Highwater Ethanol, LLC

Climate Impact & Sustainability Data (2022, 2022-01 to 2022-09, 2023-01 to 2023-07, 2024-01 to 2024-06)

Reporting Period: 2022

Environmental Metrics

ESG Focus Areas

Environmental Efficiency
Community Relations
Economic Growth

Environmental Achievements

Maintained average ethanol production of approximately 3.01 gallons per bushel of corn since August 2019.
Improved corn oil production to over 0.956 pounds per bushel ground.
Received air emission permit from the Minnesota Pollution Control Agency (MPCA) in March 2022, including equipment for high purity alcohol production and emissions monitoring.

Social Achievements

Continued purchasing corn from area producers.
Supported E10 and E15 blends, promoting ethanol use through the Minnesota Biofuels Association.
Offered facility tours.

Governance Achievements

Filed Form 10-K for fiscal year ended October 31, 2021, on January 19, 2023.
Paid distributions to members totaling $7000/unit for the relevant periods.
Reduced outstanding debt balance to zero.

Climate Goals & Targets

Long-term Goals:

Diversify product lines (high purity alcohol).

Medium-term Goals:

Increase corn oil yield.

Short-term Goals:

Lab expansion (construction starting in spring 2023).

Environmental Challenges

Drought in corn growing area.
Volatile commodity and financial markets.
Overcapacity within the ethanol industry.
Competition from alternative fuel additives.

Mitigation Strategies

Maintaining efficient production rates.
Hedging transactions and other risk management strategies.
Focusing on operational efficiencies and cost reduction.
Exploring opportunities to diversify product lines (high purity alcohol).

Supply Chain Management

Responsible Procurement

Purchasing corn from area producers.

Climate-Related Risks & Opportunities

Physical Risks

Drought

Transition Risks

Changes in environmental regulations
Changes in federal and/or state laws (including the elimination of any federal and/or state ethanol tax incentives)
Competition in the ethanol industry and from alternative fuel additives

Opportunities

Increased demand for renewable ethanol and biofuels

Sustainable Products & Innovation

High purity alcohol

Reporting Period: 2022-01 to 2022-09

Environmental Metrics

ESG Focus Areas

Environmental
Social
Governance

Environmental Achievements

Received air emissions permit in early March 2022 (includes high purity alcohol process system, additional fermenter, cooling tower cell, and package boiler).
Working with Summit Carbon Solutions to capture and sequester CO2 to lower carbon footprint and carbon index score.

Social Achievements

Received Safety recognition award from Canadian Pacific Railroad for safe transportation of hazardous materials.
This is Highwater Ethanol's 12th consecutive Safety Recognition Award.

Governance Achievements

Amended loan facility to extend maturity dates.
Election of Governors at the 2022 Annual Meeting.

Climate Goals & Targets

Long-term Goals:

Continue long-term debt reduction.

Medium-term Goals:

Review new technology opportunities (SAF, Renewable diesel, Clear Flame technology).

Short-term Goals:

Maintain current production rates while continuing to debottleneck operations and improve efficiencies.
Reduce electrical costs, improve boiler efficiencies and/or yeast and enzymes.

Environmental Challenges

Volatile commodity markets due to world conflicts and higher prices.
Inflation and growing unrest around the world.
Higher natural gas prices (2-3 times higher than a couple of years ago).
Increased electricity, labor, and other input costs.

Mitigation Strategies

Longer-term natural gas and corn coverage.
Low debt and recent favorable margins.
Focus on operational efficiencies to maintain or improve production rates.

Supply Chain Management

Climate-Related Risks & Opportunities

Opportunities

Lowering Carbon Intensity score to achieve a higher price per gallon.

Awards & Recognition

Safety recognition award from the Canadian Pacific Railroad

Reporting Period: 2023-01 to 2023-07

Environmental Metrics

ESG Focus Areas

Carbon Index reduction
Renewable energy exploration (SAF, Renewable Diesel, Carbon Capture, Solar)
Efficient corn utilization
E15 promotion

Environmental Achievements

Maintained ethanol production efficiency of approximately 3.03 gallons per bushel of corn since August 2019
Improved corn oil production to over 1.14 pounds per bushel ground

Social Achievements

Successful completion of 2023 Fall maintenance shutdown despite extreme heat, demonstrating employee commitment
Expansion of lab area to include additional office space for management team

Governance Achievements

Election of three incumbent Group I Governors at the 2023 Annual Meeting

Climate Goals & Targets

Long-term Goals:

Review new technology opportunities and core business

Medium-term Goals:

Improve efficiencies and lower carbon index score

Short-term Goals:

Utilize expanded lab space by November 2023

Environmental Challenges

Variable weather conditions impacting corn yield
Extreme heat during fall maintenance shutdown

Mitigation Strategies

Continued monitoring of technologies to improve efficiencies and lower carbon index
Provision of ample hydration and resources for employees and vendors during shutdown

Supply Chain Management

Responsible Procurement

Purchasing corn from area producers

Climate-Related Risks & Opportunities

Physical Risks

Variable weather conditions

Opportunities

Renewable energy technologies

Awards & Recognition

Two awards from the USDA Biofuel Producer Program
Award from the Minnesota Bioincentive Program

Reporting Period: 2024-01 to 2024-06

Environmental Metrics

ESG Focus Areas

Carbon Intensity Reduction
Sustainable Aviation Fuel
Renewable Energy
Safety
Community Relations

Environmental Achievements

Maintained average production of 3.033 gallons of denatured ethanol per bushel of corn ground throughout 2023 and the first two quarters of 2024.
Received air emission permit from the Minnesota Pollution Control Agency (MPCA) in March 2022, including an additional fermenter.
Construction of a new fermenter started in May 2024, expected completion in fall 2024 to improve plant efficiencies.

Social Achievements

Continued purchase of corn from area producers.
Awarded a Safe Shipper Award by Canadian Pacific Railroad for safe transportation of hazardous materials.
Attended the annual Fuel Ethanol Workshop in Minneapolis to learn about new technologies and network with industry peers.

Governance Achievements

Filed Form 10Q for the Second Quarter on June 13, 2024.

Climate Goals & Targets

Long-term Goals:

Increase production through a permit update with MPCA.
Explore opportunities in sustainable aviation fuel (SAF), e-methanol from CO2 capture, and the Inflation Reduction Act (IRA) Clean Fuel Production Credit.

Medium-term Goals:

Review new technology opportunities to improve efficiency and add value to the facility.
Explore opportunities to utilize the 45Z tax credit.

Short-term Goals:

Completion of the 5th fermenter in November 2024 to increase yield and fermentation time.

Environmental Challenges

Net income lagging behind last year, with a net loss of approximately $773,300 through the first two quarters of 2024.
Variable ethanol netbacks ($1.29-$1.67 per gallon) and corn prices ($4.00-$4.74 per bushel) during the first two quarters of 2024.
Challenging weather conditions (heavy rain) impacting corn crop planting in spring 2024.
Uncertainty regarding the future of sustainable aviation fuel (SAF) technology, cost competitiveness, and financing.

Mitigation Strategies

Focus on operational efficiencies to improve margins.
Review of enzymes, yeast, and other items to optimize production.
Exploration of opportunities to increase production through a permit update with MPCA.
Monitoring markets and adjusting strategies as needed.
Discussion of 45Z tax credit as a potential value-adding opportunity.
Reviewing avenues to lower carbon intensity (CI) scores.