This meeting is being recorded.
Call following the publication of the half year figures 2022 and 2023, which will be presented by the CEO Claus Sauter and Alina Köhler from Investor Relations. The floor will be open for upcoming questions following the presentation. Having said that, I hand over to you, Mr. Sauter.
Thank you very much. Welcome, ladies and gentlemen, for our quarterly call. I'm sitting here in the United States, so good morning. I would like to start with our presentation. The agenda is that we want to show you the new segment reporting, which is going to start in the next business year. The key highlights in the first half and in Q2 2022- 2023. Our financial results, segment results, and finally an update and an outlook for the rest of the year and the coming year. About the new reporting system. In the next year, we want to change our reporting regarding the business drivers, and this is first generation, second generation, and specialties.
In the first- generation, biofuels and first- generation biofuels are biofuels based on arable feedstocks, like non-food grade grains and oil seeds, rapeseed oil. This is rapeseed oil methyl ester and bioethanol. The second segment is advanced second- generation biofuels, and these are biofuels based on waste and residues. For example, corn stover here in the United States, wheat straw, rice paddy in India. These kind of agriculture residues. The product is mainly RNG, so renewable natural gas, and a portion of about 10% of our biodiesel production, which is advanced biodiesel. For the differentiation between first and second- generation biofuel, it is important to have a look on the feedstock. It's not the product, it's the feedstock.
Finally, the third segment will be specialties, and specialties will include high quality pharma glycerine, sterols, in the future, chemical feedstocks, and also proteins. These are co-products from our existing production, where we enhance the value chain and take out valuable components from our feedstock, which is not needed for the definition of biofuel. In this segment, specialties, we are supplying different markets like pharma, like chemical applications. These specialties are mainly going not to biofuel applications. After we have now a stable framework for second generation biofuel in Germany and in Europe, we increased the amount of second- generation biofuel. This is our clear focus, and approximately 40% of our CO2 savings stem from advanced second- generation biofuels.
In the first half of the business year, we contributed about 1.5 million tons of CO2 savings for the biofuel industry. We had a record RNG production in the first half of the business year, and especially in Q2 2022/2023. RNG production is increasing. As I said already, Verbio generated 1.5 million tons of CO2 savings in the first half. People giving up their round trips from Paris to New York. Approximately 40% of the CO2 savings stem from advanced second generation biofuels, and we confirm our outlook for the business year. Now about the RNG production.
RNG increased by 22% in production year-over-year due to increase in capacity in Germany and the ramp up in the United States and in India. Biodiesel and ethanol production, the capacity was utilized at 96%. In the chart, you can see the production of biodiesel, which was 158,000 tons, 71,000 tons of ethanol and 261 GWh of RNG. The EBIT-EBITDA came down from EUR 147 million to EUR 48.9 million, this decreased primarily due to falling sales prices, in particular for bioethanol. On the details we come later when we show you the margin situation and higher raw material prices and a sharp increase in energy costs, especially energy costs, natural gas and electricity went up by 400% compared to Q2 of the last business year.
Our net cash position from during the last quarter came down by 32% to EUR 177.5 million. Increase in RNG inventories and investments in PP&E, PPE for future growth as well as tax payments, offset and cash inflow. Now for the details, I hand over to Alina, our Head of IR. I forgot one slide, which is the equity ratios. The equity ratio increased to 74% and that shows that the financial stability remains high. Alina, now this is your part.
Thank you. Yes. Hello, everyone. Let me just jump right into it. Despite the headwinds in the ethanol market that we faced in the past quarter, we delivered an EBITDA of EUR 48.9 million, which was actually driven by the biodiesel segment and underpins that it's a great advantage for us that we have a broad product portfolio. The higher sales in the biodiesel segment actually overcompensated the lower sales in the bioethanol segment. However, we still didn't manage to keep the EBITDA at the same level as last year as you can see from the slide.
Last year, we delivered an EBITDA of EUR 147 million for the quarter and this year, as I said, close to EUR 50 million because our EBITDA was burdened by a couple of effects. One, as Claus already mentioned, was the higher material costs and also the higher energy costs, more than 400% year-over-year, and also an increase in personal expenses. The personal expenses went up by about EUR 6 million year-over-year, as we are ramping up our workforce here, in line with our strategic expansion plans. Also, we paid out inflation bonuses in the last quarter, so that also had a small impact on the increase in personal expenses.
At the same time, we did have some negative foreign exchange effects, year-over-year that was a burden of EUR 12 million. This is not cash relevant, though, so it just went through the P&L and relates to our cash in U.S. dollars. If we go to the next slide and go into a little bit more detail on the biodiesel segment, you can see from the chart that also in the biodiesel segment, not just the renewable natural gas, but also biodiesel, we achieved record production levels.
