The massive blackout that hit the UK earlier this month has highlighted the fragility of the country's electricity system.
Thousands of businesses and an estimated million people were affected by power cuts on Friday 9 August, with disruption spreading across trains and road networks.
With the increasing adoption of electric vehicles expected to put further strain on the system, businesses large and small are planning for the future.
But a red flag over the national power grid could point more customers towards Aggregated Micro Products Holdings PLC (LON:AMPH), which runs a grid-balancing business called Urban Reserve.
Stand-by for more power
Currently, AMP currently generates most of its revenues from its businesses supplying biomass wood pellets and installing biomass boiler and biomass CHP systems.
But in an April update, AMP said it had submitted planning applications for 13 sites for Urban Reserve, amounting to 49.7 megawatts (Mw) of generation capacity.
So far, ten sites (37.5 Mw) have received planning approval and the remaining three sites were expected to be decided upon soon after.
In aggregate, this will provide a shovel ready portfolio of circa 50 Mw, putting the company halfway to achieving its revised short-to-medium term target of cranking out 100 Mw a year.
If that 100 Mw target is achieved, Urban Reserve should generate development fees of £5mln a year.
Richard Burrell, AMP's chief executive, believes the extra electricity capacity needed to supply EVs has yet to be addressed and that is another reason to diversify the business into stand-by power and EV charging.
Stand-by power units only require planning permission and a connection to the gas network, says Burrell, who adds that as its generators are roughly the size of two containers they can easily fit on bits of unused land.
And Burrell sees many synergies between this business and new EV charging outlets.
“A small-scale power generator is an attractive proposition. It’s all about providing power where it’s needed most,” he told Proactive in January.
“We are believers in clean energy distributed at down a local level and not dependent on National Grid or big power stations.
- For the year to March, Urban Reserve and IncubEx, in which it owns a 29.08% share, performed above expectations.
- But the wood fuels business burned much less brightly than hoped, partly because of the mild weather in February and March, as part of a restructuring that puts it in the sort of shape where it can achieve satisfactory levels of profitability henceforth.
- Costs from the restructuring, where all units were brought under the AMP Clean Energy brand, resulted in a significant one-off hit, meaning the group guided towards an underlying loss (EBITDA) for the year in the region of £1.3mln, on revenue of £50mln.
- In October 2018, AMP raised £8.5mln from a placing of new shares.
- In May AMP's off-balance-sheet vehicle, Aggregated Micro Power Infrastructure 2 PLC (AMPIL), raised £15.1mln in the form of 8% loan notes.
- AMPIL funds provide funding for the financing of the AMP's Urban Reserve projects, biomass boiler assets and other clean energy projects.
- AMP receives an upfront 10% development fee on each project and when AMPIL debt is repaid, AMP is entitled to receive 100% of the excess returns in the form of deferred development fees.
- UK government has a legally binding target of reducing the UK's greenhouse gas emissions by 80% by 2050 against 1990 levels.
- Some 8GW of coal-fired generating capacity has already been decommissioned since 2012 and a further 10GW is expected to close by 2025, most of which will happen by 2020.
- With some nuclear generators being decommissioned the supply of electricity is becoming much more volatile and has increased the need for flexible and controllable stand-by supplies.
What the broker says
"In general the less secure and reliable our grid network the better the environment for the urban reserve units offered by AMP," analyst David Buxton at house broker finnCap told Proactive in August.
"I see the recent outage therefore as generally beneficial in this circumstance."
With newspaper reports raising Brexit fears as well as concerns about National Grid's interconnector cables bringing power from continental Europe, Buxton said France's current surplus "cannot be relied on in the future" as a number of its nuclear power stations are due to come to the end of their life over the next few years.
Based on the April update, finnCap expects AMP to make an adjusted loss before tax of £2.1mln, before swinging back to an adjusted profit before tax of £2.3mln in the current year on revenues of £54.1mln.
Including the higher value of Urban Reserve projects, finnCap's sum-of-the-parts valuation was bumped from 134.7p to 156p.
"We accept that in the short term, until profitability can be demonstrated, the share price is unlikely to achieve this higher value per share, but in due course the value of the group’s more valuable operations will show through," the broker said in April.