Rame Energy plc (LSE:RAME) Chief Executive Officer Tim Adams caught up with DirectorsTalk for an exclusive interview to discuss the five year PPA and their Cerro Bayo project with Anden Re.
Q1: You updated the market on your company on Friday, we’ve heard a lot about the portfolio that you’re operating at Raki, how significant is the smaller off-grid project to Rame?
A1: It’s very significant indeed. I think the off-grid setting and the smaller projects off-grid are hugely important, they’re an important part of our business environment. It is really the small projects that allow us to properly differentiate our earning potential in the energy market. It’s our ability to produce a bespoke solution in terms of size and the duration of the commitment and the location that really carry the premium that allows us to achieve the higher returns that actually underpin the value proposition in Rame because we’ve always said we’re not a utility company and we don’t have ambitions that are driven by scale, only by yield.
Q2: So it is a different business model to what some people may be thinking?
A2: Yes, it’s very complimentary. The company has two distinct divisions in terms of it’s on and off grid, both have a very important role to play. Rame needs to do the things that other people may not be able to do like blending the appropriate technology with the appropriate duration of commitment to the client to really be able to explore and secure that level of return that’s just not achievable in the mainstream renewable market.
Q3: The five year PPA is significantly shorter than standard PPA’s, why is this likely to be attractive to others in the off-grid market and how has Rame achieved this?
A3: I think the key thing currently is that many consumers of energy have a relatively volatile horizon in terms of their own business. They’re not able to make substantial long-term commitments because they’re not entirely sure what their business outlook might be. One of the key areas for us has been mining, it has been an important part of our development and mines particularly have a very variable future. It can be variable for a number of reasons including obviously the economics but also how long in fact the resource will take to fully extract so life-of-mine as they call it is hugely important to those sort of off-grid customers and for us to be able to combine the right sort of technology in the right location and to really give cost benefit on the short term, I think is very significant source of advantage for us but it also produces very high yielding return.
Q4: The funding for Cerro Bayo has been raised from Anden Re who would appear to be the natural partner for you. Can you tell us a little bit more about them and the longer term plans for partnership that might be in the offing?
A4: I think as a principal, obviously this sort of project is something that we would hope to be able to fully fund ourselves but that’s not necessarily something that prevents us from getting the full value from it. We have to look at partners who may have an aspiration that’s complimentary to us so they may want to see a yield out of a particular project but not necessarily own it completely or in fact we may also be able to step back in and give them an exit as well. So those sorts of flexible arrangements which are very much in line with our first project with Anden Re are the perfect sort of opportunity for Rame to continue to develop its pipeline and move forward without losing the opportunity to participate in the project and the returns that it can create. Also to be able to participate in a much larger level going forwards when we see the funds that derive from these projects actually crystallising the treasury and we become a little less forced to consider other financing opportunities. I think in the project itself, it’s hugely strong for Rame, we are the EPC contractor and I think that’s an important thing to note as well so we are participating fully in the delivery of the project and to be able to participate in the revenue stream thereafter is a huge plus. It is something that we certainly aim to explore further with Anden Re so that this flexible level of cooperation which is very aligned in terms of the interest of both parties, can continue to allow us to deliver more capacity and expand our footprint as an IPP.
