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According to the company’s website today, 88% of the Company’s ordinary shares are not in public hands – see under Investor Relations Shareholder Information & FAQ’s
https://saerenewables.com/investor-relations/shareholder-information-faqs/
“SIGNIFICANT SHAREHOLDERS
As at 28th March 2024, SAE is aware of the following shareholders holding 3% or more of the issued share capital in the company:
Shareholder Shareholding (%)
SIMEC UK Energy Holding 29.68
Hargreaves Lansdown PLC 15.16
abrdn plc 10.47
Lloyds Banking Group 5.54
Morgan Stanley 4.57
Interactive Brokers Group 4.35
Janus Henderson Group plc 4.07
A J Bell Group 4.03
Barclays Bank 3.28
While the Company has implemented requirements within its articles to comply with the provisions of AIM Rule 17, the statutory disclosure of significant shareholdings is not identical to the requirements of the Disclosure and Transparency Guidance Rules for companies incorporated in Singapore and may not always ensure compliance with the requirements of AIM Rule 17.29. 88% of the Company’s ordinary shares are not in public hands.”
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Well, what about the debt – the loans and borrowings? The Abundance bonds are secured against the shareholding in MeyGen. So, if private equity want a proportion of SAE’s shares in MeyGen in exchange for supporting the roll out, someone is going to have to procure the release of those shares, presumably by discharging the loans and borrowings secured against them. Some SAE shareholders might welcome a deal that effectively writes off all of SAE’s £58m debts in exchange for the bulk of SAE’s shareholding in MeyGen. On the other hand, some (including Timaeus) would argue that carrying some debt can help keep takeover predators at bay, and that preserving a majority shareholding in MeyGen until the entire 398MW array is completed might ultimately be the only way SAE can ensure the MeyGen array gets built to full capacity.
Maybe a couple of decades after SAE’s IPO some economic historian will write about the intrepid investors who had the vision to hold their shares long-term and top-up at a penny a share giving them a slice of an income stream worth more than 7bn over 15 years. Perhaps some LTH’s and Abundance investors really just want to save the planet, whatever it costs. Or maybe 20 years from now it will all just be an obscure question in the general knowledge section of a Tuesday night pub quiz.
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Remember that the 2022 annual accounts were independently audited (unlike the numbers posted on this BB on 17 Jun 23), in effect confirming that each 1.5MW turbine does indeed produce about £150k per month, perhaps even a little more.
So, when SAE told Abundance debenture holders in a webinar about a year ago, that each 1.5MW turbine brings in £150,000 a month, it’s likely that was accurate.
It represents £100k per MW per month or £1.2m per MW per year.
At that rate, if all 4 x 1.5MW turbines were turning for a full year they would produce an income of £7.2m.
If Phase 2 of MeyGen (28MW) means introducing (say) 9 x 3MW turbines, they could generate revenues in the region of £32.4m in a full year (assuming a 3MW turbine could bring in £300,000 a month). Add together Phase 1 and Phase 2 and the income could be £39.6m per year. From 2027 onward. Or £198m over 5 years.
If phase 3 of MeyGen (22MW) adds (say) a further 7 x 3MW turbines (target commissioning date 2028) then Phases 1, 2 & 3 combined (a total of say 54MW) could be producing revenues in the region of £64.8m annually. That’s £324m over 5 years or £972m over 15 years.
At these prices, the full 398MW array could bring in more than £475m a year – or more than £7bn over 15 years.
Anyone still worried that MeyGen can’t generate the revenue to pay for the turbines? Say, following financial closure on Phase 2 (due in Q2 2025), MeyGen negotiated a price of £10m each for the first 16 x 3MW turbines. The turbines for Phases 2 & 3 combined would cost £160m – which represents about 16.5% of projected revenue from Phases 1, 2 & 3 combined over a 15-year period. There will be other costs of course, including for hubs; cabling; onshore works; convertors; deployment; etc. And not all the turbines will be in the water all the time. Say, each turbine needs a service once in 5 years. You could envisage a routine of one coming ashore every 3 or 4 months perhaps with an extra turbine available to replace the one coming ashore….
Very poor response indeed as number of postcards received with correct answer = 0. You only had to name a successful company that was founded 22 years ago, launched its initial public offering in 2010, first turned a full-year profit in 2020 and has never paid a dividend. Big clue: it’s an electric car manufacturer named after a Serbian-American electrical engineer whose name began with a T.
