RE Royalties and the Model

An opinion piece by Stefan Feulner (Apaton Finance GmbH).

RE Royalties recently provided evidence of its business model's potential. As the Canadian company expands its international portfolio with new solar installations, an earlier financing deal in the US is paying off twice over. The capital originally invested has been repaid in full, while long-term revenue remains in place. On October 19, RE Royalties also announced the acquisition of a revenue royalty on 9 already operational solar installations in the Philippines for USD 1.5 million. The installations on shopping centre rooftops have a total capacity of 14.2 MW.

In return, RE Royalties receives quarterly royalties on gross revenues over the entire operating life of the installations. Long-term power purchase agreements and the existing operating track record reduce the typical development risks of new energy projects. The additional growth potential could pay off. The project partner, Singapore Solar, has around 138 MW of projects at an advanced stage of development, plus an identified pipeline of more than 700 MW. This could lead to further sizeable royalty financing deals.

A development in Wisconsin demonstrates how attractive this model can be. Outagamie Clean Energy Partners has repaid a secured loan of USD 4.6 million in full. The final instalment amounted to around USD 938,000. The loan, which originally carried an annual interest rate of 13.5%, financed the modernisation of a biogas plant that processes agricultural waste into renewable natural gas.

Although RE Royalties has recovered its invested capital in full, a contractually agreed royalty remains in place. For a further 10 years, the company is entitled to an annual payment of 4% of the original investment amount. This equates to USD 184,000 per year, or a calculated USD 1.84 million over the entire term. The first royalty payment has already been received. At the same time, the repaid capital is in principle available for new investments.

RE Royalties demonstrates the economic strengths of its approach: interest income during the financing phase, repayment of the invested capital and additional long-term income. The international portfolio now comprises more than 100 royalty interests in renewable energy projects.

Read the full article here.