Small firms are looking to cash in big on green energy

Published on Sunday 1 March 2009 19:51

SMALL specialist companies are taking equity stakes in early-stage renewable energy projects, gambling that they will enjoy a windfall long before earth is turned.

The trend has been prompted by the high value placed on stakes in renewables projects, before construction has even begun.

Last month, two small Scottish companies announced that they would take major equity stakes in projects in partnership with major utilities.

Most recently, Aquamarine – which has developed devices to farm both wave and tidal power – said it will develop sites capable of producing a gigawatt of electricity with Scottish & Southern Energy (SEE) by 2020 as a joint venture.

But Martin McAdam, chief executive of Aquamarine, 47 per cent of which is owned by SSE, said there was no chance the company would own the stake all the way through to the capital-intensive construction phase.

Instead, Aquamarine will focus only on providing its devices; McAdam believes if it were to retain stakes in completed projects it would potentially put the Edinburgh-based in competition with potential customers.

Instead, the exercise is an attempt to "create a market" for its technologies, selling the stake in the sites when they are consented, but retaining a contract to provide its devices in the plan.

But the equity stake itself is a key element of Aquamarine's business plan. McAdam said a sale of the stake could provide significant amounts of revenue, with the cost of taking projects to consent estimated to be in the low millions.

He said: "It's a very valuable part of our business model. If you look at offshore wind where equity partners have sold, the value placed on consented offshore wind is very substantial, anywhere up to 400,000 a consented megawatt. We see this as being, potentially, a very good source of revenue."

A string of deals back McAdam's faith. In November, SSE sold a 50 per cent stake in the Greater Gabbard wind farm for 308 million, despite it being several years from completion.

Aquamarine is not the only renewable technology minnow planning to use the development phase of projects as a key part of the business model.

Earlier in February, SeaEnergy – a company based around the team that built the 5MW Beatrice demonstrator turbine for Talisman energy in the North Sea – won a 25 per cent stake in two projects with SSE and German firm RWE for major deep-water projects in the outer Tay estuary and the Moray Firth.

Taking its stake in the projects to completion would require investment running into the hundreds of millions, and SeaEnergy chief executive Joel Staadecker admits the business he runs is being given "no value whatsoever" by the market. But Staadecker said the resources needed to take an offshore wind farm to development phase are "small beer" compared with the construction phase, but the returns on investment are high.

"The development phase of this business is very, very lucrative," the former oil and gas executive said.

"The amount of money you spend, verses the value of the assets, is incredible, and there a lot of investors who understand that."

Unlike Aquamarine, Sea-Energy, which is 80 per cent owned by Ramco – the Aberdeen firm previously focused on oil and gas – expects to take its wind farm project through to completion, believing that by the time it has consent for the project it will have an "enormously valuable asset".