Outside the village of Lissett in Yorkshire 12 majestic wind turbines dot the skyline, feeding clean energy into the power grid. Novera Energy’s (NVE:AIM) new 30-megawatt (MW) wind farm is expected to generate around 74.5 gigawatt hours (GWH) a year.
As far as green energy ventures go, wind power is both proven to work reliably and is also up and running in a financially competitive capacity. According to the Committee on Climate Change, the best wind sites have now reached a cost per kilowatt hour (KWH) that is ‘broadly competitive’ with fossil fuels (priced at mid-2008 levels). Independent power producer Novera operates hydro and landfill gas energy sites as well, but wind power is the new growth driver. The company hopes to expand its wind capacity from 15MW to 250MW by 2012, ‘and we are on track for that,’ chief executive David Fitzsimmons tells Shares during a visit to the Lissett site organised by Novera.
The installation of the 125-metre tall 2.5MW turbines at the Lissett Airfield site in the East Riding of Yorkshire was completed earlier this month. ‘This is our first new-generation wind project – our baby. It is very exciting,’ says Fitzsimmons. Next in the pipeline is Glenkerie in Scotland, which has received planning approval. First production at the 22MW-27MW site is expected to take place in late 2010. The £24 million cap group has another seven sites at various stages of planning. ‘We are very proud of our track record for planning application successes, and we expect that people can continue to look to us to get things done effectively’ says Fitzsimmons.
On track
Novera’s strong track record for its wind farm projects is attributed to prudent research ahead of planning applications. Wind studies and environmental research are time consuming, while the level of ease in securing grid access is crucial. The Lissett wind farm was completed on time and within the £38.5 million budget.
This week’s final results (23 February) showed the group’s revenue rose by 3% year-on-year, to £35.5 million. Fitzsimmons said: ‘Revenue and gross profit from the existing operations grew last year. We start 2009 with £20 million cash in the bank and with two secure long-term finance facilities in place.’
Funding concerns have dragged down renewable stocks in the past year, but Novera’s cash holding and experienced management team is encouraging. The established landfill operations generate good cashflow. The wind farms are typically funded by 30% equity and 70% debt, meaning Novera currently has net debt of £70.5 million. Analysts are more concerned about the availability of funding for future projects, but believe the group’s track record is very encouraging. Broker Piper Jaffray expects Novera to announce the funding arrangements for Glenkerie shortly.
Growing industry
Novera selects turbines for each site according to the specific wind conditions, with Germany’s Nordex delivering those at Lissett. Listed in the UK is turbine maker Clipper Windpower (CWP:AIM), which incurred losses last year after having to replace faulty equipment. But the company exited 2008 with $214 million in cash, and broker Piper Jaffray says: ‘We believe Clipper’s growth problems and technical issues have been identified and that Clipper should be able to grow revenues and profit from 2010 onwards.’
Clipper and Novera are not the only UK-quoted plays in the burgeoning wind power industry. Hansen Transmissions (HSN) is a leading manufacturer of turbine gearboxes, with a strong order book extending to 2011. In spite of ‘more challenging market dynamics’, the company’s third-quarter update (28 January) guided to turnover growth of around 50% for 2009. Chief executive Ivan Brems also pointed out how Hansen anticipates US president Obama’s plans for renewable energy will be ‘a catalyst for our business’.
Zenergy Power (ZEN:AIM) makes ground-breaking superconducting wires that improve the energy output from wind turbines and hydro power stations. The group has ties with its German countrymen E.ON and RWE, with resources in place to fund the group until positive cashflow is expected in 2010.
Wind and bio-power group Renewable Energy Generation (RWE:AIM) operates turbines in the UK and Canada, and has extended its power purchase agreement for its UK wind farms until 2011. The operations remain well financed after January’s signing of an 18-month credit facility with HBOS.
Having moved into profit last September, Renewable Energy Holdings (REH:AIM) operates wind parks in Germany and landfill gas sites in Wales, and is also interested in developing ocean power. Broker Piper Jaffray expects the group’s wind assets to generate a £1.4 million operating profit in the second half of 2008, and become the group’s key revenue generator; ‘We estimate REH’s wind farm operating margins to increase to 49% from 39% by 2011, as it takes ownership of higher load factor sites in Poland and Wales.’