This week Timaeus (no relation) has been mulling over what Chairman Duncan Black has delicately referred to as “the group’s financial position” and the need for well-resourced turbine suppliers. How is it that the group nurses ambitions to obtain supplies of expensive turbines when it has extremely limited levels of trading income and very substantial debts (loans and borrowings totaled almost £58m as at 31 Dec 22) that are secured against group assets (including the shareholding in MeyGen) and which are going to be increasingly expensive to service (see the 13 Feb 24 post for a calendar summarising the dates when enhanced interest becomes payable to Abundance bond holders)?
Start with why the income is so limited. The annual accounts for the 12-month period to 31 Dec 22 show revenue from “power sales” was just over £3.9m. Well, you might recall, not all the turbines were in the water throughout that period. The dates of the 2 most relevant RNS announcements in 2022 were:
21 Mar 22 – reporting that with the AR1500 back in the water, 2 of the 4 turbines were fully operational.
23 Sep 22 – reporting that with a 1.5MW turbine redeployed, 3 turbines were fully operational again (note it was not until 5 Jul 23 that there was an RNS announcing the last 1.5MW turbine (known as Turbine 2) was back in the water).
Allowing for 2-3 weeks or so between redeployment and RNS to confirm each redeployed turbine was running normally, these announcements mean that during 2022:
1. From 1 Jan 22 until early Mar 22 (ie for just over 2 months) only one 1.5MW turbine was operational
2. From early Mar 22 to early Sep 22 (about 6 months) there were only 2 x 1.5MW turbines operating
3. From early Sep 22 until 31 Dec 22 (almost 4 months) 3 x 1.5MW turbines were operating.
If you add these together (say 2 months of 1 x 1.5MW turbine output; plus 6 months of 2 x 1.5MW turbine output; and say 4 months of 3 x 1.5MW turbine output), you get a total (2+12+12) of 26 months’ worth of 1.5MW turbine output.
If you were to divide the reported £3.9m of revenue from power sales by 26 you’d probably get pretty close to the amount of revenue per month produced by a 1.5MW turbine. Try it.
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?
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.
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.
Thank you, OT – very good to have this pointed out. It tends to confirm the BBC report last month on the plan for the next turbines installed at MeyGen to be 3MW. Combining phases 2 & 3 and installing 17 of them should signify a step-change in LCOE for TSE – a central plank to the mission statements of both SAE and Proteus. Those statements have collaborative working at their heart. Adoption of an alliance contracting model for MeyGen means synergies and makes business sense. Would be great if SAE and Proteus are both building reputations for doing what it says on the tin - or should that be on the nacelle?
What does SAE’s calendar of target milestones look like over the next 5 or 6 years? A summary of some dates already identified might include:
2024 Q2 - fourth turbine due to be re-deployed at MeyGen which SAE said in Dec 2023 was on track (while they also said the delivery of the next 50MW at MeyGen, “remains hugely challenging”).
2024 - 30 Jun - deadline for publication of SAE’s annual report and accounts to 31 Dec 2023.
2024 - 30 Sep - likely target date for publication of SAE’s unaudited interim results for the six months ended 30 June 2024.
2025 - 3 Jan - Vesting date (subject to continuing employment) for first third of LTIP options.
2025 - Q2 Target for financial close for MeyGen Phase 2 (28MW).
2025 - 31 Dec - Target date for early repayment of £1m of Abundance debentures.
2026 - 3 Jan - Vesting date (subject to continuing employment) for second third of LTIP options.
2026 - Commencement of grid connection dates for SAE’s 3 further BESS projects with an aggregate capacity of 719MW currently in development.
2026 - 31 Dec - Target date for early repayment of £2m of Abundance debentures.
2027 - 1 Jan - Enhanced interest payable on Abundance bonds increases from 10% to 11%.
2027 - 3 Jan - Vesting date (subject to continuing employment) for final third of LTIP options. CSOP options vest (exercisable for seven years at 1.5p per ordinary share).
2027 - Target commissioning date for MeyGen Phase 2.
2027 - 31 Dec - Target date for early repayment of £3m of Abundance debentures.
2028 - 1 Jan - Enhanced interest payable on Abundance bonds increases from 11% to 12%.
2028 - Target commissioning date for MeyGen Phase 3 (22MW).
2029 - 1 Jan - Enhanced interest payable on Abundance bonds increases from 12% to 13%.
