How We Scale
Over the past 15 years, several pilot projects have demonstrated the functionality of our IP. Most recently, we developed and refined a scrubber system for a small natural gas engine. The video is a demonstration of that engine running.
This technology is now being scaled up and is licensed to a technology partner working in the aftertreatment market for large natural gas engines used in combined heating and power applications. Freeboard was the exclusive license for all diesel engine applications and we are in the process of evaluating which engine sizes, makes and models have the greatest market potential for certification with our systems. We’re most likely going to focus on the John Deere 6090 and 6135 engine families. They are one of the go-to engines in the commercial market.
Through the Backdoor
Any vessel sailing internationally is subject to the International Maritime Organization ANNEX emissions regulations, commonly called IMO Tier III. IMO Tier III specifically regulates NOx emissions levels on all engines greater in power output than 129 kWm. What’s interesting, and we think is an opportunity, is the fact that only one engine manufacturer currently producing engines in the 129 to 500 kW output range is currently offering an IMO III certified engine. Because of the design of the SCR systems being used, however, they do not comply with EPA Tier III marine, the current applicable US standard. This effectively means that there is currently no engine available on the market which meets the regulatory standards. Operators are now in a bind, asking for waivers from the Coast Guard as there is no solution available which allows them to operate legally.
Why haven’t the engine manufacturers come up with a solution? Because the market for engines that must comply with IMO III in this hp range is relatively small. They are focusing on the larger market for EPA Tier IV and EU stage V engines. We see this as a strategic advantage for us though.
A subset of customers must have this technology. The systems we design can and will comply with IMO III, EPA Tier IV and probably EU stage V. We can develop and sell our systems from the get-go for less than the cost of existing SCR systems. Since the engines will also be certified for EPA tier IV, that gives us immediate access to the wider engine market. By providing an IMO III solution, our customers are funding our product development for the wider market.
We feel confident, once we have a certified engine, we should be able to capture ten sales in the first year. This will scale to multiple fleets and to over 50 sales by year two. The revenue from those sales and the economy of scale we will have reached will then allow us to pursue original equipment manufacturers, large scale consumers of engines. We feel the cost savings of our systems and the reduction in design iteration for equipment will make it a very easy sell. By year four we would expect to see annual sales exceed 1000 units. Our systems will drive down the manufacturing costs of their equipment, helping to increase their profit margins and sales volume, which will, in turn, force their competitors to adopt the technology to remain competitive. These competitors will demand that the engine manufacturers then offer their engines, from the factory with our technology. At this point, we will be putting our technology on hundreds of thousands of engines.
Typically, exhaust aftertreatment systems in the marine market add between 30 to 50% to the cost of an engine. The larger economy of scale of on-road and industrial engines will drive this percentage down to around 20%, but the unit cost, per system, will range in price from $5,000 to $200,000 depending on the size of the engine. We will initially focus on the smaller engines, and then scale up to larger size propulsion engines. This should also give us accessibility to the locomotive industry, as there is considerable overlap in engine models there. We may be able to accelerate our timeline based on the existing relationships our founder has with large scale marine engine users, dealers, distributors, OEMs and engine manufacturers such as John Deere.
Long Term Strategy
We plan to reinvest a percentage of our revenue into the next generation of power generation technology, helping to power a true carbon neutral power gen industry. Our technology will do a lot to reduce greenhouse gas and harmful pollution from engines, but they are still diesel engines. The complexity and cost of modern, internal combustion engines have opened a doorway for other technologies to eventually become competitive. We feel advances in material sciences over the next ten years will broaden the range of vehicles and vessels that can operate on hybrid power and fuel cell technology. This will eventually result in global peak sales of internal combustion engines. We might already be there in the gasoline market. That won’t happen for a while yet with diesel. The technology does not exist yet.