Jun 10, 2021
[6 min Read]
CLNE presents a promising future and attractive opportunity for investors given the energy transition the world is undergoing. With CLNE'S established brand and reputation in the renewable gas industry, I believe they are well-positioned to serve the growing demands for RNG. To see similar analyses to this one, give my account a follow to be updated whenever I post!
Clean Energy Fuels Corp. (NASDAQ: CLNE) provides natural gas as an alternative fuel for vehicle fleets and relating fueling solutions primarily in the United States and Canada. The company supplies renewable natural gas (RNG), compressed natural gas (CNG), and liquified natural gas (LNG) for light, medium, and heavy-duty vehicles. They serve heavy-duty trucking, airports, public transit, industrial, and institutional energy users as well as government fleets. With over 20 years in the alternative fuels industry, they are one of the largest (if not largest) U.S providers of FNG for commercial transportation and have a unique position in the market because of their valuable Environmental Credits.
RNG which is delivered as either CNG or LNG is created by the recovery and processing of naturally occurring, environmentally detrimental waste methane from non-fossil fuel sources such as dairy farms and agriculture facilities. Methane is one of the most potent climate-harming greenhouse gases with a big impact on global warming, 25 times more powerful than carbon dioxide. They are focused on developing, owning, and operating dairy and other livestock waste RNG projects and supplying RNG to their customers in the commercial transportation sector.
CLNE's mission is to obtain as much RNG supply as possible. In the longer term, they're expecting to also provide hydrogen fuel to vehicle fleets, and possibly add EV charging stations to their station sites by using their RNG to generate clean electricity to power EVs.
CLNE's vision is “to deliver renewable transportation fuel for a cleaner, safer more equitable tomorrow.” The three key factors used to drive their goals forward is:
CLNE's strategy to maintain and increase its position as the leading provider of RNG to the commercial transportation sector in the U.S is supported through numerous strategies such as:
Revenue: CLNE's 2020 total revenue was $209.2M which had a YoY change from 2019 of -15.2% or a decrease of $52.3M. This decrease was primarily due to lower volume-related sales but partially offset by customer contracts with their Zero Now truck financing program and an increase in station construction sales. Of the total revenue in 2020, 84.1% was from volume-related revenue mostly from fuel sales and the performance of O&M services. Despite 2020's bad financial performance attributable to economic conditions, we also saw similar companies in the industry posting decreased revenues. CLNE is positioned for high revenues with the upcoming ventures and new developments that will allow the company to expand and meet the growing demand in the transportation sector.
Expenses: Total cost of sales accounted for 63.5% of total revenue; 55.4% from product cost of sales and 8.1% from service cost of sales. The total cost of sales decreased by 12.6% or $26.7M YoY primarily due to decreased gallons delivered during 2020 and their lower effective cost per gallon. The total operating expenses also decreased but attributable to decreased revenues. In the prior year (2018 to 2019), we saw decreased operating expenses and increased operating margin which was due to cost reduction efforts. Going forward if CLNE is able to continue decreasing their operating expenses and keep at a positive operating margin then they'll be able to post a profitable period in the upcoming years that'll help with seeing shareholder returns.
Debt: CLNE has a short-term debt of $3.59M and long-term debt of $82.09M of totalling $85.68M making up 44.6% of their total liabilities. They have a debt ratio of 0.27 which is relatively low compared to the competitors identified that have an average of 0.68; representing CLNE's lower debt to assets. Despite the capital-intensive industry CLNE is operating in, their lower ratio is primarily attributed to their high cash position. The lower ratio also gives insight into the company's ability to pay off their future debts and their lower risk for bankruptcy (
Amazon: It was announced in April this year that CLNE signed an agreement with Amazon to provide low and negative carbon RNG. The fuel will be provided at 27 existing CLNE fuelling stations and another 19 new or upgraded stations that expects to be constructed by the end of the year. This agreement was announced after Amazon's action earlier this year to reduce the carbon footprint of their delivery fleets.
Bp Joint Venture: A joint venture was finalized in March this year with BP Products North America Inc. to develop, own and operate new RNG projects at dairies and other agriculture facilities. This joint venture is valued at upwards of $400M with BP investing a total of $50M. This joint venture will help to RNG production and meet the growing demand.
Chevron Adopt-a-Port: Chevron U.S.A a wholly-owned subsidiary of Chevron Corp is investing a total of $28M into this initiative that focuses on providing truck operators near ports in Los Angeles and Long Beach with cleaner, carbon-negative RNG in order to reduce GHG emissions. Chevron's funding will allow truck operators to subsidize the cost of buying new or converting RNG-powered trucks.
The demand for RNG produced from biogas is significantly growing due to federal, state and local regulatory authorities on reducing the emission of GHG such as methane. Over the past decade, the transportation sector has been the fastest-growing end-market for RNG where it's used as a replacement for fossil-based fuel. This growth is mainly driven by an increased focus on reducing GHGs across America and worldwide. With any car, truck, bus, or any other vehicle capable of being manufactured to run on RNG, the shift to RNG is imminent. In the U.S, renewable energy growth is expected to accelerate in 2021 and forward as the Biden administration starts to execute many initiatives including:
Renewable natural gas production has already more than doubled from 2015 to 2018 growing by an annual average of 30%. If the industry continues to grow at this rate of growth, we can expect that the industry would reach 1B gallons of the annual production of RNG transportation fuel in 2022.
With CLNE being the biggest producer of RNG in the U.S and the increased demand for RNG set to accelerate as stricter restrictions come into place, we will see a shift in the transportation industry into cleaner fuel sources. The company is well-positioned in the RNG industry to continue being a leading provider and deliver attractive returns for shareholders in the future to come. Going forward, I hope to see more news on developments with bigger corporations looking to hop on the RNG wave. I think it is only soon until cities regulate the use of RNG in more commercial use transport like public transport and we see the shift to decarbonized transport