RE Royalties: Royalty Model for the Electricity Boom

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

Rising demand for electricity, driven by electrification, data centres, and AI applications, is structurally transforming the energy market. According to data from the US Energy Information Administration, renewable energy will account for approximately 93% of newly installed US electricity capacity in 2026—a clear indication of where investment capital is flowing. In this environment, RE Royalties (WKN: A2PN0F | ISIN: CA75527Q1081 | Ticker: Y2V) occupies a unique niche. The company finances developers of solar, wind, and energy storage projects and, in return, receives revenue-based returns, known as royalties. The advantage of this model is that RE Royalties does not act as an operator itself and thus avoids a large portion of traditional construction, cost, and operational risks. This is attractive to investors because it creates a capital-light, potentially highly scalable revenue model for expanding renewable energy.

Notably, RE Royalties expanded its collaboration with Solaris Energy. In early August, RE Royalties increased its existing investment by an additional USD 1 million, bringing the total to USD 4.8 million. At the same time, a letter of intent was signed for a potential financing volume of up to USD 67.5 million. At its core, this involves 16 already-financed plants and, looking ahead, another 96 solar projects with a total capacity of approximately 190 megawatts. Cash flows from the investments are structured to last at least 25 years; thereafter, royalties continue for the remainder of the respective projects' lifespans. This generally creates predictable cash flows, although the actual leverage effect will only become apparent once the projects in the pipeline are actually finalized.

Developments to date show that the concept works from an operational standpoint. According to the company, more than CAD 83 million has been invested to date, resulting in a portfolio of over 130 projects. 121 of these are already generating ongoing cash flows. The average return on capital employed is around 19%, which is notably high in the infrastructure and financing sector, though it also reflects the greater complexity of smaller, specialized transactions. Added to this is a dividend of CAD 0.04 per share, which, based on a share price of CAD 0.39, corresponds to a double-digit return. The key question, however, remains whether this distribution will be sustainably covered in the long term by a broad and growing royalty portfolio—rather than being supported solely by the current portfolio.

The discrepancy between the project portfolio, including its steady cash flows, and the current market capitalization is striking. With a market capitalization most recently of around CAD 16.5 to 17 million, RE Royalties is significantly undervalued in the market relative to what its project pipeline would suggest. At the same time, the Board of Directors, together with PwC, is exploring strategic options—ranging from partnerships and new financing structures to a potential sale. This could be seen as a signal that management estimates the intrinsic value to be higher than the current valuation. The bottom line is that RE Royalties remains a speculative small-cap stock with interesting exposure to the global expansion of renewable energy. The opportunity profile is there, but its realization depends largely on access to capital, the certainty of closing new deals, and the continued consistent scaling of the portfolio.

Read the full article here.