RE Royalties: Setting the Course for Growth

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

On August 5, RE Royalties announced an increase in its investment in Solaris Energy by USD 1 million, bringing the total to USD 4.8 million. At first glance, this may not sound particularly exciting, but the key development is the memorandum of understanding signed at the same time, with a volume of up to USD 67.5 million. In addition to the USD 4.8 million already disbursed, a further USD 13.7 million is earmarked for 13 solar projects with a capacity of 48 MW that have already been commissioned, plus USD 49 million for 83 projects in the development stage totalling 142 MW. Although the letter of intent is not yet binding and is subject to due diligence, it clearly demonstrates the potential for scale within this partnership. If the due diligence is successfully completed, this could take RE Royalties to a whole new level.

Against this backdrop, the review of strategic alternatives initiated in March is taking shape. With PricewaterhouseCoopers Corporate Finance on board, management is evaluating how best to finance the pipeline comprising around CAD 20 million in firm letters of intent and a further CAD 200 million under review. The mismatch between short-term bonds and long-term royalty income is the key piece of the puzzle that needs to be resolved. The potential solutions range from a sale of the company, through co-investment partnerships, to capital structure optimizations via equity or debt financing. The focus remains on long-term value creation for shareholders.

The North American market for clean energy financing, valued at USD 120 billion, offers ample scope for growth. With its focus on medium-sized developers, RE Royalties has carved out a niche that is often neglected by banks. Operational speed is a decisive competitive advantage here. The Jackson Centre solar projects in Pennsylvania and the financing of solar installations in the Maldives demonstrate that the model works, from local community projects right through to international ventures. With 135 projects in its portfolio and an unleveraged internal rate of return exceeding 19% since its inception, the company remains an attractive prospect for investors seeking to participate in the growth of renewable energy.

Read the full article here.