One to Watch: REG

Published on Thursday 26 November 2009 20:54

REG 67p +1.5p Scotsman says BUY

THE UK power market is in a period of transition. Legislation designed to reduce , noxious gases and particulate pollution is making fossil fuel-based power plants increasingly less commercial to operate.

Decommissioning of ageing nuclear and coal plants will place further strains on the supply side of the equation until new plants can be built. Tight credit conditions aren't helping. Fuel-less alternative methods of generation, such as wind, create no during operation and receive supportive incentives under the UK ROC scheme, which is paid for by those who continue to supply "dirty" electricity. In this environment, we expect UK wind operators with access to funds to flourish and highlight Renewable Energy Generation (REG).

REG is a wind and bio-power group that listed on Aim in May 2005. It develops, owns and operates wind farms in the UK where it has 21.3MW in operation and a development pipeline of more than 300MW. REG also has a pilot plant generating power from used cooking oil.

REG recently announced the sale of its Canadian wind arm for 69 million. The sale of the Canadian assets is positive for two reasons: it enables REG to exit from a region much less legislatively generous than the UK and it provides much needed capital to fund more profitable activities in the UK.

REG's approach of funding small-scale assets with its own balance sheet enables it to move quickly in a market that is too small for the larger wind farm operators to take an interest in. As one of the few well-funded, pure-play listed wind companies, we recommend investors to buy REG.

&#149 Investment markets and conditions can change rapidly and as such the views expressed should not be taken as statements of fact nor should reliance be placed on these views when making investment decisions. Past performance is not a guide to the future.