SIMEC Atlantis Energy upgrades MeyGen 1A expansion forecasts
SIMEC Atlantis Energy informed on November 6 that it was upgrading its forecasts for the expansion of the MeyGen 1A site.
The company said it had treated this as a marginal project with a net capital cost of £22m largely spent in 2019 and delivering marginal income in 2020. SIMEC Atlantis will also increase the output on the existing turbines from 2020. The grant income will be added in over 5 years from 2020 in equal installments.
Finally, the company stated that it had assumed Atlantis Turbine and Engineering Services will benefit from the project spend to the amount of £11.7m by the end of 2020. This will be consolidated out, but there will still be a cash margin benefit.
The main impact is in FY 2020 with revenue increasing to £9.4m from £6.7m and LBITDA to -£0.2m from -£2.9m. FY 2021 also improves with revenue increasing to £80.0m from £72.4m and EBITDA to £42.2m from £34.9m.
The impact of the expansion at MeyGen 1A raises SIMEC Atlantis’ target price to 81p from 74p, the company stated.
In terms of risks, the company said that the expansion at MeyGen had some execution risk and pointed out that SIMEC Atlantis’ growing experience in marine interventions meant this risk is now lower than during the original deployment.
In April 2018, the MeyGen Phase 1A project completed the construction phase and officially entered the 25-year operations phase.
At the end of October, SIMEC Atlantis Energy revealed plans to deliver 40% more yield from the MeyGen tidal energy array by installing two of its new tidal turbines to the scheme – AR2000 – capable of generating up to 2.0MW using more powerful generators and larger rotor diameters. The machines will use a new subsea connection hub and share a single export cable, enhancing the existing 6MW MeyGen array.
The proposed project, called Project Stroma, has been awarded revenue support in the form of a NER3000 EU package worth €16.8m and paid over 5 years. SIMEC Atlantis also expects to seek additional debt support.
The European Investment Bank has funds allocated for tidal projects and few projects in which to invest and could therefore be a source of support, according to the company.
Guidance on the net capital cost is around £22m. Our modelling suggest that the marginal activity should result in an IRR of 13%. The company will also benefit from the turbine sales to the project together with relate engineering services. Overall we model the work to increase our target price to 81p from 74p.”
The project also allows the AR2000 to be demonstrated in a live environment together with the new connection hub. This aids SIMEC Atlantis as it develops tidal projects elsewhere, notably in France, the company stated.