A Breath of Fresh Air (Well, Almost)

The Role of Industrial Gas Emission Monitoring

In Tuesday’s post, Poutine & Pitch Decks, we put a stake in the ground that Montreal should be the Climate City, providing the equivalent infrastructure, talent, and network that San Francisco has to SaaS. Exits propagate downward, providing the talent and funds to start and develop the next set of successful companies. In today’s post, we’ll discuss GHGSat, a Montreal-based climate tech company providing greenhouse gas emissions monitoring, and how they could become one of the foundational companies for Climate City.

The Role of Greenhouse Gas Emission Monitoring 

Accelerating emissions of greenhouse gases is a problem, but we don’t know exactly how big the problem is. Companies that monitor, analyze, and report greenhouse gas emissions are the first step to understanding and mitigating consequences from industrial activities to address environmental challenges effectively. These companies can help with climate change mitigation by assisting governments and companies to set emission reduction targets, track performance, and develop climate policies, with carbon footprint analysis by working with businesses to assess and monitor their carbon footprints to identify hotspots, and with environmental compliance by ensuring everyone involved is adhering to regulations. Armed with accurate, precise data, governments, businesses, and organizations can take better, informed action.  

The Total Addressable Market Calculation

Montreal’s climate industry needs a few $1B+ exits to establish themselves as the Climate City. The first step to understanding a GHGSat’s potential is to see if there is enough pie to start with by calculating the total addressable market (TAM) for gas emission monitoring companies, specifically for industrial applications. The benefit of this market is that it can include any industries/sectors/companies that emit greenhouse gases during their operations (hint: essentially all of them), including power generations (coal-fired or natural gas power plants), oil & gas production/refining, manufacturing (cement, steel), waste management, and more. The issue is that the technology is new and expensive, so to maintain margins higher deal sizes will significantly reduce market size upfront. However, as technology improves and operating costs lower the TAM will expand. As of 2021, the global emission monitoring market was valued at over 2.9 billion and that will only go up.   

The Market Penetration Question

The amount of revenue needed to reach a $1B exit varies depending on factors such as growth rate, profit margins, market size, and others. Generally, common valuation multiples are 5-10x annual recurring revenue (ARR), so to achieve a $1B exit let’s conservatively assume a company would need an ARR of $200 million or higher. The capital cost for a continuous emission monitoring system is about $100,000 (which doesn’t include maintenance, operators, certifications, and more), so let’s assume an average deal size of $200k. GHGSat needs to have at least 1,000 paying customers before their exit event. 

As of 2021, GHGSat had over 100 customers in 15 countries including Shell, Chevron, BP, Suncor Energy, Canadian Natural Resources Limited (CNRL), Imperial Oil Limited (IOL), NASA, and others. Their primary target customers include oil & gas companies to detect and measure methane leaks from their operations, landfill operators including Waste Management and Republic Services to monitor and reduce methane emissions from their landfills as well as governments to provide emissions regulation support. GHGSat’s current customer base has significant upsell and expansion potential, and they are also industry leaders, helping attract future customers.  

GHGSat’s Products

GHGSat’s goal is to become the global default for remote monitoring and analysis of greenhouse gas emissions. Today they currently have six satellites in orbit, forming the GHGSat Constellation with an additional four more satellites planned by the end of 2023. The GHGSat Constellation has a primary sensor, a Wide-Angle Fabry-Perot (WAF-P) imaging spectrometer, and a secondary optical sensor, a Visible Sensor (VIS-1). The WAF-P captures gas plumes emitted from industrial sources, providing a differential measurement to the surrounding background concentrations. Where this gets interesting is adding in the VIS-1 data, which measures the interference from clouds, improving the accuracy. 

Using this technology, they have developed three products and services: 

• DATA.SAT || GHGSat’s flagship product, which provides high-resolution satellite imagery and hotspot detection of methane emissions from industrial sites. Customers can subscribe to regular monitoring for their sites or it is also provided on demand. 

• DATA.AIR || A complementary product to DATA.SAT that measures methane emissions using their patented instruments mounted on aircrafts. Customers can purchase DATA.AIR as a standalone product or in combination with DATA.SAT.

• Emission Analytics || GHGSat’s service that provides customized emission analytics and insights based on the satellite and aircraft data. Emissions analytics covers a wide range of services including source attribution, leak risk assessment, predictive analysis, and emissions reporting. 

Their Competitive Advantage

GHGSat’s technology will have a significant impact on global efforts to monitor and reduce greenhouse gas emissions, especially methane. Unlike their competitors, they can detect methane emissions from sources 100 times smaller than those detected by other satellites. Their solution is also remote, so there isn’t a need to purchase and install additional monitoring devices to collect emissions data, helping GHGSat run leaner and maintain higher margins. It also makes their solution more scalable than other emission monitoring companies, especially for new customers in an existing region.  

Next Steps

GHGSat’s two primary focuses should be launching satellites and building partnerships. More satellites equals more regions, opening up more of the market. And partnerships will accelerate customer acquisition and market penetration. Specifically, they should align with governments and climate organizations to become the preferred partner for carbon credit certification. There is no standard for these certifications, which is one of the many reasons why the carbon credit market doesn’t work yet, so GHGSat has the opportunity to become the leader.

If you like this, check out our piece on creating the Climate City