Welcome to the Aemetis second quarter 2022 earnings review conference call. At this time, all participants are on a listen-only mode. A brief question- and- answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce you to your host, Mr. Todd Waltz, Executive Vice President and Chief Financial Officer of Aemetis, Inc. Mr. Waltz, you may begin.
Thank you, Kelly. Welcome to the Aemetis second quarter 2022 earnings review conference call. Joining us for the call today is Eric McAfee, Founder, Chairman, and CEO of Aemetis, and Andy Foster, President of Aemetis Advanced Fuels and Aemetis Biogas.
We suggest visiting our website at aemetis.com to review today's earnings press release, Aemetis' corporate and investor presentations, filing with the Securities and Exchange Commission, recent press releases, and previous earnings conference calls. The presentation for today's call is available for review or download on the Investors section of the aemetis.com website.
Before we begin our discussion today, I'd like to read the following disclaimer statement. During today's call, we'll be making forward-looking statements, including without limitation statements with respect to our future stock performance, plans, opportunities, and expectations with respect to financing activities and the execution of our business plan. These statements must be considered in conjunction with the disclosures and cautionary warnings that appear in our SEC filings. Investors are cautioned that all forward-looking statements made on this call involve risks and uncertainties, and that future events may differ materially from the statements made. For additional information, please refer to the company's Securities and Exchange Commission filings, which are posted on our website and are available from the company without charge.
Our discussion on this call will include a review of non-GAAP measures as a supplement to financial results based on GAAP. A reconciliation of the non-GAAP measures to the most directly comparable GAAP measures is included in our earnings release for the three and six months ended June 30, 2022, which is available on our website. Adjusted EBITDA is defined as net income or loss/ plus, to the extent deducted in calculating net income, interest expense, gain on debt extinguishment, income tax expense, intangible and other amortization expense, accretion and other expense of Series A preferred units, loss on lease termination, gain on litigation, depreciation expense, and share-based compensation expense.
Now I'd like to review the financial results for the second quarter of 2022. Revenue during the second quarter of 2022 increased 20% to $65.9 million compared to $54.9 million for the second quarter of 2021. Our California Ethanol operation experienced steady sales volume with an increase in the selling price of ethanol from $2.78 per gal in the second quarter of 2021 to $3.13 per gal in the second quarter of 2022. Delivered corn price significantly increased from an average price of $8.04 per bushel during the second quarter of 2021 to $10.21 per bushel during the second quarter of 2022, as continued poor railroad performance impacted both the delivery costs and supply of corn into California.
Gross loss for the second quarter of 2022 was $214,000 compared to $3.6 million gross profit during the second quarter of 2021. Our California Ethanol segment accounted for substantially all of the reported consolidated gross loss or profit, respectively, in both periods.
Selling, general, and administrative expenses were $7.1 million during the second quarter of 2022, compared to $5.8 million during the second quarter of 2021, as a result of investments in our ultra-low carbon initiatives and non-cash charges for stock compensation. Operating loss was $7.6 million for the second quarter of 2022, compared to an operating loss of $2.1 million for the second quarter of 2021.
Interest expense during the second quarter of 2022 was $6.7 million, excluding accretion and other expenses in connection with Series A preferred units in our Aemetis Biogas LLC subsidiary, compared to $5.2 million during the second quarter of 2021. Additionally, our Aemetis Biogas LLC subsidiary recognized $1.5 million of accretion and other expenses in connection with preference payments on its preferred stock during the second quarter of 2022, compared to $3.8 million during the second quarter of 2021.
The Edeniq litigation was settled during the second quarter of 2022 for $4.8 million, including litigation costs, allowing for the release of $1.4 million of litigation reserves. Additionally, a grant of $14.2 million was received from the United States Department of Agriculture Biofuel Producer Program.
Net loss was $209,000 for the second quarter of 2022, compared to a net loss of $10.6 million for the second quarter of 2021. Cash at the end of the second quarter of 2021 was $3.6 million, compared to $7.8 million at the close of the fourth quarter of 2021.
Investments in capital projects of $12.1 million were made during the second quarter of 2022, further highlighting our commitment to build ultra-low carbon projects. This completes our review of the second quarter of 2022. Now I'd like to introduce the Founder, Chairman, and Chief Executive Officer of Aemetis, Eric McAfee, for a business update. Eric?
Thanks, Todd. Aemetis is focusing on producing below- zero- carbon intensity products, including negative- carbon intensity renewable natural gas and renewable aviation fuel with carbon sequestration. Our projects maximize the value of favorable federal and state carbon reduction programs while reducing feedstock and operating costs by using waste materials as feedstock, hydrogen supply, and energy sources for the production of renewable fuels.
In early 2022, we announced an updated five-year plan which projected revenues to grow to about $1.5 billion and annual EBITDA to increase to more than $460 million by year 2026. We are monitoring federal legislation that strongly supports almost every aspect of our business and, if passed, would be expected to significantly improve our five-year plan. If the legislation becomes law, we will provide further updates.
