Mandates supporting renewable fuel production now span most developed countries, including Canada and the United States, highlighting its improving cost-competitiveness, rising global energy demand and the need to shift away from fossil fuels – which represent more than 80 per cent of global energy supply – to bring net-zero 2050 goals into reality.
To stand a chance at satisfying the consumer while keeping long-term decarbonization in sight, analysts agree that industry must make more efficient use of by-products, including waste, for the purposes of renewable fuel, with the International Energy Agency (IEA) estimating that output would have to quadruple through 2030 to keep the planet out of harm’s way.
Consequently, the connection between overcoming climate change and optimizing the circular economy represents a potentially asymmetric opportunity to pair waste streams with technologies capable of cleanly transforming them into bioenergy – energy produced from organic material – which, at a 55 per cent share, stands in the precarious position of being the largest source of renewable fuel globally, while requiring production to double by 2030, according to IEA estimates, to keep a net-zero 2050 within view.
Cielo Waste Solutions’ high-conviction, early-stage thesis
A company ideally positioned to create value from the global unmet need for bioenergy is Cielo Waste Solutions (TSXV:CMC), market capitalization C$14.41 million, a waste-to-energy project developer on track to deliver low-carbon fuel to market by 2028, with each new development milestone drawing attention to how its stock stands at an almost complete loss since 2020, setting the stage for a highly dislocated contrarian play.
This article is disseminated in partnership with Cielo Waste Solutions Corp. It is intended to inform investors and should not be taken as a recommendation or financial advice.
As I discussed in my profile in September, Cielo Waste is a must-consider stock for renewable energy investors thanks to its scalable approach to bioenergy production, which we can break down into:
- Identifying bioenergy markets with heightened demand.
- Acquiring low-emission biomass conversion technologies to supply these markets.
- Building production facilities in jurisdictions strategically chosen to capitalize on government incentives, setting operations up to both maximize shareholder value and bolster the global renewable energy supply chain.
The company’s first facility, Project Nexus, will be located in British Columbia (BC) and planning is well underway, guided by a leadership team well-versed in business building, sustainable resource development and associated regulatory pathways, actively laying the foundation to reach production over the next three years and turn the stock around through improvements on the income statement.
Project Nexus: A proof-of-concept commercial facility built on solid fundamentals
Project Nexus will use woody biomass including scrap railway ties as feedstock, tapping into a waste stream supported by secure, long-term supply, with more than 20 million ties requiring replacement across Canada and the United States every year, the vast majority of which would otherwise be burnt or sent to a landfill.
While wood offers a diversity of sustainable applications across the bioenergy spectrum, including residential and commercial heating, as well as cement and steel manufacturing, Cielo Waste will process the biomass into sustainable aviation fuel (SAF), pivoting from an initial focus on renewable natural gas (RNG) and hydrogen, with the former’s global market expected to enter a near-term glut forecasted to last through the decade, driven by more than 174 million metric tons of annual capacity currently under construction. SAF’s commercial prospects are notably more attractive than hydrogen and RNG for numerous reasons, more than justifying the company’s decision:
- From a broader perspective, the British Columbia and Canadian government’s action plan to usher the domestic aviation industry towards 10 per cent SAF use by 2030 creates the conditions for robust near-term demand growth, giving that SAF usage sits at around 1 per cent today.
- Domestic SAF supply is understandably in a steep shortage to meet this aspirational goal of 10x growth in only five short years.
- Canada’s stance mirrors a growing global commitment to decarbonize the aviation industry, representing a US$2.06 billion market expected to more than 10x to US$25.62 billion by 2030, leveraging SAF’s status as a drop-in fuel, meaning it can be directly substituted for conventional aviation fuel without aircraft modifications, enabling significant emission reductions for nothing more than fuel costs.
- SAF is able to make more abundant use of synthetic gas, which produces lower emissions than RNG, granting it a more attractive environmental profile.
- To motivate Canadian companies to increase SAF usage, there are also numerous federal and provincial incentives Project Nexus could help buyers qualify for, including the Low-Carbon Fuel Procurement Program and the BC Low Carbon Jet Fuel Program.
