In this video clip from "The High Energy Show" on Motley Fool Live, recorded on Feb. 1, Fool contributors Jason Hall, John Bromels, and Travis Hoium share their thoughts on factors that could keep renewable natural gas from seeing further growth in the trucking industry and other utility companies.
Jason Hall: This is my big concern with it Travis, Johnny, I'm still calling you Johnny because you're Johnny Power today.
John Bromels: That's fine. That's my name.
Hall: Love it. The challenge with Clean Energy Fuels (NASDAQ:CLNE) in the past, even as they've grown their cash flows, there's been a lot of dilution. Issuing a ton of shares on the cheap to pay off all that debt that it raised to build all those stations. Then there's a partnership it has with Amazon (NASDAQ:AMZN), with Amazon has some warrants and equity with Total (NYSE:TTE). Total is its largest investor because of a deal they did with trucking. I believe that this is going to happen to some degree. To some degree, this is going to happen and it's going to grow the company's cash flows and earnings. My concern is on a per-share basis. What's it going to look like? How much competition is going to be there? How much market share are they going to be able to capture? They basically got the market now, they own it. How much are they going to be able to keep and how much of it is going to be at a per-share investor basis? Travis.
Travis Hoium: The biggest question that I have here is the same thing as when we talked about hydrogen versus electric 10 years ago. That was when Toyota (NYSE:TM) was all-in on hydrogen. Tesla (NASDAQ:TSLA) said that you're absolutely wrong, electric is the future. Tesla clearly won that. I have the same questions from a technology standpoint with the trucking industry. I know that electric trucks don't make any sense today.
Hall: In a very small group of applications they work, but in general over-the-road, you're absolutely right. They don't work.
Hoium: Long haul trucking, they typically do not make any sense.
Bromels: Rocky Top has pointed that out in the Slido by the way.
Hoium: Yes, it has been pointed out. But the question is, and this is part of my engineering background, is as we pour more money into R&D in both batteries and hydrogen is the other thing to bring in that a number of people have asked about, is there going to be more advancement in those areas that make electricity as the fuel source more valuable before basically renewable natural gas can get enough market share to be meaningful?
I think that is fundamentally the question, and it's always been the question with these fuel changes, is can you basically get down that adoption curve fast enough that you're just going to be able to outspend everybody else? Batteries have won in the consumer devices. That was not something that was clear 10 years ago. Where are we going to be 10 years from now in this space? That's my biggest question.
Bromels: Well, I'm guessing what Jason is going to say is probably the direction that I would put at it. I look at it not so much as a where is the demand going to be, where is the technology advancements going to be on a vehicle standpoint. I look at it from a, regardless of what happens in the technology or the vehicle standpoint, we're still going to be making a lot of methane from farms, from landfills. We're going to be producing methane, we're going to have to do something with that methane. I think that's actually what is going to drive this, is the need to figure out what to do with all this methane. Maybe Jason's going to say something different.
Hall: No, I think that's largely part of it. I think the question is, where in the value chain is it going to fit? Clean Energy Fuels are saying, we can use RNG to do anything. We can use it to put in vehicles to run on it as a fuel source, we can run through a hydrogen reformer, and put it in hydrogen vehicles. Actually, they've got a partnership with one of their oldest customers, Foothill Transit to build a hydrogen station for their fuel cell buses. They're kind of in the mix there. Then they are saying, "Well, we can sell it to a power generation." There you go.
Hoium: The optionality is basically that their vertical stack is not ultimately the value, it's the fuel that comes out of the farms.
Hall: Exactly. The thing is that to a certain extent, it makes me wonder, is their station footprint, how durable of a competitive advantage is that going to prove? Because at the end of the day, you're not going to send RNG to every station to generate electricity that's going straight to the batteries. You going to sell that RNG into the grid. You're going to sell it to a utility that's using it to power their power gen, that sort of thing. You're going to sell it. Maybe you'll operate hydrogen reformers. Maybe you'll do that. But those are kind of things that work best at scale.
Travis, this is something you'll know better than me. Wind and solar, we continue to see the cost curve get better on the cost per watt of the hardware and producing electricity. You're not going to see the same benefits of scale and technological improvements with RNG coming out of landfills or coming out of dairy farms. My question is at what point can it not compete with solar or wind for hydrolyzed, right?
Hoium: For hydrolysis. If you look at Bloom Energy (NYSE:BE), what they're calling their renewable hydrogen is powered by wind and solar. You're exactly right. My next question is, is it less efficient to take subsidies aside? Is it less efficient to produce methane for a dairy farm, put it in a generator, produce electricity, than it is to just collect that electricity from a wind farm or solar farm? You're right, costs keep coming down for wind and solar. Solar specifically is the most abundant energy source we have in the world. My bias is just how those are going to be the lowest costs performance of energy, but that's an interesting use case for sure.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.
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