Our plan is to fund growth by using the approximately $100 million of lower- interest- rate senior secured lines of credit that were signed in March of this year, in addition to low- interest- rate U.S. government guaranteed long-term loans. In the past year and a half, we have repaid more than $80 million to reduce higher- interest- rate bridge loans from Third Eye Capital, which has expanded our access to lower- interest- rate funding. We recently closed two credit facilities at 8% and 10% interest rates with the same lender, who will have an aggregate availability of up to $100 million subject to certain criteria.
The carbon reduction line of credit is designed to fund the completion of the carbon reduction projects at the Keyes ethanol plant and to provide the development funding prior to project financing for the jet diesel plant and the two CO2 sequestration wells. The working capital line of credit is intended to provide liquidity for ongoing operations.
We are also on track with financing growth using long-term 20-year low- interest- rate project financing from the U.S. Department of Agriculture. Our first $25 million of an expected $100 million or more of USDA Rural Energy for America funding for our biogas subsidiary was approved last week by the national USDA investment committee and is in the closing process now for funding this month.
The positive regulatory trends for renewable fuels have continued to improve, including the recent approval of year-round 15% ethanol, known as E15, by the EPA, and the release of the California Air Resources Board 2022 LCFS Scoping Plan that significantly increases the number of credits required under the Low Carbon Fuel Standard program. We expect that LCFS credit prices will increase significantly as traders learn more about the number of LCFS credits that will be required, starting in January 2024, in order to meet the expanded decarbonization goal set forth by CARB.
Last week, investors were pleasantly surprised to hear the news that the energy provisions of the Build Back Better legislation received the support of key congressional leaders and the White House, and the bill is now on a fast track for approval. T hough the legislation is not final, a brief summary of the provisions and the potential impact on Aemetis includes the following direct benefits to Aemetis' projects.
A $1.25-$1.75 tax credit for sustainable aviation fuel. The proposed sustainable aviation fuel tax credit could result in up to $80 million per year to support the construction and operation of the 90 million gal per year Aemetis Carbon Zero 1 sustainable aviation fuel and renewable diesel plant in Riverbank, California, assuming a 50% SAF production allocation and a 50% renewable diesel production allocation. Renewable diesel is expected to continue to receive the $1 per gal blenders' tax credit.
Next, a 30% investment tax credit for renewable natural gas capital investments. The ITC for renewable natural gas projects is expected to result in more than $90 million of cash received by Aemetis in the next five years from investment tax credits. This cash would be additional equity investment into the Aemetis Biogas project, which makes project financing much easier by reducing the amount of long-term project debt by $90 million and reducing interest costs by more than $60 million over the life of the 66-dairy digester project.
Also, an increase in the carbon sequestration tax credit from $50 to $85 per metric ton of CO2 but paying the credit in cash as an IRS tax refund to companies in a process called Direct Pay. We are developing two CO2 injection wells located at the Aemetis biofuels plant sites in California to sequester 2 million metric tons per year of CO2 into a saline formation about 7,000 feet underground.
2 million tonnes times $85 per tonne equals $170 million per year of cash that could potentially be paid to Aemetis by the IRS each year for the first five years of the project, providing $850 million of IRS funding to repay the capital costs and operating costs of the two projects. With another seven years thereafter as a tax credit valued at $1.2 billion, the total value of the $85 per metric ton tax credit would be $2 billion in just the first 12 years of operations of the two Aemetis carbon sequestration wells.
Several provisions in the legislation are valuable to the Aemetis Ethanol business, including $500 million for biofuels fueling infrastructure to support 15% and 85% ethanol blends, a tax credit for low- carbon- intensity ethanol, and adopting the GREET model so the carbon intensity of ethanol is calculated correctly. These regulations are driven by initiatives to decarbonize transportation, the need to reduce the cost of fuels as petroleum prices increase, and a renewed interest in energy security.
During the second quarter of 2022, Aemetis achieved important milestones toward revenue growth and sustained profitability in each of our businesses. Now Andy Foster, the President of the Aemetis Biogas and Aemetis Advanced Fuels businesses, will review some highlights. Andy?
Thanks, Eric. The Aemetis Biogas renewable natural gas project in California has progressed with the completion of construction of more than 20 mi of the 40 mi biogas pipeline and is on track for completion later this year. Additionally, we've completed construction and testing of the $12 million centralized dairy biogas- to- RNG upgrading facility, and construction of four additional dairy digesters that are scheduled for completion this quarter is well underway.
Importantly, we have successfully completed and been approved by PG&E for product and mechanical testing of the interconnection unit which will inject RNG into their utility pipeline. By the end of this quarter, we plan to have seven operating dairy biogas digesters connected to the utility pipeline, generating approximately 200,000 MMBtus per year of RNG valued at more than $20 million per year of ongoing revenues.
We plan to begin injecting RNG into the pipeline later this month, storing RNG underground initially until we receive CARB pathway approval for LCFS credit generation, which takes about six-nine months. Since we believe that the LCFS credits are presently undervalued as the market waits for the revised LCFS targets to be adopted, beginning sales of RNG early next year will potentially provide increased revenues compared to RNG sales that would have occurred this month.
