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Not much news around bit on Meygen here
https://www.offshore-energy.biz/world-first-eco-friendly-cable-protection-system-deployed-offshore-scotland/
And
https://www.linkedin.com/feed/update/ugcPost:7183740185308737536?trk=organization_guest_main-feed-card_social-actions-comments
It's all good but TSE does not eat up valuable land isn't an eye sore. What we don't know if it can compete in cost.
https://www.independent.co.uk/tech/renewable-energy-solar-climate-targets-b2529461.html
Wake me up at 10 GBX
The prospect of SAE ever actually owning any of the more than 100 x 3 MW turbines that could be deployed at MeyGen seems vanishingly small. Arguably there’s a more realistic prospect of SAE encouraging others to build, own and lease them to MeyGen in return for some of the money obtainable from selling power to the grid and from CfD payments over the next 15 years.
Perhaps the private equity backers of the Proteus management buyout believed it likely Proteus would be able to assemble and supply something like 9 x 3MW turbines to MeyGen by about the end of 2027 providing them with a decent ROI within a 5-year period. But an AR3000 is supposed to have a life-expectancy of 25 years. But how would you like to be able to buy a 3MW turbine deliverable in 2027, lease it to MeyGen for 5, 10 or 15 years, then sell it abroad second-hand for say 2/5 of its original cost and invest the proceeds in a newer (up-dated, even cheaper and more efficient) model that you could also lease to MeyGen then re-sell a few years later? The answer, blindingly obvious even to Timaeus, would be: “It depends what an AR3000 would cost!” It’s perfectly possible Timaeus is being grossly over-simplistic or is just completely wrong but it’s worth more than nothing to know now the strike-prices which will prevail well into the 2040’s and will start being payable from 2027 once turbines are turning.
Timaeus, perhaps over-simplistically, labours under the impression that the CfD’s were designed to support the deployment of large-scale renewable energy projects which probably wouldn’t otherwise happen because of the difference between the understandably high initial costs of pioneering the new technology involved and the level of payments normally receivable for supplying energy to the grid. It might be that no-one realistic ever expected to ‘make’ money from CfD’s in the sense of an ‘actual’ profit for a company whose shareholders could expect to ‘see’ any of the public money involved in dividend form.
If the interim accounts for the 6 months to 30/12/23 were to show a trading surplus, a wise shareholder might be happy to see those funds reinvested or used to reduce debt rather than distributed. Some investors might see improving the balance sheet and reinvesting trading surpluses as ways of adding value to a company’s stock eg by funding growth. By way of example, can anyone think of a company now doing OK-ish that was founded 20-odd years ago, launched its initial public offering in say, 2010, first turned a full-year profit in, let’s say 2020 and has never, ever paid a dividend? (Answers on a postcard, please, to the usual address and minus points if your answer is HS2).
SAE and Proteus would need to wake up, change course completely and start trying to reduce the cost of TSE a ‘lot’ if that wasn’t what they have actually been working on quite successfully all along. Of course, Timaeus could be quite wrong, but it looks like SAE sees its future as being an asset-light, specialist project developer. There have been many months to actually think through Chairman Duncan Black’s statement about the Group’s financial position (dated 25 July 2023) in the 2022 Annual Report making it crystal clear that SAE is not going to be building turbines or ‘seeking to compete’ with large scale wind and solar:
If the tidal power sector is to be viable, it needs well capitalised tidal turbine suppliers that can provide large turbine orders backed by the required warranties, which the Group is not able to provide given its financial position.
Black said restructuring the Group “has significantly reduced the Group’s operating costs and created a pure play sustainable energy and battery storage project developer…. We are not seeking to compete with large utilities and oil companies in delivering “commoditised” renewable energy projects such as wind and solar, but rather seek to identify innovative solutions to help aid the energy transition.”
By the end of June ‘24 (when SAE should be publishing interim accounts for the 6 months to 30/12/23) the 4th turbine is due back in the water. How strong is the likelihood the news proves positive enough on both counts to more than cover the bid-ask spread for those buying between now and then? Or would it be better to buy and hold because you want to see tidal complement wind and solar and meet up to 11% of UK energy needs?
To add: that's 300% and it's actually not SAE that needs to prove that, but Proteus..
Also: This website is a pain in the butt on mobile
To
I don't want to be that guy, but, there's another side you left out imo.