This is mainly due to the very good utilization in Canada as well and brought up our sales as well, including, our revenue increased also due to higher biodiesel prices in North America, but also higher sales prices for the high value glycerine that we produce rapeseed oil. as mentioned before, the higher sales level didn't really go through to the bottom line due to higher input costs that pressured EBITDA. What is really worthwhile mentioning is that we remain significantly above the long-term average. Also the last year number of EUR 96 million EBITDA was actually impacted by attractive rapeseed oil prices that we also communicated last year. Really, year-over-year, the co-comparison is a little bit difficult here.
If we look at the market at the next slide, you can see two charts here. On the left side, the green line represents this year's spread, the gray line represents last year's spread. What does the chart tell you? For the last quarter, the Q2 that we're currently reporting, you can for one see that if you just look at the market prices, so this doesn't necessarily reflect our purchasing prices or our selling prices. Just from the market perspective, the biodiesel spreads were much lower compared to last year. On the chart right next to it, you can also tell which represents the selling prices but also the purchase prices rapeseed oil. you can actually see how the sale prices declined, as well as rapeseed oil prices.
What you also can tell is that we do expect a normalization of spreads in the second half of the year and spreads remain attractive. Coming to the bioethanol segment, we already mentioned a couple of times that we achieved another record RNG production level. What's really important though is that the full earnings benefit from RNG will only be visible in future periods because currently we store a large part of RNG in the grid. Claus will talk about this later, in a second. What's important for the revenues, which is the, it is the light green bar in the chart, is that even though ethanol prices declined very strongly by 20%, we could closely or almost compensate it by higher ethanol sales volumes as well as GHG premiums.
Yet, the massive increase in the cost burden, which was mainly linked to material costs but also energy, of course, had a huge impact on our EBITDA, so we could deliver a positive result. Yet, compared to last year, it was quite a decline. We managed to achieve EUR 1.7 billion of EBITDA in the ethanol segment. As I mentioned before, RNG is largely stored, so the earnings benefit will become visible once we have our downstream business online. Now I hand back to you, Claus, because you want to go a little bit deeper on that.
Thank you, Alina. About the segment of biomethane, bioethanol biomethane. With our downstream investment, we want to increase the margins, the very attractive margins on renewable natural gas. The fact to bring RNG into the market, the main course in the past was that it was sold through CNG filling stations. CNG filling station, the main customers are cars, natural gas cars, since 2018, we see an upcoming fleet of mainly LNG trucks. That was the reason why we started the investments in a liquefaction unit and to build own LNG filling stations. We are online with these investments, the focus is that we want to supply these LNG filling stations with Bio-LNG and to take the whole margin, which is on the table for the renewable natural gas.
Renewable natural gas is not anymore a niche regarding CO2 reduction in transport. It has an increasing importance and that shows the acquisitions of big oil majors in this segment in the last months. Verbio here is continuing to follow the strategy of increasing inventory of biomethane in order to be able to capture the entire product margin using its own Bio-CNG and Bio-LNG infrastructure. You can see it if you have a close look on our results, that the inventories are growing and the growth comes mainly from RNG. We stored approximately 700 GWh in the grid. This is about 2/3 of our production.
If we go through the normal market entry with CNG filling stations, which are controlled by cities, by grid operators, then we have to give a significant amount of our margin away. Right now, 100% of CNG at German filling stations are already renewable natural gas. It is attractive. It is the cheaper product, especially after the dramatic increase in natural gas the last year. If you observe the pricing at CNG filling stations, then you could see that especially CNG at filling stations as a fuel was very stable also last year. This is due to the fact that 100% of the production was renewable natural gas. We expect that our downstream business is going to start significantly in the next quarter, so Q4, 2022, 2023.
Our clear target is here that we want to bring all of our RNG production, national RNG production, and in the future also the international RNG production through our own downstream business into the market. As I said, renewable natural gas is no longer a niche. It's a very attractive product. It's the cheapest way to decarbonize transport. The fact that all of our production is second generation, is advanced renewable natural gas, gives us also importance in the margin and the fact that for this segment, we get the highest prices for the CO₂ savings. Alina presented already the market development in biodiesel, and what I show you here is the same slide for ethanol. Here you can see that in this quarter, so Q2, prices for ethanol came down significantly.
The margins, the traditional ethanol margins in the last quarter was more or less negative. Especially the traditional ethanol industry in Europe is very much under pressure due to flooding ethanol imports, mainly from Brazil and from the United States. On the other side, due to the war in Europe, bioethanol, the wheat prices went also significantly up. Prices came down the last few months also significantly, we are far away from the level what we had in the past years. Here, Verbio is reacting in the change of the feedstock. You know that we have for the ethanol production a big variety. We can use any kind of grain, when we see that wheat is more expensive than corn or rye, we switch to another feedstock. Why we can do this?
