SMALL CAP IDEA: Active Energy Group

Amid the wider discussions of renewables – with the lion’s share of the focus on wind, solar and hydropower – biomass has often been relegated to the margins.

Active energy (AEG) challenges that narrative with its innovative CoalSwitch technology, positioning biomass fuel as a central solution for a world grappling with dependence on fossil fuels.

The existing biomass fuels landscape is dominated by wood-based white pellets, which are designed as a stopgap measure on the way to full independence from fossil fuels.

“Twenty-five years later, they’re still here,” said Michael Rowan, CEO of AEG.

The UK’s largest power station operator, Draxhas spent billions converting its plant to become the largest consumer of white pellets in the country.

Although it is a convenient source of green electricity for the electricity grid, the raw material faces several challenges.

Its usefulness is undermined by high moisture content, lower energy density and logistical hurdles in transport and storage.

In contrast, AEG’s CoalSwitch, which uses wood residues such as sawdust and forestry residues such as treetops and branches, is tailor-made to overcome these limitations.

Made using a ‘baking’ process, the black pellets provide a fuel solution with significantly lower moisture content, improved energy density, and improved transportation and storage logistics than the current feedstock.

More than just an improvement over traditional biomass, CoalSwitch offers a unique competitive advantage.

It is designed to co-fire with coal or serve as a drop-in replacement, allowing existing power plants to reduce their carbon footprint without costly retrofitting.

Importantly, CoalSwitch could enable companies of all sizes to significantly reduce their carbon footprint.

This differentiating selling point sets AEG apart in the biomass fuels market, providing a powerful lever in the shift to greener energy.

Impressively, CoalSwitch achieves 93 percent of normal heating values ​​with a significant reduction in ash deposits of up to 77 percent.

It not only improves environmental sustainability, but also provides logistical convenience.

It can be co-fired with traditional coal in any mix ratio and can be transported, stored and ground in existing equipment.

This compatibility eliminates the need for costly modifications to existing coal-fired power plants, making the AEG innovation a practical and cost-effective solution for businesses.

But what really sets the AEG product apart is the excellent performance data from co-firing tests and analysis.

Its environmental profile, evidenced by a 99 percent reduction in life-cycle emissions from coal combustion and double-digit reductions in nitrogen oxides (NOx) and sulfur oxides (SOx), make it an attractive alternative to coal.

In terms of cost-effectiveness, it disrupts the traditional cost model not only in power plants but also in energy-intensive industries such as steel, cement, pulp and paper.

Since the overall cost is similar to that of coal, no capital expenditure is required to meet the requirements, while pellets in the United States are likely to attract carbon credits of up to $90 per ton.

Soon this won’t be just an assumption: AEG’s technology is about to be put to the test in a real-world scenario.

The company has established an active testing program to co-fire coal and CoalSwitch, resulting in direct environmental and emissions benefits.

The first commercial manufacturing facility is currently under construction near the town of Ashland, Maine, in partnership with Player Design, with first production expected in the third quarter.

Initial production is expected to be in the order of 35,000 tons per year.

“We want to expand that,” says CEO Rowan. ‘We would very much like to get the site to 100,000 tons per year. That will be the goal.’

AEG’s ambitions don’t stop there. According to the company’s corporate presentation, the company is aiming for production of up to 500,000 tons by 2025 by opening more facilities.

To commercialize the technology, Rowan and the board devised a multifaceted strategy.

Initially, the plan revolves around producing black pellets at facilities like Ashland and distributing them to power plants and heavy industries around the world.

With an investment of about 15 million dollars, it is not cheap to build a factory; however, it is not unaffordable.

And these are cash generating businesses that can be built using project finance once the concept is fully understood.

At the same time, AEG focuses on establishing strategic alliances, incorporating joint ventures and site development partnerships.

The company expects these collaborations to improve its production capabilities and broaden its distribution network.

In addition, it plans to license its technology to other companies, acknowledging that it is impractical to meet the entire global demand for pellets on its own. This approach allows other companies to produce them independently,

Despite the significant progress made with CoalSwitch, AEG considers the technology to be only the first stage in the continued development of sustainable biomass fuels.

The company is committed to continuous research and development to ensure it remains an industry leader, with plans to explore processes such as torrefaction and fuel innovations such as biochar and biocarbon.

Such continuous evolution would reflect AEG’s goal to join the entire industry’s journey, from the most rudimentary fuels to the most advanced, to become a recognized authority in the industry.

“In some ways, I think as a company we’re just in the second round of the race in terms of technology,” says Rowan.

It’s been a long road to get to this point in the journey for AEG, which some will remember from a fateful foray into forestry in Ukraine under former management.

The latest results reveal the extent of work undertaken to clean up, refinance and reset the story. That effort was carried by Rowan and his chief financial officer Michelle Fagan.

Financially, the biggest benefit of those efforts was the $2.6 million the company had in the bank at the end of 2022.

“The goal was to have enough for the first production,” says Rowan. “That’s when we get a sense of how the odds come together.”

You suspect that the proof-of-concept that the Ashland plant will deliver should significantly reduce risk for AEG.

Investors will hope this also marks a turning point for the company’s valuation, which even after a 55 per cent rise in share price so far is still only worth £11m for 6.8p.

It’s hard to compare AEG to anything in the stock market – here or in the US.

Instead, Rowan presents the investment story as follows: ‘This is your one and only chance to get exposure in a biomass sector.

“There is a lot of wind and sun out there. If you think that biomass also has a future, then you have scarcity value at AEG.’

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