” [i.e., the greenhouse gases don’t have the high-energy density per cubic foot that is required to use the gas as a fuel] AND they are also contaminated with lots of other bad actors that you would never want to run through a combustion chamber [the greenhouse gases would cause damage the combustion chamber, etc.]. ENER-CORE’s Power Oxidizer can create power from these weak and contaminated greenhouse gases.
ENER-CORE can also work with other toxic gases; such as “solvents” from industrial paint booths [think of the paint booths used to paint cars or aircraft] and also the Volatile Organic Compounds that result from industries that process organic waste [wastewater treatment, food processing, landfills, etc.]. ENER-CORE makes these toxic, poor quality gases, useful. Additionally, ENER-CORE generates the converted power?—?the end result of its Power Stations?—?with almost zero emissions; which makes it easy for the owner/operator to obtain environmental permits for on-site power generation. It should be noted that these are often difficult to obtain and that the difficulty in obtaining these environmental permits prevents many industrial companies from being able to install a cogeneration plant on their site. In a way, this hurdle provides a barrier to entry for ENER-CORE/Power Oxidizer competitors.
Obviously, the utility grade power converted and created by the Power Stations can then be used as a fuel source [on-site for the end-customer of the technology] or in some instances it can be sold back to the grid [thus creating a “cost-plus” mechanism for the end-customer of the technology]. Both end-uses for the utility grade power created by the Power Oxidizer, in conjunction with a purpose-built turbine [in creation of a “Power Station”], help create the IRR value-prop of the Power Oxidizer technology [i.e. the ROI or payback period].
ENER-CORE outlines its Power Oxidizer technology in a recent investor presentation
As speculated on but confirmed by an ENER-CORE press release, ENER-CORE’s Power Station will provide substantial cost benefits for Pacific Ethanol; bringing a quantifiable, data-based return on investment to the Ethanol Complex giant. According to ENER-CORE, the Power Oxidizers with the Dresser-Rand KG2 turbine are rated to provide a combination of up to 3.5 MW of electricity and over 26,000 pounds of steam/hr from the two Power Station units. The Power Stations are expected to reduce the quantity of energy currently purchased by Pacific Ethanol’s Stockton plant, saving an estimated $3 million to $4 million per year, representing a significant reduction in operating expenses for the plant.
The integrated solution, including the Power Oxidizer and other individual components, operated successfully and demonstrated the ability to produce both power and steam according to specifications. The joint engineering teams from the companies are working to complete the commissioning process anticipated in the first quarter of 2017.
ENER-CORE has long marketed that it believes, based on all current inputs, that its Power Oxidizers can generate a ~25% IRR for end customers of the technology. I’ve found out, via interviews with management, that this IRR is excluding any end customer specific IRR contributors. That is to say: ENER-CORE is NOT factoring in any real, non-core benefits [i.e., benefits not directly associated with utility grade power creation and/or pollution abatement] that its end customers [or its licensees’ end customers] are realizing. I found this quite shocking, in that this alone equates to an impressive deep-value investment thesis.
I believe this, while conservative on the part of management, grossly understates the total IRR of the Power Stations utilizing the Power Oxidizer technology [and further grossly understates the IRR to the end customer?—?which, in turn, overstates the payback period estimation]. I believe there to be substantial deep-value in ENER-CORE [from an EV standpoint] as a result of it not marketing its Power Oxidizer IRR [and further integrated Power Station IRR] at fully-baked IRR’s [i.e., inclusive of non-core, end-customer IRR additions]. Put another way: I don’t believe appropriate levels of growth have been “priced in” to the common stock based on end-customer, fully-baked IRR’s.
With its first Power Station power up and deployment, with a recent funding round out of the way and providing visibility into forward-looking working capital needs, with a major, name-brand licensee on the books, and with a major TAM-participant potentially setting an early adopter tone for an important end-vertical for the Power Station, I think ENER-CORE is just a few data-point collections away from being rewarded with market cap for its efforts. Again, inclusive of IP, “Plant Property & Equipment” [or what GAAP abbreviates on the balance sheet as “PP&E”], and what should soon be a cash-flow neutral enterprise ENER-CORE is valued at just $7 million. My guess is, and I can say this with some degree of confidence, that changes soon.
Look for ENER-CORE to provide a steady diet of data-point updates over the next few months; and look for Dresser-Rand to continue to sell new Power Station deployments. With both should come increased market cap. ENER-CORE is in fact currently illiquid and does in fact have something of a messy cap structure, but if you like early-stage, seed-level disruptive tech?—?ENER-CORE is worth looking into. I sure am.
Good luck everybody.