We can do this because we make from the co-product, from the silage. We are not making feed where you have to fulfill quality criteria. We are making renewable natural gas. Our bacteriums don't care if the residue is coming from ethanol from wheat or from corn or from rye. Especially in times like this, our technology shows the competitive advantage. I can tell you it's not only in Europe like this, it's also in the United States. With our combination, also here in the United States, we have a significant higher margin than our competitors in the traditional ethanol industry. About the outlook and the investment programs. We are fully on track with our investments. In the United States, a 160 GWh straw-based RNG plant is operational. Utilization is about 50%.
During the first half now of 2023, we are looking to come to a full utilization. The Nevada biorefinery rollout is running. Mechanically, completion of the biorefinery is expected now in spring. We are going to start the plant up during the summertime, and then our production capacity of renewable natural gas in the United States will go from 20 GW - 80 GW, 20 MW - 80 MW. We will be able to triple our additional capacity for renewable natural gas. In India, we have also 20 GW, 20 MW of capacity for renewable natural gas, which is 160 GWh on an annual basis. Plant operational, with low capacity utilization. Here is the focus on the production ramp up and to improve the profitability.
The liquefaction plant in Germany is expected to be operational by end of summer 2023. This is, as I mentioned already, very important that we are able to produce the LNG for our LNG filling stations and to be able to monetize the full margin on renewable natural gas. Bioenergy, Bio-CNG stations, we are going to build 20 gas stations. This is the plan. Locations are secured. Roll-out is running. Ramp up in the first half, in the second half of this business year. As I said, we are going to start to deliver Bio-LNG to filling stations during Q4. The ethanolysis, the entrance to chemical applications based on our biodiesel. Here the plant location is secured. Approval process for ethanolysis plant pending. Verbio protein, the initial production volumes of feed-grade proteins achieved. Expansion for the production of food-grade proteins ongoing.
The guidance is fully on track. Our guidance was EUR 300 million EBITDA for this business year and EUR 30 million net cash at the end of the year. If we have a look on the half year results, you can see that we are on track. That was EUR 170 million EBITDA for the first half 2022/ 2023, and the net cash was EUR 177.5 million. We are going to accelerate our investments mainly in advanced biofuels, and we continue globalization and diversification of end markets. Thank you very much, ladies and gentlemen, listening our presentation. Now I hand over to the operator to present your questions. Let's move to the Q&A session.
Thank you very much, first of all, Mr. Sauter and of course, Ms. Köhler, for your presentation. You can either submit your questions by audio line. In order to do so, please raise your virtual hand. Alternatively, you can use the chat. We will read out your questions for you. The first questions come from Adrien Piere . Please go ahead.
Yes. Hi, good afternoon. I hope you can hear me well.
We can hear you well, yes.
Okay, perfect. Hi, everyone. Just a couple of housekeeping questions first. I saw that actually the personal expense line in biodiesel was a little bit higher than I expected. I mean, you referred obviously already in your presentation to the one-off bonus which has been paid, but actually also a little bit the headcount went down. I was wondering if there are some special effects. Moreover, on the bioethanol side, I saw that actually the headcount was going down quite substantially. Is there a specific reason behind that or what were the effects here? The third housekeeping question is actually on the amount of methane stored in the grid, which you said is now around 700.
I mean, given that you might have been continued to store rather 2/3 of the production in the quarter in the grid, shouldn't we be closer to something like 770,000 ? I might have some longer-term follow-up strategic questions. Maybe take those three housekeeping questions first.
Okay, thank you very much. First of all, the headcount in Verbio is increasing significantly.
Mm-hmm.
Maybe you got the message that we had this, structure program, we call it Mustang.
Mm-hmm.
Due to our green horse. The headcount is increasing, but we have a new organization. We have now a new unit like EPC. All the engineering team, all the processes to build plants. These engineers in the past were counted in the segments. The engineers to build new plants to improve the technologies were in the biodiesel segment, the same for ethanol, and now it's a new structure. We have ambitious targets to build new plants to increase our capacities, and that was the reason why we have to ramp up our engineers, our technical teams, because the know-how is in Germany, mainly in Leipzig. All the investments, what we are doing in India and also in the United States, the engineering comes from Germany.
It's not that the heads are going down, heads are going up. Also, the costs for personnel. This is, as I said, due to the new structure. There is a new, let's say, Zuordnung, and it is significant. We at least hired about 80 new engineers. It's not only engineers for technical applications, so to build the plant. Also IT is increasing, accounting is increasing. We recognized that, during the first phase of the expansion, when we made Nevada in the United States, when we made India, we stressed our organization, so there was a lack of enough capacities, and that is the reason. Heads are not going down, heads are going up. Now your question to methane.
We have now production in Germany, in the United States, and in India. You are right. If we would store over all the production, the 2/3 in the grid, it should be close to 800. In the United States, the regulation is different, market situation is different, and also in India. This product goes normally to the market and is monetized. For the production in Germany, it is like I said, that two-thirds we keep in the grid. We reduce the amount of renewable natural gas or methane, how you said. We reduce the amount, selling through traditional CNG filling stations because we have to leave too much margin on the table.
