how does it add up, page-6

As a matter of interest, what does wholesale electricity sell for in Australia, how large are any credits for renewable generation and how much do the good residents of Perth etc pay wholesale for their fresh water? I genuinely don't know and would like to.

When it comes to valuing flow rights as you call it, I don’t think they’re worth much at all. I have a number of reasons:

a) REH.L itself has a market cap of A$50m. This rather limits the scope for how valuable the market can reasonably think hanging on their coattails might be.

b) REH’s listing document has something to say about these rights:
“The agreement further provides that each of PHL, Carnegie and Alan Burns shall, subject to certain shareholding criteria, be entitled to be offered a first right of refusal to an opportunity to participate in the commercialisation of renewable energy projects on commercial arm’s length terms provided always that such agreement to participate is in the best commercial interests of the Company”
Note, it is no exclusive CNM relationship. Pacific Hydro and Mr Burns himself both have the same treatement. Secondly it is only a first refusal on commercial arms length terms.
Frankly I think this is only a whisker away from no agreement at all.
There’s also the Letter of Intent Carnegie announced 24 July 06 – what did REH’s announcement have to say. There wasn’t one – that’s how significant REH viewed it.
Fact is, REH is in principle quite happy to farm out portions of their projects anyhow – it fits their business model. To anyone.

c) These projects are capital intensive.
What are the figures bandied about for this commercial desalination/power? A$400m? What equity can CNM contribute, what are their relationships with lenders? Even if they were invited to participate meaningfully – could they and at what cost in equity dilution?
In contrast financial engineering is really REH’s game. For now, they have already arranged an A$200m facility to draw down on for project finance.


And there’s also the aspect that CETO itself still needs quite a bit more proving. The concept of power transfer to shore as pressurised seawater has been validated by CETO I, but CETO II’s method of extracting the wave energy is still to be tested. And then we’ve still got scale up and production engineering for the hoped for commercial CETO III.


Basically I think CNM are lobbying to secure their position as politically having to be involved in Aussie projects. And if the projects go ahead they will indeed be able to be involved. But there’s every reason to believe it’ll be capital intensive, there’s no saying just how big the involvement will be and are still many risks in the way. Having 2/3rds of the company valuation riding on this hope is far too much.