With the completion of the central RNG production facility and the utility gas pipeline connection, as well as more than 20 mi of biogas pipeline, our focus will be on the construction of dairy digesters to fill the pipeline. We have signed 24 leases or participation agreements with dairies and have many more dairies in progress. While continued supply chain challenges for items such as compressors could impact project schedules, our existing backlog of new dairy digesters takes us into 2024, so we expect to be on track with the five-year plan.
To date, Aemetis has been awarded $23 million of grants related to the biogas project from the California Department of Food and Agriculture, the California Energy Commission, Pacific Gas and Electric, and other government agencies for the dairy biogas project and the production of renewable gas. As Eric mentioned earlier, we expect to close $25 million of a 20-year debt at a low interest rate under the USDA Rural Energy for America Program this month as our first USDA funding for the biogas project, and we expect to receive approximately $6 million of grants during the next few months for the RNG project.
Let's briefly discuss our California ethanol plan. As Todd mentioned earlier, we generated a 20% year-over-year increase in revenues from ethanol sales in Q1 2022 compared to Q1 of 2021. That said, higher energy and corn prices, combined with inexcusable railroad price increases coupled with poor performance issues, increased the delivered cost of corn to more than $10 per bushel.
Ongoing labor issues with the major rail carriers continues to cast a negative shadow on our industry and the economy as a whole. We are hopeful that the President's emergency board will resolve this issue as soon as possible. On a positive note, strong demand and favorable pricing for ethanol, wet distillers grains, and distillers corn oil helped to offset the increased costs of corn and energy in the quarter.
Our California ethanol plant is being upgraded to operate using high-efficiency electric motors and pumps powered by low- or zero- carbon intensity renewable power sources, including our solar microgrid and local renewable electricity. As a strong endorsement of this strategy, Aemetis has been awarded approximately $16 million of energy efficiency and other grants by PG&E, the California CPUC, and other entities to supplement our own funding to complete these projects.
Let me take a moment to provide a few updates on the Keyes ethanol plant projects that are expected to materially increase cash flow when the projects are completed. The Mitsubishi ZEBREX ethanol dehydration unit has been installed, and a test run has been completed. We are currently installing a specialized pretreatment unit and additional process upgrades. We expect to have this ZEBREX unit fully operational this month. The ZEBREX unit is designed to significantly reduce steam consumption in the plant by approximately 20,000 lbs of steam per hour. This is a 75% reduction in natural gas-generated steam use for the ethanol dehydration and is expected to reduce our operating costs by decreasing petroleum natural gas use and increasing our revenues through lower- carbon- intensity ethanol.
The solar microgrid with battery backup is progressing nicely, and we have a signed EPC contract with Total for the installation of the $12 million solar microgrid system. This project is supported by an $8 million grant from the California Energy Commission. The solar unit is designed to generate approximately 1.9 MW of zero-c arbon- intensity electric power at low cost for operation of the ethanol plant.
Mechanical vapor recompression system, which will further reduce petroleum, natural gas, and steam use, is now in the detailed engineering phase, and contractors have submitted initial bids. When completed with the ZEBREX system, we expect to reduce about 85% of our natural gas use at the Keyes plant when the MVR system becomes operational next year. Currently, natural gas costs the Keyes plant more than $10 million per year, so we expect to save on natural gas costs while also reducing our ethanol carbon intensity. In summary, operational performance and project milestones for the Aemetis Biogas and ethanol plant businesses are well on track with our five-year plan. Eric?
Thank you, Andy. Let's discuss our Carbon Zero 1 sustainable aviation fuel and renewable diesel project in Riverbank, California. We are pleased that the Aemetis Carbon Zero biorefinery under development at Riverbank near Modesto continues to achieve major milestones.
In December 2021, after three years of negotiations with the city of Riverbank and the U.S. Army, Aemetis signed the acquisition of the 125-acre Riverbank Industrial Complex. This site is a former U.S. Army ammunition production facility with 710,000 sq ft of existing manufacturing space, a rail loop with storage space for 120 rail cars on site, a 20 MW electricity substation, and 100% zero- carbon- intensity renewable power with a direct power line connection to the hydroelectric dam.
In Q2 of this year, Aemetis took operational control of the 125-acre Riverbank Industrial Complex for construction of our sustainable aviation fuel and renewable diesel plant as well as the Riverbank portion of our CO2 sequestration well project. We have signed and announced more than $3.4 billion of sales contracts with Delta Air Lines, American Airlines, Japan Airlines, Qantas, and other airlines.
Along with signed letters of intent, we have contracts for about 45 million gal per year of blended sustainable aviation fuel to be produced at the Riverbank plant. Under the sales agreements, the neat SAF will be trucked from the Riverbank production plant to the San Francisco Bay Area for blending with jet fuel. The blended SAF will then be delivered via pipeline to the San Francisco Airport for use by airlines.
