Wind farm operator, landfill gas and wave power technology developer

 by Andrew Hore

First published in March 2007 edition of Cleantech magazine. Copyright Cleantech Investor 2007 

Renewable Energy Holdings offers a combination of steady long-term revenues plus potential upside from its own patented wave power technology. REH is expected to be profitable in 2008 but the wave power side will take much onger to make a significant contribution. REH already has revenues from its first wind farm investment. Wind farms and landfill gas will form the basis of its short and medium-term revenues. On its own this part of the business will be steady and profitable. The excitement comes from REH’s CETO wave power technology.

REH is registered on the Isle of Man. Its chief executive is Mike Proffitt, who held the same position at the Manx Electricity Authority. Chairman John Baker is a former boss of National Grid. The company floated on 11 February 2005 at 50p a share. After going to a premium of more than 50% within a few weeks the shares have drifted back.

The revenues of £1.4m in the 12 months to June 2006 came from the German wind farm while the Welsh landfill gas operation will have started to contribute in the six months to December 2006. The year end has been changed to December.

The wind farm at Kesfeld, Germany was constructed by EnXco, a subsidiary of French energy company EDF. It will also construct REH’s other wind projects. Kesfeld has 13 wind turbines which generate electricity at wind speeds of 4-15 metres per second. The capacity is 27.9MW. The tariff paid by RWE is fixed for 20 years at €85.3m/MWh - although it reduces by 2% a year for additional capacity. By the end of 2007 capacity could be up to 46.5MW.

Further wind projects are expected to start up in Hungary and Poland before the end of this year. Longer term, there are other potential sites in Wales, Saxonyand eastern Germany. The landfill gas site should generate revenues for more than 20 years.

CETO differs from other wave power technology in that it generates electricity on land and can be used to desalinate water. It was invented by Alan Burns, the former boss of Hardman Resources and a nonexecutive director of REH.

The CETO unit lies on the floor of the ocean and the wave movement forces seawater through a pipe to the shore. The pressure of the water going through the pipe powers a turbine that produces electricity. It will take 100 units to generate 10MW. The seawater going through the pipe can also be desalinated. The first working version is likely to be trialed in Australia. That won’t be until the end of 2007 at the earliest. It could take another £10m to produce a commercial product.

A technical report by PB Power, estimates that the CETO technology may need an electricity price of £70/MWh to be viable at the post-tax level. That suggests that further development will be needed to cut the capital and operating costs to make it more viable or it will require significant grants or government financial assistance. Three-quarters of the funding for the wind projects comes from nonrecourse debt and the rest will have to come from REH’s own coffers. As the business gets bigger a greater percentage of the funding could come from debt. However, REH will need to raise more cash in order to contribute its share of the newer projects. That gets more difficult as the share price declines. At the current share price, a fund raising could be heavily dilutive.