Shares of renewable energy company Gevo (GEVO 2.63%) surged Tuesday morning, jumping by as much as 22% in early trading before moderating back to a gain of about 7% as of 11:50 a.m. ET. The biofuel company just bagged its biggest deal ever, and investors are getting more excited about its prospects.
The green energy start-up uses renewable feedstocks like corn to produce liquid hydrocarbons that can be refined into jet fuel and gasoline. Gevo says its biofuels are net-zero emitters of greenhouse gas, and those products appear to be finding more takers.
On Tuesday, Gevo inked its largest supply agreement yet: It signed an eight-year deal to supply 45 million gallons per year of renewable hydrocarbons, including sustainable aviation fuel, to Switzerland-based renewable fuels company Kolmar Americas.
Here's why that's such a big deal: 45 million gallons a year will amount to the entire proposed output of Gevo's Net-Zero 2 production facility, which is currently under development. The company says it expects the deal to generate about $300 million in annual revenue, and roughly $350 million in revenue when the sales of byproducts from its processes, such as protein and corn oil, are included. Over the course of eight years, says management, the Kolmar deal could generate around $2.8 billion in revenue for Gevo.
"With this agreement, Kolmar is investing in the future, and this kind of foresight makes for another excellent partner and should make clear to our investors that we have traction in the market," said Gevo CEO Patrick R. Gruber.
Gevo's pipeline is growing pretty rapidly, with its contracted volumes pipeline crossing 50 million gallons per year and its development pipeline crossing 1 billion gallons per year, excluding Tuesday's deal. Gevo has also signed agreements with notable companies such as Delta Air Lines and energy giant TotalEnergies. Tuesday's deal is yet another feather in Gevo's cap, and although the company is still years away from commercial-scale production, investors aren't shying away from the renewable energy stock.