In addition to the $3.4 billion of blended sustainable aviation fuel sales contracts, we signed a $3.2 billion renewable diesel sales agreement to deliver 45 million gal per year under a 10-year sales contract with a major travel fueling chain for its Northern California locations. Incentives included in the pending federal legislation expand the market for sustainable aviation fuel by allowing a price to airlines that is competitive with petroleum jet fuel. We look forward to completing engineering and permitting in order to begin construction of the plant early next year.
Let's review our new subsidiary, Aemetis Carbon Capture. In October 2020, the Aemetis plant in California was identified in a study issued by the Stanford Center for Carbon Storage as one of three ethanol plant CO2 sources in California that have the highest potential return on investment from building a carbon capture and sequestration facility, compared to the oil refineries, cement plants, and natural gas power plants that comprise 61 largest CO2 emission sources in California.
Our ethanol plant currently captures about 150,000 metric tons of CO2 per year, which is compressed in the Messer liquefaction plant into transportable liquid carbon dioxide, from which we already generate IRS 45Q tax credits worth $30 per metric ton from CO2 reuse. Current operations generate about $4 million per year of tax credits under the 45Q program. That could increase to about $8 million per year under the pending legislation.
The carbon sequestration study that Aemetis commissioned from Baker Hughes indicated that the Aemetis Keyes plant and the Riverbank plant site are located above a 7,000-foot-deep strata known as a caprock and an 8,000-foot-deep strata known as a basement rock. Between the two layers is a saline formation that was cited by Stanford University as ideal for safe carbon dioxide sequestration. Over a long period of time, the CO2 reacts with saline to form a mineral that is permanently sequestered underground and does not return to the atmosphere.
In phase one of the Aemetis Carbon Capture project, we plan to inject up to 400,000 metric tons per year of CO2 emissions from our biogas, ethanol, and jet diesel plants into two sequestration wells, which we plan to drill near our two biofuels plant sites in California. We expect to construct two CO2 injection wells that each have a minimum of 1 million metric tons per year of injection capacity, with additional CO2 supplied by other emission sources to sequester a total of 2 million metric tons per year of CO2.
The initial phase of construction includes drilling two characterization wells to provide empirical data for the EPA Class VI permit. The injection wells will then be drilled at the same site after receiving EPA and other permits. We are currently in the engineering and permitting process for the two characterization wells, with an expectation we will drill the first characterization well at the Riverbank site.
The Direct Pay provision of the pending legislation would provide $85 per metric ton of CO2 as a cash refund to Aemetis each year. As we mentioned earlier, the 2 million metric ton per year Aemetis Carbon Capture project would generate $170 million per year from the federal Direct Pay tax credit, as well as an estimated $400 million per year at a projected $200 per tonne of sequestered CO2 from the Low Carbon Fuel Standard in California. The fixed amount of $850 million provided by the Direct Pay funding over the first five years of the project could support funding of the estimated $250 million capital cost of the two injection wells and related equipment.
Let's review our biodiesel business in India. The National Policy on Biofuels in India was updated in 2022 and is now being implemented to achieve a 5% blend of biodiesel that is equal to about 1.25 billion gal of biodiesel per year.
This month, our India biodiesel subsidiary bid on a tender offer from the three government oil marketing companies, where about 180 million gal per month of biodiesel was tendered for purchase by the OMCs. For the past 15 years, the pricing formulas have largely been driven by petroleum diesel prices. For the first time, a feedstock- plus- pricing formula was used for the OMC tender, reflecting the actual cost for feedstock to produce biodiesel in India.
The pricing formula and the timing of the two-month tender by the oil marketing companies is expected to be the ongoing format for sales to the OMCs. We expect the formula to be a successful mechanism for the rapid growth of biodiesel production in India due to the predictability of the pricing formula.
We began operations of our India biodiesel plant in early August and expect to produce at full capacity to fulfill the tender offer. We believe this revised OMC purchasing process will allow us to maintain strong production levels on an ongoing basis. Since our India subsidiary has no debt and the 50 million gal per year biodiesel plant is fully constructed and commissioned, we are well positioned for a rapid revenue increase as we restart biodiesel production after a long delay.
In summary, Aemetis is expanding a diversified portfolio of negative- carbon- intensity projects, dairy renewable natural gas, sustainable aviation and diesel fuel, low- carbon ethanol using zero- carbon- intensity electricity, and CO2 sequestration. All these projects are synergistic and create a circular bioeconomy within Aemetis, in which we use byproducts and waste products from our facilities and local areas as feedstocks to produce low- and negative- carbon- intensity renewable fuels. Our company's values include a long-term commitment to building value for shareholders, the empowerment of and respect for our employees and business partners, and making significant and positive contributions to the communities we serve. Now let's take a few questions from our call participants. Kelly?
Thank you, Mr. McAfee. We will now be connecting a question- and- answer session. If you have any questions or comments, please press star one on your phone at this time. We ask that while posing your question, you please pick up your handset if listening on a speakerphone to provide optimum sound quality. Please hold just a moment while we poll for questions. Your first question is coming from Manav Gupta with Credit Suisse. Please pose your question. Your line is live.