Project Nexus will tie all these benefits together through conversion efficiency, deploying a proprietary gasification technology to treat the railway ties with minimal water and electricity requirements, enabling modular and easily scalable rollouts to dynamically respond to market demand.
Cielo Waste’s pivot from hydrogen and RNG to SAF, demonstrating leadership’s commitment to value creation, builds conviction in Project Nexus’ near-term production and the development of subsequent facilities, with the company keen to replicate its technologically agnostic business model with complimentary market-ready technologies delivering renewable fuels in industries most in need of cutting emissions.
Leadership delivered more value-accretive news in October when it announced that Project Nexus will be located in Prince George, BC, a well-established industrial hub with robust infrastructure to scale its way towards increasingly efficient cash flow. Prince George’s key resources include:
- Widespread rail access to connect Project Nexus to fuel gathering systems.
- A skilled labour force and abundant feedstock opportunities stemming from a rich ecosystem of construction, manufacturing and biofuel facilities in the area.
- Alignment with the CleanBC initiative to lower emissions by 40 per cent by 2030, as well as the province’s advanced environmental incentive programs, which present Cielo Waste with more opportunities to get Project Nexus off the ground. Let’s go over the most prospective among them:
- BC’s Low-Carbon Fuel Standard (LCFS) initiative rewards fuel suppliers based on how many emissions they cut compared to fossil fuels, with participants earning compliance credits they can put towards a market that traded more than C$600 million in value in 2024. SAF commands the highest LCFS credit value among qualifying clean fuels.
- BC Hydro offers a wide array of energy efficiency initiatives, including new projects committed to using clean energy. Canada’s Clean Fuels Fund will grant up to C$55 million to projects that expand domestic clean fuel production capacity, including up to C$5 million to substantiate project value through economic studies.
- Encompassing these potential sources of capital, we have BC’s proposed Bill 15, a piece of legislation that would grant ministers the right to expedite the permitting and development of projects they deem of provincial significance, with Project Nexus falling squarely within that characterization.
Backed by a thesis built on strong, data-driven fundamentals, including a well-rounded leadership team, a biofuel in the midst of exponential demand and an inaugural facility positioned for low-cost production, Cielo Waste finds itself at the beginning of a high-growth story the broader market has yet to fully key into.
From this under-the-radar position, the company is equipped to continue advancing Project Nexus towards construction, proving why its pessimistic stock trajectory is, in fact, a deep-value scenario.
Waste, like value, is in the eye of the beholder
Some investors are in the habit of checking the 52-week highs for prospective stocks, attuned to the notion of picking winners positioned to keep on winning, and the strategy is a perfectly functional one, supposing company fundamentals look like they can support further operational growth in line with profitability. Successful companies in this cohort tend to trade at hefty earnings multiples that turn out to have been conservative in retrospect.
This group stands in contrast to more bargain-oriented investors, whose predilection for the 52-week lows to populate their watchlists and portfolios aligns them with companies that look out of favour at first glance. This requires a thorough due diligence process to hopefully reveal strong businesses inaccurately reflected in their stock prices, setting investors up to capitalize on re-valuations once the market realizes what it’s missing.
It’s under the latter category that Cielo Waste Solutions is making its presence felt, with investors harboring significant losses over the past five years, despite the company having demonstrated clear progress on its mission to convert waste streams into high-value renewable energy products, expedite global decarbonization and create significant shareholder value in the process.
With Cielo Waste’s participation in the sustainable aviation fuel supply chain only a few short years away, investors can still get in on the ground floor before a potentially exponential reversal in momentum, recognizing that the company’s value proposition – avoiding landfill methane emissions, eliminating toxic waste and generating cleaner energy – is acutely relevant today.
Join the discussion: Find out what investors are saying about this renewable energy stock on the Cielo Waste Solutions Corp. Bullboard and make sure to explore the rest of Stockhouse’s stock forums and message boards.
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