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Michael McDonald

Michael McDonald

Michael is an assistant professor of finance and a frequent consultant to companies regarding capital structure decisions and investments. He holds a PhD in finance…

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Could Waste To Energy Play A Key Role In U.S. Manufacturing?

The waste-to-energy business has been steadily growing for a decade now, but recently BMW unveiled a new innovation in the industry. The car manufacturer powered forklifts at its car manufacturing facility in South Carolina with fuel cells produced from on-site biomethane gas from a nearby landfill.

The point of the project was to demonstrate that using current technology, hydrogen of sufficient purity for use in fuel cells could be recovered from landfill gases. The Department of Energy is a big backer of the project as it offers several solutions to existing problems.

First, by using fuel cells rather than conventional batteries, BMW gets more efficient and effective forklift operation since fuel cells are faster to fill for fork lifts, don’t experience rundown problems as batteries do, and occupy less space on a fork lift than a battery does. Related: Why Now Is The Time For Investors To Pick Up Positions In NatGas

Second, using otherwise wasted biomethane from a landfill offers a clean reliable energy source that is sustainable over time according to the DOE.

The project, while a novel specific application, is just one step in the broader advancement of the waste-to-energy business model. Waste-to-energy has been around for a while now, and there are currently 86 operational plants in the U.S. that produce energy from waste. Those plants burned roughly 12 percent of all garbage last year turning it into energy (ash from burning is reburied at the landfill). Waste-to-energy is one of the more interesting, but less well-known forms of green energy.

The technology has probably not taken off the way solar and wind power have because many environmentalists are in favor of recycling and against using landfills. That’s a pretty illogical view though since generation of waste is unavoidable, and many products are simply not recyclable at all, or not recyclable economically at least. For instance, recycling plastic has become at best economically questionable since the collapse of oil prices. Related: Are “Palm Trees” The Next Step In Solar Energy’s Evolution?

America is actually relatively behind in waste-to-energy, perhaps as a result of concerns over public approval for waste-to-energy plants. By contrast for instance, Sweden now turns 99 percent of its trash into energy, and has even built that industry up to the point where it actually imports trash from other countries to power its waste-to-energy facilities.

The other major problem with waste-to-energy facilities is that they are expensive to build, and because of their cash generating potential, they are susceptible to public officials’ bungling. Exhibit A in this arena is the debacle that Harrisburg PA got itself into by overleveraging their waste-to-energy plant. The high upfront cost of construction, combined with public concerns about emissions (which are generally minimal), and a preference for recycling has kept waste-to-energy technology from achieving its deserved place in the pantheon of alternative energy sources. Related: “Supersize” Fracking Could Keep Natural Gas Prices Low For Years

With that said, newer applications like BMW’s fuel cell demonstration may help to slowly improve public opinion and increase the economic justification for future plant construction. In addition to the ecological benefits, waste-to-energy is also a viable business despite the low profile of the technology. There are several publicly traded firms in the business.

Republic Services and Waste Management both have business lines dedicated to it, but perhaps the more interesting opportunity is Covanta Holding Corp trading under ticker CVA. The company has been beaten down of late, like almost everything else, but it is a growing firm with solid free-cash-flow, a valuable set of assets, and a yield of roughly 5 percent. For investors looking to capitalize on an underappreciated alternative energy source that actually makes a profit today, CVA is definitely worth keeping on the radar screen.

By Michael McDonald of Oilprice.com

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