The first question, Eric and team, I wanted to ask is this letter that Gavin Newsom seems to have sent on July 22nd to Liane Randolph, the CARB Chair, and looking at the letter, he clearly wants a faster pace of decarbonization in California. I think he's calling for 20% sustainable aviation fuel and, again, pretty much higher carbon reduction targets everywhere.
I mean looking at, you know, the count of comments you have provided where you just went through the calculations where you're calling on like a $200 LCFS price. Again, when we put these things together, are you optimistic that this letter and everything else that you're seeing out there will have an impact, th e carbon targets will be raised, and the LCFS price will rebound, in your opinion?
I think that if you talk to CARB staff, they will tell you they have worked as hard as they can to communicate to the market that the goals that they've set forth in the scoping plan are realistic, achievable, and that they are now being asked to stretch even beyond those goals. There's a very significant gap between traders and investors and their current view of the current requirements for LCFS credits and what the January 2024 and onward credit requirements that CARB has stated very clearly in the scoping plan and others, other disclosures.
The governor's letter, I think, just seals that CARB is committed to this. You may know that the board of directors of CARB is largely appointed by the governor. This is not a casual commentary by the governor. This is a direct instruction. I think it's very hazardous to be obligated to deliver LCFS credits and not own them.
I think as traders over the next 18 months increasingly get more and more information about the specific numbers on an annual basis, we have two analyst reports that say we will be at the cap. There is a $200+ cost of living index. Current cap is roughly $250. The system is just structurally set up so that we'll be at the price cap. The only question really is, does that happen in the next six months as traders start to see the information come out in the first quarter of next year? Does it take us 18 months as traders wait for the actual legislation and regulatory activities to be completed in the first quarter of 2024?
Perfect, Eric. The second thing which I wanted to touch base was clearly, you know, this Inflation Reduction Act. It has a lot of provisions which help you guys, whether it's renewable diesel, whether it's $85 a tonne. The one which I just quickly wanted to focus was because this really disproportionately benefits you, is this 30% ITC. Help us understand why this works for you, how this means that the money that you're spending, you can get credits for it, how you can monetize it.
And does it also mean that given this benefit, if it comes through, is there a possibility that Aemetis increases the pace of dairy farm development because you're basically getting cash for the money you're putting in? Help us understand how this all works. Thank you.
Thank you, Manav. First of all, it's about $100 million contribution of equity. We don't have to enter into a $100 million worth of debt financing, which is available to us and which we're currently executing on. That decreases the interest payments from the project by about $60 million, which means it increases the profitability of the project by about $60 million. By providing $100 million of essentially new equity to the project, of course, the debt financing is that much easier. It's approximately 1/3 of our total capital expenditure. We now already have equity, but this is a tremendous boon to our equity commitment, making our debt even less expensive.
In terms of the pace of the project, we'll be revising our five-year plan. We are scheduled to do that in the first quarter next year. What I think we're going to do in the interim, if this passes, is probably, in the September time frame, issue some indications. We talked today about some of those indications, but the actual five-year plan I think will still be updated first quarter next year. The indications could be added to the 2022 plan to kind of see what the annual impact would be for us.
It certainly, in terms of being able to execute more rapidly, this would definitely have a positive impact on being able to do it by reducing the lead times involved with the debt financing. The net effect is acceleration of methane capture, quicker improvement in air quality in California, and all the benefits of biogas would happen quicker with the passage of this legislation.
The last question, sir, is, by, let's say, year-end 2022, how many dairy farm RNGs would you be able to connect and start producing from? Even if you're not directly making a sale at this point, which you explained why you won't be for the credits, but how many of those would be complete and ready to produce by year-end 2022? I'll leave it there.
Yeah. We have seven that will be fully producing actually. As you know from our process, we inject into storage, and then we'll be in the process of construction of five more in the fourth quarter of this year. We'll have seven that are fully producing and going in storage. We'll be rapidly scaling that up to 12 early next year.
Thank you so much.
Sure.
Your next question.
Thank you, Manav.
Is coming from Jordan Levy with Truist Securities. Please pose your question. Your line is live.
Good afternoon, all. First, maybe, you all have a lot of high- impact projects going on in different stages. Maybe so we kind of know the trajectory over the near to medium term here, can you just touch on briefly what the big milestones for the company we should be looking toward are in, you know, call it, the remainder of this year and into early next year, if there's anything on each of the big projects going on?
Not [audio distortion] being completed this month. That was a five-year investment of time and effort and money. We have our solar project that will be well underway and get completed next year, and then mechanical vapor recompression, so you'll see a couple of press releases just as we move through permitting and construction on those projects.
We also have a set of offtakers, customers in the airline business. We have a couple of letters of intent that will get converted into offtake orders. And I think we're talking about a couple, maybe $0.5 billion, more of contracts there to kind of wrapping up that process. Everybody has already an LOI, so we're just converting it to definitive agreements but should have that all wrapped up this year. And further progress on permitting and final signed EPC agreement, which we expect to be done in the first quarter next year, so you'll see some progress press releases as that comes to pass.
