FUEL TECH, INC. 10-K

ITEM 1 - BUSINESS As used in this Annual Report on Form 10-K, the terms “we,” “us,” or “our,” refer to Fuel Tech, Inc. and our wholly-owned subsidiaries. GENERAL We are a leading technology company engaged in the worldwide development, commercialization and application of state-of-the-art proprietary technologies for air pollution control, process optimization, water treatment and advanced engineering services. These technologies enable our customers to operate efficiently in a cost-effective and environmentally sustainable manner. ● The Company’s nitrogen oxide (NOx) reduction technologies include advanced combustion modification techniques and post-combustion NOx control approaches, including NOxOUT ® , HERT™, and Advanced SNCR systems, ASCR™ Advanced Selective Catalytic Reduction systems, and I-NOx ® Integrated NOx Reduction Systems, which utilize various combinations of these systems, along with the UDI™ Urea Direct Injection system for SCR reagent supply, and the ULTRA ® process for safe ammonia generation. These technologies have established Fuel Tech as a leader in NOx reduction, with installations on over 1,200 units worldwide. ● Fuel Tech’s APC technologies include particulate control with Electrostatic Precipitator (ESP) products and services including complete turnkey capability for ESP retrofits, with experience on units up to 700 MW. Flue gas conditioning (FGC) systems include treatment using sulfur trioxide (SO3) and ammonia (NH3) based conditioning to improve the performance of ESPs by modifying the properties of fly ash particles. Fuel Tech’s particulate control technologies have been installed on more than 125 units worldwide. ● Our FUEL CHEM technologies revolve around the unique application of chemical injection programs which improve the efficiency, reliability, fuel flexibility, boiler heat rate and environmental status of combustion units by controlling slagging, fouling, corrosion, opacity and acid plume, as well as the formation of sulfur trioxide, ammonium bisulfate, particulate matter (PM2.5), sulfur dioxide (SO2), and carbon dioxide (CO2). We use our proprietary TIFI ® Targeted In-Furnace Injection™ processes to apply specialty chemical programs to units burning a wide variety of fuels including coal, heavy oil, biomass, and municipal waste. These TIFI programs incorporate design, modeling, equipment, reagent, and service to provide complete customized on-site programs designed to improve plant operations and provide a return on investment in addition to helping meet emission regulatory requirements. ● Water treatment technologies include DGI™ Dissolved Gas Infusion Systems which utilize a patented nozzle and a patent-pending saturator to provide a competitive advantage over conventional utility and industrial aeration. An innovative alternative to current aeration technology among other applications, DGI systems can deliver supersaturated oxygen solutions and other gas-water combinations to target process applications or environmental issues. This infusion process has a variety of applications in the water and wastewater industries, including remediation, treatment, biological activity and wastewater odor management. DGI technology benefits include reduced energy consumption, installation costs, and operating costs, while improving treatment performance. The DGI technology is currently in the demonstration phase with limited revenues. Many of our products and services rely heavily on our computational fluid dynamics and chemical kinetics modeling capabilities, which are enhanced by internally developed, high-end visualization software. These capabilities, coupled with our innovative technologies and multi-disciplined team approach, enable us to provide practical solutions to some of our customers' most challenging issues. 3 Table of Contents AIR POLLUTION CONTROL Regulations and Markets: Domestic The future growth of our APC technology segment is dependent upon the adoption and enforcement of environmental regulations in the U.S. and globally. In the U.S., federal and state laws regulating the emission of NOx are the primary driver in our APC technology segment. The principal regulatory drivers currently in effect are as follows: Clean Air Act: The Clean Air Act (CAA) requires the U.S. Environmental Protection Agency (EPA) to establish national ambient air quality standards (NAAQS) at levels that are protective of public health with an adequate margin of safety. The six pollutants specified include: Ozone (O3), Particulate Matter (PM), Nitrogen Dioxide (NO2), Sulfur Dioxide (SO2), Lead, and Carbon Monoxide (CO). The NAAQS provisions require that states comply with ozone and particulate emissions standards. NOx emissions are a precursor to ozone formation and also contribute to fine particulate emissions (PM2.5). Since 1990, EPA rules and programs have been established at the regional and federal level to help states in their mission to define and meet their State Implementation Plans (SIPs) for attainment. The NAAQS ground-level ozone standards that were issued in 1997, were made more stringent in 2008 and again in 2015. EPA has kept the 2020 NAAQS ozone standard at 70 parts per billion, the same limit as 2015. Clean Air Visibility Rule (CAVR): The Clean Air Visibility Rule (CAVR), also known as the Regional Haze rule, is part of the Clean Air Act and was finalized in 2005. Under CAVR, certain States are required to submit implementation plans to the EPA to comply with the Regional Haze requirements, and updates are required every five years. A new CAVR was issued in January 2017 which requires states to implement new air pollution controls implementation plans in 2021. The overall obligation of CAVR is to return the US scenic areas to “active” visibility by 2064. New Unit Permits: New gas fired units for both