Renova Energy Plc

How is it social?

The use of ethanol fuel blends can reduce greenhouse gas emissions from the automotive sector. Renova states that it has reduced fossil fuel usage in all areas of its business, "greening" its supply chain.  The anaerobic digestor in the new Idaho factory was to be powered on thin stillage, reducing fossil fuel reliance.

However, the net environmental and social benefit of biofuel production is questionable. The clearing of land for biofuel manufacture not only destroys valuable ecosystems (e.g. rainforests in Indonesia are being burnt down to make way for palm oil feedstock), but may also produce a greater volume of greenhouse gas emissions than is saved through the use of biofuels. Moreover, the pesticides used in the production of the feedstock (usually maize), and the emissions cost of its transportation, squeezes the net reduction of carbon dioxide from using an ethanol blend.   Finally, the spike in demand for corn from the biofuels industry has already brought about an increase in the price of vital foodstuffs, giving rise to the “food versus fuel” debate.

What is its business model?

Renova Energy manufactures and distributes fuel-grade ethanol, a corn-derived biofuel added to gasoline. Ethanol is usually sold in gasoline blends of E10 (10% ethanol) and E20 (20% ethanol). An E85 blend (85% ethanol and 15% gasoline) is increasingly available, but it can only be used by flexible fuel vehicles (FFVs).  

Renova was originally a distribution and marketing company, and is effectively a logistics business. The firm simplifies the production, distribution and marketing of ethanol. The company has 85 ethanol plants in the United States. It principally operates in the Rocky Mountain States of South Dakota, Nebraska, Colorado, Wyoming, Utah, Idaho and Washington. According to the firm, local knowledge of the maize-growing (corn) areas in the Eastern states, and premium prices for ethanol in the West, gives it a strong foothold.    

Federal and state legislation is a powerful driver for Renova. The Fuels Security Act of 2005 included the Renewable Fuel Standard, which legislated for an increase in the mandatory use of renewable fuels as an ingredient in automotive fuel. Renova estimates its target market to have an annual demand for 1bn gallons of ethanol.  The company aims to be selling 100m gallons by 2011.  

Renova has a network of bulk storage depots which are mostly leased. This network permits the firm to supply a lower cost alternative to standard gasoline. The distribution network enables Renova to capitalise on the growth in ethanol production in the facilities of others. Renova can act as a distributor for companies without the facilities or financial commitment. 

The company is planning to construct a combined ethanol and power plant at Heyburn Idaho. The factory is designed to be heat and energy self-sufficient through the use of an anaerobic digestor. In the long-term, Renova will have to address the availibility of the maize feedstock, the potential of existing and future regulatory assistance, and the development of conversion technologies.

Its history

Renova was founded in 1992 as an ethanol distribution company in the Rocky Mountain States.  Its first production facility was built in 1995 in Torrington, Wyoming. 

Chris Thomas, the current chairman, acquired a stake in 2002 from his then employer, Melrose, having identified it as a good growth proposition. Melrose, however, was unable to sell out in the late 1990s and continued to hold considerable equity in the company until its listing on AIM in June 2005. The board saw the market as a means to access capital, as interest in environmental companies rocketed. Renova raised $11.2m at flotation to fund the reconstruction of its ethanol plant in Wyoming, and to increase its production capacity by 140%.  

Continuing the policy of project-driven finance, the company made an additional placement in October 2006 to fund the construction of its second plant in Heyburn, Idaho.

In December 2007 the company identified a funding shortfall for the plant at Heyburn. The shares were suspended from trading on AIM on 17 December pending further clarification.  Renova has suspended construction at Heyburn and has issued a press release announcing that it is in breach of its banking covenants. Since late 2007 the share price has fallen drastically.

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