Comment on Leaf Clean Energy, Ludgate Environment, Nviro Cleantech, IdaTech and Jetion

First published in Cleantech magazine. September 2007 © Cleantech Investor Ltd. 2007

Leaf Clean Energy

Cayman Islands-based Leaf Clean Energy raised £200 million at 100p a share in June. That makes it the third biggest fund raising on AIM so far this year – up until the end of July. Once the costs of the float are taken into account the net asset value is 96.7p a share.

Leaf’s management company is jointly owned by EEA and Shaw Capital. EEA is involved in the management of AIM-quoted emissions trading and investment companies, Climate Exchange and Trading Emissions. It manages $1.2 billion of assets, more than $750 million of which relate to the carbon market. Shaw Capital is a project development and financing business based in Baton Rouge, Louisiana. Through affiliates it has project experience of biomass, landfill gas, hydroelectric and other power generation and chemical facilities.

The management agreement is for six years and can then be terminated with twelve months’ notice. The management company will receive a fee of 0.5% of net asset value in each quarter – in advance. There is also a performance-related payment which comes into effect when the total shareholder return exceeds 9% in a year. The performance fee is 20% of the excess return above that 9% figure. Renewable electricity projects and alternative fuels will be the main focus.

Leaf has already started to assess a number of projects involving landfill gas, wind power, waste-to-energy, hydropower, biomass, ethanol and biodiesel. These need investments totalling more than $400 million but there is no certainty how many, if any, will merit funding.

Investments will predominantly be in North American projects and Leaf expects to be fully invested within 18 months.

Leaf wants to invest in a diversified portfolio of businesses and no single project company will account for more than 25% of its gross assets. It will generally take majority or controlling stakes. Leaf is looking for businesses and projects with strong managements, good project economics and favourable regulatory environments.

The shareholder register is dominated by institutional investors. Invesco owns 29.5% and other investors include Aegon, Lansdowne Partners, UBS Asset Management, Jupiter, Morley, Artemis, F&C and Henderson Global Investors. Leaf is fulfilling a growing niche by offering these institutions a means of gaining exposure to the renewable energy sector without having to employ their own experts.

The Ludgate Environment Fund

The Ludgate Environment Fund was admitted to AIM on 2 August through a placing of 25.7 million shares at 100p per share. PricewaterhouseCoopers LLP is the Nomad with Fairfax acting as the broker.

Ludgate manages a diverse portfolio of environmental and cleantech company investments. Ludgate typically makes its investment at a post prototype but pre-IPO stage – although the criteria do not exclude investments in companies which have already been quoted on a market such as AIM.

The management team have built up a track record as investors with their personal funds and alongside co-investors since 2001. The combined total of funds invested to date is £63 million, which was split between nine companies. Originally the focus was on the UK, but Ludgate is increasingly looking at opportunities in Germany and elsewhere in Europe. Of the nine investments, three were companies based in Australia, which Ludgate sees as a market with significant potential.

Of the early stage investments which have been made, seven have evolved to stock market listings in their own right. These include: Ceres Power (fuel cell micro combined heat & power boiler); Hydrodec (technology for the re-refining of trans fatty oils); Pursuit Dynamics (which has a water mist technology solution for fires and explosions); Turbo Power (energy efficient power solutions); Virotec (contaminated water treatments); Hightex (solar roofing systems); Solartech (solar roofing and cooling systems); Azure Dynamics (hybrid power trains).

Ludgate does not invariably regard AIM as an exit for its investments. The management considers AIM companies of less than £50 million in value to equate to “public VC” and, depending on the circumstances, the fund retains an involvement even after a listing.

IdaTech

Fuel cell operator IdaTech raised £12.7 million through a share placing at £1 per share, valuing the company at £49.5 million. The funds will be used to scale up the business: IdaTech aims to start manufacturing in Tijuana, Mexico in the second half of this year.

IdaTech’s IP portfolio includes 134 worldwide patents granted and more than 160 patents pending. There are proprietary technologies in fuel reforming (including steam, auto thermal and partial oxidation technologies); hydrogen purification; and PEM fuel cell systems (powered by stored hydrogen or by reformed hydrogen). IdaTech also has strong engineering expertise in the combining of technologies into integrated systems. Key short term areas of focus include remote back up solutions for the telecoms industry; small scale and portable industrial applications (for example, monitoring stations); high end consumer applications (such as yachts); military applications and industrial vehicles such as fork lift trucks. IdaTech was advised by Dresdner Kleinwort.

