China Energy Recovery: simple and compelling business model

China Energy Recovery, Inc. (OTCBB: CGYV) China Energy Recovery is an international leader in designing, fabricating, implementing, and servicing “waste heat energy recovery” systems. CER's technology captures industrial waste energy to produce low cost electrical power. This enables industrial manufacturers to reduce their energy costs, shrink their emissions footprint, and generate sellable emissions credits. CER's systems are effective at reducing sulfur dioxide emissions which are a leading cause of acid rain. CER's technology delivers several key benefits to customers including:

·    Reduces energy consumption and overall energy cost;
·    Reduces  greenhouse gases and other harmful emissions;
·    Provides an attractive and quick return on invested capital.

CER's vision is to become the international leader in “waste heat energy recovery” systems by providing a low cost, environmentally friendly energy solution to manufacturing, reefing, and power generation companies. With its headquarters in Shanghai, the Company's primary focus is on the expanding Chinese market, where the Company has deployed its systems along with other international markets such as Egypt, Korea, Vietnam, and Malaysia. CER continues to invest in R&D and plans to build China's first state-of-the-art energy recovery system research and fabrication facility to allow CER to meet the increased demand for its products and services. The Company’s industry focus includes:

·    Petrochemicals
·    Paper Manufacturing
·    Refining/Power Generation (including Methanol refining)
·    Coke Processing
·    Cement
·    Steel

What is Waste Heat Energy Recovery?

Industrial facilities release significant amounts of excess heat into the atmosphere in the form of hot exhaust gases or high-pressure steam. Energy recovery is the process of recovering vast amounts of that wasted energy and converting it into usable heat energy or electricity, dramatically lowering energy costs for customers. Energy recovery systems are also capable of lowering heat pollution and capturing harmful pollutants that would otherwise be released into the atmosphere. It is estimated that if the energy currently wasted by all the U.S. industrial facilities could be recovered, it could produce power equivalent to 20% of U.S. electricity generation capacity without burning any additional fossil fuel and could help many industries meet stringent environmental regulations.


Financials

CER’s revenues were $8.9 million for the six months ended June 30, 2008 as compared to $9.9 million for the six months ended June 30, 2008, a decrease of 9.9%. Much of this decrease was due to the changing and challenging energy market over the last year. Loss from operations totaled $1.7 million for the six months ended June 30, 2009 as compared to an income of $813,816 for the six months ended June 30, 2008

In January 2010, CER secured $5.0 million in new debt financing which will be applied to the continued development and construction of its new production facility in Shanghai. Two investors provided an aggregate of $4 million under separate loans of $2 million, each of which matures in January 2013 and bears interest at an annual rate of 15.1%. An additional $1 million was provided through Haide Engineering (Hong Kong) Ltd., a company that CER's Chairman and CEO, Qinghuan Wu controls. This is an unsecured, interest-only loan bearing an annual interest rate of 9.5% and matures in January 2012.

With this transaction, CER has raised approximately $10 million in loans during the last six months toward the design and construction of its new production facility, which is scheduled to be completed this year. This facility will provide CER with more efficient production, increase its overall production capacity, and position the Company to continue to extend its operations in building and installing cost efficient, high-performance waste heat recovery systems in China and other markets.

Overview

Modern industrial processes utilize large quantities of fuel and electricity that produce heat as a byproduct of the manufacturing or refining process. The vast majority of this heat is released into the atmosphere despite having economic value. CER's technology enables manufacturers to recover this otherwise lost energy and reuse it to generate electrical power.

While CER has a proven ROI model for customers, in down markets and a down economy clients and prospects shrink their capital expenditure budgets. As the global economy heals and energy markets have continued to stabilize, CER’s revenues should again begin to increase in 2010 and beyond. China's new energy savings standard demands an increase and implementation of energy recovery technology. The phosphate fertilizer and sulfuric acid industry can expect a reduction in energy consumption and pollution once these new waste energy recovery systems are in place.

Management believes that net income will gradually increase due to its strategy of attempting to increase future sales by securing larger orders in the growing Chinese market.

On January 20, 2010, CER was recently granted a 10-year patent covering its cement kiln forced-circulated waste heat recovery boiler technology. The patent was authorized by the State Intellectual Property Office of People's Republic of China and granted to CER Energy Recovery on January 20, 2010. Cement plant waste heat boilers are a new technology developed by Vice General Manager and senior engineer at CER Shanghai, Wang Weiqing. CER is the only company currently using this technology and it expects, after further R&D, to develop new energy recovery technology solutions for energy intensive industrial processes.

In January 2010, CER signed a $2.6 million engineering, procurement, and construction (EPC) contract with sulfuric acid producer Wylton (Dazhou) Chemical Co. Ltd., a subsidiary of Wylton (China) Chemical Co., Ltd. to build and install a low-temperature waste heat recovery system for Wylton's 800,000 ton-per-year sulfuric acid plant. CER received an initial payment equal to 20 percent of the contract from Wylton. The remainder of the contract will be remitted over the course of the project, which is scheduled for completion in December 2010.

Despite the firm’s progress, during the past year its share price has performed poorly. However, with its restructured balance sheet in January 2010 and its position in the Chinese market, CER should begin to reestablish itself in the burgeoning energy recovery market.

Management

Chief Executive Officer, Mr. Qinghuan Wu is a special expert of the Chinese Phosphate Fertilizer Industrial Association and the Chinese Sulfuric Acid Industrial Association. He recently participated as a special expert in achieving energy efficiencies before a Chinese State Standard Energy Consumption Conference held in Beijing. The conference examined sulfuric acid's energy consumption per unit product and established an energy consumption norm as part of the State Standard of the People's Republic of China.

CER's experienced engineering team and sophisticated production facilities enable the Company to deliver consistently high quality products and offer a complete solution from technical design through fabrication to final installation. With its significant experience, CER's engineering team has the knowledge and capability to deploy very complicated and large scale systems globally.

The Company has continued to make substantial gains in energy efficiency and is investing heavily in R&D to enhance the efficiency and range of its technology. CER employs over 150 highly experienced, specialized engineers that allow the Company to produce the largest and most complex systems in its industry.

Waste Heat Energy Recovery Market

Electrical power shortages and intolerable levels of pollution have resulted in mounting domestic and international pressures to initiate policies that will support the domestic production of clean energy. As a result, Chinese production of renewable energy is rapidly expanding and economically feasible technologies are in high demand.

The amount of energy currently lost in industrial processes is so great that it is estimated the U.S. could make 20% of all its electricity simply by using existing technologies to capture the energy that industry wastes, according to the EPA.

However, it is not surprising that at the moment China remains the firm’s main market. The country is the world’s second-largest consumer of energy, with China’s industrial sector accounting for 70% of its total energy consumption. Recent customers signed up in China include fertilizer companies Dongsheng Chemical and Hubei Yangfeng Group, and leading Chinese chemical firm Jiangsu Sopo Chemical Group.

Waste heat energy recovery and conversion will grow due to its simple and compelling reasons. Waste Heat Energy is free. Waste Heat Energy has zero pollution. Waste Heat energy recovery is very profitable and will be justified using tomorrow’s systems on distributed power systems.

http://www.proactiveinvestors.com/companies/news/5030/china-energy-recovery-simple-and-compelling-business-model-5030.html