Poweralternatives: New legislation means IRR uplift for Rame Energy’s Chilean wind project

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Poweralternatives: New legislation means IRR uplift for Rame Energy’s Chilean wind project
Rame Energy in Chile

 By Amy McLellan

A frustrating end to the year for Independent Power Producer Rame Energy plc, the AIM newcomer which had been gunning to have its first two wind projects operational by year-end and just nine-months since its IPO.

The frustration comes from the fact that the small cap renewable energy company had been on track to meet its goal of bringing the 15 MW Raki/Huajache wind project in Chile online by the end of this year but the timetable has been derailed after a landslide disrupted deliveries to the site.

Turbine supplier Vestas has opted to delay delivery of components until the route is cleared by the authorities – an alternative route would incur additional transportation costs – which is expected to take three to four weeks.  Vestas could be liable for liquidated damages due to the delay, which might be of some comfort for Rame’s backers.

For those used to following upstream oil projects, however, where delays on difficult drills or offshore engineering projects are routinely measured in months and years rather than weeks, the late erection and commissioning of the turbines barely registers. Indeed, the delay may be minimal as it may be possible to make good some of the lost time because the landslide delay means commissioning will no longer experience any festive season interruptions.

CEO Tim Adams, an engineer who spent many years at Foster Wheeler, said the delay was frustrating but not of “particular material significance to the overall project timetable”.

And news of the delay is more than offset by the latest update on project economics after recent clarifications on energy legislation in Chile look set to improve the internal rate of return on the project by 1.5 per cent to deliver an IRR of 17.5 per cent.

This uplift is down to the costs of the new transformer bay at the substation that will connect Raki/Huajache to the grid: these will now be spread between all generators, and not borne by the project alone, because the transformer is now classed as part of the overall system and not ‘additional equipment’. This will also result in opex savings of US$2 million over the life of the project.

Rame has a 20 per cent equity interest in the project alongside Santander, with the debt finance provided by Chilean bank Banco BICE. These are two of the company’s first six wind projects in Chile totalling 133 MW and a stepping stone on the road to the company’s three-year plan to build an operational portfolio of 300 MW in Latin America.

Analysts at Northland Capital Partners, which rate the stock a BUY with a price target of 31 pence, more than 150 per cent higher than its current level, said the latest update from the company was “positive overall with the reduced transmission capex and operating costs more than offsetting the short delay that is beyond Rame’s control”.

A frustrating end to 2014 may yet prove to be a positive start to 2015.

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