electricity generation and industrial use will require BACT as a permit requirement. SCR technology is very often BACT for NOx, and these permit requirements generate new market opportunities. Consent Decrees: Consent decree activity through the US Department of Justice or EPA may require emission sources to meet individual requirements. Sources may also agree to specific air pollution requirements with states or environmental groups. Regulations and Markets: International We also sell air pollution control systems outside the United States, specifically in Europe, Latin America, India (under a license agreement) and in the Pacific Rim. The demand for our technologies comes from specific governmental regulations in NOx and PM emission limits which vary by country. We expect that there will be further opportunities to implement our technologies globally in established as well as new geographies in 2021. The European Union published the BREF (Best Available Reference Technology) emission guidelines in mid 2017 that further lowered emission targets over a span of the next four years. The compliance timeline is expected to be extended due to slow initial adoption. These measures are expected to lower the environmental impact of more than 3,000 large combustion plants throughout the European Union. Moreover, European countries that are not current EU members are expected to adopt these new standards as part of their approach to gain EU membership. Despite the significant expansion of renewable energy throughout Europe, the EU and neighboring states still rely heavily on coal generation to provide a stable base load to their power and heating demands. The BREF guidelines reduce NOx limit values by up to 25% which will require an upgrade of the first-generation NOx abatement systems, and that is expected to present new opportunities for Fuel Tech. However, the pace of implementation will still be dependent on each country's internal processes. European engineering companies are also supplying systems to industrial and utility customers globally. Fuel Tech’s NOx control technologies can be integrated into these systems. The Indian government has adopted a higher NOx emission standard for legacy power plants than what was initially agreed to in 2015 as part of the Paris Agreement. As a result, SNCR systems will be limited to WTE / industrial units for the foreseeable future. Particulate Matter (PM) emission reductions continue to be an area of focus in the country and that presents an opportunity for Fuel Tech’s DFGC technology application which involves sulfur trioxide and ammonia injection. These technologies will be implemented through a collaboration with our local partner ISGEC. Elsewhere in Southeast Asia, particulate emissions due to poor performing ESPs have been gaining attention from local authorities. Power generators in several countries like Vietnam, Malaysia and the Philippines are actively looking for corrective options and this presents Fuel Tech with opportunities to bring our DFGC technology to these markets. 4 Table of Contents Products Our NOx reduction and particulate control technologies are installed worldwide on over 1,200 combustion units, including utility, industrial and municipal solid waste applications. Our products include customized NOx control systems and our patented ULTRA ® technology, which converts urea-to-ammonia on site and provides safe reagent for use in Selective Catalytic Reduction (SCR) systems. ● SCR Systems and Services: Our SCR systems control NOx emissions from industrial and utility sources including boilers, incinerators, kilns, reformers and many other types of heat recovery equipment firing coal, natural gas, oil, and a variety of process gases and waste fuels. The SCR systems typically include urea or ammonia storage and delivery subsystems, reagent injection systems in the form of an Ammonia Injection Grid (AIG), catalyst reactor vessel and SCR catalyst. In addition, other related services, including start-ups, maintenance support and general consulting services for SCR systems, AIG design and tuning to help optimize catalyst performance, and catalyst management services to help optimize catalyst life, are now offered to customers around the world. We also specialize in computational fluid dynamics models, which simulate fluid flow by generating a virtual replication of real-world geometry and operating inputs. We design flow corrective devices, such as turning vanes, ash screens, static mixers and our patented GSG ® Graduated Straightening Grid. ● ULTRA Technology: Our ULTRA ® process is designed to convert urea to ammonia safely and economically for use as a reagent in the SCR process for NOx reduction. Recent local objections in the ammonia permitting process have raised concerns regarding the safety of ammonia shipment and storage in quantities sufficient to supply SCR. In addition, the Department of Homeland Security has characterized anhydrous ammonia as a Toxic Inhalation Hazard commodity. The safe conversion of urea to ammonia just prior to injection into the flue gas duct is particularly important near densely populated cities, major waterways, harbors or islands, or where the storage or transport of anhydrous or aqueous ammonia is a safety concern. UDI™ Urea Direct Injection systems utilize direct injection of urea reagent without the need for an ammonia injection grid. ● SNCR Systems: Our NOxOUT ® and HERT™ SNCR processes use urea or ammonia reagent injected into a variety of combustion furnaces to reduce NOx by up to 25% - 50% for utilities and by potentially significantly greater amounts for industrial units. Capital costs ranging from $5 - $20/kW for utility boilers and with total annualized operating costs ranging from $1,000 - $2,000/ton of NOx removed. Advanced SNCR systems are also available to improve