2029 - 30 Jun - Extended maturity dates for the Abundance debentures that were due to mature on various dates in 2024. The enhanced and increasing interest payable for the period of the extension gives SAE strong financial incentives to achieve, if possible, the agreed early repayment targets.
SAE’s website currently says they will be able to combine MeyGen Phases 2 & 3 creating a 50MW project. On 19 January 2024 BBC News reported MeyGen's owner SAE Renewables wants to install another 17 turbines, each capable of generating up to 3MW, to create a 50MW array – see https://www.bbc.co.uk/news/business-67639476
On the basis of that calendar shareholders in SAE will likely know by mid-2029 whether it’s Monte Carlo or bust.
Great if Proteus are going to be the first port of call for “fabrication and assembly” of turbines from parts that have pretty well all been manufactured and tested elsewhere.
The Chairman’s statement in SAE’s latest Annual Report was dated 25.7.23 (that’s 6 months ago today). The paragraph on MeyGen Phase 2 is on page 4. It refers to the CfD secured in the AR4 allocation round for a further 28MW at MeyGen. Mr Black states, “…we have progressed development of the project including initial design and engineering work, negotiations with potential tidal turbine suppliers, and the appointment of a financial advisor to advise on securing debt and equity funding for the project.” It states that, “Financial close of the project is targeted for Q2 2025 and we will provide further updates as development progresses.”
Where’s the back of that envelope? Say MeyGen wants to go to 34MW by adding 2x2MW turbines and 8x3MW turbines. What’s the unit cost going to be for 10 assembled new turbines? Then, of course, there are the costs of new sub-sea hubs, the cabling, conversion, deployment, running, servicing etc. The post on 8.9.23 suggested the income from the original 6MW is probably some £2.6m/y. Add the income from the Phase 2 turbines (22MW at 50,100 MWh/y * £175/MWh ~ £8.8m/y from AR4) and MeyGen’s annual income would be £11.4m. Enough to pay off the cost of the 10 new turbines needed at the rate of what – about 1 every 18 months maybe over the 15 year period? So, the unit cost of each turbine has to be a whole lot less than £10m bearing in mind the other initial and running costs and the need for “equity” to make a return as well as debt interest and repayment.
Interestingly, the CfD strike price for the following phase is higher while the unit cost for a greater number of turbines should reduce due to economies of scale.
In the meantime, if you were Strand Hanson, what would your advice to MeyGen be about “securing debt and equity funding” always remembering that SAE’s existing debts are already secured by fixed and floating charges over its assets including its shareholding in MeyGen? Will SAE be able to command from MeyGen backers the kind of development premium payment it got from the Usk BESS developers but enough to cancel those charges? With how much of its shareholding in MeyGen will SAE be left after (private) “equity” has maybe taken the kind of slice it took for backing Proteus? What are the key drivers now for reducing LCOE for TSE sufficiently to make the sums add up in a way that would leave SAE with a reasonable return on a residual minority shareholding in MeyGen?
Maximising sustainable growth opportunities from TSE is predicated on supply chain development (among other things). Indeed, long lead times for replacement parts is a given reason why turbines can be out of the water for so many months undergoing servicing. The supply chain for MeyGen Phase 1 was spread across the United Kingdom, Europe and North America. According to Blaxland, MeyGen has demonstrated that by working with a great supply chain, significant steps forward can be made in reducing the cost of tidal energy.
Looking at their websites, it wouldn’t be difficult to envisage Asturfeito https://www.asturfeito.com/en/sectors/renewable-energies and/or Andritz https://www.andritz.com/products-en/hydro/markets/tidal-energy (see the article there on the future of ocean-based electrical energy and their page on hybrid solutions including HyBaTec:
https://www.andritz.com/products-en/hydro/products/hybrid-solutions ) both having major roles in supplying turbines for the next phases of MeyGen. Blaxland seemed impressed by Asturfeito - they describe themselves as a leading manufacturer of hydro turbine components (and) able to manage in-house the whole fabrication process from welding and machining up to coating, mechanical assembly and testing operations (and, presumably, dis-assembly after testing for transport to somewhere closer to Scotland for final re-assembly and deployment). Is there a well-capitalised potential competitor in Scotland or elsewhere in the UK that could by 2027 be supplying a turbine (with warranty) a month (on average) for the decade or more needed to get MeyGen up to capacity? No doubt everyone at SAE, Proteus and MeyGen would prefer domestic supply chains if they could be developed. It would be to UK PLC and HMG’s eternal shame if the chance to retain genuine global leader status in this sector is let slip.