Today, if you want to bring more RNG into the transport market, it's just there are no capacities there to do more, you have to press somebody else out of the market, and this you can just do due to a lower margin. I think that shows that our strategy to go downstream, to invest in an own filling station network was the right decision. Now soon in the next months, it will give us the opportunity to realize the full margin. Not in the United States, not in India, but I can tell you that we are also working here on some strategies to ensure to get more of the margin in these markets with new customers, with new ways how to bring the product into the market.
We are relatively young in the U.S. market. Our concentration first was on upstream to secure the feedstock, then the investment to build up the plants, to make here the training for the new employees. Our technology is relatively sophisticated. There was the focus, the sales is mainly going through progress in the U.S. and also in India. This is the next step that we are also going, like in Germany, that we do the downstream on ourselves. This is the reason and the answer for your questions.
Right. No, thanks for that. Yeah, I saw actually that group headcount obviously went up, and so we should find the additional people to some extent, obviously also in the other in the other segment or kind of holding structure, however you want to phrase it. A question actually on the spreads that you nicely showed in your presentation, thanks for that. Obviously on the ethanol side, you're expecting spreads to resurface on the, on the positive side of things. I was just wondering, what do you see in the market currently? Is that pressure on ethanol still high going forward when it comes to imports from the United States and Brazil?
Do you see the spreads resurfacing, not necessarily that this is coming off, a bit, but due to other reasons, a bit of an outlook on this segment? Lastly, from my side, before I jump back into the queue, two kind of longer-term strategic questions if you want. Obviously, we've spoken about India on your short-term plans and also on the US side of things. First of all, could you remind us actually the CapEx budget, is that unchanged in your guidance? Should we see additional CapEx coming out in the second half?
Longer-term, I know you have not a longer-term CapEx or revenue guidance out, but just from the idea, I mean, obviously it would be to copy the existing facilities that you have over the next couple of years, and to grow your production on biorefinery and on methane in India. How should we think of it in terms of the speed of how fast can you be? I know in India, it's obviously a regulatory topic or discussions with the government, et cetera. How is that progressing in general? What about the CapEx amount in the sense of should we brace ourselves for similar magnitudes that you have envisaged for 2023?
Will it be significantly less as you do a learning curve here? Just to get your general thoughts on, the expansion, let's say, rather medium, longer term on these markets would be helpful. Thank you.
Okay. That was now very much-
Yeah, I know. I'm sorry.
Okay. You know, the second part is clear, strategy, everything is fine. Now what was the first-?
First one was on ethanol. On the ethanol price-
outlook. Okay.
Outlook, competition from, you know.
Yes.
Sorry. Yeah.
Okay. Thank you very much for the question. Very helpful. Ethanol is a commodity business, and it's a global business. The biggest producers are the United States and Brazil. As you can see here on this chart, we had huge spreads during this, let's say, difficult year, 2022. October, November, December, you know...
Right.
We made a lot of money. The market is backwardated.
Mm-hmm.
The traders, they look on the curve, especially 2022, even with the backwardation, with a significant backwardation, opened the arbitrage for imports. These guys were able to secure their imports on the curve. We saw significant imports. Brazil increased by 400%, the same United States. Europe was just too attractive. They imported now so much ethanol that they brought the price very much under pressure. On the level, especially what we saw in December, which was for a short period, even below EUR 700/ cu m .
Mm-hmm.
Nobody in Europe from the traditional ethanol producers, so ethanol and DDGS, which is feed, are able to make money, especially with these high energy prices. For the ethanol industry, it was the perfect storm. The possibility was given during the summertime with the backwardation of the curve. At the moment, the arbitrage is closed. By the way, one of the reasons of our strategy to become global is that we saw this arbitrage as well. Finally, nobody knew how much volume is really coming, but it was clear that margins will not stay as high because the ethanol molecule in Brazil and the United States is the same molecule. You need an open arbitrage because when you start the import, you need at least two or three months. The message at the moment is the arbitrage is far closed.
The deals for the imports coming at the moment were made during late summer and fall. Now we see that it's going down from the imports and margins or prices are coming up. We have now nearly every day an increase in prices. We are at EUR 820, EUR 830. The curve has not like traditional backwardation. It has a carry. Margins now are coming back, and it is necessary. What I mentioned here is for ethanol producers and for the traditional ethanol producers, and I mentioned it during my explanation. Here it shows the competitive advantage of our setup because at the moment we are making the money on the gas. The gas is the product, is the favor of the day. As I said, market must recover.
