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Blue Sphere Striving to Become Leader in U.S. Organics to Energy Sector
SOURCE: EquityBrief July 09, 2013 07:01 ET Blue Sphere Striving to Become Leader in U.S. Organics to Energy Sector LOS ANGELES, CA–(Marketwired – Jul 9, 2013) – Sometimes exciting developments come in small packages. That looks to be the case of Blue Sphere Corp. (OTCQB: BLSP ). Blue Sphere is positioning itself at the forefront of the developing organics to energy market in the United States. Blue Sphere currently is working on the implementation of two anaerobic digestion (organics to energy) projects scheduled to break ground in the second half of 2013. These two projects are slated to produce enough gas to power 8.4 MW of electricity generation capacity annually, with generation scheduled to begin in the second half of 2014. According to the EPA, there were over 202 anaerobic digestion facilities operating in the U.S. as of May 2013. In contrast Germany has over 4,000 of these plants in operation. The available market for this type of electricity production in the U. S. is enormous and Blue Sphere is now implementing its plans to develop, what it believes, are the best projects available. Anaerobic digestion power generation plants are facilities that generate electricity from organic material. Organic materials used to power these plants include food waste, animal manure, farm waste and certain municipal waste. Food waste is the second largest category of waste sent to landfills in the U.S. This is over 35 million tons of food waste equaling over 18% of the total landfill waste stream in the U.S. This food waste is a potential supply of power that can be developed into a viable alternative supply of electricity. The political environment in the U.S. is ripe for the growth of the organics to energy market. 31 states have passed laws mandating “renewable portfolio standards” requiring local utilities to purchase or generate a certain portion of their electricity from renewable sources. New York and California have implemented mandates that will require up to 30% of the power used in the states to be generated by renewable sources. Blue Sphere’s systems not only generate power, but they have the ability to reduce the amount of waste being added to landfills, turning it into useful products, specifically energy and fertilizer. Blue Sphere is developing and acquiring two anaerobic digestion plants in the advanced planning stages. Blue Sphere, acting as project manager, has brought on world-class partners to develop and build these power generation facilities. Biogas Nord, AG, out of Germany, specializes in designing and building organics to energy plants. Biogas Nord has built over 400 plants in Europe, Africa and the Middle East. Biogas has partnered with Blue Sphere to build the U.S. plants through Bino Sphere, a joint venture between the two companies with Blue Sphere owning 75% and Biogas Nord owning 25%. The U.S. plants will be individual companies that are owned equally by investment partners and Bino Sphere. Blue Sphere’s first project is located in Charlotte, North Carolina. The Charlotte facility will have 5.2 mega watts (Mw) of generating capacity when completed. The project has long-term agreements for organic feedstock supply, a Power Purchase Agreement (PPA) with Duke Energy, the largest power holding company in the United States, to buy the electricity generated by the facility and an agreement with McGill Environmental Systems to purchase the compost. Blue Sphere is currently putting in place the financing and expects to have the ground breaking in the third quarter 2013. Blue Sphere’s second project, located in Johnston, Rhode Island, is a 3.2 Mw bio-waste to energy facility. Once again, the preliminary organic feedstock supply agreements are in place, as is the PPA with National Grid, one of the largest investor owned energy companies in the world based in London, England and the compost off-take agreement with McGill Environmental Systems. Blue Sphere expects to break ground on this project by the end of this year. Both facilities will generate multiple streams of revenues. The largest revenue stream will come from selling the generated electricity to the PPA partners, Duke Energy and National Grid. The second revenue generator is the “Tipping Fee,” which is a fee for accepting the waste streams and operating what can the company refers to as an “endless landfill.” After the organic waste is processed and the gas produced from this process is turned into heat and energy, what is left is compost, which the company will sell to fertilizer companies as a product additive. This is the beauty of the organics to energy facilities; waste goes in and energy, in the form of electricity, and fertilizer come out and both outputs are sold. This is a true clean energy production process that can be replicated many times in cities, towns, farms and ranches around the country. When the projects are complete, Blue Sphere will own 37.5% of both facilities and will be entitled to that percentage of the cash flow, as well as a management fee for managing each facility. Blue Sphere will also be entitled to receive its project development costs back at the time of the funding close. Blue Sphere expects to start receiving revenue in 2014 from the operations of these projects. Blue Sphere’s management is in the planning stage of additional facilities. They believe they can replicate the process over and over in a similar fashion, with the same partners, contractors, financiers and processes. With this approach Blue Sphere can become a leader in the growing organics to energy market over the next several years. Blue Sphere went public through a reverse merger in 2010 to participate in the carbon credit trading markets and to develop clean energy projects globally. The management quickly realized that the carbon credit market would not develop as expected and management shifted focus to renewable