Research/development isn’t just a phase for SAE which is clearly not going to be manufacturing the turbines. Nor is there much sign of a scaled-up production line being established at Nigg. SAE now seems to be all about originating and delivering innovative, sustainable, cost-reducing energy projects in collaboration with others - not about seeking itself to deliver “commoditised” volumes of renewable energy. Project development is the company’s chosen role and the name of the game – as nobody’s fool would have realised a while back.
A certain kind of man condemns himself by what he says out of his own mouth, but Mr Black is nobody’s fool. He writes of well-capitalised turbine suppliers. Timaeus asked who supplied the turbines already in the water and replies, perhaps unwisely, to his own question - though as usual he can give nothing more than an imprecise account.
10 years ago, Andritz Hydro Hammerfest were contracted to supply 3 x 1.5 MW tidal stream turbines for Phase 1 of MeyGen. Andritz assembled the 3 turbines at its Ravensberg factory in Germany. According to Evolution Online (7 Feb 2017), the three Andritz turbines at MeyGen are equipped with gearboxes supplied by Wikov MGI a.s., a manufacturer of gearboxes for renewable energy applications with a factory situated in the small town of Hronov, on the Czech border with Poland. It is not immediately obvious who provided the induction generator or the turbine housing (nacelle) for the Andritz turbines.
The name Lockheed Martin appears on the steel nacelle of the AR1500 tidal turbine. In addition to the manufacture of the nacelle, the scope of Lockheed Martin’s contract with Atlantis encompassed the assembly of all the turbine modules (including the gearbox and generator); the systems integration; and quality assurance of the overall turbine delivery programme. The AR1500 has a permanent magnet generator designed and manufactured by The Switch in Finland. The Switch apparently also played a significant part in the design of the gearbox and generator mating interface. The world’s largest renewable energy consultancy DNV GL (Garrad Hassan) (with an office in Edinburgh a few miles down the road from SAE) were contracted to design a turbine control system for the AR1500 that would optimise performance while minimising extreme loads. The AR1500 eventually underwent “fabrication and assembly” at what was then Atlantis’ facility at Nigg Energy Park, now Proteus Marine Renewables’.
In September 2018 Atlantis entered a partnership with GE for the development and performance validation of an AR2000 tidal turbine generator system. GE’s Power Conversion business was also selected in June 2019 as the preferred supplier to deliver the electrical systems including the power converters for the next phase of MeyGen. 2 years ago this week when SAE announced the completion of the EASME Pitch System Project, Drew Blaxland went on record to recognise the huge effort made by SAE’s project partner Asturfeito, who produced (in Northern Spain) many of the system’s components. He also thanked the major subsystem suppliers: Involution Technologies Ltd (in Warwickshire) who designed and produced the gearbox system; SKF (in Bedfordshire) who produced the bearings; and Nidec SSB Wind Systems (in Germany) who produced the motors and controllers.
Large turbine orders. Very interesting phrase indeed. Maybe not Model-T Ford mass production, but how large is Mr Black talking? Back of the old envelope again but MeyGen Phase 2 is 28MW which could mean 8 x 3MW turbines (in addition to the existing 4 smaller ones). Going to the 86MW already consented would require at least 20 more 3MW turbines. Full capacity at the MeyGen site is 398MW which would mean more than 100 additional 3MW turbines – about 128 in total. Then you’d need some spares to drop in while a few are out for service. Call it a round 130. Is that a large order for 3MW turbines? It would mean assembling on average rather more than one a month for the next 10 years. It’s the kind of scaling up that could help reduce the LCOE enough to make TSE affordable and the whole sector viable – especially when combined with the increased CfD strike price. But that’s just MeyGen. Then there’s all the other TSE projects that could develop around Britain and the world in the wake of MeyGen. If there were to be just 8 x 398MW arrays over the next 20 years, you’d be looking at orders for more than 1,000 x 3MW turbines. Now, that’s a large order - which implies producing about one a week on average over 20 years.
