While humility makes it awkward for me to be posting this, David said it would be OK. (I swear!)
More seriously, this is a day of great pride at RED and I wanted to share a bit with you — and perhaps explain the lack of time I’ve had for more insightful posts lately.
We’ve just completed a pretty substantial equity raise, with funds available to invest in recycled energy projects that convert waste heat to power. The target for our investments are places where we can simultaneously generate profits, lower energy costs, and reduce greenhouse-gas emissions – in other words, all the things I’ve blogged about here before. But now instead of just being an academic idea, we have the financial resources to go out and prove the concept. And, it bears noting, quite a bit of financial pressure to do so.
More important than that, though, is that we have a platform to change the way the world makes power.
But perhaps the best piece — and the one that really gets what we’re out to do — is on the Dow Jones newswire, printed below the fold ($ub req’d, or else I’d give the link).
Looking to harvest the hundreds of thousands of megawatts of wasted energy produced by industrial and manufacturing operations, Recycled Energy Development LLC has raised $500 million from private equity firm Denham Capital to develop waste energy reclamation projects.
Incorporated in November 2006 by the father-and-son team of Thomas and Sean Casten, Recycled Energy Development will leverage the initial funding to develop up to $1.5 billion in waste heat recovery projects nationwide.
“We have about $700 million of projects in various stages of development,” said President and Chief Executive Officer Sean Casten, in an interview. “We’ll probably close $50 million by the end of this year.”
Though not as exciting or novel as the wind or solar market, industrial waste energy recovery and combined heat and power generation are two of the most economical and efficient ways to address the problem of greenhouse gas emissions and their contribution to global climate change, according to Casten.
“We will not touch a project that will not meet three criteria: it has to generate profits for us, it has to generate profits for our customers, and it has to reduce greenhouse gas emissions,” said Casten.
According to studies from the U.S. Department of Energy and the Environmental Protection Agency, cited by Recycled Energy Development, recycling wasted energy could generate nearly 200,000 megawatts of clean power, equal to about 20% of U.S. electricity generating capacity. If implemented, those waste heat and combined cycle projects could cut greenhouse gas emissions by 20%, the company said.
The root of the problem is the inefficiency of the modern utility industry. “The electric industry is primarily designed to throw fuel away,” Casten said. “If all you did was return [utility’s efficiency] to where they were at in 1910 you would dramatically slash energy rates and you would exceed the carbon reductions that we would have been required to achieve under the Kyoto Protocol.”
At Recycled Energy Development, the capital will be used to pay for the upfront costs of waste-heat-conversion projects with customers. Casten estimated that a typical project would be in the range of $15 million to $50 million. The company will then enter into long-term power purchase agreements with its customers and leverage those revenue streams with debt or other financial structures on the back end, Casten said.
The company will also sell excess energy back to the utility grid and potentially any emission credits that the power projects generate, the company said.
“Once [contracting] is done you’ve got a project with a pretty steady stream of annuities, which is available for a whole lot of financing structures,” according to Casten. “It’s well within the range of plausibility that $500 million in equity gets at least $1 billion in debt down the road.”
Both Casten and his father, company chairman Thomas Casten, have spent years working in the power recovery business. The elder Casten previously founded Primary Energy Ventures LLC, which was sold to Edmonton, Alberta-based Epcor Power LP for $380 million in August 2006. Meanwhile, Sean Casten was the founder and Chief Executive of Turner Falls, Mass.-based Turbosteam Corp., now a Recycled Energy Development subsidiary.
Though the opportunity for waste heat recovery is massive, with Casten predicting the total market to be in the range of $350 billion, there are other competitors in the space. Chevron Energy Solutions, a subsidiary of the San Ramon, Calif.-based Chevron Corp., and Primary Energy Ventures are both also providing energy conservation consulting services that can include the development of projects.
“You could walk into the Amazon and the fact that four other people are there doesn’t mean you’re going to trip on each other,” Casten said, dismissing concerns over competition.
More troubling for the company is the regulatory view of waste recovery projects.
Many states that have developed renewable portfolio standards have not included waste heat recovery as a renewable power source. The current energy bill that is being debated in Congress may include waste heat recovery as a renewable resource, but it is still being discussed.
Ultimately, Casten said that the investment from Denham Capital will do more to encourage the growth of the waste heat recovery market than any regulation.
“If you can get $1.5 billion and put it to work to reduce greenhouse gas emissions, then that will galvanize imitation much faster than telling a regulator that they’re incentivizing the wrong behavior,” Casten said.
Reach Denham Capital at 617-531-4864.
Hope you’ll forgive the horn-tooting, but we think this is pretty big news.