The money SAE can make with CfDs is public money. This money will never result in any actual profit for the company until scale and reduced cost make TSE competitive.
If you buy SAE today, you'll not see a single penny in profits because that money will have to be re invested until you can build more turbines for less money until you can do that without governmental funding. That's when you reach the point where the company can make more money than what you have to put into.
SAE has to prove that it can do that. Lowering turbines alone won't suffice. These turbines have to become cheaper. A lot cheaper.
We need to close the relative gap to wind and solar. £50 vs £198 /MWh (all rounded grossly) +400% isn't going to cut it.
All eyes will remain on that number and the question if SAE can follow a trajectory that says: We can truly be, not just theoretically, competitive.
https://assets.publishing.service.gov.uk/media/64fa0473fdc5d10014fce820/cfd-ar5-results.pdf
So... anyone topping up?
It must by now be pretty clear SAE has the site approvals, accumulated know-how, collaborative experience and supply chains to assemble the world’s first truly commercial-scale TSE turbine array. Phase 1B and the 2MW turbines have been quietly dropped in favour of a combination of Phases 2 & 3 that will involve the installation of 17 x 3MW turbines. Financial close for Phase 2 (28MW) is targeted for 2025 Q2. You should know in less than 15 months if the guaranteed minimum levels of future income from the successive CfD awards will provide a viable financial foundation for the first 9 x 3MW turbines to be assembled and installed. That’s all scheduled to happen by the end of 2027 – less than 45 short months away.
In the real world mishaps sometimes occur – remember it emerged last year that Siemens Energy (who own wind turbine manufacturer Siemens Gamesa) were in rescue talks with the German government in anticipation of heavy losses after faults were discovered in its newest turbine models. The day an RNS first announces a cluster of 3MW turbines at MeyGen have for a few weeks been generating power to the grid without serious mishap should finally be the day SAE ceases to be a penny share.
That said, it’s still hard to tell what proportion of its shareholding in MeyGen SAE might have to consider surrendering in return for private equity finance to support the build out. Hopefully none, if some ROSCO-like outfit(s) could be persuaded to commission Proteus to assemble AR3000’s for leasing to MeyGen in return for eg 13% of the value of sales of energy to the grid over the next 15 years. But is private equity willing to contemplate ROI over 15-year periods? Financial institutions like Lloyds Bank, Morgan Stanley and Barclays Bank might be, not least because in August 2023 those 3 alone held more than 13% of the issued shares in SAE.
It’s even less easy just now to say whether or when SAE could thrive as an asset-light project developer primarily on income from development premiums charged to the owners of turbine arrays and associated BESS’s getting approved, assembled and installed around the globe.
Leading the way is right. Seriously leading the way.
Uskmouth looked the mother of all hospital passes when the Welsh government perfectly reasonably refused to play host to bonfires of imported English plastic rubbish greenwashed into pellet form with biomass and labelled sub-coal. At least SAE is salvaging some fire-sale cash flogging off little parcels of Usk-land each with planning consent for construction of a BESS.
Now, seriously again, have another look on the SAE Renewables website, search for “Hopley” and read the transcript of the interview Nigel Hopley gave (posted on 19 November 2020 and still available online) talking about the importance of the sub-sea hub which enables a tidal turbine cluster to electrically connect to a single export cable, which in turn connects to the system’s shore-located equipment. Hopley refers to having 8 turbines on each hub. You get why protecting an export cable is so vital: you really don’t want an unplanned outage of power from 8 x 3MW turbines.
What you really do want to see are clusters of 3MW turbines turning in the water and sending power ashore with currents and voltages at optimal levels for the length of single export cable required to reach the onshore convertor.
NAV should only improve by the amount of interest SAE does not have to pay in the future. As you said, everything might already ne priced in including the fact that Uskmouth/MeyGen might be worth less than what it is on the books hence the market cap is below the book value.
NAV to increase required the company to be able to generate a reliable ROI on their own merits without millions of funding. Any insane valuation would reflect speculation until then.
So, what the company is worth can be answered by "What are my returns in 5 years if I bought the company today and sold it then?" and the answer is "nobody knows/seems to know, maybe nothing".
Morning Timaeus as usual a good post.
Glad you mentioned insurance as the report mentioned a 3 to 5% cost saving .
