Alkane Energy : 05 January 2015: Capacity Mechanism Agreements

Alkane Energy plc

("Alkane" or the "Group")

Capacity Mechanism Agreements receive Secretary of State Approval

Alkane announced on 19 December 2014 the provisional award of 101MW of Capacity Mechanism Agreements ("Agreements") starting from October 2018.  The award of the Agreements had been subject to the outcome of a review by the Secretary of State.  The review has been completed, the results of the capacity auction are now final and the award of the Agreements is confirmed.

Alkane has won Agreements covering 101MW starting from October 2018, and will earn a combined additional revenue of £14.4m under the Agreements over the period to September 2033.  The Group will receive £19,400/MW per annum for making capacity available to support the DECC Capacity Programme, with 46MW new sites being secured on 15 year Agreements and 55MW existing sites on one year Agreements. 

Alkane will fulfil these Agreements with no change to our current running regime.   The new build sites will provide Alkane with additional secure income of £0.9m p.a. and provide long term visibility of income stretching out from 2018 until 2033.  The existing facilities will provide £1.1m revenue in the year commencing October 2018.  We expect to bid the existing assets into future capacity auctions on an annual rolling basis.   

Neil O'Brien, CEO of Alkane Energy plc commented on the award of the Agreements:

"We are delighted by the confirmation of the award of these Agreements, the largest ever contract award in Alkane's 20 year history.  With a combined additional revenue of £14.4m, they provide us with long term income visibility stretching over a 15 year period."

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Background information

Alkane is one of the UK's fastest growing independent power generators. The Company operates mid-sized "gas to power" electricity plants providing both base load and fast response capacity to the grid. Following the recently announced acquisition of three power response sites from Carron Energy Limited and Dragon Generation Limited, Alkane has a total installed generating capacity of 140MW and an electricity grid capacity of 160MW.

Alkane's base load operations, where power is generated 24/7, are centred on a portfolio of coal mine methane ("CMM") sites. Alkane has the UK's leading portfolio of CMM licences, enabling the Company to extract gas from abandoned coal mines.

As CMM declines at any one site, Alkane retains valuable generating capacity and a grid connection which can be redeployed to power response. Power response sites are connected to mains gas and produce electricity at times of high electrical demand through peak running, or in order to balance the electricity grid through participation in the National Grid's short term operating reserve programme ("STOR"). Participants in STOR are paid premium rates when called upon by the Grid to meet temporary supply shortages. Alkane now operates 93MW of power response, one of the UK's largest power response businesses, with contracted revenues extending out to 2025.

The Group operates from 27 mid-size (up to 25MW) power plants across the UK, 15 CMM only, 8 mains gas only, 3 using both fuel sources and 1 using kerosene only. Alkane uses a combination of standard modular reciprocating engines and gas turbines to generate the electricity and sells this power through the electricity network. The engine units and other plant are designed to be flexible and transportable allowing additional capacity to be brought onto growing sites and underutilised plant to be moved to new sites to maximise efficiency.

Alkane transferred in June 2014 its shale gas interests to Egdon Resources plc.  Alkane received 40m Egdon shares making us the largest shareholder in Egdon, a significant player within the UK shale industry.

Alkane has a range of core skills encompassing the entire project development cycle including planning and permitting, sourcing plant and managing the build and commissioning stage. This has enabled Alkane to establish a design, build and operate ("DBO") business for third party clients in the biogas and oil & gas industries.

The Group has circa 800km2 of acreage under various onshore Petroleum Exploration and Development Licences ("PEDLs").