And then lastly, I should mention our India plant has begun operation. It's in full production right now. And so over the next couple of months, we'll see ongoing progress as we ship to customers. The first purchase order is for two months, and we expect to see another purchase order come out here for October and ongoing months.
And so this new OMC purchasing process is much more rapid than the one-year-at-a-time fixed-price structures they had before. Now it's a flexible feedstock-plus-contracting mechanism, and it happens every two months. So I think you'll see more news coming out of India as we operate that business.
Eric, maybe just briefly as a follow-up, can you just talk to the regulatory environment for the CCS side of things and how that's maybe evolved since you first announced that business and what you're kinda looking toward there in terms of Class VI well permitting and that sort of thing?
In some recent federal legislation, the EPA provided some additional resources in order to staff the Class VI well process. We have been directly supported by the White House as well as top EPA well drilling executives at both the federal as well as the state level. We've gotten a lot more support and, frankly, a lot more interest in our project than we expected. I would say from when we had initially announced the subsidiary where we expected quite a long and arduous process with the EPA, we've gotten the opposite.
I would tell you they are enthusiastically supporting what we're doing and making every attempt possible to make this process move smoothly. We expect further support. I'm not talking financial here. I'm really talking the staff work that needs to happen to get our Class VI and our characterization well process done. We're very pleased with that support, and that starts with the White House.
Thanks so much.
Your next question is coming from Derrick Whitfield with Stifel. Please pose your question. Your line is live.
Thanks, and good afternoon to you and your team, Eric.
Hello, Derrick.
For my first question, I wanted to ask if you could offer color on the dairy RNG competitive landscape. More specifically, are you guys sensing less competition as a result of the weaker LCFS pricing environment, or do you sense competitors are looking through this period of weakness?
Andy?
Hey, Derrick. This is Andy. A good question. I think we have seen some backing off, I would say, by outside investors. I mean, as you know, in California, where there's primarily been three developers that have largely been driving the business here, two others in addition to Aemetis. I think that still continues to be largely the case here. There, you know, was lots of discussions. Some other groups were poking around in here last year. It's not to say that there isn't some additional outside private investment that's going on, but I do think that there has been some pullback from other parties.
Great. For clarification on Manav's earlier question, if the IRA is approved next week, what's your understanding or assumption on how soon you could begin to receive funds from the $90 million you noted in your prepared comments?
The current structure is that we file our tax returns and then get a refund. We have planned in our projections it would be Q2 of the following year. For CapEx happening this year, we wouldn't receive our refund until probably the almost June time frame, so Q2 of next year. You plan that over a five-year span, and it ends up being about $100 million.
Terrific. Lastly, regarding refinancing, are there any remaining steps that are required for approval between now and later this month when you guys receive funding?
No, it's just. This is Andy again. Right now it's just paperwork. No more approval process. It's just us kind of wrapping up the paperwork with our lender.
That's terrific. Thanks for your time.
Thank you, Derrick.
Thanks, Derrick.
Your next question is coming from Amit Dayal with H.C. Wainwright. Please pose your question. Your line is live.
Thank you. Hi, Eric.
Hello, Amit.
With respect to the India operations, what is the timeline within which, you know, the plant could be restarted, et cetera over there?
The plant was restarted in early August, so we're in full production right now. During this time of COVID, we took advantage of the opportunity to have our 90 employees spend their time on replacing equipment and upgrading seals and doing tests and really got an opportunity to go through the plant and be ready for full operation.
The operational restart was smooth. Probably the only delay we had was getting the local power authority to give us the power to switch back on. That took us an extra week. Other than that, we've acquired millions of dollars of feedstock ahead of this restart and are well positioned to be running at full production capacity under this two-month contract. The customers are telling us it's just gonna keep on flowing from that point onward.
There's always minor technical issues around testing and temperature and some other stuff as we get into winter, but we're managing through that. Certainly for the next two months, we've got a plan laid out for execution. At 180 million gal a month: Our entire production capacity is only about 4 million gal a month. The demand is 180 million gal. You can see we can basically grow our business over there for the foreseeable future without a lack of appetite by the OMCs in terms of meeting their needs.
Are there any additional s tartup costs that we should be sort of thinking about as you enter the, you know, at this phase of restarting the plant over there?
Yeah. The plant is fully restarted already, and we didn't have any one-time CapEx or operating costs that were notable. We'd planned for this and we're, if anything, waiting for this for a while. There was no unexpected startup [audio distortion].
Revenues, et cetera from this will show in maybe the 4Q results.
It would be in the Q3 results and also just continue on into Q4. Our goal is full operation for the foreseeable future. What we have in hand is the two-month tender offer that has been accepted. We're expecting, though, that the oil marketing companies will be an ongoing customer base that we could supply with all of our capacity.
Understood. Yeah, my other questions were already addressed. Thank you so much, Eric.
Good. Thank you, Amit Dayal.
Your next question is coming from Matthew Blair with Tudor, Pickering, Holt & Co. Please pose your question. Your line is live.
