Paying it Forward with Renewable Energy - Profile on RE Royalties Ltd.
With climate change being a key topic in Canada’s upcoming federal election, my interview with Bernard Tan, CEO of RE Royalties Ltd. is timely. Vancouver-based RE Royalties provides an interesting financing solution for renewable energy companies that may find the traditional financing routes unavailable or unsuitable. Renewable energy is energy that is collected from renewable sources such as sunlight, tides, wind, rain or geothermal and replenishes itself at a rate that is equal to or faster than the rate it is consumed. Energy from renewable sources currently provides 17% of Canada’s primary energy supply and wind and solar are the fastest growing sources of Canada’s electricity (source: Natural Resources Canada https://www.nrcan.gc.ca/renewable-energy-facts/20069)
As a company focused on renewables, RE Royalties is favourably placed for growing its business and taking advantage of this fast growing sector. Specifically, RE Royalties provides royalty financing for renewable energy companies. While the concept of royalties exists in many different industries (Prairie Sky Royalty Ltd. (oil and gas), Franco-Nevada Corporation (mining), Alaris Royalty Corp. (private companies), A&W Revenue Royalties Income Fund (fast food), Mr. Lube Diversified Royalty Corp. (quick serve oil change), The Keg Royalties Income Fund (dining), etc.) it has yet to become widespread with respect to renewables. A “royalty” is simply a payment made to an individual or company for the use of their property by another entity. In the case of RE Royalties, the royalty is generally calculated on the revenue from the project regardless of profitability.
So what is royalty financing? Like an advance on a paycheque, a company gets a payout now (to use as required) based on its future royalty revenue. The royalty financing company, such as RE Royalties, pays the money and takes all or a portion of the future royalty payments in return. CEO Tan decided the concept had legs in the renewables sector when he was approached by a cleantech wind company that was receiving an existing royalty. The company wished to develop a new project but needed funds. RE Royalties saw the value in buying out the residual royalty stream on the project and the company was able to use the funds to develop another renewables project.
RE Royalties and the royalty financing model is able to step in and provide capital without the renewable energy project developer having to give up ownership in their company. They can maintain control while accessing capital to develop the project. For example, Fresh Air Energy Inc. (“Fresh Air”), an Ontario solar energy company, was able to utilize the RE Royalties model to gain capital for an interesting project in Africa. Fresh Air owned a royalty on four solar parks in Ontario. RE Royalties purchased the future royalty revenue stream from Fresh Air for $1.87 million. Fresh Air was able to take these funds and develop its Solar Panda project in Kenya. Solar Panda provides small in-home energy systems for Kenyans that power their solar panel, battery, lights, radio and cell phone charger. Owners of the systems can make small payments toward the cost using their phone and can work towards upgrades to power a TV, for example. Clean indoor lighting as opposed to emission heavy kerosene is just one of the advantages Solar Panda brings to owners of the system.
Renewable energy is currently the cheapest source of electricity in many parts of the world and by 2020, wind and solar will be less expensive as a source of new electricity than the cheapest fossil fuel alternative (source: International Renewable Energy Agency - IRENA). The fact that renewables are becoming cost effective is a huge part of the global wide energy transformation. RE Royalties is available to provide innovative financing for many of these projects. RE Royalties was listed on the TSX Venture in November 2018 under the ticker RE. While its stock currently sits around $.80, I look forward to seeing how RE Royalties will “pay it forward” with its royalty financing model that allows for further development of renewable energy projects.
*** This article is for information purposes and does not constitute financial advice or endorsement of this stock or company. I, nor ZSM Creative Inc. operating as The Capital Pink, are affiliated in any way with RE Royalties Ltd. Please review the Legal Disclaimer for further information.