Tidewater Renewables Ltd. is on the verge of completing Canada's first renewable diesel plant.
Construction of the $342-million Hydrogenation Derived Renewable Diesel (HDRD) facility, located in Prince George, B.C., is expected to wrap up within the next two months, then production will scale-up over the second half of 2023.
The ambitious project was delayed last year due to an $82-million cost overrun according to Tidewater's Q4 2022 earnings report. Supplier issues, inadequate engineering work and soaring inflation were largely responsible for pushing construction costs 31 per cent above the $260-million estimate.
In April, however, Tidewater Renewables announced it had secured $43 million in government carbon credits, allowing the Calgary-based company to finish work on the HDRD plant. In addition, Tidewater is negotiating a $50-million credit line from its existing lenders as a cash reserve and contingency fund.
The enhanced liquidity from the proceeds of credit sales will fund the HDRD project through its start-up phase this year.
"The support from government and our current capital providers has been fundamental to the ongoing advancement and success of our HDRD Complex, which will become Canada's first Renewable Diesel facility. This project will provide significant value to our stakeholders while reducing the carbon intensity of fuels used in British Columbia and Canada," Rob Colcleugh, chairman and interim CEO of Tidewater Renewables, said in an April 13 press release.
"Very close to the finish line"
In an interview with SustainableBiz, Colcleugh further clarified the government credits received by Tidewater had largely solved a cash crunch which had stalled work on the new plant.
"We're very close to the finish line," Colcleugh said. "We estimate that we're about 95 per cent complete . . . The funding gap that resulted from the cost overruns have been largely covered by the credits that we received."
Colcleugh, who had served as a director of parent company Tidewater Midstream and Infrastructure since its founding in 2017, became interim CEO of both Tidewater Midstream and Tidewater Renewables on Nov. 28.
One of his immediate tasks was to secure the additional financing to put the finishing touches on a landmark project that was the victim of what ColCleugh describes as an "inadequate" initial engineering study and unanticipated price hikes from suppliers.
"The HDRD plant would have gone over budget even if we had done the proper cost estimating when the project was first conceived a couple of years ago," Colcleugh explained. "We probably needed six to eight months more engineering work before coming up with a proper cost estimate.
"So we started with a cost estimate that was wrong. And on top of that, we were asking suppliers who haven't manufactured such and such a part, before we entered an inflationary environment. So it was a combination of those two factors.
"I asked the team to provide a new estimate, and that estimate came to the figure that we're at now - $342 million."
Fortunately, he said, inflation has also "calmed right down".
Renewable diesel - a major upgrade from biodiesel
Tidewater's imminent rollout of Canada's first renewable diesel plant will mark another milestone in the ongoing transition from a fossil fuel economy to a greener industrial landscape that relies on renewable energy.
To that end, the Tidewater facility exposes a fundamental difference between renewable diesel and biodiesel. Contrary to public perception, existing biodiesel plants in operation for the past several decades are not pure-play producers.
Colcleugh believes it is important to draw a strict line between the two: "When somebody refers to traditional biodiesel as a fuel, it's misleading because biodiesel fuel is usually a blend. It's what I would consider to be the prior generation, if you will. Our product represents the future of the industry."
Conventional biodiesel plants produce a brand of diesel that needs to be blended with hydrocarbon diesel in order to be used in vehicles.
The Tidewater plant will instead produce a pure form of diesel that does not need to be mixed.
"Biodiesel is cheaper to manufacture but it has a different chemistry to it than renewable diesel, which is molecularly the same as hydrocarbon diesel. Biodiesel has issues with cloud point, among others, which means that it must be heavily blended with regular diesel to be used," Colcleugh explained. "Our HDRD complex is the first renewable diesel facility in the country and most new facilities in this sector will be renewable diesel.
"Whereas biodiesel by its chemical nature can only be used as a blend, our new plant's product can be put straight into your truck."
Sourcing costs for used cooking oil critical to profitability
The facility will initially run on pure canola oil before layering in other cheaper feedstocks, primarily used cooking oil (UCO) which is to play an increasingly important role in the production.
"UCO is a competitive market but we are winning business quickly in that space," Colcleugh said. "The more UCO we can use, the more profitable we will be because it is nearly free and has an attractive carbon intensity score. We are more impacted by the pricing of soy-based oil index pricing."
"[UCO sourcing costs] is absolutely one of the things we worry about. I'm very concerned about managing the price risk of the UCO market which is very limited and driven by population. By comparison, the market for soy or canola oil is very large and fairly fungible."
"We need to be in the collection areas where there are a lot of people because it's a cheap feedstock. So sourcing different types of oil depends on your location."
Tidewater and the Alberta samosa industry
In Alberta, among the largest sources of industrial UCOs are restaurant chains like McDonald's and Indian food manufacturers such as Edmonton-based Aliya's Foods, which sells over $100 million worth of samosas annually across North America.
These companies generate large volumes of waste UCOs, which are available for recycling.
"It's the wild west out here in terms of UCO collection," Colcleugh observed. "There's a large Indian food manufacturer here that makes super-high-quality food and they produce an awful lot of used oils, and we're fortunate in that they keep their oil very clean by changing out their oils frequently.
"So we are able to benefit from the fairly large amount of product that comes at the back end of their operation. It's very clean."
Renewable diesel production to ramp up during 2023
Tidewater Renewables projects its HDRD complex will be producing at 75 to 80 per cent of its design capacity later this year. The plant is expected to generate $35 to $45 million in adjusted EBITDA, significantly boosting revenues to $50 to $60 million for 2023.
Tidewater's financial projections for 2024 and beyond are even more promising when its HDRD facility is running at full capacity. It estimates the enhanced revenue stream from the plant will more than double annual revenues to an annualized corporate EBITDA run rate of between $130 and $155 million.
Says Colcleugh: "We're looking at producing 3,000 barrels a day once we reach full capacity at our HDRD facility. And we're looking at a corporate EBITDA run rate north of $90 million from the plant based on current feedstock and diesel prices."
Transitioning from this extended and difficult development phase to operating mode will be a welcome moment.
"It's amazing when you take into account all the things that we're having to deal with, not to mention the complexity around the regulatory pathways which is significant," he concluded. "We're pretty much all up to speed at this point in time, but it's been quite a learning curve for everybody in the organization as we transition into operating mode."