Baby Ace: SMALL CAP FOCUS: Atlantis Resources gets go ahead to power 200,000 homes with nothing but water

Monday, March 17, 2014

SMALL CAP FOCUS: Atlantis Resources gets go ahead to power 200,000 homes with nothing but water

By

Ian Lyall, Proactive Investors

A technology firm that listed on AIM recently is looking to tap the power of the sea as it rolls out ambitious plans to install tide-driven turbines off the coast of northern Scotland.

Atlantis Resources, led by Tim Cornelius, has been given the go ahead for the MeyGen project in the Pentland Firth and waters around the Orkneys and is close to securing funding.

Building to an eventual 400 megawatts (or enough to power 200,000 homes) it will be the largest project of its kind in the world.

Always on: Unlike other forms of sustainable power generation, electricity generated by tidal flow is constantly

Always on: Unlike other forms of sustainable power generation, electricity generated by tidal flow is constantly ‘on’

Ultimately, this comparatively small

business (it is worth £70million) could revolutionise the way we generate

electricity from renewable sources.

And because it relies on the

tide, rather than wind or solar, it is an always-on source of power,

which gives it a significant advantage over other, intermittent sources

of electricity such as wind or solar.

The technology itself isn’t

particularly new or cutting edge – it is simply wind plants

re-purposed. The blades of the turbines are much stubbier than their

wind-driven equivalents, while the units must be water-proofed.

Meanwhile,

the footprint of subsea developments such as MeyGen will be much

smaller than a traditional wind-farm generating the same amount of

electricity. Crucially, Atlantis also has access to the local grid and

potential off-takers lining up.

The units being used for the six

megawatt first phase will be made by Swiss engineer Andritz Group,

although other well-known names such as Alstom and Siemens make similar

pieces of kit.

MeyGen, which is one of four projects on

Atlantis’s roster, is in reasonably shallow waters near to the coast of

northern Scotland.

This means the turbines can be dropped onto the

sea bed using fairly ubiquitous DP 2 dynamic positioning vessels with

250-tonne cranes.

It is fair to say the technology is heavily backed

by green subsidies and commands five renewable obligation certificates

per megawatt hour.

Meanwhile, the political will is there make

sure MeyGen is a success, with both the Scottish and British governments

getting behind this ground-breaking new endeavour.

For a small firm Atlantis moves in some exalted circles.

The

commodities arm of American bank Morgan Stanley has been a significant

investor since 2007, while it has a collaboration with jet engine maker

Lockheed Martin and has tied up with the Chinese giant Dongfang Electric

Machinery Company.

At the same time the group has projects in France, Canada, and India.

Atlantis

makes its money from three sources: developing projects such as MeyGen,

turbine and equipment sales and from consultancy.

ATLANTIS AT A GLANCE

AIM ticker: ARL

Value: £70mln

Current price: 90p

Year high: 98p

Low: 90p

From MeyGen,

and follow-on projects like it, the group will extract an income from

the electricity sold.

But there will also be the opportunity to farm

down the asset, which will allow it make a developer’s margin on the

sale.

Cornelius believes the group will generate an internal rate

of return in the ‘mid-teens’, which compares well with the other, more

mature renewable energy business focused on wind or biomass. Analysts

expect the group to be profitable in 2016.

However, the group

must first complete the first phase of MayGen, scheduled to get underway

later this year or early next, and expected to be completed in the

second half of next year.

Only then will the concept be fully

vindicated and the project de-risked. The addition of an outside

investor, farminee or otherwise, would provide third party validation.

Opposition to this subsea project doesn’t appear to be as vocal as it might if this had been an onshore wind farm.

That

said, Atlantis has been through a fairly stringent application and

approval process to make sure that its turbines have no lasting impact

on the flora and fauna of this wild, but incredibly beautiful corner of

Scotland.

Cornelius says: ‘Tidal power has very much been seen as environmentally benign. The fascinating point, however, is nimbyism.

‘Because

you don’t see tidal power and you don’t hear tidal power therefore you

have a lot fewer issues than you might with other renewables. It is also

entirely predictable, unlike wind and solar.’