energy and organics. Management did not do much marketing of the company or its stock while they were refocusing their company on the clean energy project business. Blue Sphere’s primary focus is now on developing organics to energy facilities in the U.S. with their partners, although they do have some clean energy interests in West Africa with partners, as well. Due to the nature of the changing business focus, investors have not focused on the potential value that Blue Sphere is generating for shareholders and investors. These first two projects will generate substantial revenue for Blue Sphere, possibly over $1.5 million/year with large operating margins. As Blue Sphere adds additional projects the cash flow will give management the potential for higher project ownership levels, and allow management to pursue larger facilities. With this type of revenue, and strong profitability, Blue Sphere will not have a market cap of only $2.7 million for long. If Blue Sphere can get both of these facilities up and running on schedule next year it is feasible that investors could see a significant increase in the valuation of the company. Using the assumption that these two facilities could generate $1.5 million/year for 20 years the net-present value of Blue Sphere’s revenue, upon completion of just these two facilities, could be over $10 to 15 million. We will have to wait to see actual projections to conduct proper valuation analysis, but the basis for a strong company and a good investment are in place. Currently, Blue Sphere trades at about $0.003/share and has approximately 800 million shares outstanding, but management is committed to adjusting the capital structure to make it more conducive to investing. An example of adjusting the capital structure would be if management conducted a 1 for 100 reverse split, the stock price would be $0.30/share with 7.7 million shares outstanding, a structure that would benefit all shareholders. The investor risks to Blue Sphere are mostly project related. These projects are not small undertakings. Issues could arise in the financing, permitting, construction, organic feedstock collection and operations of these organics to energy facilities, potentially delaying progress. Investors should be aware of these risks to protect themselves and their investments. Management has worked on these transactions for several years and has been meticulous about the details, but things can go wrong in any large construction project. From where the company stands now, if it is able to launch the two current projects, and announce the upcoming projects, it is easy to believe that Blue Sphere could quickly have a valuation of $10 to 15 million. This would equate approximately $0.015 to $0.02/share, which is an increase of around 400 to 700% from current levels. The milestones investors should expect in the near-term are the announcements of a strong financing partner for the Charlotte project, the delivery of the funding for the Charlotte project, the ground breaking for the Charlotte project all in the next 3 months. The next round of milestones would be the same ones, but for the Johnston project in the 4 th quarter 2013. Blue Sphere expects to generate value for its shareholders quickly between now and the end of the year. Investors would be smart to conduct due diligence into Blue Sphere quickly as the company expects it will reach the first set of these milestones by the end of the current quarter. Once Blue Sphere begins performing on these expectations investor interest will rise in this potential market leader, and it will be time for interested investors to take their initial investment positions in Blue Sphere. Continue reading
Carbon Voting Gets Dirty
4:38 am Jul 3, 2013 Carbon Voting Gets Dirty These signs were hanging from parliament members’ door handles in Strasbourg. They were put there by the International Paper Co., which said it agreed with the climate-change fighting scheme, but not the proposed fix intended to raise carbon emission prices. Courtesy of International Paper Co. European Parliament was gearing up to vote Wednesday on whether to rejuvenate, or let lie fallow, its flagship climate-change fighting policy, the Emissions Trading System. Shortly beforehand, the outcome remained too close to call with any definitive certainty. Again. The legislation is a compromise on what parliament very narrowly shot down in April. For those members of parliament having difficulties making the decision this time around, there was no shortage of opinions being pushed. MEPs, by all accounts all 766 of them, showed up to the office Monday with a hotel-style sign hanging from their office door handles by International Paper Co. IP -0.16% “Do as you are told!” said the tear-drop sign featuring a full mug shot of Connie Hedegaard, European commissioner for climate action. “The Climate Action Commissioner refused to accept your democratic decision and is now telling you to compromise your principles,” it said. “The choice is clear. Vote NO again to preserve your political credibility.” The effort was condemned by Matthias Groote, MEP in the Social Democratic party who heads the parliament’s environment committee. “I’m okay with lobbying,” Mr. Groote said. “Everybody has a right to share their opinions. It’s part of the democratic process.” “But this is not fair. We work very hard. To simplify it like this is a lie,” Mr. Groote said. An International Paper spokesman said the company supports the ETS scheme, just not the proposed fix. The proposal, known as backloading, is intended to lift the cost of emitting carbon-dioxide, which collapsed alongside the drop in demand for electricity during the economic downturn. The lack of industrial activity resulted in too many carbon permits in the market. The new rules would temporarily reduce this oversupply. The higher prices anticipated from this could help reintroduce incentives for cutting the use of fossil fuels and developing renewable