Renewable limits feedstock price exposure

It is fitting to review Renewable Power in the context of R.E.A.’s prospects (above). Renewable is in the process of converting uneconomic fossil fuel-burning power stations in the US to burn biodiesel, which will come from palm oil. R.E.A. is benefiting from the boom in biodiesel caused by Renewable and many others. While the surge in the palm oil price from $400 to $700 a tonne over 15 months is good for the latter, it could spell the kiss of death for the former.

The statement from Renewable is reassuring, however. There was no income to speak of last year because the company only bought its two power plants in the north-eastern US in December. A biodiesel refinery is still in the build stage. But Renewable has done a fixed-price deal with a palm oil supplier to cover the next 20 months. Thereafter, there will be a price stabilisation mechanism built into the contract that limits price increases to a maximum 20 per cent.

With £22 million cash in the balance sheet at the year-end, Renewable has the headroom for more acquisitions. One of the truly green stocks, Renewable has a growing fan club. Up from the 116p at which I tipped the shares in January to 130.5p now, the shares remain a firm hold.