Hey, good afternoon. I was hoping we could revisit the CapEx guidance for 2022. I think at one point you were expecting around $85 million. I think you spent about $22 million in the first half of the year. Is that $85 million still a good number or should we expect something lower? At this stage, do you have any early thoughts on 2023 CapEx?
I think we're on track for 2022. There's a blend of different projects, as you know, that goes into that number. Our five-year plan for 2022 does have a flow of biogas between the fourth quarter this year and the first quarter of next year, based entirely upon how the pace of construction goes. There's some variability there. No real diversion on anything else we're doing. The budgets haven't changed, and I don't think the timing has materially changed. We'd probably be on track to certainly be within $10 million of that CapEx number.
Sounds good. I wanted to clarify on the timing of the RNG monetization. It sounds like you're waiting for the LCFS pathway to come through. Would you be able to monetize any D3 RINs in Q3 or Q4? Should we really expect everything to happen sometime in the first half of 2023?
Andy, you wanna [crosstalk]?
Yeah, I would say that's the right expectation. We'll take it to storage and then, following the approval by CARB for the pathways, that's when we'll actually exchange the gas out of storage and start to monetize it.
Got it. Last question. Could you provide any sort of a rough range on profitability per gallon for this India biodiesel restart?
Not with any specificity at this point in time. It's a price of INR 106 per liter. That is a publicly announced price. You can do some math on what the market looks like and probably get pretty close. Right now, the numbers are definitely positive and we expect to be able to put these numbers in the third quarter as well as the fourth quarter.
It's a restart of the entire industry. The formula of feedstock plus is structured so that we would be provided not only just profitability but frankly growth capital to be able to expand our capacity from 50 million gal to 100 million gal and even more. The design of the program is to be able to fund the growth.
Great. Thank you.
Sure. Thank you, Matthew.
Your next question is coming from Marco Rodriguez with Stonegate Capital Markets. Please pose your question. Your line is live.
Good afternoon, everyone. Thank you for taking my questions.
Hello, Marco.
I was wondering if maybe, Eric, you could spend a little time just coming back to the CapEx plan for the five-year plan. Just kind of give us a little bit better of a sense or an update on the funding sources. I know you've got the new line here, but if you can maybe frame the sources, the mix of the sources, whether that's from capital markets, grants, cash flow, would be helpful.
Certainly. Each one of our businesses have different sources. In general, we combine a combination of grants and now, frankly, investment tax credits, either direct pay or transferable. Because it appears that all these biofuels tax credits will either have transferability or direct pay as a feature. Essentially they turn into cash rather than us having to wait for some number of years before we can get the tax benefit.
The grants we've already received is about $57 million, and that's across the portfolio. These ITCs, as I described it, are just very, very large contributions of additional equity that are an adjustment to our five-year plan. In addition to grants and ITC, we also have government-guaranteed debt, and USDA is probably the partner that we have the most relationship with. Certainly, on biogas, that is true, and we can grow our business just using that.
In addition to that, we have the California municipal bond market for what are called private activity bonds. They're typically in the $50 million range, whereas the Rural Energy for America Program under USDA is a $25 million loan per project company. Wouldn't be surprised to see some California municipal bond money mixed in with USDA to fund our biogas business.
Same template, frankly, for our jet and diesel business, where we have a signed $125 million commitment letter from the U.S. Department of Ag under the 9003 biorefinery assistance program with the U.S. Department of Ag. Expanding that relationship, adding some Rural Energy for America Program funding there. There's even tax-exempt financing available for that project. When you add in the value of the $1.25-$1.75 tax credit, that's essentially additional equity being contributed into the project, which makes this debt financing that much easier to arrange.
Carbon sequestration, we spent about $18 million in carbon sequestration characterization wells for our two wells, plus the consulting for permitting, and that's pretty much our only investment. We're expecting in 2024 to then get a Class VI license. At that point in time, between the $850 million of Direct Pay payments and using that for a financing source and just good old, you know, USDA relationships we have, we think we'll be able to fund the scale-up of that business using those long-term financing sources.
In general, we're looking for the confidence of the U.S. government that their policies will be enforced to be reflected by the U.S. government's loan guarantee programs, and we've seen that actually is a good business strategy. If the municipal bond market in California has a strong appetite for these kind of projects, which it currently does, then we can add that in as needed. If for some reason it does not have an appetite: Then these U.S. g overnment guaranteed 20-year bond structures have worked for us and, I expect, would continue to work for us in the future.
Great. And last quick question, just on the gross margins that you guys saw in this quarter from Ethanol, just kind of can you talk about how you're thinking about the mechanics behind that just kind of given the rising price in corn, the rail issues, how you're thinking about that in the second half?
I would say that we are all suffering under the railroads' insufficient reaction to the recovery after COVID. They should have hired a lot quicker, trained a lot quicker, and that added some real cost. That is temporary. They are fixing it. The Surface Transportation Board is aggressively following their progress. I would anticipate over the next six months that there will be gradual improvement in that.
The other side of the equation is what everybody knows, which is when you shut off Ukrainian corn, you're gonna have a reaction, somewhat speculative, by the market. As we get through this corn harvest and the yields seem to be doing better than some expected and as some corn starts flowing into Ukraine, we will see how that market reaction occurs.
