Companies: ACTA    CAP    CWR    ECG    REH    TRE   

At face value, renewable energy seems like a financial and environmental no-brainer.
Fossil fuels are finite and, with the world’s population rising rapidly – and the likes of India and China modernising fast – the demand for the limited amounts of oil and gas on the planet is soaring, causing prices to do likewise.

As well as the scarcity and rising costs, there is the environmental argument. The burning of so many hydrocarbons is apparently wreaking havoc with the Earth’s climate, causing floods, droughts, temperature increases and rising sea levels.

Political pressure in the West and beyond has led to the signing of a number of international pollution and emissions control treaties, most notably Kyoto, which requires signatory nations to significantly reduce greenhouse gas emissions from 2008 to 2012.

Many European governments have adopted a range of policies and regulations to combat harmful emissions and developed support mechanisms to promote the development and usage of renewable energy. In the UK, the Prime Minister has committed his Government to a plan to generate up to ten per cent of the UK’s energy from alternative sources by 2010.

The rush is on
All of the economic, environmental and political pressures have boosted the prospects of those trying to develop alternative, clean, renewable energy. And there are listed businesses pursuing everything at the moment, from hydro and wave power, to geothermal, solar, biomass and fuel cell technologies (to name but a few).

The sums being invested are significant. New stock market entrants into this fast-growing space have been a prominent trend on AIM over the past year or so, and City advisers and brokers expect the pipeline to grow still further in 2006.

As joint broker along with Libertas Capital, natural resources specialist Ambrian Partners recently completed its biggest fundraising to date, raising £35 million on AIM for fuel cell company Ceramic Fuel Cells.

It joins a raft of green stocks such as the aptly named Renewable Energy Holdings (REH), the investor and operator of ‘proven and innovative’ renewable technologies led by energy enthusiast Mike Proffitt.

REH raised £10 million at float on AIM in early 2005 (and was swiftly followed by the likes of Novera Energy and Renewable Energy Generation) and is busily trying to perfect a wave energy capture and extraction device known as ‘CETO’.

‘It is a seabed pump, and we’ve proved the prototype. Now we have to manufacture it and engineer out the costs,’ explains Proffitt, who has earmarked bringing the product to market by the first quarter of 2007.

For its shorter-term electricity generating needs, REH has invested in proven clean technology such as wind, where it has projects in Germany. Significantly, the company has also raised £6 million to help with the acquisition of 80 per cent of a 45 megawatt Hungarian wind farm, a move that will double its generating capacity and ‘take us into profit big time. Our projects in Germany cover our overheads, this one is a fantastic site in Hungary with a terrific wind regime.’

Although there are no forecasts for REH, which posted maiden AIM losses of £1.4 million, this acquisition looks especially exciting. At the current 60.5p, with profits now on the cards, the shares are worthy of long-term consideration.

Carbon credits
One market niche flourishing in the wake of recent developments is pollution credit trading. In a nutshell, a government or local authority can set limits or ‘caps’ on a particular pollutant (such as carbon dioxide, sulphur dioxide or methane), in recognition that clean air is a common-pool resource. Groups (particularly power stations) that intend to exceed their pollution limits may buy – via industry brokers – emissions credits from other businesses that are able to stay below their designated limits or generate ‘credits’ via environmentally friendly pursuits.

One such broker is Trading Emissions, which launched onto AIM with a £130.4 million funding, and following a burst of activity in the shares, now trades at 158p, giving it a price tag of £213 million.

Its focus is on carbon and it claims its assumptions on the pricing of carbon emission permits ‘has come to fruition ahead of expectation’, with the volumes of trade and levels of market interest exceeding initial hopes.

A more recent debutante was February’s largest AIM fundraising by some margin, Econergy International. ‘Our float and recent others are proof Kyoto is working just a year after its ratification,’ argues Tom Stoner, chief executive of the clean energy investor/manager and carbon credit brokerage, which floated by way of a £60 million placing. The 100p placing price was popular with institutions and gave it a handsome debut market value of £87 million.

The bulk of the float proceeds will be used to make investments in clean energy assets and companies that have the ability to eventually generate carbon credits. Econergy is intriguing because it will look to generate dual income streams from power revenues as well as the sale of carbon credits.

