Methane powers clean-tech energy company

Bernard Ginns Business Editor

METHANE gas underneath former coal-mining areas in the North of England is helping to power strong growth in a clean-tech energy company.

Alkane Energy plc, which captures coal mine methane and uses it as a fuel for electricity generation and industrial heating, plans to treble revenues over the next three to four years.

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The Aim-listed company has 15 licences to extract gas from sites across Yorkshire, Derbyshire, Nottinghamshire, South Wales and Greater Manchester.

“At the moment our revenue is 6m,” said chief executive Neil O’Brien. “We believe we can treble our output from the current licence portfolio.”

Its business model is simple. The company finds a site in a coal mine area, obtains a licence from the Government and carries out a geological test to estimate the size of the gas reserve.

The company brings in a subcontractor to drill into the redundant mine workings and provide a safe link to its raw material. Alkane then sets up a modular reciprocating engine. It spends around 750,000 creating each mw of capacity.

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The current combined capacity is 37 megawatts, generated from 25 engine units across nine sites. Alkane spends 5 per mw hour on maintenance and running costs. Last year the company generated 95,000 mw hours.

“It’s a lovely working model,” said Mr O’Brien. “We have a very low cost base. All the engines can be monitored remotely through the internet. We only send field engineers out as and when we get a red flashing light for whatever reason.

“It’s very flexible from a capital and cost point of view. In the middle of a recession being very flexible is fantastic.”

Around 85 per cent of Alkalane’s revenue comes from selling electricity to the National Grid. The rest comes from selling gas and joint ventures.

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For example, the company provides standby capacity to Leeds-based Gaz de France Suez, the UK’s third-largest gas supplier, following a deal announced last November.

“We are effectively being rented to have our engines available for peak load, early evening when everyone gets home from work,” said Mr O’Brien. “They are integrated into our systems, so they don’t phone us to switch on the engines, they do it themselves. They give us a standing fee.

“It’s been building up each month and I am very hopeful on the prospects of that side of the business.”

Alkane announced another joint venture in December, this time with TEG, an Aim-listed firm that provides products and services for organic waste recycling.

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Mr O’Brien said: “They do municipal contracts and are looking at converting municipal waste into green gas (using anaerobic digestion) and we have now partnered with them to provide the engines and the grid connections and sell the electricity.

“That’s going to be a huge area. The Department for Energy reckons there is going to be anything up to 1,000 of these biogas plants around the UK. TEG is involved in building 10 for Manchester at the moment.

“We will sell the electricity and collect the cash and will share that with TEG for producing the gas. It’s a profit-sharing arrangement. We’re expecting to build our first site sometime in 2010 and are hopeful it will be in production in 2011. We are looking at three or four potential sites, including one on the Yorkshire and Lancashire border.”

Alkane is also in talks with a company in Barnsley about setting up an embedded supply of electricity and heating. Mr O’Brien, who declined to name the company, said: “They are a huge user of electricity and don’t want to be beholden to the market shooting up and shooting down.”

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He acknowledged that the sharp fluctuation in the price of electricity presented probably the biggest risk to Alkane Energy, which is debt-free.

Mr O’Brien said: “If you are trying to put down a plan for at least 10 years when electricity prices can go from 50 per mw up to 90 per mw and then down to 40 per mw in the middle of the coldest winter for 30 years, it is very difficult to plan for business.”

Energy prices are low at the moment, said Mr O’Brien but he added: “We can definitely cover our costs at 30 per mw at the low price of what we think might occur. Therefore, anything higher than that we’re definitely on the money from thereon in.”

Alkane Energy plc, which employs 20 people and is based in Edwinstowe, Nottinghamshire, is to report annual results next month. Analysts expect a pre-tax profit of 2m.