SeaEnergy: backing the offshore wind boom

SeaEnergy is a renewable energy company that aims to develop, project manage, own and operate large-scale, offshore deepwater wind farms. Key employees at the business already have experience of building a wind farm off the coast of Scotland, so the firm is ideally placed to benefit from a significant ramping in offshore wind capacity in the UK. It is also exploring opportunities in the Far East via a Taiwanese joint venture.

Previously known as Ramco, the firm’s shares have been quoted on London’s Alternative Investment Market for more than a decade and it was entirely focused on oil and gas activities. However, after launching its offshore wind subsidiary SeaEnergy Renewables Limited in summer 2008, and recently deciding to exit its oil and gas interests, the company’s management rebranded the whole firm as SeaEnergy in September 2009.

According to the British Wind Energy Association (BWEA), the UK is currently the largest offshore wind market in the world, and the organisation points out that offshore wind build is now taking place at a rate that is similar to the construction of onshore wind projects.

One of the drivers of offshore wind has been UK government support. Two years ago, the government announced plans to open up the seas around the UK to enable the deployment of up to 33 gigawatts of offshore wind power by 2020 in order to help the UK meet its climate change obligations.

Meanwhile, the UK government’s Renewables Obligation scheme requires power utilities by law to derive from renewable sources a specified proportion of the electricity that they supply to their customers. This proportion was set at 3% in 2003 and is rising gradually to hit 10.4% in 2010 and 15.4% by 2015 (source: Environment Agency).

Under the scheme, eligible renewable energy generators usually receive one Renewables Obligation Certificate (ROC) for each megawatt-hour (MWh) of electricity that they generate, and these ROCs can then be sold on to utilities so that they can fulfil their Renewables Obligation targets. The utilities do not have to acquire ROCs and can instead opt to make a ‘buy-out’ payment (set at £30 per MW-hr in 2003 and adjusted annually in line with inflation), with these buy out payments being aggregated into a buy-out fund that is redistributed to ROC holders at the end of the annual obligation period.

However, because the government is so keen on offshore wind, offshore wind farms have been able, since April 2009, to sell two ROCs for each MWh of electricity generated. More recently, after the pre-Budget Report, the government announced that this support for offshore wind farms would be extended from 2010 to March 2014.

The wind energy industry welcomed the news. “Keeping the two ROCs funding for offshore wind will help the UK retain its world lead and kick-start billions of pounds of investment ahead of the next major phase of offshore developments,” said Maria McCaffery, the BWEA’s chief executive. “There are up to 3,000 megawatts worth of projects which should now benefit from this new support. In the current economic climate this will make a vital contribution to inward investment and employment, as well as delivering on the 2020 targets.”

Of course, such macroeconomic factors are great news for SeaEnergy, which has secured partnerships with major renewable utilities RWE npower and EDP Renewables as well as with SSE. And the company, with its partners, has already landed significant offshore wind licences: after the Scottish licensing round, it holds a 25% interest in two projects off Scotland that have a combined capacity of 1,825MW.

Currently, SeaEnergy, alongside its consortium partner EDP Renewables, is awaiting the outcome of the UK Round Three bidding process. This, according to SeaEnergy’s house broker Ambrian Partners, is likely to be the largest UK bidding round for offshore wind sites during the next decade. Covering 25GW in nine zones around the UK, 40 bids have been submitted and the awards are expected to be announced imminently.

SeaEnergy has an advantage over traditional wind energy firms in that its background in the oil and gas business means it has the experience and skills required to handle the logistics and technical issues involved when installing equipment in deep water locations. “We’re a small company, but what we have here is a core group of skills,” says Allan MacAskill, SeaEnergy’s business development director.

MacAskill is the former project director of oil and gas business Talisman Energy, which, along with its partner Scottish and Southern Energy, owns the Beatrice Wind Farm that is located next to the Beatrice oilfield 25 kilometres off the north-east coast of Scotland.

With support from the European Union, the Scottish Executive and the then DTI, Talisman and SSE deployed the world’s largest wind turbines in the sea and in depths of up to 45 metres. This was something no one had done before anywhere in the world. The project also involved the first-ever assembly of a turbine, tower, hub and blades onshore for installation in one piece offshore.

The techniques used to achieve all of this were incorporated from the offshore oil and gas industry. The good news for SeaEnergy is that its key employees are made up from the Talisman team that completed the Beatrice Wind Farm, which gives the company a big head start when it comes to deploying its current and future offshore wind projects.
So it is unsurprising that MacAskill is bullish on SeaEnergy’s chances in the latest UK bidding round. “We will find out shortly, but we’re confident that we have a powerful case,” he says.

Elsewhere, SeaEnergy has agreed with Taiwan Generations Corporation to develop a pipeline of offshore wind farms (representing capacity of up to 1.7GW) across three wind farms in the Taiwan Straits. SeaEnergy will have the right to retain a working interest of up to 25% in any wind farm developed under its agreement with TGC.

Meanwhile, the disposal of SeaEnergy’s legacy assets from its Ramco days is expected to be finalised soon. SeaEnergy holds a 32.7% stake in Mesopotamia Petroleum Company but the company was issued a joint venture termination notice by its partner Iraqi Drilling Company in July 2009 for not meeting capital commitments relating to MPC. Consequently, Ambrian does not attribute any value to the MPC joint venture although MPC is working to resolve the issue.

In September, SeaEnergy secured £7.5m of investment from Lanstead Capital in return for 15 million shares. The firm is now fully-funded until mid-2010 to cover corporate overheads and invest in project developments. Ambrian expects SeaEnergy to post a loss of £5.4m for 2009.

The firm’s exposure to the burgeoning UK and Taiwanese offshore wind energy markets, as well as its technical skills in the offshore arena, make it a compelling renewable energy play. On the basis of its existing exclusivity agreements connected to sites awarded during the Scottish Round, Ambrian has set a fair value price target for SeaEnergy’s shares of 81 pence – a substantial premium to its current price of 41 pence.