All European producers went down with their volumes because they are losing money, especially even the most competitive. What is also difficult to predict was national influence like cap in gas prices, like cap in electricity prices. In U.K., you have already a cap. In Germany, the cap should come now during the next months, but we will not need it anymore because gas and electricity came down. 2022 was really a crazy year. A lot of unexpected things. I think we made a lot of things right, but not everything. Especially ethanol will come now to a more profitable situation. Now to come to your second part about CapEx and what is our strategy.
The biofuel business, let's say the development in the last 20 years was very weak due to political weaknesses. What we are seeing now, the last three-four years is, especially after the ESG rules that companies now more and more looking to reduce their CO2 footprint. The driver is not only political decisions anymore, it's mainly coming from the business world. What is very surprising for me, but I can just give you an example. Here in the United States, we are facing more and more interest of our renewable natural gas from a voluntary market. Even without obligations in the chemical industry, in the steel industry, in other industries, companies are contacting us and tell us, "Can we buy renewable natural gas from you?" The prices are similar to the transport sector, where an obligation is.
It's an interesting development. I would say the lack of investment security, what we were complaining the last years, every day becomes stronger. I'm 25 years in the business, and many times I saw that even the politicians were telling us that they had to increase their efforts to reduce the CO2 emissions in our society. Political decisions went the other way around. They reduced quota or they postponed it. These postponements or even reductions were harming our development very, very much. We are careful. Now we have to learn that we are entering into a new period. The last years, we just gave a guidance for the next 12 months. Right now we are working, Alina, Olaf and me on a longer term plan.
Longer term plan means, yes, higher CapEx, but you see our balance sheet is strong, 72% or 75% equity ratio. There is a lot of space for CapEx. As I said, we are careful. The second part is that we also want to increase our abilities for these trading options. This is a main part of our strategy to become an international company. The next years, we want to be able to use arbitrage for the different products, not only ethanol. There is also arbitrage in biodiesel, there is arbitrage in RNG, and we are developing these things. My last point is the IRA, the investment reduction. The inflation. I say investment, but it is Inflation Reduction Act. For us it is an investment act.
The U.S. government is supporting the renewable energy industry with huge money. There are a lot of opportunities for us, especially with our technology, the bioethanol and biomethane, because nobody is reducing CO2 emissions per ton of corn more than we are doing it. Corn goes in-
Mm-hmm.
Only energy goes out. The, let's say, the main purpose of this Inflation Reduction Act when we are talking about renewable energy is the focus on CO2 reduction. We will be able to raise 30% to 50% of our CapEx in renewable natural gas expansion in the idea to produce synthetic gas. Based on renewable hydrogen, we will be able to get 30% to 50% of the CapEx from the government. Right now, we are analyzing the law. We are analyzing the market situation, but the dynamic here, especially in the United States, is, it's crazy.
That allows us now to be a little bit mutiger, to be a little bit more ambitious, to increase our plans, our CapEx plans, but also look on the opportunities on the market and establish a trading unit. Last point, India. The discussions what we are having in India are very, very constructive. India is a third world country, so energy must be cheap. Energy, India cannot afford to spend as much money as the first world to reduce their CO₂ footprint. They are very interested to do it. You know, if you look to India, and to the area where we have our investment, we are not only talking about CO₂ reduction, which is the much bigger problem is the so-called stubble burning.
Mm-hmm.
If we don't take the straw, the paddy straw or the wheat straw from the fields, the farmers are burning it, and you can see it over the whole continent. All the haze goes, from the Himalaya south and southwest over the whole country. The main focus for the Indian government is to stop stubble burning. Because of this, we are in very constructive discussions. The Indian energy market is not a free market like our market. If oil prices are going up, if gas prices are going up, the Indian government is subsidizing the end consumer energy. They were not aware about the environment, the regulatory environment, which is in some cases harming our business. For example, the farmers in Punjab, which are producing rye and wheat, the electricity for the irrigation is for free.
The fertilizer for agriculture is for free. Finally, even if they continue to burn their rice straw, which is forbidden, but it has no consequences.
Mm.
Especially these subsidies in the traditional fuel business is harming our business. It's harming our business with renewables. What we told the government is, "Sorry, but with your strategy to subsidize fossil products, you are harming our business." Farmers are not interested to buy our fertilizer, which is a revenue contribution because they get the fertilizer, state-owned fertilizer for free. One thing is that if you want to continue this strategy, we want to have the same amount of money, the state has to pay. There are a lot of small things, finally. Nothing is a big issue, but first of all, you have to get to the right people who have the power to decide something like this. I used to say that our technology and our investment in India is a win-win-win-win situation for India.
First of all, we stop stubble burning. Second, we bring investment, we bring jobs, and we bring value in rural areas. We want to pay the farmer for the rice straw. We bring jobs there, jobs in our production and jobs in agriculture. The final win, number four, is that we have a local production of renewable natural gas. Finally, natural gas. India was now importing in the last year for huge money, LNG from Qatar, from everywhere in the world.
Right.
