Wood pellet and growth prospects with Enviva CEO Thomas Meth
We interviewed Thomas Meth, president and CEO of leading industrial wood pellet producer Enviva, who discusses the future headwinds and tailwinds facing the wood pellet industry
Meth is a co-founder of Enviva. Prior to his appointment as CEO, he served as chief commercial officer and president. He led the company’s business development and sales and commercial customer relations teams and developed the fiber procurement and sustainability teams.
Meth led the launch of the US Industrial Pellet Association (USIPA) in 2011, a wood energy sector trade association where he currently serves as chairman.
What are your short and long-term priorities for Enviva?
In the short-term, we continue to be a growing, Environmental Social and Governance (ESG) driven renewable energy company that produces and sells wood pellets under long-term, take-or-pay contracts that provide visible, growing cash flows. As the demand to de-fossilize power, heat, and industry increases, we are investing in accretive, fully contracted assets that are expected to fuel cash flow growth well into the future.
Looking ahead, the wood biomass industry is poised to play a pivotal role in building a global bio-based economy while mitigating climate change.
When Enviva first entered the export wood pellet business, where did you see the new industry heading?
When we began in 2004, we built small, distributed power and heat plants. Early on, we realized that the real gap in the biomass energy base was not people building and operating the power plants, rather it was the aggregation and the commoditization of the fuel. That’s when we really focused on sourcing and producing the fuel side of the business to become a pure play in 2010 and that has been our growth area.
Nineteen years later, we have evolved into the world’s largest producer of sustainable wood biomass.
What are the current and anticipated headwinds/tailwinds facing the industrial wood pellet industry?
The applications for our product have dramatically increased and are delivered into a variety of use cases more than ever before. In addition to power and heat, we are seeing demand tailwinds across aggregates – like lime, cement, and asphalt – as well as methanol, metals, and mining, to name a number of them.
On the US front, with cellulosic biofuels from biomass a notable part of the Renewable Fuel Standard (RFS), we see a path to utilizing the biomass industries’ existing or planned installed capacity to accelerate renewable liquid fuel production, most notably Sustainable Aviation Fuel (SAF) to meet President Biden’s Grand SAF Challenge.
What are your thoughts on the future of wood based SAF? Do you anticipate full-volume usage of the contracted volumes in the near-term?
We see SAF as an immense growth opportunity in the US market. Historically, Enviva’s business has been export-driven, with a limited domestic customer base. The Environmental Protection Agency’s (EPA) revised provisions provide a way for potential biomass customers to utilize biointermediates to meet their goals of reducing biofuel production costs and expand opportunities for more cost-effective cellulosic biofuels – like woody biomass.
Europe is pursuing similar policy initiatives such as ReFuelEU, with the European Parliament voting in support of draft rules to require SAF to account for at least 85 percent of European Union (EU) aviation fuel by 2050. Similarly, the United Kingdom announced the introduction of an SAF mandate, requiring at least 10 percent of jet fuel to be produced sustainably by 2030.
Could you elaborate on your statement about customers’ having longer-term views of achieving net-zero targets?
The key driver of demand is the macro theme around the world – the transition away from an economy that has been based historically on fossil fuels and hydrocarbons, to one based on renewable alternatives. What we are seeing around the world, and most recently in the United States, is a global effort to change the outcomes of the way energy is sourced, produced, and used.
We are confident in our growth prospects. We cannot build our forthcoming facilities (Bond, Epes, etc.) fast enough and we expect to build these facilities at a five times the Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) multiple.
Regardless of the volatility of the market (labor shortages, banks closing, higher vehicle and fuel prices, etc.) our business remains resilient and can continue to grow at attractive rates, saving our customers money compared to fossil fuel alternatives.
Does Enviva have plans to develop capacity in the Pacific Northwest?
Enviva does not have any near-term plans for developing our own capacity in the Pacific Northwest. We are having encouraging conversations with states like California in terms of being part of the solution to reduce wildfire conditions by helping to build a fiber economy that puts waste wood to beneficial use, for example in SAF and biofuel production.
From a near-term perspective, the Pacific Rim region is growing in importance to us as a third-party supply basin. European markets continue to provide a strong demand, even with EU-ETS carbon pricing reaching a high of €100 in the first quarter of 2023. Enviva has demonstrated a track record for procuring volumes from third-party producers and selling for a profit into the spot market and long-term contracts. We are currently working to improve shipping costs to this region to drive down costs.
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