Provisional Award of Capacity Mechanism Agreements

RNS Number : 2755A

Alkane Energy PLC

19 December 2014

 

Alkane Energy plc

("Alkane" or the "Group")  

Provisional Award of 101MW Capacity Mechanism Agreements

Alkane Energy ("Alkane") is delighted to announce that it has provisionally been awarded 101MW of Capacity Mechanism Agreements ("Agreements") starting from October 2018.  Alkane will receive £19,400/MW per annum for making capacity available to support the DECC Capacity Programme, with 46MW being secured on 15 year Agreements and 55MW on one year Agreements.  Alkane would earn a combined additional revenue of £14.4m under the provisional Agreements over the period to September 2033.    

The award of the Agreements has been published by DECC but is subject to the outcome of a review by the Secretary of State.  The final results are due to be published on 2 January 2015.

The Capacity Mechanism is designed to ensure that the UK retains a sufficiently large generating fleet to meet peak demand periods and to help support more intermittent forms of "green energy" such as wind and solar.  Auctions are to be held annually, on a four year ahead and one year ahead basis.  The Agreements were provisionally awarded to the Company in the first auction which took place this week and are for delivery in 2018/2019.

Alkane would fulfil these Agreements from existing and new build sites, based on our standard operating model of medium sized, remotely managed, embedded, fast response, gas powered power plants with no change to our running regime.  Sites powered by coal mine methane would be run base load 24/7 whilst our power response sites using bought in gas would continue to run winter peak load and bid into the National Grid's STOR and Demand Side Balancing Reserve programmes.  The Agreements would secure and expand our generation capacity in the East Midlands, Yorkshire and the West Midlands.

55MW of existing facilities have been provisionally awarded one year Agreements and would provide £1.1m revenue in the year commencing October 2018.  We would expect to bid these assets into future capacity auctions on an annual rolling basis.

Alkane has also been provisionally awarded 46MW of new build capacity for sites which would be built over the period to the start of the 15 year Agreements in October 2018.  These new build sites would provide Alkane with additional secure income of £0.9m p.a. and provide long term visibility of income stretching out until 2033. 

Alkane would expect to bid into future Capacity Mechanism auctions as they occur over the coming years, with the next auction expected in December 2015. 

Neil O'Brien, CEO of Alkane Energy plc commented on the provisional award of the Agreements:

"We are delighted by this news.  Once confirmed by the Secretary of State this will be the largest ever contract award in Alkane's 20 year history and will be further affirmation that our cost effective fast response engines are a much valued asset by the UK Energy Market.  These Agreements, with a combined additional revenue of £14.4m, would provide us with long term income visibility stretching over a 15 year period."

For more information please contact:

Alkane Energy plc Neil O'Brien, Chief Executive Officer Steve Goalby, Finance Director	01623 827927
Liberum Capital Limited Clayton Bush Joshua Hughes	020 3100 2000
VSA Capital Limited Andrew Raca	020 3005 5004
Hudson Sandler Nick Lyon Alex Brennan	020 7796 4133

Background information

Alkane is one of the UK's fastest growing independent power generators. The Company operates mid-sized "gas to power" electricity plants providing both base load and fast response capacity to the grid. Following the recently announced acquisition of three power response sites from Carron Energy Limited and Dragon Generation Limited, Alkane has a total installed generating capacity of 140MW and an electricity grid capacity of 160MW.

Alkane's base load operations, where power is generated 24/7, are centred on a portfolio of coal mine methane ("CMM") sites. Alkane has the UK's leading portfolio of CMM licences, enabling the Company to extract gas from abandoned coal mines.

As CMM declines at any one site, Alkane retains valuable generating capacity and a grid connection which can be redeployed to power response. Power response sites are connected to mains gas and produce electricity at times of high electrical demand through peak running, or in order to balance the electricity grid through participation in the National Grid's short term operating reserve programme ("STOR"). Participants in STOR are paid premium rates when called upon by the Grid to meet temporary supply shortages. Alkane now operates 93MW of power response, one of the UK's largest power response businesses, with contracted revenues extending out to 2025.

The Group operates from 27 mid-size (up to 25MW) power plants across the UK, 15 CMM only, 8 mains gas only, 3 using both fuel sources and 1 using kerosene only. Alkane uses a combination of standard modular reciprocating engines and gas turbines to generate the electricity and sells this power through the electricity network. The engine units and other plant are designed to be flexible and transportable allowing additional capacity to be brought onto growing sites and underutilised plant to be moved to new sites to maximise efficiency.

Alkane transferred in June 2014 its shale gas interests to Egdon Resources plc.  Alkane received 40m Egdon shares making us the largest shareholder in Egdon, a significant player within the UK shale industry.

Alkane has a range of core skills encompassing the entire project development cycle including planning and permitting, sourcing plant and managing the build and commissioning stage. This has enabled Alkane to establish a design, build and operate ("DBO") business for third party clients in the biogas and oil & gas industries.

The Group has circa 800km² of acreage under various onshore Petroleum Exploration and Development Licences ("PEDLs").  

More information is available on our website www.alkane.co.uk

 

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