This, from the Renewable Energy Holdings website today...
Second CETO II Wave Energy Unit deployed & Sites under review in EDF EN collaboration
Renewable Energy Holdings plc (AIM: REH), the AIM quoted investor and operator of proven and innovative renewable energy technologies, is pleased to announce the successful deployment of the second CETO II Wave Energy prototype off the CETO test site at Fremantle in Western Australia.
In short, the CETO technology appears to use wave motion captured at tethered buoys to pump high pressure seawater which is then used to spin a turbine onshore. It's a great idea to keep the electrics out of the water, but I do wonder what kind of hydraulic losses there are. This schematic helps to describe the CETO technology.
This and the ORECon news in the same week - maybe wave's picking up steam again. Let's hope Pelamis can get deployed soon too, to really get some momentum in the sector.
In the meantime, nice one REH and CETO - we'll keep eyes open for more news.
Friday, March 07, 2008
Tuesday, March 04, 2008
ORECon closes $24 million fund raising
ORECon, the southwest UK-based wave energy developer which had seemed to be somewhat dormant of late has just announced a $24 million fund raising.
This is terrific news, as it means another wave energy developer now has the wherewithal to fund the building of a full scale prototype.
Turnberry conference
Just back from the Turnberry Infrastructure Journal conference. The photo was taken from my hotel room and shows the snow on Arran's Goat Fell this morning. Lovely.
Lots of interesting presentations and people to meet - developers, manufacturers, funds, but (shockingly) nobody from Government (except the European Commission).
Eddie O'Connor wasn't short of opinions, and when you've just sold a £1 billion business which you've built over seven years, you've got a right to be heard!
Lots of infrastructure funds were there, showing a real interest in renewables of all kinds, although a real warning shot to the UK industry that clarity of incentive was vital to attracting internationally mobile capital.
Lots of reminders, too, about how much additional renewables capacity is going to be required to meet the 15% of all energy from renewables targets. Roughly 40-45% of electricity from renewables would do the trick (cue Eddie on the need for an offshore SuperGrid).
One last thought: Chinese demand growth is equivalent to a new Germany in demand each year. Astonishing, but what a market opportunity.
Thursday, February 28, 2008
Landfill valuations
A recent potential deal, 3i's bid for Novera, has stimulated a need for a rule of thumb on the value of landfill gas.
Existing landfill projects receive 1 ROC per MWh, making their total electricity price around £90/MWh (electricity £40/MWh, ROC £35/MWh, recycle value c. £15/MWh).
Analysis of the OFGEM ROC register shows that, in a typical month, the UK's 800MW of operational landfill capacity generates 130,000 ROCs. Each MW of capacity therefore generates 165 ROCs in a month or 2,000 per year. 1 MW therefore enjoys revenues of £180,000/yr (at £90/MWh)
No, we know that landfill was economic even before ROCs, but only just, so let's assume £40/MWh of operating costs run at around the electricity price in those days, say £30/MWh, making the gross profit £120,000/yr/MW.
Now, If we assume this goes on in perpetuity (which on a DCF basis is fair enough, as landfill sites typically operate for 20 years or so - effectively infinite in DCF terms). With a discount rate, this would make 1 MW worth £1.2 million pretax.
The deals we found in the analysis of the Novera offer reassuringly bracket this figure: one was 7 MW for £25 million - about £3.5 million per MW, and the other was £30 million for 45 MW or £0.67/MW.
So a rule of thumb of £1 million/MW may be about right.
Existing landfill projects receive 1 ROC per MWh, making their total electricity price around £90/MWh (electricity £40/MWh, ROC £35/MWh, recycle value c. £15/MWh).
Analysis of the OFGEM ROC register shows that, in a typical month, the UK's 800MW of operational landfill capacity generates 130,000 ROCs. Each MW of capacity therefore generates 165 ROCs in a month or 2,000 per year. 1 MW therefore enjoys revenues of £180,000/yr (at £90/MWh)
No, we know that landfill was economic even before ROCs, but only just, so let's assume £40/MWh of operating costs run at around the electricity price in those days, say £30/MWh, making the gross profit £120,000/yr/MW.
Now, If we assume this goes on in perpetuity (which on a DCF basis is fair enough, as landfill sites typically operate for 20 years or so - effectively infinite in DCF terms). With a discount rate, this would make 1 MW worth £1.2 million pretax.
The deals we found in the analysis of the Novera offer reassuringly bracket this figure: one was 7 MW for £25 million - about £3.5 million per MW, and the other was £30 million for 45 MW or £0.67/MW.
So a rule of thumb of £1 million/MW may be about right.
Tuesday, February 19, 2008
Novera in play
Over the past few days, Novera has announced that it is in talks which may lead to a bid for the company at a price of 90p. 3i has just broken cover to day that it's the possible bidder. Now, there's many a slip twixt cup and lip, but let's see what this means.
A bid at 90p values Novera at £111 million. According to the company's website, there was a cash balance of c. £10.8 million at 31st December 2007, making the wind and other renewables assets worth near enough £100 million.
On a multiple basis, Novera's revenue for 2007 was expected to be around £34 million, making the offer price 3 times turnover. Figures for 2007 aren't available yet, but EBITDA in 2006 was just shy of £10 million on revenue of £31 million. Since the company was apparently debt free in 2006, let's assume that interest is minimal and the accounts show that depreciation was very small and there was no tax charge as tax losses exceed profits, so we can probably infer that the post tax profit was around £10 million, making the multiple an apparently conservative 10 times 2006 earnings.
