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Rame Energy in right place for ambitious renewable plans

Chile faces a growing energy crisis. Hydro-electricity has been hit by a long lasting drought while gas imports are limited by limited LNG import facilities.
Rame Energy in right place for ambitious renewable plans
Pricing is strong enough for good wind and solar projects without the need for any additional subsidies.

Chile is renowned as the country of huge copper mines, but powering these enormous open pits is proving ever more difficult.

Aim-listed Rame Energy (LON:RAME) aims to help these mining colossi by writing the blueprint of how to build and run wind and other renewable sources of electricity.

Not that the financial numbers reflect it yet, but substantial progress was made over the past twelve months, culminating in the commissioning of its first project at Ruki/Huajache in July.

Prospects going forward are also bright enough for broker Cantor Fitzgerald recently to suggest that the shares may be worth 24p, or almost three times the current market price of 6.2p.

Rame’s presence in Chile should not be underestimated, according to the broker,  

“The business community, and within it the renewable energy industry community, is small and Rame has been able to build a strong reputation within this.”

It is viewed as a leading developer and has a healthy pipeline of projects.

As the industry in Chile matures, Cantor expects demand from income seekers for operating renewable energy projects to increase in step, with US pension funds leading the way.

Projects in Chile have not yet been of sufficient size to attract direct institutional investment says the broker, but the ‘yieldco’ trend has continued to grow driven by North American investors.

Rame has so far been involved in almost a quarter of Chile’s wind generation projects and has recently set up project development deals with two finance partners, Santander and German group Anden.

Santander is providing the funding for a portfolio of 133 Mw of wind farm projects.

For its funding, the bank will take between 80-90% of a project once commissioned with Rame owning the remainder and also receiving construction and management fees.

Raki/Huajache was the first project completed under the Santander arrangement.

Rame built the wind farm and now has as 20% stake from which it earn will management fees and revenue for electricity sold to industrial group EKA Chile under a 10-year power purchase agreement.

It is the longer term potential that has Cantor more excited though. Chile faces a growing energy crisis. Hydro-electricity has been hit by a long lasting drought while gas imports are limited by limited LNG import facilities.

As a result, pricing is strong enough for good wind and solar projects without the need for any additional subsidies.

Climatic conditions, clearly crucial for any wind or solar project, are also helpful.

Rame, which has a solar operation as well as its wind farm expertise,may even take larger equity stakes as more projects come on line.

This may even involve it raising additional funds and buying out the Santander and Anden stakes when the construction phase of a project is completed.

That would be “potentially game changing for Rame” suggests the broker, although it adds it would depend on the cost of the additional finance.

Ruki/HuaJache is only a 15Mw project so revenues are not going to leap ahead immediately, but as more projects come on line Cantor sees sales rising from US$2.2mln last year to US$6.6mln by end 2017, which coincides with a move into the black.

Tim Adams, Rame‘s chief executive, said recently he wants 300Mw of generating assets in Latin America within the next three years.

It’s an ambitious plan for a company currently worth £6mln (at 6.2p) but if Chile’s power problems become more acute it may just be the start.

 

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