The deficit went just through the roof. There are more wins for India than wins for Verbio. If they want, and they want that we roll out our technology, we have to fix a few things. This is when I say we are on a good way. First of all, you know, you have to get the attention. Secondly, what are the things, what we have to do? Last week was an announcement from the Indian government that they want to implement the law that 5% of natural gas in India must be renewable natural gas. We have to establish there a market. We have to establish the right environment.
I think it's a little bit contradictory when we say the government is subsidizing fossil energy, fossil oil, fossil gas, and we, as somebody who brings added value to India, has to fight against subsidized energy prices.
Mm.
That makes no sense.
You know, after last question always comes a very last question, and that's actually on India to understand it a little bit better. I fully share your view and must be a win-win situation, obviously, for both sides. The point is, under the current prerequisites that you find there in the market, and, you know, just assuming you would spend all your CapEx in India as of tomorrow, nothing for the rest, would that mean, in principle, today a dilution for your methane margin? Since.
Yeah.
That's not the system of the quarter, so it must be, right?
Absolute. Massive dilution.
Right. In spite of the fact that the input material that you get there must be nearly for free or something, right? I mean, that's trouble.
It is. Look, it is for free. The input is for free, but we have to collect it.
Yeah.
The cost of the material is not the lion's share.
Mm-hmm.
You have to dry it. You have to collect it, to bale it, to store it, to bring it into the production. These are costs. The costs are significantly lower, like in the United States or in Europe, but on the other side, you have no regime for the molecules. Right now, we are competing with natural gas in India. With natural gas, if we go to the traditional natural gas market or with LPG or diesel at the filling station.
Right.
Which was many, many years our business model in Germany. We are not afraid. You know, if the Indian government is subsidizing diesel and LPG at the filling station, it's harming our business. In India, especially the last year, we would be super competitive with natural gas, with LNG from Qatar or the United States on these price levels.
Mm-hmm.
The Indian government was subsidizing it down very much.
Got it.
We are working on it, you know, we made our first investment. India has a huge potential. You know, we talk about 500 million tons of agricultural residues. This is a tropical and subtropical area. Things are growing 3 to 5 times faster, like in North America or in Central Europe. Huge amounts of unused biomass. That is the reason why the farmers are burning it. What they should do with it? They have to get rid of it. This is the feedstock of our production.
Right. Farms are very small, and so it's very complex to get all the stuff done. Thanks for your help.
Yeah.
Yeah.
you know, this is not something bad.
Okay.
If you have a lot of farmers around your plant, your purchase power is bigger than to have two or three big farmers in the direct surrounding of your plant because they are the same size on the farmer side.
Mm-hmm.
It's a different world. In the United States, the average size of a farm is 2,000 acres. In India, for 2,000 acres, you need 500 farmers.
Right.
Okay? It's a different world, but there's a lot of potential. We made one investment. We built one plant to show the Indian government that we are able to do it, that we have the technology. Now let's fix the market situation and then roll it out.
Got it. Very helpful. Thank you.
Thank you, Mr. Piere.
Thank you for your questions, Mr. Piere. We continue with the questions from Joma Emerson. Please go ahead.
Hi. Can you hear me?
Yeah, we hear you well.
Loud and clear.
Perfect. Yeah. First of all, congrats. I only have two small questions. My first one is concerning the potential acquisition of your next plant in the U.S., right? I mean, the environment seems good. Could you maybe clarify a little bit on this and also how the Inflation Reduction Act might also help you with this? My second question is, can you maybe elaborate a little bit on the biodiesel benefiting specifically in North America? I think Alina has mentioned Canada. Maybe just explain, you know, why exactly that was the case.
Sorry, Joma. What about Canada biodiesel? I didn't get what is the question.
can you explain-
Just how it is going?
Generally North America, why biodiesel has benefited from North America. I think that was, on one of your first slides.
Yeah. That was just because the prices were pretty high in the last quarter compared to the previous year.
The reason is why? Is it just.
market development.
Fair point.
Okay. Okay. It's a little bit more complicated. Your first part of the question, acquisition. We said that it is our clear focus. That was everything was before IRA. That our clear focus is to increase the capacities in North America, more stable framework, bigger market, bigger feedstock possibilities. We are working on acquisitions. There is nothing what we can announce yet, but we are working. The main impact now comes from the IRA, and I said it already. Especially the focus is CO2 reduction, implementing a hydrogen infrastructure. That is exactly what we are doing.
The IRA is a bunch of activities and possibilities of investment tax credits, and even on our existing investment in NevadaThanks that we are not in time with our commissioning, because even for this investment, for the second part, we will be able to get their, let's call it subsidies or support. For the new projects, we have to go more detail into the IRA. This is what we are doing at the moment, and look where is really the benefit, because we see space of new business ideas which are different from the time before the IRA. New business models means that we see possibilities with lower CapEx, even to accelerate our increase in the availability of the right molecules. It's a little bit too early.
