Profits in pipeline as renewable industry powers up

AT first glance, a nondescript industrial shed on the edge of Featherstone might not look like the future of energy production.

But inside, a set of noisy engines powered by renewable fuels are producing enough electricity to provide continuous heat for 15,000 homes. In its first year of production, this small power station – which has zero carbon emissions – could generate revenues of 4m.

The 3.5m plant was commissioned last month and is the first of six 8mw power stations planned for South Yorkshire by Rocpower, a subsidiary of Hargreaves Services, the fast-growing coal mining and support services group.

Hargreaves is in the business of sourcing, handling, storing, processing, transporting and selling coal, using its four divisions in production, energy and commodities, transport and industrial services.

The group refers to this integrated supply chain as a carbon pipeline. Gordon Banham, the chief executive of Hargreaves, said: "That pipeline for carbon continues to grow with exciting projects. We have taken skills from the carbon pipeline and applied them to the renewable sector."

Gareth Vickery, the commercial manager of Rocpower, added: "Cross-selling and knowledge transfer are at the heart of everything we do."

Hargreaves bought the package of six sites from Powergen and is in the process of applying for planning permission for the next five. Applications for sites in Barnsley and Sheffield go before local government in February and March.

Work began at Commonside Lane last October and it was commissioned in December, following 27,000 hours put in by the group's industrial services division. "It's a quality delivery," said Greg Kelley, the divisional managing director.

The group sourced the diesel engines from pumping stations in Wales. A brand new engine would cost in the region of 2m-3m, but capital costs were kept down by buying second hand for 200,000-300,000 each and having them reconditioned.

Gavin Longley, the operations and business development manager at Rocpower, said: "All had less than 1,000 hours use over 30 years. We are scouring the globe for other engines."

The group is sourcing different kinds of renewable fuels through its subsidiary Rocfuel, which has an international supply network. The group intends to only use oils that cannot be used in food production – such as low-grade vegetable and used cooking oils – and it will not be using palm oil.

Mr Banham said: "We don't want to enter the fuel versus food argument. We won't be competing with sources of fuel that go into the food chain."

He said the group would consider buying more expensive fuels if it could secure longer term contracts to avoid sharp fluctuations in commodities prices.

Robert Kennedy, managing director of Rocpower and Rocfuel, added: "The plant is designed to be a bottom feeder in the market to take the type of fuels that other companies cannot take in."

Rocpower's revenue comes through three streams. It can supply electricity locally to regional electricity distribution networks – known as embedded generation.

It receives income from subsidies called renewables obligation certificates (ROC), worth 54 each, which are issued for each megawatt hour of eligible renewable output generated. Rocpower also sells electricity to the National Grid, through a company called Smartest Energy.

It is estimated that the plant will be capable of generating revenues of 4m a year. With six power stations up and running – all within 20 minutes of Commonside Lane – the combined annual revenues could reach 24m. City analysts believe that Rocpower could account for up to 15 per cent of Hargreaves's pre-tax profit in two years.

It is also believed that each plant could save 41,000 tonnes of CO2 per year. The group may add another two or three sites in the next year or so, said Mr Banham. Aim-listed Hargreaves Services, headquartered in Durham, is a big player in the region with more than 1,000 employees in Yorkshire involved in the supply, movement and management of mineral resources.

It employs 200 at the Monckton Coking and Chemical Company – bought in 2005 – which is the UK's last independently owned coke production unit.

The 130-year-old works produces 200,000 tonnes of coke a year, using 300,000 tonnes of coal from Maltby Colliery, owned by Hargreaves since 2007. Nearly half of this coke is destined for use as a raw material in sodium carbonate.

The coke is also used for the ferrochrome market, the raw material for stainless steel.

The site's sole fuel source is the gas it produces. It exports enough power for 6,000 households.

"Not huge, but certainly worthwhile," said Ian Archibald, the works director.

Hargreaves is considering processing some of the oils required for Rocpower at Monckton, using some of its excess energy supplies.

Maltby Colliery, near Rotherham, is one of the few remaining deep mines in the UK and, according to Mr Banham, has huge amounts of coal to be extracted. He said: "Maltby is a long-term strategic asset. Provided it only breaks even I would keep it open because it keeps 500 people in jobs. We produce one million tonnes of coal a year."

The group – which has a 500m turnover – is planning to replicate the UK carbon pipeline in Europe and has started developments in Belgium, Germany and Poland.

Mr Banham said: "Carbon pipeline potential in Europe is 25 times the UK market."

Aside from Rocpower, the group's other UK focus is a project to reopen the Tower Colliery in South Wales. With developments in Europe and the UK, the group is expecting organic growth. Mr Banham did not rule out future acquisitions for Hargreaves, which brokers say will deliver annual pre-tax profits of 30m.

"Asset valuations are starting to come in line," he said. "People are accepting a lot has changed and are not overvaluing businesses like they did in the past." Mr Banham added: "There are four divisions in this business. If one's in trouble, the others can compensate. The strength of the group is its diversity."

Rise to top born out of tragedy

The rise of Gordon Banham reads like a gripping drama, with elements of tragedy, personal sacrifice and ambition creating an entrepreneurial success story for our times.

His story begins with tragedy, when the sudden death of his father and the following illness of his mother forced the 19-year-old to cancel his plans for university and play surrogate parent to his younger siblings.

Mr Banham took over his late father's coal business, which delivered 1,000 tonnes of coal to 500 homes around Norfolk. He learned the business and built the largest independent supplier in his home county.

He sold the company when his brothers were old enough to go to university, but stayed on to run the business under the new owners. A series of bigger jobs and business deals followed through the '90s until he had the opportunity to buy the assets of a bulk haulier, Hargreaves Services, for 4.5m.

The group – which was backed by YFM – grew organically and through acquisition. Today, the Aim-listed company has a market capitalisation of 192m.

The 45-year-old is unmarried and without children, although he has a long-term partner. "I'm wedded to the company," he said.