Pacific Green Technologies (PGT) stands on the brink of the most significant growth in its history. As international interests align to move against climate change on land, sea and in the air , PGT holds a significant part of the key to a greener, safer planet.
It is an extremely exciting time for a company whose patented exhaust gas cleaning system can radically reduce the harsh impacts of energy production at sea.
Iain Lees, the recently appointed COO of Pacific Green explains the problem PGT is helping to solve:
"We (humankind) have been working away at trying to get the emissions down on cars for a long time with limited success but nobody focused on marine vessels until the International Maritime Organization said, 'Enough is enough.' The largest 100 marine vessels create as much pollution as all the cars in Western Europe."
Lees is summarizing the major environmental impact of the international shipping industry, which contributes approximately 2.5% of global greenhouse gas (GHG) emissions every year.
The most damaging of these emissions is sulphur (sulfur) oxide (SOx), which is produced in large quantities when ships burn high-sulphur residual fuel called bunker fuell. This oil is by any standards dirty. It is a dark, heavy byproduct of the refining process that creates cleaner fuels.
As Lees says, the International Maritime Organisation (IMO), a specialized agency of the United Nations, is preparing to implement new SOx emissions regulations staring on 1st January 2020.
From January 1, 2020, the permissible sulphur content of fuel burned at sea will decrease from 3.5% to 0.5%. It’s a radical move. Widely known in the industry as IMO 2020, this change in emissions standards is the most significant event to hit the maritime sector for decades.
It leaves ship owners in a difficult position.
“The new IMO regulations are really biting and all the responsible fleet owners are considering buying low-sulfur fuel, which is in short supply,” says Lees. “A lot of the refineries haven't been making the necessary investments in their petroleum refining capacity, because we’ve had a lower oil price and a lot of people trying to shift away from oil.”
“As a result, low-sulphur fuel remains extremely expensive and based on the fuel difference scrubbers have a very short pay back for ship owners which is why the take up in scrubbers in the past six months has been so dramatic.
Attached to the back end of a vessel's exhaust, a scrubber removes harmful particles and oxides from the exhaust gases.
This option allows shippers to satisfy the IMO's new SOx requirements while continuing to burn more affordable HFO.
And it is in supplying this solution to the shipping industry that Lees is excited about PGT’s potential growth.
PGT has responded assertively to the recent uncertainty around IMO 2020 compliance to become a real challenger in the market. This has required an innovative approach to new client acquisition.
The company fitted its first marine scrubber on a Union Maritime Limited chemical tanker, the Westminster, in 2017 which has been operating successfully since.
Lees was pleased with how the strategy played out: “From the date that the scrubber was fitted, we measured the cost savings and we got paid a proportion of those savings until we earned back the price for which we are now selling scrubbers.”
It also secured a supporter in the industry. "Laurent told the rest of the industry that our solution was working and our relationship developed with UML buying a further sixteen systems."
Since then expansion has been rapid. "Pacific Green will go from revenue in the year just ended 31 March of two to three million dollars to probably somewhere north of $130 million in the year coming," says Lees. This is backed by an order book close on $200 million, with all contracts to be delivered within 2019 or 2020.
It's an exciting but demanding proposition. "We are developing systems for every element of the supply chain, financial management and business development. So, with the manufacturing partners and our engineering consulting partners, we have a lot of work to do in the next 21 months."
The manufacturing partners Lees refers to are PowerChina, a Chinese state-owned utility company with $50 billion dollars of revenue.
"We've got an agreement with them to make all our scrubbers as well as manage business development in China."
The joint venture signed in August 2017 between PGT and PowerChina SPEM Co, a subdivision of Power China, was a coup in itself. Securing a relationship with a player of such calibre was, according to Lees, a testament to PGT's Intellectual Property, as well as the team that engineered the deal.
PGT is growing quickly to meet the workload, with a staff complement five to six times bigger than it was a year ago.
This includes a burgeoning cohort of operations, logistics, technical and HR specialists. With all of the construction and much of the engineering design and maintenance currently outsourced, Lees sees project management as a critical area of the business.
"We've brought in Directors and they have brought in teams of three or four guys who are used to working with each other and delivering complex engineering marine projects," says the COO. "We've allocated the project teams to specific clients. Those guys are responsible for anywhere between five and eighty vessels per team with the biggest team of twelve."
Lees himself is a fairly recent recruit, coming from a strong background in finance and strategy, with specific experience in the energy sector. An auditing professional by training, he was a Director in the Corporate Finance department of PwC for 15 years before taking over the Managing Director role at Hannaway CA Corporate Finance Limited (HCACF).
What does he make of his new role?
“This is a very exciting sector. And then there’s the profile of the company. For somebody with my background, it's kind of hard to resist getting involved in a company that's got this kind of opportunity for rapid growth and delivery.”
As a seasoned strategist, Lees has clear ideas on the path forward.
The future is bright, but, right now, Lees is focusing on the order book for marine scrubbers, which has grown hugely in recent months.
Lees acknowledges that the challenge of building hundreds of scrubbers will be immense, but is confident that, with PowerChina's vast production capacity, the PGT team are well up to the task.
"We’ve been planning for this. We have a head start with our technology and training program. We have good people already here and good people coming in. We have a great partnership with a huge Chinese company. We’re more than ready.”