Clean Energy Fuels Corp.’s latest bet on renewable energy is getting mixed reviews on Wall Street.
Some industry watchers contend the Newport Beach-based company’s new natural gas fuel that’s geared for transportation and industrial fleets will drive growth and higher margins, while some analysts view the move as “immaterial,” Wall Street speak for failing to move the needle.
The renewable fuel, dubbed Redeem, is currently available at more than 30 Clean Energy fueling stations in California, the only state with low-carbon fuel standards that provides subsidies for buying and selling specialty fuels.
“The carbon credits through the state are lucrative,” said Harrison Clay, president of Clean Energy’s renewable fuels division. “Given the pipeline infrastructure and gas price differential, we’ll make an economic decision on where the easiest places are to sell the gas.”
Oregon and Washington are on the radar as lawmakers in those states weigh carbon fuel standards.
The company has traditionally sold compressed natural gas, which is exhumed primarily through fracking, a controversial technique in which the earth is penetrated with a mix of water, sand and chemicals to clear the way to the gas. Critics say it contaminates groundwater.
The renewable fuel—in this case, processed biomethane—is basically recycled energy.
Clean Energy has been ramping up production of renewable fuel at its plants in Dallas and Michigan, which are producing more than 60,000 gallons a day of the biomethane fuel that’s processed from landfills, large dairy farms, and sewage plants and bought from third-party vendors and other sources. It sells its own renewable product and others’ under the Redeem brand.
The company plans to open another production plant in Tennessee this year as it aims to produce up to 15 million gallons of Redeem in the next 12 months for trucking companies, city fleets, waste management providers and other users.
It projects production will hit 30 million gallons within 18 months, according to Clay.
“Ultimately, we expect demand will outstrip supply,” he said.
$2M Contract
The company will get $2 million in the first significant contract for Redeem in a multiyear agreement to supply renewable compressed natural gas for the city of Sacramento’s fleet of 14 new rear-loader trucks.
Clean Energy has not provided revenue targets for the new product line.
The country’s largest developer and operator of natural-gas stations posted $334 million in sales last year. It operates about 360 stations under its umbrella in the U.S. and Canada.
The company, formed in 1996 by oilman and corporate raider T. Boone Pickens, has struggled for years to sustain profitability due to a minimal number of stations offering natural gas, slow commercial adoption, and cheaper fuel alternatives.
It hopes to change that by building what it calls “America’s Natural Gas Highway,” comprised of some 150 liquid natural-gas fueling stations across the U.S.
It has built about half of those stations in an effort to meet growing demand from heavy-duty haulers and commercial fleets increasingly turning to the fuel source, which is cheaper than diesel and traditional gasoline.
Analyst Pavel Molchanov said he thinks Redeem will generate a sales blip rather than a bump, considering Clean Energy delivered about 230 million gallons of compressed natural gas last year and anticipates that number to climb to 300 million this year, significantly more than the projected 15 million gallons of Redeem.
“It’s a small growth driver,” said Molchanov, a senior vice president of energy equity research in the Houston office of Raymond James & Associates. “Adoption of natural gas fuel in the U.S. has been moving more slowly in recent years than the industry would have expected.”
He’s quick to point out another downside: the high production costs of transforming raw materials and organic waste into clean, renewable energy.
“The expense comes from the processing,” Molchanov said.
Indeed, Clean Energy has already pumped more than $50 million into the initiative since it began acquiring assets to process biomethane gas about five years ago.
Another Take
Lake Street Capital Markets LLC analyst Rob Brown is more bullish on the new product offering.
“I think there’s real big growth potential here as natural gas adoption happens,” said Brown, a senior research analyst at the Minneapolis-based investment firm. “Redeem is a nice product extension for the company.”
