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Xebec CEO Kurt Sorschak talks to Cantech Letter

Quebec-based Xebec (TSX:XBC) is a lesson in patience.

For the better part of a decade CEO Kurt Sorschak toiled in relative obscurity, building a cleantech company he felt would have increasing relevance as the years passed.

But for a time, Xebec, which develops, builds, sells and services a wide range of pressure swing adsorption gas purification systems, seemed destined for a permanent space in the bargain bin.

Not today.

Today, Xebec is on the upswing, driven by the most elusive of words in the cleantech space: profit. The company’s recent third quarter results showed a whopping 130 per cent topline growth, positive EBITDA and a profit.

Sorschak sat down with Cantech Letter recently to talk about the company’s long history, the improving demand for the company’s reliable adsorption technology, and its newly firmed up balance sheet.

Kurt, can you tell us a bit about the history of Xebec?
Fifty years ago – 1967, Xebec started manufacturing compressed air dryers for the North American industrial market. Twenty years later, Xebec entered the developing clean energy space by supplying natural gas dryers for Compressed Natural Gas (CNG) fueling stations. I joined the company in 2004 as General Manager. Recognizing the potential of the growing clean energy opportunity, I took the company public in 2009 through a reverse take-over of a Vancouver-based technology company, and set about turning the focus from compressed air and gas to biogas purification.

What is adsorption?
Adsorption is the process where a gas or liquid accumulates on the surface of a solid or a liquid (adsorbent) forming a film of molecules or atoms (adsorbate). This process differs from the absorption process in which a substance diffuses into a liquid or a solid to form a solution. It is this process that is at the core of our purification and filtration technology.

Time now tells the tale for technologies that actually deliver as promised. Xebec and its reliable adsorption technology is gaining traction and moving to the forefront…

After decades, Xebec is finally profitable. What took so long?
Over the last few decades, a number of companies have introduced a variety of solutions to purify biogas which can then be used to produce renewable natural gas (RNG). Technologies such as water washing, pressure swing adsorption, amine gas treating, and membranes all deliver different recovery/purification rates, as well as different operating costs and bottom line results. As a global leader in gas adsorption, Xebec has been committed to delivering the best solution on the market through continuous improvement in technology innovation and customer need. We’ve now delivered more than 50 biogas upgrading systems around the world (there are about 500 plants operating globally), and with each installation experience, the process has been optimized and refined to maximize the efficiency of the plant.

Time now tells the tale for the technologies that actually deliver as promised. Xebec and its reliable adsorption technology is gaining traction and moving to the forefront. We have sold over 20 systems in France in the last 10 months alone, making us the market leader there. We just sold our first system in Italy which will become a significant market for us in 2018. We hope to establish ourselves as the market leader there as well.

Is your profitability sustainable?
The use of RNG in Europe is driven by the Renewable Energy Directive (RED) that obliges member countries to have 10% renewable fuels in their fuel mix by 2020. As of next year, only new biofuels facilities that produce renewable fuels that reduce GHG emissions by at least 60% compared to a base line, can be built. Currently RNG is the only viable option with a GHG reduction of 95%. No other meaningful quantities of low carbon fuels are available in the market. We estimate that the market in Europe will be 1,000 to 1,500 farm-based facilities. With a value of 1.5 to 3.0 million euros per facility, this makes a market potential for our equipment of 1.5 to 3.0 billion euros.

What about stateside?
In the U.S. the demand for RNG is driven by the U.S. Renewable Fuel Standard (RFS). It stipulates that fossil fuel producers like Shell or Exxon have to blend a certain amount of renewable fuels with their fossil transportation fuels each year, denominated in billions of gallons. As of 2018, all further growth related to the fuel blending obligation has to be filled with what is known as “cellulosic” fuels (that reduce GHG emissions by at least 60%.) The situation is therefore very similar to Europe. Since 2014 the EPA recognizes RNG as a cellulosic fuel. In the U.S. the opportunities for Xebec are primarily related to existing landfill gas producing operations. The EPA has identified 400 candidate landfills for waste to energy projects of which 200 are suitable for the production of RNG. The equipment necessary to convert the landfill gas into RNG at those landfills will cost between 5 to 15 million US dollars per site, depending on the size of the landfill a market potential of 1 to 3 billion US dollars.

