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Novera Energy

Novera Energy

By James Hurley

Founded in 1998, Novera Energy is a precocious example of what may become a growing breed: an established UK focused renewable energy company.
Novera Energy
Founded in 1998, Novera Energy is a precocious example of what may become a growing breed: an established UK focused renewable energy company. Since Fitzsimmons joined Novera as CEO in October 2005, the company has completed a dramatic transformation. Formerly a dual-listed, Australian incorporated company with a joint venture that it didn't operate as its primary asset, Novera Energy is now a dynamic and ambitious UK renewable company with a strong portfolio of development opportunities, in both wind and Energy from Waste.

Transformation
Novera Energy generates electricity from renewable sources of power using a portfolio of three businesses: wind, waste & water and landfill gas, although as David Fitzsimmons tells me, the balance between these technologies is shifting.

Having spent 27 years with BP - where he held senior positions in all core businesses, including CEO of BP's oil trading, President of BP Asia and Commercial Director for BP's Gas, Power and Renewable business - why the shift to a growing, modestly sized renewable company?

"I think it is a very personal thing and it's a switch that doesn't work for everybody. When I was deciding what to do and where to go, I realised that I wanted to get into renewable energy companies. I looked around for the big renewable companies but there weren't any. They tended to be small divisions of companies that, in themselves, were a lot smaller than BP, and that wasn't where I wanted to be."

He spoke to a number of FTSE mid-cap companies about a CEO role, but this process led him to hunger for an involvement in a less mature company. "I realised in those conversations that people were looking for big company process which I've done a lot of and BP is very good at."

"But I realised that I didn't really want to do any more of it. That was the key. Getting back to something that's smaller, nimble and entrepreneurial has been refreshing. I am able to enjoy being closer to the frontline, getting back to some of the pleasure of earlier jobs I'd had in BP. One of the big plusses is getting out and meeting people in a vibrant and growing industry."

Landfill gas
Novera has an established portfolio of 46 landfill gas and 10 hydro sites around the UK, which form the company's solid foundations. It has long term contracts with the relevant waste operator or local authority for each site to collect and manage the gas and generate renewable electricity, with the landfill owner paid a royalty.

Novera is the second largest landfill gas operator in the UK, and there are opportunities to consolidate some of the smaller players in the sector. But in the long term, landfill is unlikely to figure significantly in the company's growth. "These sites give us a reliable base, but with the growing focus on recycling and doing things with waste other than putting it in holes in the ground, landfill gas is unlikely to grow." This provides an opportunity in itself, however.

The company has planning approval from the Thames Gateway development corporation for the East London Sustainable Energy Facility (ELSEF) based at Ford's site in Dagenham. "Waste is often put in holes in the ground and it can either be incinerated or refined into a material. One of the streams of materials from that kind of process can be used by us as a fuel. We're planning on a plant that takes fuel from a Shanks waste facility in East London, gasifies it and then burns the gas to turn into electricity for Ford. The facility will utilise technology developed by the Canadian company Enerkem Technologies, which Novera has an exclusive license for in the UK."

Wind
With a total of 58 operating assets providing solid and reliable cash flow, the next phase of the company's growth will come from onshore wind. It already has one site operating -
the Mynydd Clogau project in Wales, which was developed in a joint venture with Renewable Energy Systems (RES). "With landfill, hydro and one windfarm our current capacity is 122 MW. Our 100 percent planning success is unlikely to continue and so we are developing a potential capacity in excess of 700 MW to keep us well on track to reach our aim of 250 MW of wind capacity by the end of 2011." With planning approvals currently running at around 50 percent in the UK, even a conservative estimate would almost double Novera's current generating capacity.

"At this stage, we have one site in production in Wales and one that we got planning consent for in February (the 12-turbine Lissett Airfield wind farm in Yorkshire) which we're hoping to sign all the commercial agreements on shortly. We have one more in the planning system, and beyond that a portfolio of 20 or 30 different sites that we're developing. We've got three more sites that we're hoping to have planning applications in for by the end of the year and another crop next year," Fitzsimmons says.

The company is looking at a variety of sites across Northern England and Scotland which are being assessed for suitability as potential wind farms. Ideal conditions combine a strong wind regime, available grid connectivity and remote or self contained sites to minimise the chance of planning objections. As this side of the business develops, Novera is looking to develop a comprehensive interest in wind farms, from early development through to operating life and de-commissioning.

As energy needs and prices increase, and concerns over energy independence, pollution and global warming persist, UK renewable energy may prove to be a smart place to occupy for Novera. So what does Fitzsimmons make of the oil industry's argument that our reliance on oil and gas is set to rise by 2020, not fall? "I don't necessarily think it's a case of an argument for and against renewable. Worldwide there is a massive challenge over energy security and the Government's target for 2020 is 20 percent of our electricity from renewable sources. Electricity is roughly a third of the total energy mix, so in the grand scheme of things it's relatively small, but is still has an important contribution to make."

What about the European wide target of 20 percent of total energy by 2020? "That's a bigger challenge - and opportunity - for this industry. I think in a world economy that's still growing and has massive new energy needs, from China and India in particular, there's room for everyone. But I think the overarching thing needs to be concern about climate change and governments around the world are recognising the importance of laying out a framework that recognises the cost of the price of carbon. As public understanding of this grows, people will want to have some green in their portfolio, and that will be a benefit for us."

Joint venture acquisition
When Fitzsimmons joined Novera, the company was in a 50 percent joint venture with Australian company Macquarie Bank Group. The JV controlled one of the UK's leading renewable portfolios and was established in December 2004 as a vehicle for operating and acquiring landfill gas and biomass renewable projects. "We listed on AIM in 2005, but our most significant step on the market came last December when as a company with a market cap of £32 million, we raised £38 million which funded our acquisition of the Macquarie share of the joint venture. This demonstrated that the market was there for us and that we have access to fresh equity to support good deals in an attractive sector," says David Fitzsimmons.

"Since doing that, we've put particular emphasis on relationships with key players in the supply chain - both waste companies whose landfill sites we extract the gas from and companies who maintain and operate some of our core generators. In both cases our approach has been to move the dialogue towards working together to solve problems and that's working well."

In summary, the acquisition of the joint venture has transformed the company, giving it sole control of its 122 MW of generating capacity. It is projected that this will bring in a turnover of £34 million this year, and Novera has identified a number of operating synergies that have the potential to boost the gross value of the deal by 16 percent.

"We left that partnership as friends. The key to it was establishing the fact that we're both very supportive of the sector but that our different sizes and financial structures gave us different strategies, and neither of us was going to be able to satisfy our strategic ambitions in the joint venture," he says.

Fitzsimmons explains that as the renewable industry matures, it will reward scale and consolidated companies. "Having a decent market share and sufficient scale is crucial. Like any new sector, the renewable sector began with a cottage industry mentality, but the importance of scale is quickly becoming clear."

The company is now looking to bed down with strong organic growth. It will certainly be interesting to see where the company is in 2011. "We're in this position where we've got this platform of established operations, we're bringing in good people and we've got a growth pipeline that's making strong progress. We're ready to take advantage of the growing opportunities in this sector."

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