Renewable Tech Ventures Renewable Tech Ventures

A Conversation with Consolidated Energy Systems

6/11/2013
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Recently, RTV sat down with Roger Swenson, President of Consolidated Engergy Systems, to discuss their product, Liquefied Processed Carbon.

Q: What is your product?
A: We take a low cost solid waste product from the petroleum refining industry and process it into a liquid fuel called LPC which can replace expensive fuel oil in some sectors of the electric power industry. Today, this solid waste product is typically sold into the worldwide coal market and combusted in electric power generators with low efficiencies. On the other hand, LPC can be combusted in existing power generation systems with higher efficiency generation technology which not only reduces costs but the carbon emissions per unit of electric power produced are reduced by up to one third compared to the typical use of this product.

Q: Where would you be marketing the product?
A: We are targeting electric utilities located in relatively remote areas with no indigenous fuel sources that rely on imported fuel oil. Although the price of fuel oil has risen significantly in the last decade it is still the fuel of choice in this market because it can be combusted in existing high efficiency power generators and is easy to transport and store. At present, the only alternative for these utilities is importing compressed or liquefied natural gas which will require large investments in specialized transportation and storage systems. LPC on the other hand can utilize the existing transportation and storage infrastructure.
Caribbean utilities provide a good example of such a market; one particular Caribbean utility consumes over 2.5 million barrels of fuel oil for power generation at an annual market cost of over 250 million U.S Dollars. Switching to LPC could potentially reduce this utility's fuel bill by one third to one half while creating a great deal of value to Consolidated. This reduction is significant in a market where the GDP per person is about twenty percent of the U.S. but the fuel component cost of electricity consumed is eight times higher.

Q: You mention one Caribbean market with a value of over 250 million U.S. Dollars. What is the value of the entire market?
A: Our initial target market is worth about $2.5 billion U.S. Dollars annually. We have selected this particular slice of the market because it uses power generation technology that is well suited for combusting LPC fuel and have favorable market conditions. The worldwide market is worth about $12 billion annually at the current cost of fuel oil, but will require further development of the LPC fuel to suit a wider range of power generation technologies.

Q: What is the time frame for getting this product to market?
A: It will likely be two to three years before LPC becomes widely available. We have developed the process for turning this low cost solid waste into a liquid fuel that can bring significant cost savings to our target market, and we are now working on optimizing the processing and undertaking preliminary engineering for a processing plant.

Q: What are the next big steps CES is looking to achieve?
A: The utilities that make up this market have collectively invested hundreds of millions of U.S. Dollars in power generation equipment and have a mandate to supply their customers with reliable electric service. As such, in order to be successful, the product has to be approved by the power generation equipment manufacturers. We have developed a strategic relationship with a major manufacturer of the power generation technology that is widely employed within our initial target market, and are about to embark on a yearlong joint testing program in order to gain approval for the use of LPC fuel in equipment of their design.
Phase one of this test will employ a test facility that is based upon power generation system components used in the equipment manufacturers most advanced power generation systems. We anticipate that phase one will be completed by the end of this year and further testing of the LPC fuel will then be handled by the equipment manufacturer at their R&D facility. Once the LPC testing enters the second phase and the preliminary engineering for a processing plant has been completed, we plan to introduce the LPC fuel to the worldwide customer base. Our strategy is to identify a customer who is willing to convert an existing power generation unit to operate on LPC so the fuel can be demonstrated in a commercial application. This effort will be supported by the equipment manufacturer who will provide the components needed to convert the power system and supervise the installation.
In the meantime, we are in discussions with large industry stakeholders who can take advantage of a new high-value outlet for their product by upgrading it to LPC instead of simply selling it into the coal displacement market. Some industry stakeholders are also in the business of upgrading the product to serve the worldwide metals industry and have the financial and physical infrastructure to build and operate an LPC processing plant. The LPC plant can be constructed using existing technology and will be a modular design that can be replicated as demand increases.

Q: What role will Consolidated play in the long-term marketing of LPC?
A: Once we have established a strategic partnership with an industry stakeholder and identified a customer who will demonstrate the commercial application of LPC, we plan to enter into supply agreements with other customers within the initial target market. The goal is to build a portfolio of about $500 million U.S. Dollars' worth of annual supply of LPC based upon long term agreements within the next three years. The potential annual net income from such a portfolio is in the range of 150 - 200 million U.S. Dollars. At such time, Consolidated will entertain an exit for our investors since the company's valuation at that point should make it a very attractive proposition.
Consolidated is also working on a carbon capture solution that will make it possible to capture and utilize the carbon released during combustion in enhanced oil recovery operations or store it underground depending on local market conditions. Furthermore, at some stage we will likely begin testing of LPC and bio fuel blends in order to be able to serve markets that wish to have a renewable component in their fuel mix.

Q: What is your investment need at this point?
A: We believe we are looking at our last round of venture cap funding that will take us through the initial testing in engine systems and give us enough capital to build a small LPC processing system.
After this round, we will look to enter into discussions with larger industry participants that now produce and market the refinery product around the world. We think that our new high value outlet for their product will be an exciting, innovative way to create value for those companies. We expect that next investment to get us through final engine testing and commercial agreements with those end use targets to give us a scale to design the processing system to meet those needs. We will be targeting obtaining long term contracts for sales of $500 million per year with potential net income of over $200 million for producing and marketing the LPC fuel.

Q: Why did you choose to partner with RTV, and in what ways has this investment relationship been particularly helpful for CES?
A: Part of our background in the power generation development business production led us to have relationships with principals in RTV. We knew that with RTV's interest in more efficient technologies and cleaner generation, they would see the merit in our vision. They have provided us with their own insight concerning the appropriate ways to look at the investment world in relation to our company. That has helped create more value for all our investors and we look forward to their continued input to help us be as successful as possible.
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