Helius Energy - In the right place at the right time

Energy supply is set become a major issue for the UK during this decade as the country finds that it has not planned enough power stations in the face of increasing electricity demand. In June this year the Institution of Civil Engineers warned in a report on UK infrastructure that it was most concerned about the energy sector, particularly “the need to urgently address the lack of spare capacity, with maximum supply currently very close to peak demand”.

ICE warned that the UK government must make crucial decisions during the next five years on renewable energy sources, nuclear power stations and technologies that can make fossil fuel power generation cleaner.

This comes on the back of figures from E.ON that shows that while peak demand currently accounts for around 65 gigawatts of the electricity that the UK’s energy network is capable of generating, demand is heading towards 70GW within a few years as the country’s electricity-generating capacity falls below 60GW due to the closure of old plants.

One firm that aims to do its bit to make up the shortfall is Alternative Investment Market-quoted Helius Energy (LON:HEGY).

Helius is a developer of biomass-fired renewable electricity generation plants at sizes ranging from around seven megawatts to 100MW. The firm is involved in several projects and its long-term aim is to be an owner/operator of 500MW worth of power plant assets.

Currently, Helius is focused on: the forthcoming 100MW Avonmouth biomass plant, located on the Bristol Channel; a 7.2MW project in Scotland with the Combination of Rothes Distillers (CoRDe); and another 100MW biomass plant proposed for Southampton. And according to Helius’s chief executive officer, Adrian Bowles, further biomass projects are to be revealed shortly.

Helius also developed the 65MW net capacity Stallingborough biomass plant, located on the south side of the Humber estuary in Lincolnshire. Helius Alpha, a subsidiary that owned the rights to develop and operate the plant, was then sold in its entirety to RWE Innogy.

As part of the deal, in which Helius made a profit of around £20 million, it will also receive 13 percent of the annual profits after tax generated by the plant during the first 24 years of its operation (this profit was valued by the company at £14.3 million in September 2008).

However, although deemed as necessary at the time this kind of ‘build-and-sell’ deal is not an example of Helius’s future, according to Bowles. “Our long-term strategy has always been to become an owner/operator,” he says.

Procurement for the Avonmouth Dock project has already begun and Bowles says that construction could begin as early as next summer, with the building phase likely to take more than 30 months.

This power station will produce enough renewable electricity to power 200,000 homes and it will save more than 720,000 tonnes of carbon dioxide per year when compared with a similarly-sized coal-fired power station, according to Helius.

The plant will require up to 850,000 tonnes of sustainably-sourced feedstock each year, primarily from wood-based material.

Until recently, the Avonmouth project faced a risk to its progress from the Coedbach Action Team – a group opposed to power station schemes on a number of grounds including increased traffic and risks to human health in the locality from emissions. In September, the High Court in Cardiff refused to grant CAT permission to apply for a judicial review of the project.

Finally, as reported recently by Proactive Investors, CAT was refused permission by the Court of Appeal at the end of November to appeal the judgment made in September. So, as far as Helius (and it would appear the courts) is concerned CAT can no longer oppose the Avonmouth project on legal grounds.  “The advice we have from our QC is that they can take it no further,” says Bowles.

Helius’s joint venture with CoRDe involves the building and operating of a £50m renewable energy scheme designed to reduce the carbon footprint of the whisky industry in Morayshire.
The project will use whisky distillery by-products to fuel a 7.2MW biomass combined heat and power plant. Meanwhile, a separate plant will turn pot ale (the liquid co-product of whisky production) into a concentrated organic fertilizer and an animal feed for use by local farmers.

Bowles says that this project will take 24 months to complete and Helius is aiming to begin construction here before the firm starts building Avonmouth. Depending on the electricity price, the plant should generate £10-12 million per year.

Although Helius favours larger projects, Bowles does not rule out further small-scale power projects. “We will continue with smaller projects, such as Rothes, where they make economic sense,” he says.

Next on Helius’s agenda is the proposed 100MW biomass-fuelled power station for the Western Docks in the Port of Southampton. The company has begun its public consultation for the project, which is to be located next to a rail freight terminal that will presumably prove useful in getting feedstock to the plant.

Just like Avonmouth it will be connected to the local electricity grid, potentially powering 200,000 homes and saving around 720,000 tonnes of carbon dioxide emissions each year. Meanwhile, Helius is investigating to see if heat from the plant could be provided to adjacent users on a commercial basis.

Helius plans to begin construction of the Southampton plant in 2012.

Published earlier this year, Helius’s half-year results showed that the company’s cash balance had fallen to £12.8 million by the end of March from £15 million at the end of September 2009. Included among the £2.2 million cash outflow was a £1.2 million investment by Helius into its project portfolio, as well as administration costs of £1 million. Bowles says that the firm’s cash balance currently stands at around £10 million.

Shares in Helius traded for as much as 35 pence each in March this year, before seeing a long decline to their current level of around 23p. With two key projects set to begin construction next year, and announcements of other potential biomass power schemes expected soon, 2011 could prove to be an interesting year for the shares.