Eco Investor November 2014

Pre-Revenue Securities

Carnegie Commercialization to Cost $150 Million

In the next two years the long process of raising capital to fund the development of its wave energy technology may finally come to some sort of an end for Carnegie Wave Energy and its loyal shareholders.

In 2016, when Carnegie expects to get its CETO 6 based first commercial project up and running at WA's Garden Island, it will have spent $150 million developing and commercializing its technology, said managing director and chief executive officer, Michael Ottaviano.

It's a lot of money, but the good news for shareholders is that $140 million of it has already been spent or has been raised and is waiting to be committed. At some stage Carnegie will need to raise the outstanding $10 million. That is not a lot in the greater picture and given its record so far Carnegie should have little difficulty raising it.

Asked by Eco Investor what Carnegie's capital needs are likely to be after the CETO 6 project at Garden Island, Mr Ottaviano said he hopes they could be as low as zero. This is because Carnegie will then be in a position to sell projects to clients who will pay for their development and the equipment.

After the 3 MW CETO 6 installation at Garden Island, the next project will be a CETO 6 project at Wave Hub in Cornwall, UK. This will be a 3 MW plus 7 MW project that will be funded by a client with commissioning expected in 2018. The UK government has already spent over $50 million to build offshore and onshore power infrastructure and a grid connection that can host a 50 MW project. Carnegie has one of four slots open to project developers. The developers only need to add their technology offshore and plug into the existing infrastructure and grid. Another boon is that the UK Government is offering a very generous initial feed in tariff of $500 per MWh. Mr Ottaviano said this is about 10 times what Carnegie will get at Garden Island.

Along the way, the CETO 5 project now being installed at Garden Island will generate some revenue, although Carnegie has not revealed how much as it is a demonstration and not a revenue raising project.

The first CETO 6 project is also a demonstration project but it will also generate revenue as the CETO 6 units are four times larger than the CETO 5 units now being installed. Despite their greater size and capacity, their additional cost is marginal.

Successful demonstration of these would give Carnegie two models to sell. The 240 kW CETO 5 units suit locations such as islands that need both power and water, while the 1 MW CETO 6 units suit full open ocean applications for industrial scale power. CETO 6 units do not produce fresh water.

After the Wave Hub project at Cornwell, Carnegie has many options for further projects around the world with key markets likely to be UK, Ireland, France, remote islands, Chile, US, Canada, Japan and Australia.

Mr Ottaviano said having Garden Island as a home base is ideal for developing and commercializing the technology. The geography allows for the CETO 5 project only 3 kilometres offshore in an area partly shielded by a rise in the seabed and the CETO 6 project to be 10 kilometres offshore in deeper, open ocean conditions. The Australian Navy is an ideal client as it needs both energy and fresh water for its naval base. And Garden Island's proximity to Carnegie's headquarters is useful for ongoing research and development.

Carnegie is now at a very good stage of its commercialization. Its CETO 5 project is well underway; it is now being installed and will operate for at least a year. Its commercial scale CETO 6 model has been developed and its first commercial CETO 6 project is mostly funded. Much of the preliminary work for its second CETO 6 project has been done and will put Carnegie in a position to sell its equipment to third parties.

It has been a long journey for Carnegie's shareholders but the end of the company's pre-revenue phase has a timeline and is now in sight. Achieving it will deliver what is shaping up to be the world's first commercial wave energy technology and business.

With a high level of investor confidence and most of the money it needs to get there, Carnegie remains one of the leading speculative cleantechs in Australia and on the ASX. (ASX: CWE)






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