Pelkrum Bioenergy 38.7 Billion KRW Impairment Loss
"Financial Deterioration Due to Delayed Follow-up Investment"
SK Innovation is facing setbacks from its eco-friendly investments.
According to the Financial Supervisory Service on the 9th, SK Innovation recorded a total loss of approximately 39 billion KRW on its equity stake in the US company Fulcrum BioEnergy. SK Innovation invested about 26 billion KRW in 2022 and about 13 billion KRW last year in Fulcrum. As of the end of last year, SK Innovation held a 3.4% stake in Fulcrum.
Fulcrum is a company that produces synthetic crude oil (artificially made crude oil from resources other than petroleum) by gasifying municipal waste at high temperature and pressure. It gained attention as a promising player in the sustainable aviation fuel (SAF) sector by commercializing the process of producing synthetic crude oil from waste for the first time in the US. At the time of investment in 2022, SK Innovation stated, "We are expanding eco-friendly new growth engines in the circular economy and low-carbon sectors," and added, "We will use this equity investment as an opportunity to collaborate with Fulcrum and consider entering the Asian market for waste gasification business."
However, Fulcrum is facing a crisis of funding cutoff. It defaulted in October last year on interest payments for bonds worth $289 million used to build its first synthetic crude oil production plant in Nevada. Immediately after the default, Fulcrum also halted the sale of $500 million in bonds intended to finance the construction of a bio aviation fuel plant in Indiana. SK Innovation explained in its business report last year, "Due to financial deterioration caused by delays in follow-up investments in Fulcrum, we recognized an impairment loss of 38.7 billion KRW."
Fulcrum has faced criticism from local environmental groups regarding the safety and environmental impact of using waste as fuel for power generation. The municipal waste supplied as fuel inevitably contains a large amount of plastic, and the higher the plastic content, the greater the emissions of greenhouse gases and other air pollutants when heated at high temperatures. In October last year, six Democratic US senators sent a letter to the IRS under the Treasury Department urging that companies producing fuel from plastics and other petroleum products should not be eligible for tax credits under the Inflation Reduction Act (IRA).
Panoramic view of Sierra plant, Fulcrum's synthetic crude oil production facility located on the outskirts of Reno, Nevada, USA [Image source=Fulcrum]
With delays in financing, Fulcrum's financial structure has rapidly deteriorated. Last year, Fulcrum posted a net loss of 277.7 billion KRW, a 107% increase from 134 billion KRW the previous year. Without additional funding support, the deficit is expected to snowball.
Amogy, a US company in which SK Innovation invested around the same time as Fulcrum to expand its eco-friendly portfolio, recorded a net loss of 26 billion KRW as of the end of last year. Amogy specializes in ammonia-based hydrogen fuel cell systems. SK Innovation invested $30 million in Amogy in June 2022 and an additional $50 million in March last year. The total investment amounts to 104.7 billion KRW (15.3%).
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