Friday, January 14, 2011

High Pressure

It is a vexing problem. Coal is abundant, but a messy source of heat and power. In addressing the problems of carbon dioxide and other toxic emissions that cause global warming most scientists are trying to figure out a cost-effective alternative to coal.

Unfortunately, in countries like the U.S. and China, where coal supplies are abundant, leaving it in the ground is not an affordable option. Thus any time someone comes along with an idea for making coal less messy, an investor needs to take note.

ThermoEnergy Corp. (TMEN: OTC/BB) gots its start as a wastewater reclamation company. Based in Little Rock, AR the company provides solutions for municipalities and industrial producers to recycle water. However, its engineers have been tinkering in the backroom with boilers - the operational center of coal-fired power plants - to figure out how to burn coal with lower emissions.

ThermoEnergy has made a breakthrough with what they call ZEBS Technology (Zero Emissions Boiler System). A boiler is a fairly simply apparatus - a large, closed tank usually made of steel called a “pressure vessel.” Tubes or plates inside help distributed and vaporize water inside the boiler that can then be used in a steam turbine for electricity generation or sent through pipes throughout a building for heat.

Boilers are typically operated under atmospheric pressure - 14.7 pounds per square inch (PSI) at sea level. However, ThermoEnergy engineers decided to tweak their system with pressure - 700 PSI to 1300 PSI. The concept of "pressurized oxycombustion" is not new, but it is rarely discussed beyond the confines of places like the Massachusetts Institute of Technology. ThermoEnergy engineers estimate that pressurized oxycombustion can increase power plant efficiency by as much as 5% over atmospheric combustion.

That efficiency is not what sparked our attention in ThermoEnergy’s ZEBS technology. The real draw is that pressurized oxycombustion produces virtually zero air emissions no matter which fuel is used in the process - coal, oil, municipal waste. Granted there are by-products, but those can be recovered in exploitable form. High pressure apparently allows the use of highly efficient gas-to-liquid “steam hydroscrubbing” to remove pollutants including carbon dioxide in a liquid form.

To commercialize its technology, ThermoEnergy has formed a joint venture with Babcock Power, Inc., a supplier of heat exchangers, steam generators and other power plant equipment. In our view, the Babcock affiliation is a smart move. Babcock’s highly visible position in the power generation industry is expected to give ThermoEnergy a boost in selling its ZEBS technology to plant owners.

It will require a well thought out sales pitch. To achieve that goal of zero emissions, power plant operators will need to switch out boilers and use a one specially designed for pressurized oxycombustion. The walls of the boiler must be thicker to handle the high pressure. The good news is that the special boilers are approximately one-tenth the size of conventional boilers, delivering meaningful cost savings. Lower capital spending and zero emissions are two benefits of the ZEBS boilers that should be well received.

Shares of ThermoEnergy are priced below a dollar and trading volume is thin. Investors should regard the stock as highly speculative. The company has yet to report a net profit and is still burning cash to support operations - $4.4 million in the first nine months of 2010. Its balance sheet is fortified with $5.7 million in cash, but at the end of September 2010 ThermoEnergy was in default on $5.3 million of its total $8.2 million in convertible debt. The accumulated deficit is near $90 million.

We will be watching for the first sale of a ZEBS boiler. U.S. power plant operators form a small community and they influence each other’s strategic decisions. We expect adoption by one to pave the way for penetration of the entire sector.

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein. TMEN is a new addition to Crystal Equity Research’s The Mothers of Invention Index.


Brian said...

Friends in the industry told me Thermoenergy is going to be one of the penny stocks to watch in 2011. My friend has picked stocks that looked like they were going nowhere, then exploded. I will take his advice. He is a multi-millionaire.

What are the effects of global warming? said...

Thanks, Debra! Very informative. I Was just looking materials in that matter for a debating group I'm a member in.