We are largely subject to how the Ukrainians do to see a steep down curve. If we saw a resolution of Ukraine next week and a flood of corn in the market because we're in the middle of harvest, that would have an impact. I personally think we're in a temporarily elevated situation through the combination of rail and the Ukrainian lack of supply in the marketplace. Andy, do you wanna add anything to that?
No, I would say that, you know, this is August typically, in the ethanol industry, is usually one of our rougher months from a corn pricing perspective because there's, you know, a lot of wishing, hoping, and praying about what the harvest is gonna look like, what the carryout is gonna look like.
You know, I think if you go back and look typically in August. You know, I kind of identify January, February, and August as my three least- favorite months of the year when it comes to purchasing ethanol. The actual price of corn has come down some, but corn basis is very high right now, so we're not really getting a lot of relief because farmers aren't selling. That's typical of this time of the year.
As we get closer to the harvest, they have to start making room in elevators for the new crop corn. I think this is gonna be an average corn year. I don't think it's gonna be a spectacular year. The western corn belt is pretty dry right now, but the rest of the corn belt is kind of doing as expected.
You know, barring any major disruptions, any further escalation in Ukraine, as Eric was talking about, that's more of a psychic thing than a real grain supply issue, and it's a lot of that's wheat. I think as we start to get into the harvest, we'll start to see things normalize a little bit more. If there's opportunities for us to take advantage of some of that pricing, we'll try to do so.
In the medium term, though, I think that investors should reflect on the fact we don't actually sell corn as one of our products. We sell ethanol, so it's a demand for ethanol that generates our margins. Our most profitable year, we generated $40 million of EBITDA from our ethanol plant in California, and we had corn prices were roughly the same as what they are right now. E15 and E85 funding of $500 million will significantly expand the market for ethanol.
I don't know if you saw the EIA numbers yesterday, but demand fell right off the cliff, as we sort of all expected sooner or later that was gonna happen with high gas prices. You know, gasoline demand, ethanol demand was down almost double digits. That was just a week of data, and I tend to look at more, you know, weeks combined of data or a month of data. I think, with sort of back- to- school time, you're gonna start to see that, and I think people have sort of gotten to the edge of their limits in terms of paying for high prices of gas.
[crosstalk]
I think Eric's point is correct. You know, it's let's look at the ethanol demand and how we go into the fall with that. Because the ethanol industry in the U.S. has had record exports this year. That's one really positive spot, and we haven't had a lot of imports from Brazil. I think one just landed in California, and I don't think we'll see another one th is year.
Largely speaking, we've had positive trends in that perspective, but demand has really dropped off pretty sharply. Refiners will tell you that, everybody will tell you that. I think that's kind of the thing we're keeping our eye on right now. Corn's running its normal cycle, but we'll have to see where ethanol demand goes.
Got it. Very helpful. Thank you for your time. I really appreciate it.
Mm-hmm.
Thanks, Marco.
Your last question is coming from Edward Woo with Ascendiant Capital Markets. Please pose your question. Your line is live.
Yeah, thank you. You answered a lot of my questions about the outlook for ethanol, but you know, we've seen some pullback in you know, gasoline prices from record levels, and there's been a lot of drumbeat by you know, the federal government to get you know, oil prices down. Do you think we'll see sustainable decreases in the outlook for oil? May that possibly increase demand for gasoline and obviously, you know, demand for ethanol to rebound?
This is Andy. I kinda think we're you know, again, a lot has to do with geopolitical stuff in terms of the price of oil. I'm not gonna speculate. I'm not an oil expert, and I, you know, follow it like you do. Ukraine and things going on with China and all the rest have weird influences on traders in New York, so I'm not gonna guess there.
I think we're sort of starting to feel like we're getting back into our normal rhythm when it comes to cycles for demand, at least on the ethanol side. Usually, at this time of the year, you do see a decrease in demand as you get toward the end of the summer and people stop summer vacations, and you get back to school.
I kind of feel like we're, barring any outside events, which, you know, in the world we're living in today, could be tomorrow, I think it starts to feel like we're getting into a more normalized. I mean, definitely the price of gas has come down as you look around. I was on the East Coast last week, and it was incredibly cheap compared to California. California gas prices have gone down a little bit.
I, you know, I think we're kind of cycling back into, as I look at the Ethanol business, it's, you know, back- to- school time of the year, and I think people have kind of wrapped up summer vacation time or they will this week, and then we're sort of getting back into more of a normal cycle. I'll put that out there with all the caveats that, you know, as of this afternoon, we could have some other international crisis that jacks the price of oil and makes all that go away.
Great. Well, thanks for answering my questions.
Thank you, Ed.
There are no further questions at this time. I would now like to turn the floor back over to management for any closing comments.
Thanks, Kelly. Thanks to Aemetis shareholders, analysts, and others for joining us today. Please review the company presentation and the investor presentation that is posted on the homepage of the Aemetis website. We look forward to talking with you about participating in the growth opportunities at Aemetis.
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