CLIR Update: Kern County Rejects All Alternatives, No Change To Investment Thesis
Ahead of tonight’s public hearing, the Kern County Planning and Community Development Department (KCP) issued an updated Economic Impact Report (see here).
In it, they provide guidance on the proposed alternatives. Ultimately, the Planning Board recommended rejecting all of them.
The reasons for rejecting Alternative 5, which mentions Clearsign specifically, are instructive. It has nothing to do with the technology not working. To the contrary, it’s because of timing and because the technology works too well.
Let me explain…
The KCP deems Alternative 5 “not technologically or economically feasible” because the technology is still in the “demonstration” phase.
It mentions Aera being the only operator currently testing the Duplex, which is obviously outdated. On May 14, CLIR announced a purchase by an unnamed “Southern California oil producer.”
But the point is the same. In the eyes of regulators, the Duplex isn’t “field-proven.” Yet.
Or as the report states, “All technologies currently under consideration require additional testing and validation in actual operating conditions and environments before they can be considered field-proven.”
However, in the eyes of operators, which is most important to us, the technology is definitely field proven. After all, why else would the unnamed customer purchase a Duplex burner? And why would Aera place a follow-on order on September 14?
The KCP report goes on to state it’s rejecting Alternative 5 because the current emissions requirements are higher than the ones that could be achieved by CLIR.
“By comparison, the low-emission steam generation technology contemplated by Alternative would be expected to achieve rates comparable to or lower than 5 ppm NOx at 3% O2 for steam generators operating at 55 MMBtu/hr.”
Basically, the KCP is passing on the tech at this time because it reduces emissions below the required levels and there are not enough field installations.
The passage of time will change both conditions, which even the KCP acknowledges.
“Moreover, at such time as the SJVAPCD determines that low-emission steam generation technology has become feasible, it would be expected to update its BACT guidelines accordingly.”
Bottom Line: Last week, I confirmed with Christopher Mynk that the Board of Supervisors has ultimate decision-making authority. They could still include language about the use of CLIR’s technology (or any part of the other alternatives) in the final decision. At this point, I believe that’s unlikely.
But a regulatory mandate has never been the basis for my investment in CLIR. I’ve always anticipated regulations would lag deployment in the field. Even my conversations with the SJVAPCD indicated they prefer to see new technologies deployed in the field for about one year before considering a BACT designation. A favorable outcome from KCP would have been an unexpected and welcomed accelerator. But it’s not a necessary one.
Undoubtedly, the shorts will try spin this as negatively as possible. Since the investment thesis remains unchanged, I’m going to treat any sell-off as a buying opportunity.