Alkane Energy Looks Forward To A Stable 2010 And A Cheery 2011 As Wholesale Electricity Prices Perk Up
By Stewart Dalby
minesite.com
Alkane Energy is perhaps the UK’s leading, profitable, alternative energy company. It owns and operates power generation plants using coal mine methane (CMM) as fuel. CMM, which is found in abandoned coal mines, can, if allowed to, seep into the atmosphere, be a damaging pollutant, and has been estimated as being 23 times more potent than carbon dioxide as a greenhouse gas. But if trapped underground, methane can be a cheap and “green” source of energy.
In the past two years the company has been in what you might call a “swings and roundabouts” situation. Wholesale prices for electricity in the UK have been volatile. Given this volatility analysts have been looking to see, when researching Alkane, whether increases in output are going to be good enough to offset pricing declines this year and next.
There was a strong price spike towards the end of 2008 which peaked at £90 a megawatt hour. The price trailed off but was sufficiently strong in 2009 so that Alkane ended 2009 with revenue of £6.3 million and adjusted profits before tax of £2.4 million, 21 per cent and 69.5 per cent respectively ahead of the previous year.
Also, with funds from the disposal of the minority owned German subsidiary Pro2 the company was able to expand output. Alkane started 2009 with 17 MW of installed capacity at six sites and finished it with 30MW of installed capacity at nine sites, covering both CMM and conventional gas tolling contracts. This meant in total the company generated 95GWh of power as compared to 90GWh the previous year, and sold to 3.4 million direct gas customers.
Alkane has just issued a trading update before it goes into a closed period ahead of interim results, which will be announced on September 8th. The gist of the announcement is that during the first six months of 2010 capacity has continued to expand. The newest site at Florence, Staffordshire is now fully commissioned. This brings the total installed capacity to 33MW from ten sites.
Moreover, Alkane has announced it has secured a three year £5.5 million Revolving Credit facility with Lloyds Bank that will enable it to carry the development programme forward. Another two sites are expected to be commissioned before year end. The company has announced targets for a capacity of between 50MW and 60MW for the foreseeable future.
As for prices, there has been some good news here. Electricity sales pricing has been weaker this year than in 2009. The company’s expectations for 2010 are unchanged and in line with market forecasts, as contracts are largely in place for the year, with the average selling price in 2010 expected to be just over £40/MWh, compared to £56/MWh in the previous year. However, the market has improved in recent months and since Alkane announced its final results in March wholesale electricity prices have moved around £20 higher, with the forward price curve currently indicating increases for each of the next three years.
Given the rising output and the staggered nature of forward contracts, Alkane has been able to take advantage of the rise in prices over the last month and has started to forward sell production into 2011. So far the group has placed contracts for around 25 per cent of the expected output in 2011 at an average price of approximately £46/MWh.
Given all this, house broker Altium Securities has altered its forecasts. It now says it feels its estimates for 2011 and 2012 are too low. For 2010 everything is line with expectations and Altium is predicting turnover down at £6 million with a PBT also down at £1.4 million. However for 2011 and 2012 where Altium was previously talking static turnover and pre-tax profits at best it has now revised upwards. For 2011 it is predicting turnover of £7.2 million and an adjusted profit of £2.2 million, and for 2012 a turnover of £8.7 million with profits of £2.6 million. It has also adjusted its target price upwards to 30p a share. This compares with 16p recently. |