performance and minimize reagent costs through in-furnace monitoring and an advanced control system. ● I-NOx ® Systems: Our I-NOx ® systems can include burner modifications, and SNCR components, along with SCR technology, Ammonia Injection Grid (AIG), and Graduated Straightening Grid (GSG™) system. Together, these systems provide up to 90% NOx reduction at significantly lower capital and operating costs than conventional SCR systems while providing greater operational flexibility to plant operators. The capital costs for I-NOx ® systems can range from $30 - $150/kW depending on boiler size and configuration, which is significantly less than that of conventional SCRs, which can cost $300/kW or more, while operating costs are competitive with those experienced by SCR systems. Our SCR systems utilize urea or ammonia as the SCR catalyst reagent to achieve NOx reductions of up to 85% from industrial combustion sources. ● ESP Processes and Services: ESP technologies for particulate control include Electrostatic Precipitator (ESP) products and services including ESP Inspection Services, Performance Modeling, and Performance and Efficiency Upgrades, along with complete turnkey capability for ESP retrofits. Flue gas conditioning (FGC) systems include treatment using sulfur trioxide (SO3) and ammonia (NH3) based systems to improve the performance of ESPs by modifying the properties of the fly ash particle. Our ULTRA technology can provide the ammonia system feed requirements for FGC applications as a safe alternative to ammonia reagent-based systems. FGC systems offer a lower capital cost approach to improving ash particulate capture versus the alternative of installing larger ESPs or utilizing fabric filter technology to meet targeted emissions and opacity limits. Fuel Tech’s particulate control technologies have been installed on more than 125 units worldwide. ● Burner Systems: Low NOx Burners and Ultra Low NOx Burners (LNB and ULNB) are available for coal-, oil-, and gas-fired industrial and utility units. Over-Fire Air (OFA) systems stage combustion for enhanced NOx reduction. Combined overall reductions with LNB and OFA range from 50% - 70%, depending on the fuel type, with overall capital costs ranging from $10 - $20/kW and total costs ranging from $300 - $1,500/ton of NOx removed, depending on the scope. A market factor for the APC product line is the continued use of coal and the growth of biomass for global electricity production. The growth of natural gas in the U.S. for industrial applications has increased the need for SCR technology since it often meets the definition of BACT and is required on new industrial units. Sales of APC products were $8.6 million and $14.1 million for the years ended December 31, 2020 and 2019 , respectively. 5 Table of Contents APC Competition Competition with our NOx reduction suite of products may be expected from companies supplying SCR Systems, SNCR systems, ESP retrofits and FGC technologies. In addition, we experience competition in the urea-to-ammonia conversion market. The SCR process is an effective and proven method of control for removal of NOx up to 90%. SCR systems have a high capital cost of $300+/kW on retrofit coal applications. Companies including GE, Babcock Power, Babcock & Wilcox (B&W) Company, CECO Environmental and Mitsubishi are active SCR system and reagent feed system providers. The use of both urea and ammonia as the reagent for the SNCR process can reduce NOx by 30% - 70%, depending on a number of factors. Ammonia can be effective on incinerators and on Circulating Fluidized Bed combustion units, but has limited applicability for most utility boilers, where urea is dominant. The ammonia-based systems utilize either anhydrous or aqueous ammonia, both of which are hazardous substances. Competitors for ammonia based SNCR include CECO Environmental, B&W, and Yara, with Hamon and B&W for urea based SNCR systems. ESP retrofit competitors include B&W, Southern Environmental and Hamon. Flue Gas Conditioning competition includes Wahlco, Inc. and Chemithon, Inc. Lastly, with respect to urea-to-ammonia conversion technologies, our controlled urea decomposition system competes with Hamon and Wahlco, which manufacture a system that hydrolyzes urea under high temperature and pressure. APC Backlog Consolidated APC segment backlog at December 31, 2020 was $5.3 million versus backlog at December 31, 2019 of $9.7 million. The Company expects to recognize revenue on approximately $3.0 million of the backlog over the next 12 months with the remaining recognized thereafter. FUEL CHEM Product and Markets The FUEL CHEM ® technology segment revolves around the unique application of specialty chemicals to improve the efficiency, reliability and environmental status of plants operating in the electric utility, industrial, pulp and paper, waste-to-energy, and university and district heating markets. FUEL CHEM programs are currently in place on combustion units in North America, Mexico and Europe, treating a wide variety of solid and liquid fuels, including coal, heavy oil, black liquor, biomass and municipal waste. Central to the FUEL CHEM approach is the introduction of chemical reagents, such as magnesium hydroxide, to combustion units via in-body fuel application (pre-combustion) or via direct injection (post-combustion) utilizing our proprietary TIFI ® technology. By attacking performance-hindering problems, such as slagging, fouling and corrosion, as well as the formation of sulfur trioxide (SO3), and ammonium bisulfate (ABS), our programs offer numerous operational, financial and environmental benefits to owners of boilers, furnaces and other combustion units. A key market factor for this product line is the continued use of coal for global electricity production. Coal currently accounts for approximately 21% of all U.S. electricity