This is what PowerHouse believes it will be able to offer, and it is all thanks to work done over the past 20 years in Switzerland by Peter Jeney and Dr Hans Weber. These two men founded Pyromex, of which PowerHouse already own a 30% stake and has the intention of buying out the other 70%.
The Pyromex process can take virtually any type of carbon-bearing waste and turn it into a synthetic gas, leaving an inert residual char that can be used as a building material. The synthetic gas can be burnt to generate electricity, or else it can be converted, via the Fischer-Tropsch process, into liquid fuel.
The key to the Pyromex process is the temperature to which the waste is subjected. Incineration operates at a temperature of around 760?C-1,000?C and releases noxious gases and airborne pollutants into the atmosphere, while creating undesirable residuals such as tar. Pyrolysis occurs at a slightly higher temperature of 870?C-1,100?C and while it is more efficient for energy recovery, it also releases unwanted emissions and generates the same residuals. Plasma arc gasification uses high temperature plasma torches to create a heat in excess of 5,000?C. This basically turns anything into gas, but it is a high maintenance technology that consumes a lot of energy in its operation.
The Pyromex technology subjects waste to temperatures in the 1,250?C-1,700?C range, in a controlled oxygen-free environment. The waste feedstock is first shredded, then oxygen is removed and it is fed into a cylindrical reactor through which passes a resistive heating rod that produces the very high temperature.
The waste revolves through the molybdenum alloy cylinder as it is burnt, with one key element of this technology being the boron-silicon coating on the cylinder wall that stops it from melting and reflects heat back into the centre. The process converts up to 95% of the energy content of any organic waste material into a high-energy synthetic gas, while producing zero emissions and no harmful residues. Fifteen per cent of this syngas is recycled to power the process, leaving 80% of the produced energy available for sale.
Why PowerHouse has the potential to return 228% Already the technology has been successfully used on dried sewage sludge. With the lessons learnt from that, modifications have been made and now a trial is under way near Munich, where the Pyromex unit is situated alongside a mixed refuse sorting site and has permission to test 23 different waste streams. The 25 tonne per day unit was fired up at the end of July, and has been generating refuse-derived fuel. Three months of pre-commissioning trials are now under way. Following this phase the unit will be connected to an industry-proven internal combustion-based generation set of 1.3MW electrical capacity.
Assuming that these trials are successfully completed, then PowerHouse already has a number of customers lined up. It is not planning to build and operate these plants, although this might come at a later date. It intends to contract this out to Simon, a division of Simon Engineering, and also arrange for servicing by a third party. However, it will sign the contract with the customer and intends to take 30% of the value up front to ensure positive cash flow.
What could all of this be worth? According to the financial models of Merchant Securities the valuation today should be 47p, rising to 62p in a year?s time. But another clue comes from the terms of the acquisition of Pyromex. For the outstanding 70% of Pyromex, PowerHouse is paying ?2.5m immediately, with another ?15.25m ?when Powerhouse?s stock market value exceeds ?92m or it achieves a profit after tax of ?6.1m?; and another ?15.25m ?when the stock market value exceeds ?168m and the profit after tax is ?12.2m?. Today PowerHouse is valued at just ?28m. These payment terms suggest that company insiders expect a big valuation uplift from here.
RHPS Verdict: Australia?s leading coal and clean energy company Linc Energy holds a 9.99% stake in PowerHouse because it thinks that the Pyromex process could convert low grade or waste coal into energy in a way that produces no emissions. This is just one more intriguing aspect of a business that will be paid by both by its suppliers, of waste, and by its customers, for electricity. Now there are of course a few risks that we need to consider. A lot depends on the success of the final trials in Munich. It is important thatn these go according to plan. And even if the trial is successful, we may still see a slower pace of orders from customers if the global economy sinks into the mire. But PowerHouse has already named thirteen actual customers or ?immediate prospects? with projects valued at $130.5m, and has another 120 prospects accounting for a total sales pipeline worth over $1bn. Assuming that today?s trials at Munich are a success then PowerHouse could soon be selling this clean, green, energy solution all over the world. With a target price of 25p
LNC Price at posting:
$1.82 Sentiment: LT Buy Disclosure: Held