The group already boasts 26 clean energy projects in its investment portfolio and pipeline in Latin America and the Caribbean, is a general partner in the $20.2 million CleanTech Fund and, as of 27 January, had actually submitted more projects for registration under Kyoto’s Clean Development Mechanism (CDM) than any other company.

Ceres’ undeniable quality
Fuel cell companies offer investors another take on renewable energy and a play of undeniable quality is Ceres Power, which has had a terrific run. It has sparked up to 220.5p (a rise of 83.75 per cent) since its AIM float in November 2004, when it pulled in
£15 million.

Ceres’ technology is interesting because unlike many fuel cells, which only operate on pure hydrogen, it can operate on readily available fuels like natural gas and propane.
Therefore the group’s technology isn’t dependent on the development of a hydrogen economy. ‘Our technology is both green and economically viable,’ explains chief executive Peter Bance. ‘Our fuel cells are rugged, cheap, and high-performing.’

Boasting blue chip backers such as Fidelity and Cazenove, Ceres was recently selected as the only fuel cell company and small business in the Government’s new Energy Research Partnership. Bance is representing Ceres, alongside major energy players such as BP, E.ON, BNFL and the Carbon Trust, to help shape the country’s energy policy.

Ceres’ inclusion reflects Government interest in ‘microgeneration’ projects (to produce energy in the home, rather than in power stations), which could be far more efficient, slash fossil fuel usage and carbon emissions, and cut consumer energy bills. Ceres has already developed partnerships with British Gas (to incorporate its fuel cells in domestic boilers to produce both heat and electricity), and a similar programme is underway with BOC (to develop fuel cell products using bottled gas).

Although losses burgeoned from £1.66 million to £2.65 million in the year to June 2005, the company closed out the year with more than £17 million in cash and short-term investments, and has been generating commercial revenues for a year and a half ‘from companies in the UK and US, including energy and engineering players’.
‘We are extremely well capitalised and we haven’t even touched the float money,’ says Bance.

Acta’s speculative appeal
More speculative beer is on offer with another fuel cells play, Acta, which floated on AIM with a £9 million placing in October, and newcomer Clean Air Power, which operates in the green fuel technology area.Acta’s chief operating officer Toby Woolrych argues the float will help promote awareness of Acta’s technology and boost commercial prospects. Acta produces platinum-free catalysts for the fuel cell industry.

Traditionally, catalysts used in low-temperature fuel cells contain platinum group metals (PGMs). With the exception of fuel cells running at very high temperatures, no fuel cell has yet operated with commercially viable output levels without using expensive PGM-based catalysts. As well as cost issues, PGM catalysts limit the fuels usable in cells to hydrogen and methanol.

Acta’s family of ‘Hypermec’ catalysts contain no PGM yet boast the same functionality as commercially available platinum catalysts. Although able to function with hydrogen and methanol, uniquely, fuel cells containing Hypermec can run on environmentally friendly ethanol, enabling the development of mass-market fuel cells.

Since launching Hypermec last June, Acta has racked up confidentiality agreements with 15 fuel cell and consumer electronics players, with samples despatched to most for evaluation. Talks are also afoot with manufacturers regarding development of ‘direct ethanol fuel cell stacks’.

An Anglo-American offering
Clean Air Power, a firm that reeled in £10 million at its IPO at 100p, is an Anglo-American specialist in 'dual-fuel' technology. From its research and development centre in California, it has developed a patented technology enabling heavy-duty diesel engines to operate primarily on natural gas, with diesel only used as a 'liquid sparking plug'. By burning 90 per cent natural gas, vehicle users save money thanks to greater fuel efficiency and, crucially, the process slashes pollutant emissions.

The company's duel-fuel product range includes engines meeting emission standards set by US federal and state agencies and the European Union. Clean Air Power says duel-fuel is currently used by more than 50 customers in more than 1,600 vehicles.

Still loss-making, Clean Air Power is a riskier bet. Analysts are expecting revenues to increase from £3.45 million to £5.6 million this year. Broker Canaccord Adams is nominated adviser and broker to the company. The shares have edged up since it joined the market and now trade at 102.5p, valuing the company at £27 million.