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Enviva Partners reaffirms full-year guidance in Q3/2020 financials

US-based Enviva Partners, LP (Enviva) has released its financial statement for the third quarter of 2020. Operating and financial results to date have not been materially impacted by the coronavirus (COVID-19) pandemic and Enviva reaffirmed previously provided full-year guidance for 2020.
“Driven by our continued safe and stable operations, we are very pleased to report strong financial performance in line with our expectation for the quarter,” said John Keppler, Chairman, and CEO of Enviva.

A truck unloading sawmill residues at the Enviva Pellets Waycross plant in Waycross, Georgia (GA). Previously known as Georgia Biomass, it was recently acquired by Enviva Partners, LP from innogy SE and one of its subsidiaries.

According to a statement for the third quarter of 2020, the world’s largest pellet producer generated net revenue of US$225.6 million, as compared to US$157.4 million for the corresponding quarter of 2019.

The US$68.2 million increase was primarily attributable to a 40 percent increase in tonnes sold during the third quarter of 2020, as compared to the corresponding quarter of 2019 – just over 1.13 million tonnes compared to 811 000 tonnes.

Acquisitions and expansions

As previously announced, Enviva Partners completed the acquisitions of pellet production in Greenwood, South Carolina (SC) – Enviva Pellets Greenwood – and a production plant in Waycross, Georgia (GA), Enviva Pellets Waycross. The integration of these production plants is progressing as Enviva expected and operating results for the third quarter of 2020 were “consistent with expectations” prior to the acquisitions.

In addition, procurement and detailed engineering activities for the Greenwood plant’s production capacity to 600 000 tonnes per annum are well underway and the expansion remains on track for completion by year-end 2021, subject to receiving the necessary permits.

Furthermore, Enviva has continued commissioning activities at the expansion project at its production plant in Northampton, North Carolina (NC). Commissioning of new equipment also has begun at the expansion project in Southampton, Virginia (VA) which is expected to be completed by the end of 2020.

Enviva continues to report that, to date, its operating and financial results have not been “materially impacted” by the outbreak of COVID-19 and all of its customers have performed in accordance with their respective contracts.

Although the full implications of COVID-19 are not yet known, we have contingency and business continuity plans in place that we believe would mitigate the impact of potential business disruptions if necessary. We believe that the durability of our contracted cash flows, combined with the progress we are making on integrating the recently acquired Greenwood and Waycross production plants, and the processes and procedures we put in place to protect all our people and facilities against the ongoing impact of COVID-19, enabled us to stay firmly on track to deliver results within our full-year guidance range, said John Keppler.

Coal phase-out ongoing despite challenges

Enviva notes that even amidst the ongoing global COVID-19 pandemic, regulators, policymakers, utilities, and power generators in key existing and emerging markets for the company continue to make incremental commitments and significant progress to phase out coal, cut greenhouse gas (GHG) emissions, and limit the impact of climate change to achieve “net-zero” by 2050.

The most recent example is Japan’s goal to become carbon-neutral by 2050, recently announced by Prime Minister Yoshihide Suga in his first policy speech to the Japanese parliament (Diet) since taking office, bringing the country in line with the net-zero targets set by other major economies.

The previously announced 20-year, take-or-pay off-take contract as sole source supplier for Ichihara Yawatafuto Biomass Power GK in Japan is now firm, as all conditions precedent have been satisfied. Sales under this contract are expected to commence in 2023 with deliveries of 270 000 tonnes per annum.

Japan’s Prime Minister Yoshihide Suga has said that “we will fundamentally shift our long-standing policy on coal-fired power generation”. However, the Renewable Energy Institute (REI) says that it should be nothing less than a complete coal phase-out, including coal-fired power that thus far has been promoted under the name of “high efficiency”. Otherwise, Japan risks losing international climate credibility, on the one hand, advocating for carbon neutrality in 2050 yet at the same time only marginally revising its emission reduction target for 2030.

In Denmark, another market for the company, the government recently reached the political agreement necessary to translate the EU’s Renewable Energy Directive II (RED II) into Danish law and reaffirmed the sustainability requirements for woody biomass used to produce heat and electricity in the country.

This new agreement provides a clear and long-term regulatory framework for the increased use of biomass in a leading country in mitigating climate change, where sustainable biomass is currently the largest contributor to its renewable energy mix.

In Germany, the recently passed Coal Exit Law that seeks to end coal-fired power generation by 2038 sees several policy initiatives that focus on formulating detailed regulations on the subsidy framework. Approximately EUR 2 billion has been earmarked to cover costs related to converting existing coal-fired assets to operate on low-carbon fuel, including woody biomass.

Enviva and its sponsor remain in “ongoing dialogue” with several large power and heat generators in Germany who intend to convert existing coal-fired assets to biomass, subject to the final legislative direction expected over the next several months.

In neighbouring Poland, the Ministry of Climate submitted an updated draft of the country’s energy policy through 2040. The policy aims to reduce the share of coal in electricity production from more than 70 percent today to just 11 percent in 2040 and contemplates substantial increases in biomass-fired generation at both the utility-scale as well as in the more than 100 combined heat and power (CHP) assets across the country that are currently fueled with coal.

These commitments and the corresponding policies and action plans underpin the continued strong growth expected in global demand for industrial-grade wood pellets, which following negotiations, Enviva anticipates will result in additional long-term off-take contracts for the company and its sponsor.

Project updates

Enviva Partners also provided a progress update on projects currently being developed by its sponsor and the sponsor JV, which Enviva expects to have the opportunity to acquire along with the related off-take contracts. These include:

  • Civil work, mechanical installation, and construction continue at both the Lucedale pellet plant and Pascagoula terminal sites in Mississippi (MS) with the sponsor expecting the construction of both facilities to be completed mid-year 2021;
  • The development of a pellet production plant in Epes, Alabama (AL), where the sponsor expects to complete the purchase of the project site and commence certain pre-construction activities this quarter. A final investment decision by the sponsor is expected around the end of 2020;
  • The evaluation of additional production sites for pellets in Virginia (VA), North Carolina (NC), South Carolina (SC), Georgia (GA), Florida (FL), Alabama (AL), and Mississippi (MS), the production of which would be exported through Enviva Partners existing terminals at the Ports of Chesapeake, Wilmington, Savannah, and Panama City, as well as the Pascagoula terminal.

As of October 1, 2020, Enviva Partners’ current pellet production capacity is matched with a portfolio of firm take-or-pay off-take contracts that has a total weighted-average remaining term of 12.8 years and a total product sales backlog of US$14.9 billion.

Assuming all volumes under the firm and contingent off-take contracts held by its sponsor and sponsor JV are included, the total weighted-average remaining term and product sales backlog would increase to 13.7 years and US$19.4 billion, respectively.

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