Next on the Runway: DG Fuels advances towards the takeoff to scale

The Digest as reported elsewhere turns 16 today, the age where you might get Dad to give you the keys to the car. It’s that time when adolescence begins to fade and adulthood beckons — and in the bioeconomy, we’re seeing signs of that same turn. There’s a tranquility at the point of inflection. Reminds me of the old ABBA lyric, “Standing calmly at the crossroads, no desire to run, There’s no hurry any more when all is said and done.”

The DG Fuels advance

Case in point arrives in the mail this morning. DG Fuels has closed a reported $30 million capital raise with Japan’s aviner & co and Chishima Real Estate Co., Ltd. — and, an undisclosed mystery investor. The Serene Princes of Sustainable Project Finance at FaegreDrinker, John Kirkwood’s team, were in the mix on this, advising DG Fuels in the negotiation and documentation of this most recent equity raise. We like that’s it’s debt, non-dilutive for Mike Darcy, Chris Chaput and the DGF team that has been shepherding this flagship project for some time.

Couple of other likes here.

Deepening the partnership. Aviner, which is active in aircraft management and renewables, has worked closely with DGF as its strategic partner and representative in Japan and broader Asia to market DGF’s SAF product to off-takers in the Asia Pacific region as well as jointly studying potential production of SAF by DGF in the region. There’s nothing better than when companies who’ve had the closest look write the biggest checks. 

Who’s Chishima. Chishima and its associated companies own buildings and land mainly located in urban area of Tokyo, Osaka, London, California and Texas and have been involved in leasing commercial jet aircraft and engines to airlines around the world for the past 38 years. So, another investor getting deeper into the sector.

Fresh money, Aviner and Chishima Real Estate are new to the sector as investors at this level. This isn’t re-positioning someone else’s capital, this is fresh investment and, while easier to find now than in the past, is welcome always. 

Enough runway. DGF has now exceeded its minimum investment target as part of its final round of parent level development capital needed to fund the remaining expected expenses required to reach FID, including the ongoing FEL 3 and related expenses. DGF currently expects that FID on its proposed US$4.2 billion, 180 million gallon per year SAF facility in Louisiana to occur in early 2024. 

Beyond the flagship: of  CAPEX and the OPEX

The Louisiana SAF facility will be the template for multiple other such facilities to be built across North America, Europe and Asia.

We’ve pointed out elsewhere that this is a capex-intense project, 3.6B billion for 151M gallons per yea works out to $22 bucks per installed gallon. However, feedstock and operating cost matters just as much as capital cost, and that’s where DGF shines. On an ongoing basis they come in at $2.20 per gallon for a basically zero emissions SAF. The margins are going to be tremendous if those numbers are achieved at scale in actual practice. 

The DGF Backstory

DG Fuels is building a low-CO2 life cycle emissions synthetic fuel system based on high carbon conversion technology that is targeting a 97% efficiency. The DG Fuels’ technology does not require the development of new engines or types of distribution infrastructure. DG Fuels’ innovative technology produces hydrogen via water electrolysis and biomass derived carbon replacement fuel for aircraft, and potentially for locomotives, vessels and trucks as well. DG Fuels delivers a significant value proposition to end-customers, including meaningful environmental benefits and the ability to materially address sustainability goals. DG Fuel’s carbon efficient solution will tie together all critical elements to power, fuel, and provide SAF to its customers. 

Reaction from the Stakeholders

Yoshiyuki Shibakawa, Representative Director of Chishima said, “We believe the SAF to be produced by DG Fuels makes a significant contribution to reducing CO2 emissions in the aviation industry. Through its partnership with DG Fuels, we will contribute to the decarbonization of the aviation industry.” 

“SAF sits right in between aviation and energy which are the prime focus of ours. We have strong belief in the DGF team and are excited to be part of this project. SAF produced by DGF’s high carbon conversion efficiency technology uses woody biomass feedstock which will not face limitation in feedstock supply and we expect DGF’s technology and know-how can be replicated in various locations around the world.” said Hideyuki Yamanaka, CEO of aviner. 

“The DG Fuels facility will produce 180 million gallons of zero carbon emissions SAF,” said Michael C. Darcy, CEO of DG Fuels, The facility itself has a very minor atmospheric emissions and zero water discharge to the local environment and will bring 600 new permanent operating jobs and up to 2,100 construction jobs over three years to the local community.” 

“We have worked diligently with our investors in implementing this long-term relationship to mutually focus on decarbonizing the aviation sector in a responsible manner,” said Christopher J. Chaput, President and CFO of DG Fuels. The DG Fuels SAF product relies on no feedstock that would negatively impact the food supply and our highly efficient production process allows us to profitably sell SAF to airlines at attractive prices.”