RE Royalties and Royalty Financing

An opinion piece by Armin Schulz (Apaton Finance GmbH).

Royalty financing originated in the mining industry, where Franco-Nevada was one of the pioneers of the business model. RE Royalties applies the same principle to the energy transition sector. The company provides funding to project developers and, in return, receives a share of the revenue from solar parks, wind farms, and battery storage facilities. It does not operate its own projects, which allows it to scale effectively with a small team. This ensures stable cash flows over a term of up to 25 years. Developers retain their equity but gain access to flexible capital—a smart move. In the future, dividends will be paid only once a year, providing the company with financial flexibility. The pipeline is full; the funds need to be put to work.

The Jackson Center solar project in Pennsylvania illustrates how the model works. RE Royalties supported the project from groundbreaking through commissioning, providing the capital required to complete the 27 MWDC solar facility. In return, the company secured a tiered gross revenue royalty. A CAD 10 million loan is currently in place in the Maldives. Two solar projects are replacing diesel generators—one installation is located on a hospital rooftop, the other on a resort island. Both are critical infrastructure. As critical infrastructure assets, these projects offer predictable cash flows and relatively low default risk, helping to strengthen confidence in the business model.

The partnership with Solaris Energy began in January with an initial tranche of USD 3.0 million, followed by a second tranche of USD 0.8 million in February. This brings the total commitment to USD 3.8 million for a portfolio of 25 distributed generation projects across the United States. Under the agreement, Solaris may draw up to USD 9 million. A key announcement followed on March 27, when the company revealed that its Board of Directors had initiated a strategic review. PricewaterhouseCoopers has been engaged to evaluate strategic alternatives, including a potential sale, strategic partnerships, or new financing structures, with the objective of maximizing shareholder value. With a market capitalization of approximately CAD 16 million and a potential project pipeline estimated at around CAD 200 million, the valuation gap is striking. The coming months could therefore prove to be an important catalyst for the company. The shares are currently trading at around CAD 0.37.

Read the full article here.