Tuesday, November 15, 2016

Could Mainstream Go Main Street?

Its company name epitomizes the energy sector goal of Mainstream Renewable Power (private).  Its current portfolio of wind and solar energy projects, nine of which are in operation and generating electricity, totals 10,532 megawatts of power generation capacity.  The projects are concentrated in the United Kingdom, Chile and South Africa.  Mainstream CEO, Eddie O’Connor, recently penned an article for the corporate website, celebrating the victory of renewable fuel sources over fossil fuel-based energy in a recent supply auction in Chile.  The auction to supply three gigawatts of energy was won by energy producers relying on renewable energy sources.  Domination of a competitive auction provides support for the view that renewable energy sources can be ‘mainstream.’

The company’s most recent project initiation is on the other side of the Pacific Ocean.  The company recently announced three wind projects totaling 940 megawatts in Vietnam.  Development of this wind energy capacity would put Vietnam on track to achieve its stated goal of having 800 megawatts of renewable energy sources in place by 2020.  In should be no surprise that Mainstream has received considerable support for its Vietnam plans from Vietnamese government.  The present of Vietnam even served as a witness for the agreement between Mainstream and its local development partner, Phu Cuong Group.
No matter how politically popular, energy projects are not completed on shoestring budgets.  General Electric Energy Financial Services is joining with Mainstream to help supply the $2 billion in capital required for the largest of the Vietnam projects, the 800 megawatt Phu Cuong Farm.  The other two projects are smaller and together require approximately $200 million in new capital.  
The company recently launched an investment and financing arm called Mainstream Renewable Capital to engage investors and arrange financing for the development portfolio.  ‘Investability’ has been an issue as the world’s electricity sector has begun the transition from fossil fuels to renewable energy sources.  Returns have sometimes failed to attract adequate capital as policy uncertainty has brought future cash flows into question.  There are some forces that should help improve metrics, including increases in electricity selling prices, greater consistency in subsidies for renewable power sources, and better coordination between government and private business in forming energy plans.
Within the member countries Organization for Economic Cooperation and Development (OECD) capital investment increased from $60 billion in 2000 to $220 billion in 2012, over half of which was in renewable sources other than hydro-electric.  Despite the large influx of capital, renewable energy sources  -  wind, solar, geothermal and biomass  -  still only account for about 8% of energy generation in the OECD.   Thus there is considerable room for expansion of renewable projects. 
This large market opportunity has opened the door to new developers besides the electric utility industry itself.  Its company name and corporate goals notwithstanding, Mainstream is among these newcomers.  As a private company it affords limited opportunity for the individual investor.  However, as the company builds out its nine gigawatts of power generation projects, it seems logical that Mainstream could eventually look toward ‘main street’ for capital.  It will not be the first time.  The company was founded with seed capital of 32 million Euros in 2008, and later in the year raised 20 million Euro in a venture capital round.  However, over the following four years Mainstream reached out several times to retail investors in Ireland for another 140 million Euros in debt and equity financing.

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.

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