EQTEC – The sustainable waste-to-energy firm profiting from the climate change revolution (EQT)

By Richard Mason

Mar 08, 2020

EQTEC

Rapidly rising waste levels and growing demand for clean, renewable energy consistently dominate today’s global headlines.

With fossil fuels falling further out of fashion as climate change’s hold over the public agenda strengthens, renewable energy is projected to cover more than 50% of total energy demand by 2035 from just 20% today. Given that total energy consumption is also expected to double globally by 2050, the sector continues to represent a vast market opportunity.

Meanwhile, as population growth continues to accelerate, the level of worldwide waste is expected to be 70% higher in 2050 than it is today. Global revenues from waste management alone are set to total $485 billion annually by 2025.

In recent years, an increasing number of firms offering “waste-to-energy” solutions have arisen to solve the problems presented by both of these issues. The market is growing at around 5.7% globally and is expected to be valued at $42.5 billion in just four years.

However, the foundations on which the emerging sector are based are buckling as regulation begins to catch up. Movements such as the EU’s Waste Framework Directive are placing increasing pressure on firms that rely on the pollution-heavy incineration of waste to generate energy, to reduce their emissions.

A gap in the market has emerged for firms that can generate energy from waste sustainably.

Step up EQTEC (LSE:EQT), which has developed patented technology centred around a process called gasification to do just this.

Gasification produces synthesis gas or syngas, a commodity that can be used to produce electricity, heat renewable natural gas and transportation biofuels, by thermochemically converting feedstock such as municipal waste, agricultural and industrial waste, biomass, and plastics. Unlike incineration, which produces harmful by-products like dioxins and furans and persistent environmental pollutants, the process relies on a reaction in an oxygen-deficient environment that does not actually burn the waste. As such, the only by-product of the syngas products are non-hazardous ashes – the carbon footprint is significantly reduced, the energy requirements are met efficiently, and the health concerns eliminated.

It is a thermochemical reaction where no combustion happens,” says EQTEC’s chief executive David Palumbo, “We just separate and disassociate the molecules of the waste with the controlled presence of oxygen. The result is the creation of syngas, a clean and renewable hydrocarbon gas that has numerous sustainable uses.”

EQTEC tailors its technology to the needs of partner companies with an energy requirement and a specific source of waste feedstock. The AIM-listed company then introduces its process into the partner’s power plant to create a self-contained energy system.

With our technology, these industries can produce, after a short period of capital amortisation, free heat and electricity by themselves while handling their waste in a sustainable manner,” adds Palumbo. “There is no need to send the power to the grid or rely on support from subsidies or tariffs.”

Leader of the pack

Gasification is not new. The process has been used since the 1920s to produce synthetic chemicals. During World War II, the need for fuel produced by gasification re-emerged due to the shortage of petroleum. A few very large companies successfully focus on large scale gasification of coal and other hydrocarbons to cater to emerging markets where coal plants are still accepted, and gasification is more efficient than burning.

A handful of companies have successfully designed working examples of the process at a smaller scale versatile enough to use an array of feedstock over the years. However, most have struggled to get their pilot plants working reliably at a commercial scale.

In contrast, EQTEC has already transitioned from the proof-of-concept stage with the revenue-generating 6MW Movialsa commercial plant in Spain that uses its Advanced Gasification Technology. This has been running for nine years at targeted operational availability. EQTEC is now focused on replicating this type of plant with newly-established strategic partners such as EPC companies, developers and operators.

Beyond this, EQTEC boasts several other strings to its bow. Its technology has been installed in R&D plants at research universities such as those in Lorraine and Extramadura and deployed in private sector energy recovery projects such as the Movialsa plant. Elsewhere, the firm’s expertise and experience have supported public co-generation projects and established strategic partnership agreements with the likes of:

                -Californian developer and operator of biomass plants Phoenix Energy;

                -Leading infrastructure builder and EPC COBRA (part of ACS Group); and

                -Poland-based manufacturer and engineering company Rafako.

EQTEC bolstered its prospects further last September when it underwent a repositioning under new chief executive Palumbo. This saw it switch its immediate focus away from only large complex projects and onto smaller, scalable “shovel-ready” modular plants to reduce the risk of project delay and scale down the duration of the overall sales cycle.

Palumbo says he has also established three business verticals for EQTEC and its projects moving forward. These are the elimination of agri-food & industrial waste streams, the recovery of clean energy from biomass, and the elimination of municipal waste streams.

Meanwhile, the firm has also reduced annual cash costs by around 30%, completed a debt-to-equity conversion to optimise its capital structure in the growth phase, and added swathes of boardroom experience. For example, Palumbo has advised EQTEC for more than half a decade and has a long history in deal-making and impact investing. Meanwhile, chief technology officer Dr. Yoel Aleman is a long-standing technical expert and a foremost authority on the gasification sector.

Widening the net

EQTEC’s recent strengthening of its business model positions it perfectly to scale up and expand the gap between itself and its lagging competitors as billions of dollars continue to flow towards waste-to-energy solutions.

Palumbo says that with the recent closing of its North Fork sales contract, H1 2020 revenues are already far ahead of those generated in H1 2019 (€1.56 million in H1 2019), and the firm is targeting operating profitability within 18 months. In doing this, EQTEC says it is supported by a pipeline of project opportunities that it claims to range from €10 million to €100 million in total capex value each.

Specifically, EQTEC expects two gasification projects to be built in California and a further three to be financed within the next year-and-a-half. The company believes these are together capable of achieving sales of more than £20 million. Meanwhile, the firm says that three to four agriculture waste projects in the Mediterranean are on the horizon that could generate up to £25 million over three years.

Beyond this, the organisation is also looking at ways to maximise the profitability of its operations. One option is to take seed equity positions that would not only provide return multiples and potential dividend income, but it would give EQTEC greater development control.

Building upon this, Palumbo tells us that the firm will look to form strategic relationships with developers that have more than one project as it moves forwards:

“We will find the right strategic partners and get equity exposure. Then, we can help with the funding and development as they bring their pipeline live. These long-term relationships will be where the real value lies.”

Waking up to opportunity

If EQTEC can deliver the revenue figures that it expects from its projects while beginning to take on a new wave of higher-value strategic clients, then the upside from its current £6.5 million market cap is clear.

At 0.25p a share, the company currently sits well below highs hit this time last year. It would seem that the market is yet to acknowledge the positive change that EQTEC’s new management team has had, both strategically and financially.

“Similar companies in the sector that are still privately owned, are already trading at valuations many multiples of EQTEC without being proven at commercial scale – some of them with established institutional investors as shareholders,” concludes Palumbo.

“I studied a number of these companies in my previous venture capital and private equity investment roles. It is clear that speciality funds and investors here are betting on the potential of the market rather than a mature pipeline with a technology that it is ready to be deployed at commercial scale.”

If the deals begin to flow and revenues start to rise, then investors could begin to wake up properly to the opportunity on offer. In this scenario, today’s lows would mark a strong entry point.

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Important Notice And Disclaimer

This article does not provide any financial advice and is not a recommendation to deal in any securities or product. Investments may fall in value and an investor may lose some or all of their investment. Past performance is not an indicator of future performance.