The focus, as I said, is from the IRA to reduce CO₂ emissions very much in the ethanol industry and ethanol industry in the United States, everything is first generation. The criticism there was that, yeah, there is not really a CO₂ reduction because most of the factories, of the ethanol factories produce their energy coal-fired. You know, it's a little bit a contradiction. You have a coal-fired power plant, and you are producing biofuels. The IRA gives support to the whole ethanol industry now to focus on the improvement of CO₂ reduction. This is something what we were doing the last 10 years.
This spirit of the focus that biofuel is really bringing something for the society, and for the country, that if the focus goes on CO₂ reduction, is in line with our strategy. There is a lot of money on the table. That is the one part. The second part is the implementation of a hydrogen infrastructure. You know, Europe is permanently discussing already 2 years where the electricity can come from for the electrolysis. Everybody is talking about the surplus of renewable electricity, especially in Germany, what we have already. If you really look on the surplus, then it was about 200 or 300 hours last year. With 200 or 300 hours in one year, you cannot run an electrolyzer. The year has 8,760 hours.
Just with this few hours of additional electricity, nobody will invest in this sector, and nobody is able really to build up an infrastructure. These discussions now I follow two years. In the United States, completely different. They don't care from where the electricity is coming from. Here in the United States, you can operate an electrolyzer 8,760 hours. That is the first step. For sure, the main support for the hydrogen, which is $3 per kg, you get when you take renewable electricity. The idea from the U.S. government is, first of all, we have to build up this hydrogen infrastructure. If the electricity is from nuclear or even coal, it doesn't matter. We need a hydrogen infrastructure. The next step then is that there must be more support.
It must be more interesting to do it with renewable energy, with energy from solar and wind. The state with the highest amount of utilization in wind power in the United States is Iowa, where we are. But what I mean is the focus. You know, the focus in the United States is more pragmatic and for the infrastructure, the hydrogen infrastructure, this is a clear message, this is a clear decision, and to fulfill the rules is relatively easy. I think I mentioned it already a few times, we have a technology. We can use the CO₂ from our bacteriums, from our yeast in our production. We can use it to make synthetic CH4.
In the combination, you know, to reduce CO₂ emissions from the ethanol industry, to build up a hydrogen infrastructure, we have support from both sides, because once we use the CO₂ from our process to make synthetic CH₄, we further improve the CO₂ efficiency of our ethanol plant. Second, we have a new molecule, which is finally the same molecule like our renewable natural gas. All the infrastructure, what we have on our site in Nevada, we can also use for synthetic methane.
Mm.
The IRA opens us new possibilities and even further support of our technical approach. Let's see now what we can figure out. Finally, it means that for new investments, we will be able to reduce our own contribution by 30%-50% in CapEx.
Perfect.
Okay. Canada. I forget Canada. Sorry. Just to give you a feeling, due to the growing renewable diesel capacities in the United States, a lot of oil companies are investing in renewable diesel. Some plants are already starting up, and these are huge plants. Huge plants. Some plants are already going up, and they need feedstock. The United States or North America has also some sustainability rules. Everything, what is produced in North America is sustainable. The focus of these new renewable diesel plants is North American soybean oil and North American canola oil. Canola is similar rapeseed oil. the premium now for U.S.-produced vegetable oil is 30% to the rest of the world. You cannot bring European rapeseed methyl ester, European biodiesel to the U.S. market because... This is some kind of, yeah, America First strategy.
European rate is not sustainable due to U.S. regulation.
Okay.
Prices went up in the United States, and that makes the margin situation for our plant in Canada interesting. We locked in some margin so that we can, let's say 2023, the production is secured and the margin is locked in. It still doesn't mean that, let's say I'm not so positive on biodiesel in North America, like on ethanol and renewable natural gas.
Mm-hmm.
Too many things are moving here. On these soybean prices, what we have at the moment, I think that the new renewable diesel capacities are struggling really to make a margin. For sure, they have to go through the learning curve. We will not make a decision now for additional investments in our biodiesel plant, which would be necessary as long as we have no clear view about this development. Just to give you a feeling, the announced capacities for renewable diesel, which goes mainly as road, as transport diesel and sustainable air fuels to California, is covering 140% of the diesel consumption in California.
Okay.
Okay? It is more than to make California for diesel completely green. Low Carbon Fuel Standard, California. California paid $220 per ton of CO2 savings 18 months ago. Now the price is down to 60. This is changing the economics completely. Let's see how it continues. Maybe California will increase their efforts to become faster CO2 neutral. Maybe the IRA will create an environment in other states as well to focus significantly more on CO2 reduction so that a market will build up also in other states for our CO2 savings. These are a lot of questions where I have no answer yet. As long as I have no answer and no clear view, we will not make an investment decision.
All right. Perfect.
Okay?
Yeah. It was great. Thank you. Appreciate your input.
