November 2, 2007 / 10:30 AM / 11 years ago

Wave power IPOs set to surge as wind dies down

LONDON (Reuters) - Companies using the motion of the ocean to generate electricity are attracting growing interest from investors and power utilities looking for the next long-term play in renewable energy after the rise in wind power.

A view of a beach on the Yucatan peninsula, October 10, 2007. Companies using the motion of the ocean to generate electricity are attracting growing interest from investors and power utilities looking for the next long-term play in renewable energy after the rise in wind power. REUTERS/Victor Ruiz (MEXICO)

A flood of wave and tidal power initial public offerings (IPOs) are set to hit the London market, analysts and sources close to several renewable energy companies told Reuters.

This comes after several smaller wind power developers scrapped planned flotations on London’s junior Alternative Investment Market (AIM), partly because they were seen as pricing themselves too richly.

“A lot of utilities are looking at investing in the marine sector (wave and tidal),” said Jonathan Bryers, a partner at the investing arm of Government-backed Carbon Trust.

Although IPO deals for wave and tidal companies are harder to price, because wind power technology already has scale was wave firms only have estimates, they could offer cheaper deals for investors, though with greater risks.

There is no shortage of wave power firms who need money to further test their technology and get it in the water and connected to the grid before their rivals.

“I believe there are around 10 wave power companies that are potentially looking at coming to the market,” said Panmure Gordon renewables analyst Mark Davis. He believes we will see a growing “bubble” of wave floats in the next 18 months.

“Banks are looking at lending to wave power firms more seriously then they have ever done before,” said Davis.

One large, unnamed, bank is putting together a team to acquire wave power technologies, a source told Reuters.

CREST OF A WAVE

The rush to get money has already started. Last week Australian-based firm Oceanlinx said it wanted to list in on AIM in December, raising up to 35 million pounds ($72.6 million).

Two wave firms told Reuters they are considering IPOs. While AIM-listed Renewable Energy Holdings REH.L could come back to market if further tests of its CETO wave power technology are successful, according to Chief Executive Michael Proffitt.

REH could raise more money on AIM to build and roll out CETO devices with utility giant EDF (EDF.PA) — which has announced it is taking a stake in REH — if the tests go well.

“Wave is coming back into people’s minds,” said broker Ambrian AMBN.L analyst John-Marc Bunce.

REH will be testing its device at prototype wave farm called the Wave Hub, off Cornwall, along with AIM-listed Ocean Power Technologies OPT.L (OPTT.O), which recently raised $100 million in the United States.

Scotland-based Pelamis, formerly known as Ocean Power Delivery until a recent revamp which saw former Conservative politician Colin Moynihan appointed chairman, is considering a listing as one option, according to its Chief Executive Phil Metcalfe.

Pelamis hopes to have its devices connected to the grid in Portugal later this year, following delays.

AWS Ocean Energy (Archimedes Wave Swing), which uses underwater buoys, has already put feelers out to the market and has not ruled out a listing, although it would not be for some time, according to a source close to the Scottish-based firm.

EDF-backed tidal firm Marine Current Turbines could also raise money through a listing, a source close to it said.

Although wave and tidal power could be a big contributor to global energy demand it will be a long time, at least seven years according to Pelamis’ CEO, until they have enough scale to be cost competitive with onshore wind. It will be at least five years until they are cost competitive with offshore wind.

Panmure analyst Mark Davis said wave power offerings are difficult to price because wave firms cannot give exact figures on the benefits of scale. He said: “As a general rule I’d say wave is around three or four times more expensive than wind at the moment. “Wind costs around 1 million pounds per megawatt (enough for around 1,000 UK homes) whereas wave is around 4 million pounds. Wind has been around a long time and wave should come down now as it gets scale.”

But the next couple years are critical in proving which technologies deserve further investment.

WINDS OF CHANGE

Although the wind sector is still very much in favor, with analysts expecting many years of growth, several smaller developers stopped planned listings on AIMs earlier this year.

China-focused wind developer Honiton did not get the interest it wanted and has since had more luck raising money privately in Hong Kong, according to Chief Executive Paul Eveleigh. It could still list in London or Hong Kong in future.

Minnesota-based wind farm developer Boreal Energy also scrapped a planned IPO, primarily because the company was not prepared to accept a substantial cut in its valuation, a source familiar with the situation said. It is now being bought by Wind Energy America WNEA.OB.

New Zealand Windfarms Ltd (NWF.NZ) also considered a London listing, but then decided to raise money in its homeland.

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