Financial Highlights:
Group trading loss of GBP2.1 million (H1 2008: GBP2.5 million).
Capital expenditure of GBP28.0 million (H1 2008: GBP30.0 million).
Proposal to pay dividend of 0.5p per Ordinary Share (H1 2008: 1p).
Proposed resolution to shareholders to allow repurchase of up to 25% of company’s issued share capital.
Operational Highlights:
11 operating wind farms totaling 61 megawatt (MW).
Bentwatersvegetable oilplantgenerated 3,000 MWh.
GBP20 million group general revolving credit facility agreed with HBOS.
Two new 1.8 MW projects at Whittlesey and Ramsay in the UK now operational
Planning permission gained for Goonhilly repower and construction of a new wind farm at Loscar in Yorkshire.
300 MW pipeline of UK development projects.
40 MW Canadian Standard Offer Programme wind projects on line.
In thefinal zoning and permitting stage of three 9.9 MW Harrow Projects in Canada.
Accelerated development of larger projects in Canada to exploit favourable new feed-in tariffs.
Introduction
Over the six month period the Group’s turnover rose from GBP1.25 million for the same period last year to GBP4.65 million as our first four Standard Offer Programme (SOP) wind projects came on line in Canada, and our two 1.8 MW projects at Whittlesey and Ramsay entered service in the UK. Gross profit increased from GBP0.57 million for the same period last year to GBP1.67 million and Group trading loss reduced from GBP2.55 million to GBP2.14 million.
Underlying trading excludes the effect of exceptional items. The largest exceptional item relates to the Company’s interest rate swap in Canada and is a non cash item. This swap fixes the interest rate on our 20 year loan. Accounting standards require the swap to be marked to market with the result that the Company shows an unrealised gain or loss depending on underlying Canadian base rates. The movements in interest rates over the period have resulted in a non-cash accounting charge of around GBP 4.5 million. The value of this swap will move up and down with prevailing Canadian interest rates and has no economic impact on REG. Over the life of the loan the swap will amortise so that this accounting adjustment will unwind as the underlying loan is repaid.
Review of Operations
Canada
Anticipating the re-structuring of the Ontario renewable energy regime which was announced in recent weeks, the company accelerated the preparation of our larger projects in the Province. Although the resulting increase in development expenditure in the period impacted our first half profitability, the company expects it to facilitate the early exploitation of the proposed new feed-in tariffs in mid-2009.
The other exceptional items arise from our forfeiture of a turbine deposit to GE in respect of 12 GE 1.5 MW turbines which the company ordered for two new Canadian SOP projects last year, when global shortages in the wind turbine market threatened our development programme. Liquidity risks arising from the sudden collapse of credit markets at the end of 2008 led us to cancel half of the turbines ordered and forfeit the associated GBP2.85 million deposit. This enabled us to release cash earmarked for these projects and, in the process, realise a GBP1.9 million one-off currency gain. It remains the Company’s intention to build these SOP projects and the company is encouraged by falling turbine prices and shorter delivery times. The introduction of the new feed-in tariffs for the SOPs is also expected to mitigate the economic impact of our decision to postpone these projects.
Zoning and permitting the three Harrow SOP projects is progressing satisfactorily and is expected to be completed by June 2009.
The company now has fifteen projects scheduled for construction over the next few years, in a programme reflecting the enhancement of expected returns arising from the Ontario government’s strong new commitment to renewable energy in the form of The Green Energy Act. This draft legislation proposes a new feed in tariff both at distribution and transmission level with tariffs increasing from 11c Cdn, under the old Standard Offer Programme, to 13.5c Cdn for onshore wind projects and 19c Cdn for offshore wind. The new feed-in tariffs may result in our larger wind projects moving to construction more quickly than anticipated in our Business Plan.
UK
In the UK, the company have gained planning permission this year for the repowering of our existing wind farm at Goonhilly which will increase its capacity to around 15 MW and also for the construction of a new wind farm at Loscar in Yorkshire. When complete, these projects are expected to increase our operating plant in the UK by around 15 MW to a total of around 35 MW.
Over the last six months, the UK has seen a material increase in turbine pricing together with a fall in power market prices. The company concurs with industry opinion that these conditions are temporary and the company continues to regard the UK’s wind market as particularly attractive. Several of our other UK projects are scheduled for planning determination over the next few months including Cheverton on the Isle of Wight, South Sharpley in County Durham and Pentre Tump in Wales. Our pipeline of development projects in the UK now stands at over 300 MW.
UK Cooking-Oil-to-Power
Our Used Cooking Oil (UCO) business has made sound progress over recent months. Following a rigorous programme of emissions and other tests during 2008, the company expects that our first vegetable oil powered project at Bentwaters in Suffolk will be operating on non-food-grade vegetable oils this year having been using more expensive soy oil throughout the winter, pending Environment Agency approvals for those oils and UCO. The Bentwaters plant has achieved very high plant reliability since entering service last autumn. Although during this demonstration phase the UCO business has only achieved financial break-even, the introduction of ROC banding in April is expected to make the Bentwaters plant profitable and in addition the company are working on a further 25 potential projects with the aim of making UCO-fuelled Combined Heat and Power plants a commercial reality in the UK.
Andrew Whalley, chief executive officer of Renewable Energy Generation, commented:
Since the end of 2008, the operating environment for all three of our businesses has improved significantly. We have a robust pipeline of good wind projects, are optimistic about the benefits that the Canadian Green Energy Act will bring to our smaller project proposition and certain to see strong potential from our vegetable oil plant. We believe we are well placed to deliver several new renewable energy projects over the next twelve months.