Looking at the valuation from the asset side: the portfolio is dominated by the wind assets:
Status Capacity
Operating sites: Mynydd Clogau, Wales 14.5 MW
Consented sites: Lissett Airfield, East Riding 30 MW
Sites in Planning: Mount Boy, Angus, Scotland 6 MW
Sites in Planning: Fleeter Wood, Cumbria 10 MW
Sites in Planning: Glenkerie, Scottish Borders 22-27 MW
Sites in Planning: A'Chruach, Argyll and Bute 40-48 MW
Additional sites in pre-planning: 300 MW
The recent Airtricity experience suggests that buyers are prepared to pay £2 million/MW or more for installed capacity, and perhaps £1 million/MW for consented sites (leaving the other £1 million/MW to pay for the actual development costs of the project). This would amount to £29 million for Mynydd Clogau and £30 million for Lissett.
We think that Novera still has the 112 MW of landfill gas capacity it had in 2005. So looking for landfill analogues...
In 2004, Viridor paid £30 million for 45 MW of landfill capacity, and in 2006, Pennon paid £25 million for 7 MW of landfill capacity. Taking the lower basis for valuation, Novera's landfill would be worth around £60 million. (Taking the higher, it would be worth nearly £400 million, which seems extraordinary - there must be more in that deal we haven't seen).
So we've found £60 million of wind value, without the development pipeline, and £60 million of landfill value and £10 million of cash.
In the mid 2007 trading statement, net debt was around £72 million with £17 million in the bank, so if this hasn't changed, the asset value is £130 million plus the value of the development pipeline minus £90 in debt.
With the bid at £100 million, the development pipeline is being implicitly valued at around £60 million by 3i. For, say, 80 MW in planning you might apply a risk factor of 50% and value as if it's consented (ie, half the project capacity eventually gets consented). This would give you another £40 million, so you're getting the development pipeline for £20 million. If you were to risk this at 20% and apply the same valuation of £1 million/MW - you get to £60 million. On this basis, the development pipeline is worth £100 million, but it would seem that 3i is offering £60 million for it.
So either we've missed something important, or 3i is risking future developments more aggressively (or thinking they'll cost more to deliver) or 3i's getting a bargain if the deal goes through!
A bid at 90p values Novera at £111 million. According to the company's website, there was a cash balance of c. £10.8 million at 31st December 2007, making the wind and other renewables assets worth near enough £100 million.
On a multiple basis, Novera's revenue for 2007 was expected to be around £34 million, making the offer price 3 times turnover. Figures for 2007 aren't available yet, but EBITDA in 2006 was just shy of £10 million on revenue of £31 million. Since the company was apparently debt free in 2006, let's assume that interest is minimal and the accounts show that depreciation was very small and there was no tax charge as tax losses exceed profits, so we can probably infer that the post tax profit was around £10 million, making the multiple an apparently conservative 10 times 2006 earnings.
Looking at the valuation from the asset side: the portfolio is dominated by the wind assets:
Status Capacity
Operating sites: Mynydd Clogau, Wales 14.5 MW
Consented sites: Lissett Airfield, East Riding 30 MW
Sites in Planning: Mount Boy, Angus, Scotland 6 MW
Sites in Planning: Fleeter Wood, Cumbria 10 MW
Sites in Planning: Glenkerie, Scottish Borders 22-27 MW
Sites in Planning: A'Chruach, Argyll and Bute 40-48 MW
Additional sites in pre-planning: 300 MW
The recent Airtricity experience suggests that buyers are prepared to pay £2 million/MW or more for installed capacity, and perhaps £1 million/MW for consented sites (leaving the other £1 million/MW to pay for the actual development costs of the project). This would amount to £29 million for Mynydd Clogau and £30 million for Lissett.
We think that Novera still has the 112 MW of landfill gas capacity it had in 2005. So looking for landfill analogues...
In 2004, Viridor paid £30 million for 45 MW of landfill capacity, and in 2006, Pennon paid £25 million for 7 MW of landfill capacity. Taking the lower basis for valuation, Novera's landfill would be worth around £60 million. (Taking the higher, it would be worth nearly £400 million, which seems extraordinary - there must be more in that deal we haven't seen).
So we've found £60 million of wind value, without the development pipeline, and £60 million of landfill value and £10 million of cash.
In the mid 2007 trading statement, net debt was around £72 million with £17 million in the bank, so if this hasn't changed, the asset value is £130 million plus the value of the development pipeline minus £90 in debt.
With the bid at £100 million, the development pipeline is being implicitly valued at around £60 million by 3i. For, say, 80 MW in planning you might apply a risk factor of 50% and value as if it's consented (ie, half the project capacity eventually gets consented). This would give you another £40 million, so you're getting the development pipeline for £20 million. If you were to risk this at 20% and apply the same valuation of £1 million/MW - you get to £60 million. On this basis, the development pipeline is worth £100 million, but it would seem that 3i is offering £60 million for it.
So either we've missed something important, or 3i is risking future developments more aggressively (or thinking they'll cost more to deliver) or 3i's getting a bargain if the deal goes through!
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