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Kedco's move into wind farms looks well timed

Last updated: 00:06 26 Jan 2013 AEDT, First published: 01:06 26 Jan 2013 AEDT

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The diversification of Irish renewable energy firm Kedco (LON:KED) into wind power looks propitious given yesterday’s announcement that Ireland is to export wind energy to Britain.

The Anglo-Irish deal follows hot on the heels of Kedco’s announcement on Monday of a co-development agreement for three wind farm projects in the north-west of Ireland, with a total potential capacity of up to 30 megawatts.

"Wind power generation is really gaining momentum," Kedco’s chief executive officer, Gerry Madden, told Proactive Investors.

According to reports, the Republic of Ireland’s wind farms could be providing 10% of the UK’s renewable energy target by 2020, which will help in meeting mandatory European Union targets on renewable energy.

Ireland’s blustery weather, regarded by many down the centuries as a nuisance, may turn out to be a blessing after all.

“Ireland has one of the best wind resources in Europe making it a very attractive location for the development of wind energy projects,” Madden said.

Kedco’s acquisition last year of Reforce Energy, a small-scale renewable energy projects specialist, brought with it a healthy pipeline of projects, and this was added to with the three covered in Monday's announcement.

Reforce's key markets are the UK, Ireland and Northern Ireland, which marries up exactly with Kedco’s own focus.

Kedco is keen not only to have a broad portfolio from the technology point of view but also geographically.

“We view this as a dual island strategy,” Madden explains. “We will deploy capital where we can get the best return. We are also looking at additional biomass projects in the UK and in Ireland.”

The company's Biomass wood combined heat and power (CHP) plant in Enfield (North London), described by Madden as a “flagship project”, is progressing well, and is drawing a lot of interest from debt and equity providers.

“We are expecting financial close by mid-year. The building is there, it is just a matter of installing the equipment,” Madden reveals.

The company envisages an 18-month interval between financial close and getting the plant up and running, and is targeting revenues of £12mln and underlying earnings (EBITDA) of £7mln per annum.

To put that into perspective, in the year to 30 June, 2012, Kedco made a loss before tax of £1.6mln on revenue of £10.1mln.

Last year, though, was one of restructuring and making the transition from a clean energy project developer to an operator. This year is to be one of growth, Madden promises.

"In the renewable energy sector, having a proven track record in developing and operating plants is key to adding new projects to the pipeline," according to Madden, who stressed the opportunity available to the company of scaling up its operations.

"Achieving a critical mass in megawatts is important in making yourself attractive to anyone interested in buying a pipeline of a certain size,” Madden maintains.

That suggests that Kedco is a company in a hurry as it rides the renewable energy wave.

In a week when asset management giant Blackrock paid £32.1mln for two wind farms built by Renewable Energy Generation (LON:WIND), Madden makes the salient observation that you don’t need to have Blackrock’s financial clout to gain exposure to the UK & Irish renewable energy sector.

"We are a quoted company. There are very few quoted renewable power companies in the UK and Ireland, and we are giving investors a chance to invest in a basket of renewable energy assets, without having to be directly invested in those assets with an unclear exit for private entities," Madden said.

So, while the likes of Blackrock have an unclear exit path from their direct investments in renewable energy assets, Kedco, by virtue of being a publicly quoted company, offers more flexibility as the shares are tradable.

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