technologies. But the fix is technical and not easy to understand. Analysts have said it probably won’t raise carbon prices enough to have an impact. Yet without this attempt at reform, the EU’s carbon market will almost certainly fall into obscurity, while California, Australia, and even China race ahead with their own carbon markets. So just how close will this vote be? About as close as the last one. In April parliament voted 334 to 315, with 63 abstentions. This was so close for a parliamentary vote that the a whole host of variables could have shifted it, including nothing to due with climate or industry at all, said Jerzy Buzek, EPP member and former prime minister of Poland, who is against backloading. The vote in April “was just one day before the funeral of Margaret Thatcher,” Mr. Buzek said, adding that if it had been “on the day of the funeral, backloading would have been approved. All the conservatives would have gone to London, and the result would have been quite opposite.” With no major state funerals scheduled for Wednesday, expect this to go to the wire. Continue reading
Investors Call For Stronger Climate Investment Policies
28 Jun 2013 GLOBAL – The Institutional Investors Group on Climate Change (IIGCC) has called on European policymakers to create an investable low-carbon energy market by urgently tabling proposals for detailed policy. The group of investors, worth a combined €7.5trn, signalled its support for the EU’s proposed target of a 40% reduction in greenhouse gas emissions by 2030. But in its response to the European Commission’s 2030 Climate and Energy Green Paper, investors have said they would like to see draft legislation in place before the replacement of the current Commission and EU parliamentary elections next year. The longer investors have to wait for policy certainty, the stronger the economic pressure to defer investment decisions, the group said. U-turns on support for renewables and the collapse of the carbon price have meant that investors are losing confidence in Europe as a place to invest in energy. The IIGCC also emphasised the need for strong and reliable carbon price signals. While the compromise backloading vote on the Emissions Trading Scheme last week was welcome, investors believe the permanent removal of the structural surplus of carbon allowances is required. Investors would also welcome the introduction of a mechanism to reduce the risk of surpluses emerging in the future and have urged the Commission to review how other cap-and-trade schemes around the world – such as South Korea and California, or even China – have addressed this issue. Stephanie Pfeifer, chief executive at the IIGCC, which represents more than 80 of Europe’s largest investors, told IPE: “It is probably still possible to reach the 40% reduction in greenhouse gas emissions target by 2030. “But it is only possible with a lot more investment, and this will only come with the right policy in place. The longer we wait, the harder it will be, and the more investment is needed.” She pointed out that transitioning to a low-carbon economy require investment of €1trn by 2020, increasing to perhaps €7trn in the next 40 years, according to the Commission’s own projections. “New capital requirement rules mean institutional investors will need to provide more of this capital, but, to do so, they will need clear policy signals,” she said. “Without clear policy signals, allocations to infrastructure, especially low-carbon infrastructure, will be limited. Investors are therefore calling on the EU to put in place stable, long-term climate and energy policies to make its vision of a low-carbon future investable.” In their response, institutional investors have also expressed concern that policy drivers of both energy efficiency and renewable technologies in Europe are unnecessarily fragmented. Investors would therefore like to see more emphasis on pan-European instruments that work in tandem with the ETS. In addition, they have called for the Commission to consider how it might take steps to block further retroactive changes by EU member states to their renewables support packages and called for Europe to increase the ability of institutional investors to provide capital to energy infrastructure by allowing it to be included in tax efficient and liquid investment vehicles such as real estate investment trusts and master limited partnerships. The full response can be found here. In other news, the world’s 1,000 largest asset owners, including about 800 pension funds, have been challenged to disclose more detail of how each is managing climate risk. The Asset Owners’ Disclosure Project (AODP) has distributed its second global independent survey to the 1,000 funds responsible for more than $60trn (€46trn) in retirement savings across 63 countries. Fifty questions seek disclosure on how each is avoiding the looming carbon bubble in their fund portfolios. Responses will be researched, collated and scored, with the 2013 index being published for all funds later this year. Julian Poulter , AODP executive director, said: “Pension funds are long-term investors facilitating hundreds of millions of peoples’ plans for their later life. Fund trustees have the basic obligation to look after these nest eggs by managing all the known risks. “Smart fund trustees know the risks inherent in fossil fuel-related assets and are getting ahead of the curve when it comes to disclosing how they manage climate risk, including by investing in low-carbon assets to rebalance those risks. “Indeed – this is not about moral responsibility anymore but fundamental investment methodology. It seems highly likely that it is also a legal responsibility.” The AODP survey focuses on five core categories – transparency, risk management, investment-chain alignment, active ownership and low-carbon investment. It includes asset owners in all regions of the world. Last year’s survey and index are available here . Author: Nina Röhrbein Continue reading
