From Rs 140 to a high of Rs 12,599 in just 9 months, a stock surging nearly 10,000 per cent would be nothing less than a dream. While many did live it, a few who were expecting more are now in for a loss. EKI Energy Services, a global service provider in India in the energy, carbon credit & quality management sphere, came out with its IPO last year to raise a few million dollars.
However, it did more than that. Soon after its IPO came out, EKI Energy Services’ stock skyrocketed 10,000 per cent, taking the valuation of the company from about $10 million to a colossal $1 billion in less than a year! By December 2021, it became the year’s best-performing stock in India’s broadest index.
Not only was this rare but it made the company’s founded richer by millions. What worked for the firm was that fact that it was the first listed carbon offsets company, according to Bloomberg. The market price of those offsets — which comprise most of the firm’s assets — was soaring.
However, the worth of a carbon offset hinges on its usefulness in reducing global emissions and not all are equally helpful. On the lightly regulated voluntary carbon market, the majority, including most of those developed by EKI, may not help the fight against global warming at all, said a Bloomberg report.
This has put the company’s value in question and with increasing doubt, its shares are taking a hit. In a complete U-turn, the shares of the company have now sunk 48 per cent from their high.
The carbon offsets are linked to renewable energy schemes — wind and solar farms, mostly — developed by well-resourced groups like the Adani Group in India, according to data compiled by the Berkeley Carbon Trading Project.
What went wrong?
Earlier, renewable energy was thought of as a risky investment, which gave carbon offsets developers an extra revenue stream. In theory, the carbon payments were necessary to get more renewable energy into the mix, providing an additional environmental benefit.
But renewable energy is in high demand now and such projects can make profits by themselves in many countries now and the world’s largest certification bodies — Verra and Gold Standard — only accept them from least-developed countries:
The credits aren’t critical to financial viability, they’re just icing on the cake. “We are very bearish on renewable energy carbon credits,” said Kyle Harrison, a carbon markets analyst at BNEF, pointing out that they no longer get a seal of approval from the top independent verification bodies.
Harrison opined that while they are in high demand today, there’s a big risk to buying or selling them in the long term.
This is what has emerged as an existential challenge to EKI’s business model, as well as the voluntary carbon markets and the companies that have been using these kinds of credits to make their net-zero claims.
‘Getting future-ready’
Despite all this, EKI founder Manish Dabkara is hopeful of the future and disagrees with the criticism. “We are trying to get ourselves future-ready. So that we’ll not go out of our leadership role,” Dabkara was quoted as saying by Bloomberg. He founded EKI in 2008.
At the time, the market for carbon offsets was much smaller. Dabkara didn’t think it would stay that way, and EKI started building its inventory, however, when demand spiked, the firm found it was sitting on a gold mine. At present, his company buys and sells credits and helps developers get their projects certified.
Post its IPO, EKI opened an office in Turkey, adding more staff which went over 250 people. It also added the World Bank and the Adani Group to a client list with over 3,000 names.
Since the voluntary market has climbed in value, Dabkara said that critics and competitors have a financial incentive to tear down EKI. The company has captured almost all business in India, which generates more credits than the US and China, its closest competitors, Dabkara added.
“Different people have different ideologies. In our industry, it is very, very tough, because there is no regulatory body nor any common consensus,” he said. Vouching for his company, Dabkara said developing nations like India have yet to decarbonise their power grids, which means that EKI’s credits are still effective in the fight to lower emissions.
As of now, EKI does not plan to abandon renewables and its staff is still engaging with developers and owners of wind or solar farms.
Of almost 500 million carbon credits supplied globally last year, EKI contributed around 90 million — most of them in renewables. The carbon prices have dropped since the EKI stock peaked in January this year, and the market now values EKI around Rs 44 billion.
While it would be hypothetical to think of increased regulation and new restrictions as of now, what matters for EKI and other, smaller firms in the business is how quickly they can build up a stock of new credits and sell their existing inventory.
EKI is debt-light and has continued to expand into countries like Ghana, where renewables credits are less controversial.
For many organisations, buying credits on the voluntary market is the easiest, cheapest way to meet their climate goals. And as long as EKI can find an organisation to certify its projects, the company can sell them. “It’s a win-win situation for everyone,” according to Dabkara.
Dabkara and his family own nearly 75 per cent of the company. The company reported a 17.71 per cent jump in its net profit to Rs 95.59 crore in the quarter ended September 2022 as against Rs 81.21 crore during the previous quarter ended September 2021.
