Gevo, a renewable fuels company focused on the production of sustainable aviation fuel (SAF) has provided an update on the company and projects currently in process.
Market Development
Gevo now has approximately 375m gallons per year (MGPY) of predominantly take-or-pay, financeable SAF and hydrocarbon fuel supply agreements, which are expected to support project debt financing.
This level of demand would require multiple plants to be built over the next four years to satisfy those agreements.
Based on current market projections and certain assumptions, collectively, these agreements represent approximately $2.3bn in expected annual sales. Offtake partners include: Trafigura, Kolmar, Delta Airlines, American Airlines, Alaska Airlines, Finnair, Japan Airlines, British Airways, Aer Lingus, and SAS.
Inflation Reduction Act
The Inflation Reduction Act (IRA) which was signed into law in August of this year is helpful to many companies in the renewable energy industry and is a positive signal for SAF specifically.
The first phase of this two-phased approach to encouraging investment in the SAF industry creates a SAF blenders tax credit for the 2023-2024 period with a value potential of $1.25 per gallon. In the second two-year phase, 2025-2027, it created a Clean Fuel Production Credit (CFPC) that has a credit of $1.75 per gallon for domestically produced, net-zero carbon intensity (CI) score SAF.
The value of both credits is based on the CI score of the fuel produced and requires a minimum 50% reduction in greenhouse gas (GHG) emissions. Gevo, like other net-zero businesses, is expected to benefit from such a program because of the expected low CI score of Gevo products.
Net-Zero 1 Status
Following the recent groundbreaking ceremony in Lake Preston, South Dakota, the Net-Zero 1 (NZ1) project is on schedule with initial volumes of SAF expected to be delivered in 2025. NZ1 is expected to produce approximately 55 MGPY of SAF, or 62 MGPY of total hydrocarbon volumes, which would satisfy part of the ~375 MGPY of financeable SAF and hydrocarbon supply agreements that are currently in place.
The transition to an ethanol-to-SAF design from Gevo’s original isobutanol-to-SAF and isooctane design continues to yield improved output expectations as pre-project planning has been completed through phase 2 of front-end loading work (FEL-2).
The results of this work, combined with support from the CFPC, have led to the forecast Project EBITDA1 for NZ1 to be in the range of $300-$325m per year, a 56% increase at the mid-point from the prior estimate of $200m per year. The total installed cost for NZ1, including the capital required for the alcohol-to-jet fuel plant as well as any site development costs, is currently forecasted to be approximately $850m, a 33% increase from the prior estimate of $640m.
This increase is primarily due to increased steel, equipment, and supply chain costs related to the inflationary environment.
Additional Plant Sites
Gevo continues to make steady progress on securing future SAF production locations beyond NZ1. These future sites must offer an appealing mix of attributes that enable the Company to produce low-cost fuels with the lowest carbon footprint possible. Gevo’s preferred list of partners and locations with decarbonization in mind are continuously being refined and the Company is engaged in preliminary feasibility and development discussions with several of them, including ADM.
RNG Project Status
Gevo’s renewable natural gas (RNG) project in Northwest Iowa (the RNG Project) continues to ramp up its production. The Company recently received notice from the federal Renewable Fuel Standard (RFS) that the RNG produced qualifies for Renewable Identification Numbers (RINs).
Gevo will begin to recognize revenue for RNG sales in the third quarter of 2022; however, initial revenue will be limited to the value of the commodity, exclusive of environmental credits and will represent a partial quarter.
Some sales revenue from environmental attributes are expected in the fourth quarter of 2022; however, the full extent of the available credits will begin contributing to revenue in 2023 due to timing of the approval and documentation process for the Low Carbon Fuel Standard (“LCFS”) credits.
The RNG Project is expected to generate Project EBITDA1 in the range of $16-$22m per year beginning in 2023, depending on a variety of assumptions, including the value of credits under the federal RFS and the LCFS in California.
Verity Tracking & U.S. Department of Agriculture Grant
Gevo is proud to have been tentatively awarded up to $30m by the U.S. Department of Agriculture to advance its Climate-Smart Farm-to-Flight initiative. This award and program are expected to be finalized in the coming months.
Gevo will be working with its strong team of partners in the Lake Preston, South Dakota area to lower the Company’s carbon footprint throughout the SAF business system as well as within other projects in Gevo’s portfolio of projects. Gevo plans to deliver a high-quality carbon accounting system that will help reward growers who adopt farming methods that reduce greenhouse GHG emissions.
This accounting system will focus on the importance of immutable tracking and tracing of carbon-intensity scores that begins at the farm level and follows the molecules through the production of SAF and finally to its ultimate use in a jet engine. Gevo plans to accomplish these goals through further development and implementation of Verity Tracking, which is a blockchain- enabled solutions platform for carbon tracking throughout an entire business system.
Chevron
Conversations between Chevron and Gevo continue as we each evaluate how best to structure our relationship going forward. Chevron and the Company have mutually agreed upon an extension to the letter of intent between the parties that allows these discussions and negotiations to continue.
Management Comment
Dr. Patrick Gruber, CEO of Gevo commented: “With the bulk of the engineering and design work for Gevo’s NZ1 project in South Dakota nearing completion and our RNG project in Iowa up and running, a portion of our team can shift their focus to the development and planning for projects beyond NZ1.
“We now have approximately 375 MGPY of commercial offtake commitments. Our team will take all that we have learned, and continue to learn, from the design and construction process for NZ1 and leverage that growing knowledge base as we plan and design each subsequent plant. Gevo has developed an outstanding set of partners with the capability to help execute our plans.
“We are excited to get on with building out capacity and getting product to the market at commercial scale. NZ1 is going to demonstrate how a commercial scale SAF plant can achieve net-zero greenhouse gas emissions.” Dr. Gruber continued: “The passage of the Inflation Reduction Act is a game changer and is expected to reward companies like ours that drive to net- zero emissions.”
