This year has been a financial disaster for Enviva, the world’s largest producer of wood pellets for the biomass energy industry. With more than $250 million in losses to date and worsening results expected in the fourth quarter, the once high-flying company’s viability, by its own admission, is in grave doubt.

By Justin Catanoso on 20 November 2023

• The forest biomass energy industry took a major hit this month, as Enviva, the world’s largest producer of wood pellets — burned in former coal power plants to make energy on an industrial scale — saw catastrophic third quarter losses. Enviva’s stock tanked, its CEO was replaced and the company seems near collapse.
• Founded in 2004, Enviva harvests forests in the U.S. Southeast, with its 10 plants key providers of wood pellets to large power plants in the EU, U.K., Japan and South Korea — nations that use a scientifically suspect carbon accounting loophole to count the burning of forest wood as a renewable resource.
• A former manager and whistleblower at Enviva told Mongabay in 2022 that the company’s green claims were fraudulent. Last week, he said that much of Enviva’s downfall is based on its cheaply built factories equipped with faulty machinery and on large-scale fiscal miscalculations regarding wood-procurement costs.
• How the firm’s downfall will impact the global biomass for energy market, and worldwide pellet supply, is unknown. European and Asian nations rely on Enviva pellets to supply their power plants and to meet climate change goals, with the burning of forests to make energy erroneously claimed as producing zero emissions.

This year has been a financial disaster for Enviva, the world’s largest producer of wood pellets for the biomass energy industry. With more than $250 million in losses to date and worsening results expected in the fourth quarter, the once high-flying company’s viability, by its own admission, is in grave doubt, reports news.mongabay.com.

Also in question is where Enviva’s European Union and Asian customers will source the pellets they burn in their converted coal power plants and — without those pellets — how nations will meet their energy needs and their pledged Paris Agreement carbon emission cuts.

To many financial analysts who closely follow company performance, Enviva’s near collapse this month appears to have happened rapidly and suddenly. But did it?

“The problems have been there for years. There are lots of issues, but they stem from fundamental challenges Enviva faces in wood costs and keeping its manufacturing plants operating at full capacity,” a former Enviva maintenance manager told Mongabay. “It’s all coming home to roost in a kind of cumulative way.”

In exclusive interviews with Mongabay, the former Enviva employee detailed critical problems he witnessed and grappled with as a top operations manager at two of Enviva’s 10 Southeast U.S. plants between mid-2020 and mid-2022. His insights help explain why Enviva is now in dire financial straits.

In a Dec. 5, 2022, Mongabay story that reverberated globally, this Enviva whistleblower was the first insider from the multibillion-dollar international wood pellet industry to ever go public. At the time, he accused Enviva of falsifying its green claims and not being truthful about where and how it sourced forest wood for the tons of pellets it makes every day in the U.S. for export.

“The company says that we use mostly waste like branches, treetops and debris to make pellets,” the whistleblower told Mongabay a year ago. “What a joke. We use 100% whole trees in our pellets. We hardly use any waste. Pellet density is critical. You get that from whole trees, not junk.”

But junk wood is cheap, while whole trees are not, and therein lies a part of Enviva’s operational problems.

The former employee — who declined to be named to protect his professional and family’s privacy — said last week that this wood-sourcing deception is one reason Enviva has been losing money.

“Enviva built a business model saying it uses mostly scrap and waste from lumber mills and cut sites to make its pellets,” he said. “If that were true, its feedstock would basically be free. But it has to buy trees, a lot of trees, and it’s competing for them with other companies that want that wood. Loggers sell to the highest bidder, right, and that drives up the price. It’s something Enviva can’t control.”

In its 2023 third quarter filing on Nov. 9 with the Securities and Exchange Commission, Enviva wrote that among the myriad reasons impacting its financial viability is “the amount of low-cost wood fiber that we are able to procure and process.”

“So that’s your first problem,” the former employee said. “Your feedstock is costing way more than you’re letting on, and that’s before you start dealing with the costs of making pellets.”

Enviva did not respond to multiple requests from Mongabay for comment.

Tracking the collapse

For Maryland-based Enviva, 2022 looked to be a financial launchpad for future growth. Revenue topped $1 billion for the second year in a row, up 24% from two years prior. Its stock price hit a peak of $87 per share in April 2022. New multiyear contracts were locked in with taxpayer-subsidized customers across the European Union, United Kingdom, Japan and South Korea as the firm dominated the global market for wood pellets used by the energy industry.

Enviva boldly predicted it would double wood pellet output, from 6.2 million metric tons shipped overseas in 2022, to 13 million metric tons by 2027. With 10 pellet mills operating between southern Virginia and the Gulf Coast, the company secured a $570 million line of credit to build its biggest plants yet in Alabama and Mississippi, which have been under construction.

Enviva could even afford to ignore its persistent global critics, forest advocates who argue the company is increasing deforestation amid the climate crisis by exploiting a renewable-energy policy loophole overseas that — with little scientific validity — designates wood burning as a renewable, carbon-neutral substitute for coal.

The company was on a steady upward trajectory since its founding in 2004. But cracks in the corporate façade broke wide open May 3 of this year in reporting of its first quarter results. Wall Street analysts, who were bullish on Enviva stock at the time, were stunned when the company lost $117 million between January and March, three times worse than it forecasted. Enviva canceled its shareholder dividend, a red flag for a company in distress. Its declining stock price plunged in hours from $21 to less than $8.

In a conference call, CEO Thomas Meth made a passing reference to operational challenges at Enviva’s plant in Southampton, Virginia — challenges he said were a priority to address.

Things got far worse for Enviva, and Meth, on Nov. 9 with Enviva’s third quarter results. Another $85 million lost, four times more than third quarter losses in 2022. The stock price, which had climbed above $13 in August, plunged to 61 cents as major shareholders dumped their shares. The company acknowledged it had exhausted its $570 million line of credit used for construction of those plants in Alabama and Mississippi, casting those projects in doubt.

Meth was demoted from CEO to president, and Enviva made this startling admission: “The conditions and events in the aggregate raise substantial doubt regarding the company’s ability to continue as a going concern.”

Glenn Nunziata, who had joined Enviva just three months ago as chief financial officer, was named interim CEO. In a conference call to investors on Nov. 9, Nunziata also referenced the Southampton plant, saying it had improved its operating costs by shutting down half of the manufacturing lines that make pellets.

The former Enviva maintenance manager told Mongabay he knew why.

Read the full story here.