Deal to power 14,000 homes

Alkane, which creates power from methane produced in former coal mines, is paying Hargreaves Services £7.5m for the reserves.

The mine, which was shut down in March with the loss of 500 jobs due to safety issues, has estimated methane reserves of 11.6 bcf at the site in South Yorkshire.

Alkane is one of the UK’s fastest growing power generators, operating 20 ‘gas to power’ electricity plants across the UK.

Once Maltby’s methane is added, the group will be able to supply 80,000 UK homes.

At a time when the looming energy crunch is becoming a serious worry, Alkane’s ambitious growth plans could help to alleviate the problem.

As big coal fired power stations are being shut down for environmental reasons, the UK’s surplus energy capacity is expected to fall from 30 per cent to between five and 10 per cent over the next few years.

The issue is raising alarm in the energy sector.

Yesterday electricity company SSE said in its final results: “SSE is concerned... that the speed and scale of the ‘capacity crunch’ facing Britain in the next few years is being under-estimated and that this could have implications for the security of electricity supplies”.

Alkane is keen to help fill the gap by taking over more disused coal mines.

Its chief executive Neil O’Brien said: “We’re still relatively small, but we’re growing at 45 to 50 per cent per annum. There are still great opportunities to grow.”

As part of the funding arrangement, Alkane has raised £6m in equity via a fundraising.

The initial aim was to raise £3m, but demand was stronger than expected.

“I was delighted with the fundraising,” said Mr O’Brien. “We were oversubscribed.

“We needed £3m to get the deal through. We had offers for more than £6m, but we trimmed it back.”

He added that the group’s bank, Lloyds, has extended its banking facilities by £3.5m, helping the deal to go through.

Of the £7.5m payment, £5.5m is immediately payable in cash and the remaining £2m will be payable upon the full closure of the mine, which is expected in 2014.

Alkane already operates seven former coal mines in Yorkshire: Grimethorpe, Manvers near Rotherham, Newmarket near Leeds, Cadeby near Doncaster, Houghton near Rotherham, Hickleton near Rotherham and Wheldale in North Yorkshire.

The group hopes to start extracting at Maltby by July producing 40 MW per year, which is enough to supply between 13,000 and 14,000 homes.

The company is taking a 15-year lease at Maltby and Mr O’Brien said there is a chance that it will roll on longer than that.

Maltby is expected to provide 11.2 MW of new installed capacity across eight existing engines.

The site already has engines, plant and equipment in place, which will enable the group to avoid the usual development lag of nine to 18 months between Alkane identifying, developing and funding the construction of a new site and generating revenue.

Until 2012 Maltby was one of the UK’s last working deep mines, which at its peak produced more than 1.2 million tonnes of coal each year and employed more than 500 people.

In late 2012, serious geological and safety problems came to light due to unsafe levels of gas inflow and hydrocarbons.

Alkane recently announced plans to start drilling at Markham Main coal mine near Doncaster next year and hopes to be on site at the Prince of Wales colliery at Pontefract this year.

Markham Main is expected to produce 4MW in output and Prince of Wales should produce 2MW.

Alkane is now the largest coal mine methane operator in the UK following the acquisition of rival Greenpark Energy in April 2012.

It also bought Seven Star Natural Gas in May 2011.

The company recently reported its eighth year of growth in output – up 19 per cent to 167GWh in the year to December 31.

Mr O’Brien said the group would look at further acquisitions if they are “the right assets at the right price”.

The group said a new site in Nottingham and a re-commissioned site at Askern, near Doncaster, added 5MW to capacity during 2012.

Askern contributed 2MW although there are plans to increase its output to 4MW after remedial work over the summer.

Revenues increased by 54 per cent to £14.7m in the year to December 31 and pre-tax profits rose 44 per cent to £2.9m.

An Ofgem/National Grid report published in November highlighted the impending energy gap as only limited new plant is being built.

Alkane said this raises the likelihood of power cuts which could occur as early as 2015.

“As a small and nimble power generator we are well positioned,” said Mr O’Brien.

“We’re flexible enough to jump in where the bigger players can’t. We can exploit these opportunities.

“We have a clear strategy in place in a power generation market where 25 per cent of industry capacity is scheduled to be retired in the next decade.”

[email protected]