generation and roughly 33% of global electricity generation. Major coal consumers include the United States, China and India. Additional market dynamics include a growing, worldwide utilization of biomass for both steam and electrical production, and the continued use of heavy fuel oil for power generation. The principal markets for this product line are electric power plants burning coals with slag-forming constituents such as sodium, iron and high levels of sulfur. Sodium is typically found in the Powder River Basin coals of Wyoming and Montana. Iron is typically found in coals produced in the Illinois Basin region. High sulfur content is typical of Illinois Basin coals and certain Appalachian coals. High sulfur content can give rise to unacceptable levels of SO3 formation especially in plants with SCR systems and flue gas desulphurization units (scrubbers). As coal units strive to compete in electricity supply markets, lower cost, higher slagging fuels can create more operational challenges which TIFI Programs can help mitigate. The current Mexican government is favoring indigenous fuel sources for power generation because the international market for high sulfur fuel oil (what Mexico produces) has been significantly reduced with the adoption of the new International Maritime Organization (IMO) restrictions. Fuel Tech’s TIFI systems can help with SO3 mitigation at these oil fired power generation units. The combination of slagging coals and SO3-related issues, such as “blue plume” formation, air pre-heater fouling and corrosion, SCR fouling and the proclivity to suppress certain mercury removal processes, represents an attractive market potential for Fuel Tech. Sales of the FUEL CHEM products were $14.0 million and $16.4 million, for the years ended December 31, 2020 and 2019 , respectively. Competition Competition for our FUEL CHEM product line includes chemicals sold by specialty chemical companies, such as Imerys, Environmental Energy Services, Inc., and SUEZ Water Technologies. No technologically comparable substantive competition currently exists for our TIFI technology, which is designed primarily for slag control and SO3 abatement, but there can be no assurance that such lack of substantive competition will continue. INTELLECTUAL PROPERTY The majority of our products are protected by U.S. and non-U.S. patents. We own 47 granted patents worldwide and 3 allowed utility model patents in China. We have 14 patent applications pending: including 5 in the United States and 9 in non-U.S. Jurisdictions. These patents and applications cover some 27 inventions, 13 associated with our NOx reduction business, 11 associated with the FUEL CHEM business, and three associated with water treatment. Our granted patents have expiration dates ranging from January of 2021 to November of 2035. Management believes that the protection provided by the numerous claims in the above referenced patents or patent applications is substantial and affords us a significant competitive advantage in our business. Accordingly, any significant reduction in the protection afforded by these patents or any significant development in competing technologies could have a material adverse effect on our business. EMPLOYEES At December 31, 2020 , we had 73 employees, 66 in North America, two in China and five in Europe. We enjoy good relations with our employees and are not a party to any labor management agreement. HUMAN CAPITAL RESOURCES We manage our Company according to a set of core principles. Included among these are respect for the individual, aspiring to excellence, safety and security, and appropriate reward for outstanding effort. We have put in place an employee compensation plan that recognizes hard work with above average salaries and equity incentive awards. We have returned to face-to-face work in our day-to-day activities, but we have implemented training and provided guidance for our teams to operate safely even in a face-to-face environment. As a technology company, we prize and reward educational achievement. Among our employees are found a large cohort of doctorates as well as other advanced degrees and professional certifications. We expect that these approaches to managing and empowering our human capital will continue to guide our progress in the future. 6 Table of Contents RELATED PARTIES There are no material Related Party transactions to disclose. The Company's lease of certain office space to American Bailey Corp. reported in our Form 10-K for the year ended December 31, 2019 ended as of December 31, 2019. AVAILABLE INFORMATION We are a fully integrated company using a suite of advanced technologies to provide boiler optimization, efficiency improvement and air pollution reduction and control solutions to utility and industrial customers worldwide. Originally incorporated in 1987 under the laws of the Netherlands Antilles as Fuel-Tech N.V., we were domesticated in the United States on September 30, 2006, and continue as a Delaware corporation with our corporate headquarters at 27601 Bella Vista Parkway, Warrenville, Illinois, 60555-1617. Fuel Tech maintains an Internet website at www.ftek.com . Our Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to those reports filed or furnished pursuant to Section 13(a) of the Exchange Act are made available through our website as soon as reasonably practical after we electronically file or furnish the reports to the Securities and Exchange Commission. Our website also contains our Corporate Governance Guidelines and Code of Ethics and Business Conduct, as well as the charters of the Audit, Compensation, and Nominating and Corporate Governance committees of the Board of Directors. All of these documents are available in print without charge to stockholders who request them. Information on our website is not incorporated into this report.