Nviro Cleantech

Nviro Cleantech was set up to identify potential clean technologies and provide the funds for their development into commercial products.  It has high hopes for technologies for cleaning coal and recycling MDF (medium density fibre).

Nviro Cleantech raised £7.5 million at 63p a share when it joined AIM in July. Although £970,000 of that went on costs, the rest will be used to develop a range of clean technologies to which the company has acquired the rights.

Isle of Man-registered Nviro has positioned itself to fill the gap in funding after grant funds dry up for young cleantech companies. Nviro assessed more than 70 technologies after it was established in October 2007 and narrowed the list down to the five technologies which now feature in its portfolio.

Nviro’s policy is to acquire the exclusive worldwide rights to the technologies for a specific market through a subsidiary, which will also own the results of any additional development work. The original developer will receive development finance and a royalty on sales, plus an option over shares in the relevant subsidiary. The developer may also be allowed to use the technology in areas not covered by the rights agreement.

The two technologies that have progressed furthest are Vertus RTP and Microrelease. Vertus RTP has developed a technology that can be used to clean up coal by removing contaminants such as sulphur dioxide, chlorine and lead. There are other companies that ‘clean’ coal, but Nviro chief executive Chris Every claims that the competing technologies are different because they just dry the coal. Three major competitors are NYSE-listed Evergreen Energy Inc., White Energy and Advanced Coal Technologies.

The Vertus technology can also be used for pre-treating rice husks and other forms of biomass which can potentially be converted into fuels. Nviro has already formed a joint venture in coal-loving China. India, where coal is used extensively in power-generation, is also expected to be another important initial market. A pilot plant is up and running in Hungary. The Vertus technology could be installed and operating in a commercial plant within the next 18 months.

Microrelease has developed a methodology for the recycling of MDF board using microwave processing. The first processing of MDF should take place next year at a pilot plant in Bangor, North Wales. MDF sources will include demolition and furniture manufacturers (the latter generate a lot of waste in the production process). Applications for the reclaimed wood fibre include insulation, road surfacing and cement reinforcement. Microrelease will look to roll-out the technology in two years’ time and will focus on the US, Europe and South East Asia. The company will install and manage the plants and retain the rights to sell the reclaimed material.

The three other technologies in Nviro’s portfolio are Carbon Co-burner, a carbon ignition technology; Laseair, a laser-based technology which could be used for air decontamination; and 65%-owned Organotect, a portable hazardous chemical detection system.

Nviro believes that it could bring the Carbon Co-burner technology to the market within three years.  The technology will enable carbon powder, produced from renewable sources, to be ignited in existing boilers, helping them to meet increasingly stringent environmental standards.

The Laseair air decontamination technology enables the deactivation and removal of spores and dust particles. These can lead to illnesses such as Legionnaires Disease being spread by air conditioning, but they cannot be tackled by existing technologies. The Laseair technology, which should be cheaper than filtration devices, is being developed in conjunction with the University of Glasgow, but Nviro‘s Laseair subsidiary has acquired worldwide commercialisation rights. The system has yet to be built and tested. Once proven, it will be licensed to manufacturers in the air decontamination sector.

Organotect can put a plasma detection system on a microchip to create a portable detection system that can be used to sense hazardous chemicals. Nviro plans to spend £4 million of the cash it has raised on commercialising the Vertus technology and a further £1.39m on the other technologies.

Jetion Holdings

Jetion Holdings was admitted to AIM in July. Jetion, a Chinese solar cells and solar modules manufacturer, raised £30.5 million at a price of 151p per share. Collins Steward is Nomad and broker.

Jetion’s management team has strong credentials. The Chairman, Dipesh Shah, was previously CEO and Managing Director of BP Solar International, while CEO Lijin Gai was formerly a director of NYSE-listed Suntech Power Holdings Limited.

The largest part of Jetion’s manufacturing is dedicated to solar cells and solar modules. The company has 300 employees based in Jiangsu Province (close to Shanghai), where it has two 25MW solar cell production lines. The group has developed an innovative process to produce high efficiency solar cells for which it has lodged patent applications.

Jetion is already profitable with revenues of more than $45.5 million in 2006 (during which period only one of the 25MW production lines was operational).  The funds raised in conjunction with the listing will be used for expansion of the production capacity – the plan is to double production to 100MW.