If you look here on page 23 it goes into the OPEX for Meygen and at 32% for lease and Insurance it is one of the main costs.
https://webassets.bv.com/2020-06/MeyGen%20Lessons%20Learnt%20Full%20Report_0.pdf
Be good to hear an update on the progress of the 2nd BESS at Uskmouth that SAE are working on with ENSO with the permissions granted and Wyre Valley demolition currently working on the groundwork should be moving along swiftly.
I noticed that Enso holdings have just sold other BESS and Solar projects once they reach the build phase .
https://www.tlt.com/insights-and-events/news/tlt-completes-sale-of-enso-green-holdings-limited-portfolio/
More than 80% of the 722.81m issued shares in SAE were (as at August 2023) held by just 9 financial institutions, presumably as LTH’s. So, only about 144m shares are held by other institutions and individuals, some probably also LTH’s. That suggests a relatively small proportion of SAE shares being traded by shorter-term holders and arguably indicates a level of faith in SAE’s longer-term future value.
Last week’s £5m BESS payment might reduce overall debt on the balance sheet but would do little to improve NAV if the value of the land was already accurately reflected in the assets column. By all means add the remaining £4.8m of installments to the calendar of future milestones, even if that too does more to reduce debt and ease cash flow than to improve NAV.
And last week’s BBC piece was good to see – like all positive publicity for TSE. But by far the most striking and significant developments of the week were revealed in the words of Fraser Johnson, Operations & Maintenance Manager for MeyGen PLC, shining light on the company’s “informed” asset-management and operating strategy. Who knew about armoured subsea cable movement due to tidal flow? Who knew it is possible to contract Indeximate to use the DAS system supplied by Alcatel to locate, monitor and quantify cable movement? Who knew this would make it possible to intervene to avert cable damage and outages? And who realised this would reduce insurance premiums?
Isn’t this exactly the kind of stuff a serious outfit would be engaging in to reduce the LCOE for TSE? And the message to the whole worldwide sector would be that companies in the SAE group know what they are about and how to build a sound, collaborative supply chain.
The $64k question is simple enough: will the 3MW turbine design work in the water? Finding out the answer might cost SAE a significant proportion of its shareholding in MeyGen. Will it be able to retain a controlling interest? As someone philosophically minded pointed out a while back, best thing SAE can do next is get some 3MW turbines turning in the sea.
Perhaps this is what could be a setup for the "mother of all corrections" that Tim Cornelius was talking about before he left the company.
Negative. Not like that. Compare it to a stock like AFC Energy.
SAE is simply a dead stock at the moment.
The spread is normal for a small cap company. That's the case for most of them.
Other stock exchanges: Stutgart, Frankfurt, Gettex
Is the none too insignificant debt that acted like a noose around its neck. Once this debt becomes better manageable, the stock should re-rate and hence, reward investors. Fingers crossed it's just a matter of time.
Tidal
You write
"You literally have situations like €0.005/€0.015 [ask/bid] which, imo, really says a lot. "
Where do those numbers come from? The current spread is 1.0 /0.9 ask / bid here and in practice when trading the spread is often less...
Flurry of very small trades this morning; 70 trades averaging less than £100.
We got a cash injection last week of 5 million and our market capitalization is still under 7 million and we expect to get a further 4.8 million within a year
There also seems to be more interest in tidal power too
Appears to be good value here
I can't shake of the thought that the stock itself is basically in a come.
How else can you explain such a spread? I've said it in the past and I still believe that there's just plenty of retail investors who never sold their shares and who are still sitting it out as well as some day-traders who, occasionally, manage to ramp up the stock a few pence on some minor news. Just enough to pat themselves on their back for having forseen a self-fulfilling prophesy.
Not that this fact changes anything.
All I want to highlight is that I believe that the day this spread disappears from exchanges other than the London stock exchange it'll only mean two things: SAE went somehow off the market or finally got a much higher valuation based on their fundamentals.
But as is stands today, the stock is not tradeable anywhere except the london stock exchange. You literally have situations like €0.005/€0.015 [ask/bid] which, imo, really says a lot.
But let's see. Speaking of fundamentals, SAE should be able to pay off almost all their debt thanks to Uskmouth. As such, their current market cap is perhaps really an under-valueation?
Great podcast; thanks for posting.