Eco Investor June 2017

Pre-Profit Securities

ReNu Energy Steps Up Solar Focus

Having recently added solar energy as a key area of focus for its business, ReNu Energy has moved quickly to build its solar assets with an alliance with a solar projects developer and the purchase of its first solar project.

It has also changed its strategy. Until recently the company has said it is looking at acquisitions in other clean energy sectors. However, chief executive and managing director, Chris Murray, said ReNu is no longer looking further afield and the focus now is on solar energy and bioenergy. Solar energy projects are the key focus for short to medium term growth while bioenergy is longer term as projects are larger and take longer to develop, he said.

The alliance agreement, with NASDAQ listed VivoPower International, gives ReNu the first right of refusal to acquire solar PV projects under 5 MW in Australia. VivoPower will originate, design and cost projects and get the project approvals, and long term power purchase agreements. It may also provide funding options. ReNu Energy will construct and own the projects, and will receive revenue through the power purchase agreements and renewable energy certificates.

ReNu has a binding term sheet to purchase its first project - the 600 kW Amaroo School Solar PV Project in Canberra, the largest rooftop solar PV system in the ACT. The project has operated since 2015 and has a 20 year ACT Government feed in tariff of 30 cents per kWh. The annual energy output is about 940,000 kWh and the project is eligible for Large Scale Generation Certificates.

The purchase price is $2.38 million, which ReNu Energy will pay from its $13 million in cash. Earnings (EBITDA) will be $270,000 in year one including long term certificates and excluding the alliance fee to VivoPower. The yield will be 12.7 per cent per annum over the 20 years.

"The Amaroo Solar PV asset marks ReNu Energy's first operational solar asset in what we aim to grow into a portfolio of solar PV projects," said Mr Murray. There are more opportunities in solar energy than ReNu has the capital and resources to handle, he said, but it has a pipeline of over 100 MW of solar projects and that could take 12 to 24 months to develop.

The Amaroo School solar PV project in Canberra.

Over the next few months ReNu may acquire more existing projects from VivoPower. VivoPower develops solar projects in Australia and internationally under a build, transfer and operate model for commercial, industrial and government solar PV projects. Most recently in North America it announced a joint venture for 1.8 GW of projects. In Australia, it has a portfolio of small scale solar PV projects as well as the Amaroo PV Project. VivoPower is 60 per cent owned by ASX listed Arowana International Limited (ASX: AWN).

As well as the alliance, ReNu will originate and develop solar projects in its own right. These will be in the agricultural sector as part of the bioenergy offering, and also separately in the commercial sector.

Mr Murray said ReNu's business model is the same for solar energy and bioenergy with ReNu aiming to become a behind the meter independent power provider.

ReNu had a slow start to its bioenergy business. Mr Murray said the projects are more difficult than for solar. They are not just larger and take longer, they need farmers with an appropriate waste stream and ReNu has been careful to partner with high quality counterparties. But the development pipeline is good, he said.

After some delays, the company is about to start construction of the 1.6 MW Goulburn Bioenergy Project. Last month it won a $2.1 million grant for the project from the Australian Renewable Energy Agency (ARENA). ReNu will construct an anaerobic lagoon, biogas processing and power generation facility at the Southern Meats sheep abattoir in Goulbourn in NSW. This will be under a Build Own Operate Maintain model with ReNu owning the digester, gas conditioning and generation equipment and Southern Meats abattoir obtaining on-site renewable energy under a power purchase agreement with no upfront costs and no need to operate and maintain the plant and equipment.

Once operational, the Goulburn Bionergy Project will have earnings (EBITDA) of about $0.7 million per year.

Mr Murray said ReNu is cautiously optimistic about become cashflow positive in calendar 2018. It has modest revenue from its existing AJ Bush Bioenergy Project. The approximately $0.27 million from the Amaroo Solar PV Project and the contribution from the Goulburn Bioenergy project will bring recurring annual earnings (EBITDA) to about $1 million. But ReNu has annual overheads of about $3.5 million, so it needs a few more projects to get there.

ReNu's March quarter revenue was only $118,000 and its revenue for the first nine months this year was $434,000. If the Amaroo buy goes ahead, these numbers should start to pick up. In due course, more projects that get the company's revenue numbers rising should bring some long-awaited excitement to ReNu's very patient investors. (ASX: RNE)







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