Companies: CWR    ITM    OPT    REH    SIT    VLR   

Energy generated from water, wind and sun has yet to yield the fanciful financial windfalls predicted by its early prophets. But many of these technologies are now becoming commercially competitive at a time of growing political demand for greener energy supplies.

Renewable energy has, once again, the backing of the highest authorities in the land. Following on from the Kyoto Agreement, oil and gas price hikes and, of course, the relentless lobbying from the environmental brigades, Prime Minister Blair is apparently committed to generating up to ten per cent of Britain's energy needs from alternative sources by 2010.

This has contributed to another wave of renewable energy enthusiasm in the City of London. Brokers, advisers, entrepreneurs and fund managers of all hues are now involved in the sector, taking advantage not only of the prevailing political wind, but also of the amount of money being committed to the sector. As Luke Ahern of Corporate Synergy puts it, '2005 is shaping up to be a key year for this sector.'

Coming to a market near you

Several venture capital trusts are seeking money to support wind projects in England and Scotland, describing their ventures as 'low-risk' enterprises that could provide 'steady income'.

Even more advanced are the plans of Guernsey-based Renewable Energy Generation. It is hoping to invest in all manner of green power generation and to list on AIM following a fundraising that will give it a market cap of £100 million.

'This will be the first global renewable energy company to float,' claims a naturally supportive PR spokesman. 'They need to raise £30-£35 million to make it worthwhile.' The reputable Collins Stewart is broker and adviser to the issue and it has allegedly reached its fundraising target.

Already making waves

Already on the market, courtesy of a Corporate Synergy-backed float, is Renewable Energy Holdings (REH), which reeled in £10 million from investors.

It is headed by Mike Proffitt, a man who has much experience of building and operating power stations (he resigned as CEO of the Isle of Man Electricity Authority to run the business). Also on board in the chairman's seat is former World Energy Council luminary John Baker, who served as chairman and chief executive of National Power in the 90s.

REH is investing in proven renewable technology like wind power farm projects to reduce risk, as well as more speculative technologies. Indeed, it has already splashed out £5 million on a venture developing technology extracting energy from waves. Interestingly, REH has a tie-up with Standard Chartered Bank relating to the renewable energy projects on which Standard advises, and for which it provides banking and debt finance.

California dreaming

Of even longer public standing is Los Angeles-based Solar Integrated Technologies (SIT). It joined AIM in May of last year, pulling in £12.3 million of new money at 171p. SIT makes energy efficient roofing systems using solar technology. Its customers include Coca Cola Bottling, the US Air Force and Frito-Lay, which makes it more of a realistic bet than many other blue sky players.

In the first half-year, turnover soared 280 per cent to .5 million, losses were cut to 0,000 (0,000) and SIT reported a 57 per cent improvement in gross margins to 22 per cent. The full year figures to December are out soon and, following a recent trading update (which said trading was robust throughout the year and that the order book was valued at million), they should impress. The balance sheet sported .9 million (£6.7 million) in cash at the half-year, and this is unlikely to have been depleted significantly.

Water works

Another renewable energy counter with origins across the pond is Ocean Power Technologies (OPT), the world's first publicly listed wave power firm. Admittedly, OPT hasn't set the world alight since floating at 125p following a £25 million funding in 2003. As Evolution Securities' Michael Brennan recounts, 'we hit the market at a bit of a wobbly time and in the first year things took slightly longer than we thought.'

OPT though is an intriguing operation, focused on commercialising technology for the generation of electrical power using wave energy. Its systems are based on buoy-like structures called PowerBuoys that adapt to differing wave conditions.

In the first half to October, OPT enjoyed a tidy turnaround from losses of £2 million to net income of £61,000. Losses at the pre-tax line are forecast on rising sales for both April 2005 and 2006 but Brennan, referring to its joint venture agreement with the Spanish Government's energy agency, reminds investors that 'The technology works, it's been proven, and it has been picked up by Europe's biggest utility bar none.'

There are also other contracts worth noting, notably with the US Navy and the New Jersey Board of Public Utilities.

Strong cells

Slightly off the beaten track, but still very much about 'renewable energy', is the glut of fuel cell companies that have come to AIM. Their technologies produce energy supplies that are sustainable and low polluting.

Niche players include Voller Energy, ITM Power and Ceres Power. Ceres in particular had a good market reaction to its recent interim report, and has received high praise from Tony Blair as a 'world leader' in its field. Ceres has £18.3 million in cash and short-term investments for fortification going forward.