Thank you for your question.
Thanks for your question. With regards to the time, we still have some questions, in the chat.
Yes, continue.
I would just quickly run through those as well to cover them. The first question, an understanding one. You produce 522 MWh biomethane in the first half year. How many tons of Bio-LNG can you produce with that?
Okay. It's not 520 MWh, it's 520 GWh.
All right.
Okay. It's relatively easy. 1 kg of LNG is 15 kWh. 500 GWh is 500 million kWh. Divided through 15, you have the kg, and then you can calculate the tons. I don't have the number now, it's relatively easy. 1 kg of LNG is 15 kWh, and our amount is 500 GWh. It will be about-
It should be between 30,000 tons and 40,000 tons.
Yes. 35,000 tons of LNG. Thank you, Alina. Thank you very much.
Thank you.
Okay.
Follow-up question. How many GWh of biomethane do you or are you planning to produce in about three to five years?
Good question.
What we've communicated so far is that we want to reach with the biorefinery in the United States and India as well as Germany, 2 TWh. We do have expansion plans beyond this, but we haven't communicated the numbers yet.
Yeah. Okay, 2 TWh we will have in the next business year.
Mm-hmm.
Let's say, what is the plan to go up to 5 TWh? No, that was the question. Three to five years. I think it goes somewhere to 5 TWh-10 TWh. That is the plan.
All right. That also already answers another question. The next question is regarding the German politicians who have brought up the old topic again of phasing out the first generation biofuels. What's your take?
You know, look, it doesn't mean that we have to stop the production of the first generation. If Germany makes a law to say, first generation biofuel in Germany will give no contribution to the obligation of CO₂ reduction. If this political decision would come, there is no company in Germany which has a higher advantage, a bigger advantage than Verbio, because we are the biggest producer already of advanced biofuels. Finally, if it really would come, what I cannot imagine, because 90% of the CO₂ reduction today in Germany is coming from the first generation, but I don't care. That would mean that we continue our production, but we would not sell it in Germany.
We export it to other European countries. If you follow the press, there is no idea in France, in UK, in Italy, in whole Eastern Europe to phase out first generation biofuel. It's the other way around. Ethanol demand in Europe is increasing. We see it on the imports, it is increasing. Just another example. Germany now decided for 2022, if you use biodiesel from palm oil, it doesn't count for the quota. Does it mean that the global production of biodiesel from palm oil stops? No, because you still can bring it to France, to Italy, to Poland, to Hungary, to U.K.. There is still a market. Because of this, I am completely relaxed. I would say if it really comes, I make a party because we will get higher margins, much, much higher margins for our advanced biofuel.
For me, it is then more interesting. You know, the obligation to reduce greenhouse gases in transport in 2022 is 8%. 90% from this 8% is first generation. I would say the Minister of Environment and of Agriculture should have a look on how they want to bring the 92% down to zero in 2024- 2045, which is 22 years. To think about to phase out the biggest amount what we have already. Let's see what is coming. We are completely relaxed.
All right. Thank you. Schwedt seems to be running at only 50%-70% utilization currently. What's the impact for you?
We export from the PCK refinery more product to other refineries, which are selling their products into the market where PCK was supplying. For us, it doesn't matter where the diesel or the gasoline is coming from, as long as the consumption is on the same level. It's easier for us just to pump our products on the other side into the refinery that it is blended there. If we have to take it out, we have higher logistic costs. At the moment, Logistically, we have no problems in the PCK refinery because, yes, they are just running at 50%, but that means that also rail tracks are free, rail cars are free. We have no problem to get rid of our material from the PCK refinery.
Thank you very much. As the last question, could you give us a rough estimate of what the EBITDA impact of lower energy costs should be in the second half of 2022- 2023?
Okay. A rough idea I can give you. We said in the summer when we made our planning, when gas and electricity was so extremely high that we have additional costs of about EUR 100 million in our production. Now the costs came down again, but not on the same level like before. I would say on the whole year it is not EUR 100 million more, it's about EUR 75 million. EUR 70 million-EUR 75 million. I think energy costs compared with our planning, will be approximately EUR 30 million less than when we made the guidance.
Thank you.
I don't say that we make EUR 30 million more EBITDA because you see the market distortions. We stay with our guidance, and something like lower energy costs is supporting our target to do the EUR 300 million EBITDA.
All right. Great. Thank you. Mr. Sauter, Miss Köhler, thank you very much again for your time and also answering the questions. Also to all participants, thank you very much for your interest. I hand over to you, Mr. Sauter, for some final remarks before closing.
Okay. Thank you very much everybody who was listening. Thank you to the operator. Thank you, Alina. I am looking forward, really looking forward, to our next call and hopefully, we can present you more details regarding the IRA. Thank you very much. Have a nice day.
Have a nice day. Goodbye.
Thank you. Goodbye.
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