Analyst Says That Alternative Power Supplier Alkane Energy Should See Revenue And Profits Firmly On The Up In 2009
oilbarrel.com
No longer should Alkane Energy, the London AIM listed alternative energy company be considered a recovery stock. Alkane achieved first profits in 2007, after a difficult patch, when on turnover of £4.27 million pre-tax profits of £1.34 million were. Any doubts that the company would continue in the black throughout 2008, and doubts did exist given the volatility of oil and gas prices, can almost certainly now be dispelled.
The company is in closed season purdah just now and we will not know any precise figures until the prelims are released on March 19. But one respected analyst has been trawling over the portents, and tells oilbarrel.com he is looking for turnover of around £5million for the year ending on December 31 2008 and a good, if unquantified rise in pre-tax profits
The “difficult patch” Alkane went through in the early 2000 has been extensively covered. It is worth revisiting now, however, because, despite all the lip service paid to the need and enthusiasm for alternative, renewable and green energy groups to come along to replace, or work alongside those producing fossil fuels at this time of great concern about climate change, getting things off the ground can be more problematic than it seems, because there are unforeseen obstacles . Alkane’s experience perhaps a resonance and lessons for other companies in the renewables/ alternatives sector.
Alkane produces energy for electricity and dedicated gas sales from Coal Mine Methane (CMM) as distinct from Coal Bed Methane. Coal mine methane exists in abandoned coal mines, abandoned that is in terms of mining coal. Coal bed methane has to be mined. If allowed to seep into the atmosphere methane can be a damaging pollutant. Methane is reckoned to be 23 times more potent than carbon dioxide as a greenhouse gas. But if captured or trapped underground it can be used as a environmental friendly source of power generation and dedicated gas sales, which is also economic to produce compared to natural gas from the North Sea, say.
Safe in the knowledge that Alkane would be both a “green” alternative energy company and an economically viable one Alkane, floated on the London Stock Exchange in 2000 raising £30 million to roll out 100 methane gas projects for power regeneration. Fast forward to 2004. Having got as far as five plants the company had to put the whole scheme on hold at a cost of around £20 million partly because of technical difficulties. Planners insisted on “real buildings” that is bricks and mortar and these sat uneasily, it seemed, on the underground gas highways. Nowadays, the plants are what is known as “light footed” they are containerised, and mobile. They still need planning permission but they are flexible.
The real difficulty was poor prices. At that time prices were £14 per MWh, which made the plants unviable (today prices are around £50 MWh).The situation was not helped by the UK government’s refusal to allow CMM into the Renewable Obligation Certificate (ROC) market. This stipulates that electricity suppliers must buy a percentage of their energy from renewable sources. This creates a market for ROCs and adds to the price the suppliers get. Okay, maybe coal mine methane is a finite resource and not renewable. Why then have the Labour governments allowed gas from infill sites into the ROC scheme. This after all is mostly methane. Life is unfair, the managers of Alkane might reasonably assume.
Anyway, Alkane made a tactical diversification. In 2004 for Euro 4 million, it bought 51 per cent of Pro2 a German group that manufactured and maintained methane gas systems and produced a little methane gas. In Germany it bought in 2004 legislation was different to the UK and meant methane sourced electricity had a guaranteed price equivalent £48 per MWh. The inclusion of Pro2 transformed revenues. At one point Pro2 was turning over £27 million. Pro2 had problems with its margins and Alkane reduced its involvement to 38 per cent from 51 per cent, and scaled down the contribution from Pro2 into Alkane’s accounts.
But the strong cash flow from Pro2 allowed Alkane in 2006/7 to revisit its original idea of plants in the UK because prices in the Britain started to pickup strongly during this period. Alkane revived some of the mothballed plants and built some new ones. By 2007 with prices at £28 a MWh and rising there was 17 MWs worth of power for sale. By the middle of 2008 total in installed capacity was 20 MW from 7 plants. The plants towards the end of 2008 were produced 43 million KWh of electricity at a price of £46 a MWh and direct gas were 5 million cubic metres of local customers in Yorkshire and the East Midlands. Alkane reckoned its installed capacity of 20 MW is equivalent to a 55MW wind farm.
So where are now? Late last year there was talk that in the future prices might reach £70 MWh. This is now looking a little bit doubtful in the light of talk of reductions in wholesale gas prices. The affable Cameron Davies has stepped aside from the CEO’s chair to become Business Development Director. He has been replaced by the equally affable Neil O’ Brian. Neil is a bit constrained in what he can say because of the closed reporting period. He did vouchsafe, however that supply and demand for electricity is fairly steady whatever the economic climate and it is reasonable to assume that prices will continue at £50 MWh during 2009. With this gearing to a good price Alkane should continue on a growth tact for the foreseeable future even if capacity does n ot change much in the short term. Although over time it hopes to increase capacity to around 68 MW.
As for Cameron, he will be looking at Coal Bed Methane, biomass and geotheremal projects. He might even manage to get Alkane into the ROC scheme. |