Anyone wondering about who’s gonna supply a large turbine order? There used to be talk of developing a production line at Nigg – now it’s a “pathway”. The Proteus Marine Renewables website quotes CEO Drew Blaxland as saying, “The formation of Proteus and the injection of private equity capital will give us the capability, the focus and means to build a pathway to affordable tidal stream power." All due respect to Proteus who have developed the AR3000, but how long did it take to service the last turbine that went back in the water? Seems unlikely anyone is about to start assembling 1 turbine a month in a shed on a quayside at Nigg, let alone 1 a week and never mind 8 or 20 at a time.
Warranties. Yet another interesting word. Who requires warranties? Remember the answer given by the astronaut who was asked what goes through his mind when the countdown reaches “lift-off”? He said he is thinking that the vehicle is made of more than a million different parts, each one supplied by the lowest bidder. If there are going to be failures, there had better be warranties. You might not think your life depends on it, but the world absolutely needs the combination of TSE and BESS capacity for slack tide periods and when the wind don’t blow or the sun don’t shine.
Given the group’s financial position. Mr Black is being completely realistic. Let no-one underestimate him. He’s a seriously sophisticated leader and communicator. And a buy.
“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.” Unpick that sentence and see where you get.
The tidal sector could be viable but isn’t yet? Interesting word, sector. Everyone knows now that tidal could provide 11% of UK energy needs. Mr Black is talking about how to help get there.
Suppliers. Another interesting word. Suppliers, plural - so not just the one then. And he don’t just mean manufacturers. He envisages a sector underpinned by reliable, competitive procurement processes, lean production supply chains, and industrial-scale assembly lines.
Anyone here lease a BMW mini? Know who supplied the crank shaft? There was a great pre-Brexit story some years ago about your crankshaft crossing the Channel several times in a 2,000-mile journey before the finished car rolled off the production line. The cast of the raw crankshaft was made by a supplier based in France. It was then taken to be drilled and milled at a plant in Warwickshire. Your crankshaft was then sent to Munich, where it was inserted into an engine. Then it went to Oxford, where the engine was “married” with the car. Some car parts got sent back and forth across the Channel far more times than a crankshaft before reaching the final assembly line. So, who exactly supplied your car? Who supplied the 4 turbines that have been in the water at MeyGen so far?
There are reasons why the SAE SP has been pretty flat. In addition to the sale of the turbine technology IP:
1. NAV is down to about 6% of what it was a couple of years or so ago;
2. As at 31.12.22 loans and borrowings totalled almost £58m including secured long-term loans to Meygen from Scottish Enterprise and the Crown Estate Commissioners which are repayable by 2027 and are secured by way of fixed and floating charges over the assets of
subsidiaries as well as SAE’s shares in MeyGen;
3. Net gearing increased to more than 1000% (excluding intangibles);
4. Finance costs (mainly interest on debt) probably still exceed group revenue from power sales as they did in the year to 31.12.22;
5. In that period EPS were down by 0.01p (the loss per share) to 0.01p.
There is little scope or need here for a significant capital raise by SAE. The financing of MeyGen might indeed be ultra pivotal but there could be an ultra-long wait for an RNS about it given that financial close for Meygen 2 is targeted for Q2 2025.
It is clear that private equity got behind the management buyout of Proteus. The key task for the next 18 months is probably getting private equity behind MeyGen. The plan should be for “well capitalised tidal turbine suppliers” to provide turbines (backed by warranties) that MeyGen can either lease or, if and when MeyGen can afford them, buy.
If you want to operate an airline you don’t need to begin by buying a plane when you can just lease one. Half the world’s passenger carrying aircraft are leased by their operators and often, their engines are leased separately. There’s even a second-hand market in previously-loved aircraft engines! Nearly all the trains in the UK are leased to their operators by 3 ROSCO’s (rolling stock companies) called Angel, Eversholt and Porterbrook who apparently receive about 13% of the price of all ticket sales. If you want to run a solar farm on your land (while you are still allowed to) you can lease the panels. Some people even lease the car they drive. It’s the way to go, and it’s a long haul.
SAE appears to be pursuing an asset light business model, not building the empire some still seem to wish for. Chairman Duncan Black’s statement (dated 25 July 2023) in the 2022 Annual Report makes pretty clear that SAE is not going to be building or buying turbines: “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 says 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.”
Graham Reid’s four strategic priorities are: 1. Create a streamlined business, which can identify, respond, and deliver opportunities for the company. 2. Significantly reduce costs and improve efficiency, aligned around 2 business areas: tidal stream and battery energy storage systems (BESS). 3. Maximise the return on our assets at Uskmouth and MeyGen. 4. Dispose of non-core businesses.