Clean Energy Fuels Corp: Downgrade to Neutral

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Clean Energy Fuels Corp: Downgrade to Neutral

Clean Energy Fuels Corp UBS Research

Executive Summary

Investment Thesis

We are downgrading Clean Energy Fuels (CLNE) to Neutral. The primary driver of our

downgrade is the lack of meaningful near-term catalysts for renewable natural gas

(RNG) equities, including CLNE. While long-term fundamentals remain intact, the pace

of RNG project start-ups has been slower than anticipated, and project returns have

generally fallen short of initial expectations. At the same time, D3 RIN prices have

trended lower over the past year, weighing on sector sentiment and earnings potential.

Conversely, the outlook for renewable diesel (RD) has improved substantially. RD

margins have rebounded sharply, supported by stronger economics and improving

policy fundamentals. D4 RIN prices have reached five-year highs, while renewable diesel

facilities have delivered attractive returns and exhibited a sustained improvement in

profitability over the past year. This trend is illustrated by Diamond Green Diesel (DGD),

the Valero–Darling Ingredients joint venture, where profitability metrics have exceeded

$2.00/gal.

We also believe that one pathway to address the expected U.S. ultra-low sulfur diesel

(ULSD) supply-demand imbalance is through increased renewable diesel and biodiesel

production. The recent improvement in renewable diesel margins supports this thesis.

As a result, we expect previously idled renewable diesel/biodiesel capacity to return to

service given positive cash margins and robust demand. Furthermore, the finalized

Renewable Volume Obligations (RVOs) materially increase biomass-based diesel

requirements, positioning renewable diesel producers and feedstock suppliers as the

primary beneficiaries relative to RNG-focused companies.