Supply of RNG is extremely limited due to underinvestment in the industry, so prices have increased, from a range of $7-$15 to $30-$70 per gallon…

Back in 2005 everyone was expecting that the renewable fuels volume target would be met through a lower cellulosic carbon fuel like corn ethanol but, as it turns out, the technology has not evolved far enough to be either reliable or economical. This leaves the market open for other low carbon fuels to fill the void which is where Xebec comes in: biogas to RNG reduces GHG emissions by up to 95%, making it a leading low carbon transportation fuel that can be readily available if government incentives and industry investments are made. It is a fuel that has similar emission profiles to renewable hydrogen and renewable electricity, the other low carbon fuels of the future.

But supply of RNG is extremely limited due to underinvestment in the industry, so prices have increased, from a range of $7-$15 to $30-$70 per mmBTU. Now there is a real incentive for the market to build out new RNG infrastructure to bridge the gap that has opened up for cellulosic transportation fuels. And Xebec finds itself in the enviable position of being one of the few technology providers not only capable of meeting but far exceeding federal and state requirements.

Xebec recently reported third quarter results that had revenue up 130%, year-over-year. You credit much of this growth to the Clean Technology segment of your business. What does this unit encompass?
Xebec is well established in both the Hydrogen and Biogas to RNG marketplace. We have 25 RNG projects currently on the books and over 200 H2 systems installed worldwide. We have a solid order book for this segment, surpassing 16 million Canadian dollars, moving into 2018 and even 2019. We’ve won these contracts based on leading technology, proprietary designs and excellent performance and low operating costs. In addition, we offer a business model that is designed to allow us to grow through preferred partnerships, leveraging our technology with local customer knowledge and aftermarket support through local service and maintenance.

How much of Xebec’s growth is the result of mandated demand?
The growth of the Cleantech segment is driven by regulation, but the underlying trend is a real concern about climate change. Transportation is responsible for ~ 14% of global GHG emissions so most countries are now concentrating their CO2 reduction efforts in the transportation sector. RNG is a great fuel to reduce those emissions by up to 95%.

What are Xebec’s ambitions in the Chinese market?
China is a difficult market. It is not a free marketplace, but controlled by the State, especially when it comes to sensitive areas like the environment which the Chinese Government considers relevant to societal stability and peace. The investments put forward in the current five year plan, and the investment targets by the NDRC are significant. We hope that these initiatives will get underway over the next two years, in line with their carbon trading schemes.

For this year we are still focused on expanding our equipment sales, but we will look at shifting the business model in 2019 towards more recurring revenue through a BOO model of renewable gas assets…

Is there a geographic area or areas you plan to focus on?
Our focus is the US, Canada, France and Italy over the next 24 months.

Xebec recently closed a $2-million financing. What will this capital be used for?
The money we have raised will be used for working capital. We are growing at about 60% to 80% this year and clearly this takes working capital, especially since the commercial banks are not yet supportive.

What markets that you are addressing excite you the most?
When we look into the future, it is clear that transportation is moving towards a cleaner operating model. Short term we will see Electric Vehicles (EVs), but also Natural Gas Vehicles (NGVs) and Fuel Cell Electric Vehicles (FCEVs). We have a strategy to capitalize on the current opportunities in RNG, but as we move into 2020, we would like to start offering renewable hydrogen (RH2) as a low carbon fuel for FCEVs. This is exciting. In addition, we are working on energy storage solutions that will allow carbon sequestrations and the production of synthetic natural gas (SNG).

What’s the margin mix for Xebec? Are you actively moving to higher margin business?
We have two business segments: Industrial Products and Cleantech. Our Industrial segment has been producing margins in the mid 50% range, and our Cleantech segment has been running in the mid to high 30% range. I would hope to maintain that mix and generate margins in the mid to high 30% range moving forward.

What do you expect to accomplish in the next 12-months?
For this year we are still focused on expanding our equipment sales, but we will start to look at shifting the business model for 2019 going forward towards more recurring revenue through a Build/Own/Operate (BOO) model of renewable gas assets.

Disclosure: Xebec is a sponsor of Cantech Letter

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About The Author /

Cantech Letter founder and editor Nick Waddell has lived in five Canadian provinces and is proud of his country's often overlooked contributions to the world of science and technology. Waddell takes a regular shift on the Canadian media circuit, making appearances on CTV, CBC and BNN, and contributing to publications such as Canadian Business and Business Insider.
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