Oil and gas group Ramco Energy (ROS:AIM) is investing in wind power through its 80%-held subsidiary SeaEnergy Renewables (SERL). The project is yet to receive final regulatory approval, but the fact SERL’s management has experience from the successful pioneer deepwater wind energy project ‘Beatrice’ is encouraging.
The green need
Being the windiest country in Europe, Britain currently generates enough wind power to meet the electricity needs of more than 1.4 million homes, but this is set to double several times over as increasing numbers of wind farms are approved and built. According to the British Wind Energy Association, a record 41 wind farms are now under construction, adding to the 209 already in operation. While smaller groups such as Novera are making solid strides into the area, the traditional energy companies dominate the UK windmill map, with notable presences from the likes of German groups nPower and E.ON.
The EU requires Britain to source 15% of its energy from renewables by 2020, which represents a fourfold increase on the current capacity. Two weeks ago the Intergovernmental Panel on Climate Change reported global greenhouse gas emissions are now increasing three times faster than they were in the 1990s, as developing countries consume more fossil fuels. Underlining the pressing nature of the environmental case further, December’s report from the Committee on Climate Change recommended the greenhouse gas reduction target for 2050 be increased from 60% to 80%.
The investment case for renewable energy companies has suffered in the recession, as the market lost its appetite for companies living on future promises. Falling oil and gas prices also mean the financial argument for pursuing new energies has weakened. But both these factors are temporary, and the reality remains the UK needs alternatives to fossil fuels as those resources will run out. Creating energy at home means the nation relies less on imports. Environmentally or economically the message is clear: the UK needs to get serious about alternative energy.
To this end, the government has extended its ROC (Renewable Obligation Certificate) incentive scheme until 2037, enabling long-term planning. Last week the Crown Estate issued licences to develop ten areas off the coast of Scotland for wind farms, the main beneficiaries being German groups RWE and E.ON, Iberdrola-owned Scottish Power, Dong of Denmark, and Scottish and Southern Energy’s (SSE) Airtricity. Onshore production has dominated the wind picture so far as offshore developments are generally more expensive to build, but as they have much higher capacity they are likely to be a big part of the package if renewables targets are to be met.
Public support for wind
Critics of wind power have pointed out production is patchy and unreliable as the wind only blows around 30% of the time. A wind turbine can generate energy only up to 85% of the time at best. Wind will never be the complete solution to the UK’s energy needs but it can be part of the equation.
Wind farms have also been criticised for being eyesores, but surveys into the public’s attitude typically show 70% to 80% support for wind farms, according to E.ON. Interestingly, the approval rate increases for people who live near the turbines.
Appreciating the importance of involving the community, Novera consulted with the Lissett villagers at all stages of the process. Fitzsimmons explains how the company appreciates the importance of honouring the trust bestowed by a community when it allows the development of a wind farm. In Lissett, the wind farm generated particularly strong local interest as it is built on the base of the Royal Air Force’s 158 squadron. Novera has commissioned a memorial sculpture for the site honouring the 851 people from the squadron who lost their lives in the Second World War.
Blowing into the future
Wind power represented 43% of new power capacity in the EU in 2008, according to February’s report from the European Wind Energy Association. This is higher than from any other energy source. At the current capacity, wind power should in a normal year produce around 4.2% of the EU’s power demand (142 terrawatt hours). Last year the US overtook Germany as the world leader in wind power, while China doubled its capacity for the fourth year in a row and is likely to meet its 2020 target of 30GW ten years early. This is encouraging news among gloomy reports of rising carbon emissions.
Following the government’s offshore energy study released in January, energy and climate change minister Ed Miliband said: ‘In terms of electricity, offshore wind power could potentially make the single biggest contribution to our 2020 renewable energy target.’ Chief executive of the British Wind Energy Association, Maria McCaffery, said: ‘[This confirms] there is enough potential for wind, wave and tidal to supply every UK household with electricity – and then some.’ n
‘SHARES’ trip to Yorkshire was organised and paid for By Novera
UK wind farm pipeline
Operational wind farms:
Onshore: 200 (2,735.8 MW)
Offshore: 9 (565.8 MW)
Under construction:
Onshore: 33 (923.1 MW)
Offshore: 8 (774 MW)
Consented projects:
Onshore: 118 (3,053.3 MW)
Offshore: 10 (4,113.0 MW)
In planning:
Onshore: 267 (6,719.9 MW)
Offshore: 3 (1.4 MW)
Source: British Wind Energy Association
