The company planning to put a massive jet fuel plant in Lake Preston told investors Thursday that updated guidance from the federal government on carbon credits for biofuels could be a boon to its prospects for success.
Englewood, Colorado-based Gevo wants to build a plant in South Dakota to convert ethanol into sustainable jet fuel, with a project cost of $1 billion or more. President Joe Biden’s Inflation Reduction Act included billions of dollars to encourage production of such fuel, which currently represents a minuscule share of the overall jet fuel market.
Governor Kristi Noem, whose son-in-law a registered lobbyist for Gevohas called the company’s Net Zero-1 plant “the largest economic development project in South Dakota history.”
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Critics in South Dakota have questioned whether Net Zero-1 will ever become a reality, citing Gevo’s stock price below $1 and its reliance on federal subsidies.
During Thursday’s fourth-quarter earnings call, CEO Patrick Gruber and other company executives talked about multiple paths to profitability, some of which are separate from Lake Preston’s ambitions.
For example, Gevo currently operates a renewable natural gas plant in northwest Iowa. It also has software called Verity to track the carbon footprint of fields, which Gruber says will be valuable for any industry that values carbon reduction.
The company ended the first quarter with cash, cash equivalents and restricted cash of $340.6 million. Updated guidance on how the federal government will calculate biofuel feedstock carbon scores, which provide points for low-carbon corn or soybeans, are a positive development, Gruber said.
‘We have money. I don’t like our stock price at all, but thank God we are making progress,” Gruber said.
Moving parts, uncertainties
feeling
Several dominoes need to fall Gevo’s way before the NZ-1 plant – its largest project – becomes a fixture in rural Kingsbury County.
The economics of the project relate to Gevo’s ability to offset high production costs with carbon credits from the federal government. The Biden bill’s incentives for sustainable aviation fuel are part of a series of policies that hope to reduce carbon dioxide emissions into the atmosphere as the gas contributes to climate change.
Gevo is in the process of securing a $950 million federal loan guarantee from the U.S. Department of Energy to stake its claim for a low-carbon future. To secure the loan, Gevo must prove that NZ-1 fuel will achieve CO2 reductions – specifically by producing biofuels that reduce greenhouse gas emissions by 50% compared to traditional fuel.
To do that, Gruber and other company representatives have repeatedly said that Net Zero-1 cannot make a profit in South Dakota without access to a carbon capture pipeline from Summit Carbon Solutions. A link with the pipeline would lower the CO2 score of Gevo fuel, increasing its market value.
That $8 billion pipeline remains unbuilt and mired in controversy. Like Gevo, it would take advantage of federal tax breaks, in its case by capturing carbon dioxide gas from 57 ethanol plants in the Midwest and pumping it to a holding site in North Dakota.
The Summit project has sparked backlash and lawsuits from landowners — one of which has ended up in the South Dakota Supreme Court and is awaiting a ruling — and a host of legislative proposals. A “constitution” adopted in the final hours of the 2024 legislative session was sold as a compromise between the company and its opponents, but some Summit opponents nevertheless hope to challenge it through a ballot initiative this fall.
On Thursday, Gevo Chief Operating Officer Chris Ryan reiterated the importance of the carbon pipeline. By joining the pipeline, Gevo could reduce its carbon intensity score and, by extension, the market value of its products for airlines looking to reduce their own carbon footprint.
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“We want to see the CO2 pipeline move forward in South Dakota to keep Lake Preston our most attractive location for sustainable jet fuel production,” Ryan said. “But we have developed a range of potential sites that we have prequalified for future Net Zero projects.”
Eric Frey, Gevo’s vice president of finance, declined to disclose these locations in an email after the earnings call.
However, Lake Preston is attractive for reasons beyond just a pipeline. Ryan mentioned the proximity to rail transportation and the relative proximity to airports in Chicago and Minneapolis.
“Both airports are in states with a sustainable jet fuel tax credit of $1.50 per gallon,” Ryan said.
Many farmers in the Lake Preston area are already using “climate smart” farming practices, such as planting without soil or using certain types of fertilizers, he said.
The company initially planned to spend up to $175 million on the fuel plant project this year. During the earnings call, Ryan said that figure has fallen to between $90 million and $125 million, largely due to the deferral of certain construction costs until the federal loan guarantee is secured.
CEO: The carbon model bodes well
Summit’s future is uncertain, but another piece of Gevo’s economic puzzle is closer to solid, Gruber said Thursday.
The CEO announced a final decision by the U.S. Treasury Department on a carbon score calculation model from Argonne National Laboratories called Greenhouse Gases, Regulated Emissions, and Energy Use in Technologies (GREET).
The Biden infrastructure package directed the Department of Energy to initially use a different model to calculate emissions reductions from sustainable jet fuel. However, US agricultural groups have pilloried that original model for being Eurocentric and failing to take into account climate-friendly US agricultural practices.
In response, the Energy Department announced its intention to use GREET last fall, but the agency also determined that the model needed an update for use as a standard for sustainable aviation fuel. It offers credits for “bundling” agricultural practices such as no-till and cover cropping.
That updated model received its final approval Monday for use in so-called 40B tax credits, which expire in 2024. The following year, the credits will transition to what the infrastructure bill called 45Z credits.
The adoption of the GREET model for the first round of jet fuel credits bodes well for the prospects next year, Gruber told investors on Thursday.
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“It recognizes the many carbon reductions that we’ve been talking about,” Gruber said. “We are making good progress towards the recognition of climate-smart agriculture.”
Some farmer groups have raised concerns about the updated GREET model with the president of the American Soybean Association arguing that cropping the cover is not realistic in all parts of the country.
Gruber nodded on the earnings call to concerns about “bundling” practices, but still called the updated guidance a step in the right direction. Gevo’s hope is that the model will be updated again to recognize what he called “field-level” CO2 tracking – via the company’s Verity platform – which would negate the need for bundling by directly measuring CO2 emissions for each climate-smart practice applied on the farm. .
Paul Bloom, Gevo’s chief carbon officer, told investors that Verity, which some farmers in Lake Preston are already using to collect payments, will help farmers prove the low-carbon value of their crops.
“We want farmers to be rewarded for reducing their carbon footprint and helping to promote rural economic development when farming is done right,” Bloom said.
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