Solar Millennium: The concentrated solar energy saw a promising start

Solar Millennium AG’s (ISIN DE0007218406) preliminary figures for the 2009/2010 financial year, in accordance with IFRS, showed the Group generated operating earnings before interest and taxes (EBIT) of approximately € 0.7 million (adjusted figure of € 52.3 million in the previous year). EBIT thus slightly exceeded the forecast, which had been revised on 13 October 2010. The already announced decline in EBIT from the previous year was primarily the result of a delay in the financial close for two US power plant projects in Blythe. This is now expected in the current reporting period.

In the consolidated financial statements for the 2009/2010 financial year as of 31 October 2010, Solar Millennium AG’s income statement introduces a new key figure which also increases the transparency of the Company’s reporting: total operating performance. Solar Millennium will post the sale of participation rights to funds as a separate item, i.e. “other operating income”, under total operating performance. This had previously been included in the total sales figures. Total operating performance is made up of: sales; other operating income; changes in inventories, capitalized in-house production; and remaining operating income. Each item is listed separately (see also table below).

The Group generated total operating performance of approximately € 186 million versus € 220 million in the previous year. The lion’s share of sales contributions came from the sale of stakes and from the sale of a participation right in the Spanish Concentrating Solar Power power plant project, Ibersol, plus the engineering and construction of the solar-thermal power plant Andasol 3. The Solar Millennium Group generated additional sales by realizing the Parabolic Trough solar field in Egypt and services such as feasibility studies for concentrated solar energy plants in various target regions. The operating cash flow for the 2009/2010 financial year is well into positive territory at approximately € 7 million (previous year: € -51.6 million).

Of the total operating performance of around € 186 million in the 2009/2010 fiscal year, € 73.2 million pertain to sales (previous year: € 159.3 million after adjustments) and € 62.9 million to other operating income (previous year: € 47.6 million), which include income from the sale of a participation right in the Ibersol power plant project. The changes in inventories come out to € 38.8 million (previous year: € 10.4 million), capitalized in-house production amounted to € 1.4 million (previous year: € 1.9 million), while remaining operating income, mainly including non-recurring and consolidation effects, was € 10.1 million (previous year: € 0.8 million). Using the old method, sales for the 2009/2010 reporting period (i.e. including the proceeds from the sale of the participation right to the Ibersol fund) at approximately € 136 million would have been below the recently adjusted forecast of € 150 million.

Oliver Blamberger, CFO of Solar Millennium AG, explains the new classifications in the annual financial statements: “Reporting the total operating performance figure allows us to increase transparency in our reporting and improve comparability between different reporting periods. Total operating performance shows the Company’s business development is in fact much stronger than just sales. It includes, for example, capitalized project development work in Spain and the US that has already been performed but cannot yet be invoiced due to the still outstanding sales of stakes to major investors.”

The sales and earnings forecast originally announced at the start of 2010 had to be adjusted, primarily due to the postponement of the financial close for the planned Blythe 1 and 2 power plants in the US. This was expected to take place at the end of the previous reporting period, but is now scheduled for the current period. Another reason for the adjusted forecast is due to restructuring of the financing concept for the Spanish power plant project Ibersol. Moreover, the signing fee for the former CEO Prof Utz Claassen has resulted in an extraordinary profit burden.

Dr Christoph Wolff, CEO of Solar Millennium AG as of 1 January 2011, explains the operating progress made in the ongoing business: “In the previous fiscal year we spent a significant amount of capital in the scope of our intensified project development activities and especially in the approval process for US projects. Here, we have even begun realizing not just the one power plant originally planned, but an additional one, also, after the approval process has been successfully concluded. The successful realization of solar power plants in the US should secure a significant share of operating business with continuous and stable sales over the next few years.”

The complete consolidated financial statements for the 2009/2010 financial year and the annual report are scheduled for release at the annual press conference on 3 March 2011 in Munich.

The solar-thermal power generation sector saw a promising start to 2011. All of the Solar Millennium Group’s core markets showed positive signs: Spain has provided for legal security in the issue of feed-in tariffs for pre-registered projects; the US extended its Renewable Energy Grants, for investments in solar-thermal power plants by one year; and, in the MENA region (Middle East and North Africa), Solar Millennium managed to pre-qualify to participate in the bid for a 125 MW solar power plant in Morocco.

In Spain, Real Decreto 1614/2010, which took effect in December, governs the details of the Spanish feed-in tariffs, thus providing for investment security and regulatory stability. These regulations adapt earlier royal decrees to the changed situation on the Spanish market. As such, it was determined that a maximum of 4,000 full-load hours will be remunerated for a parabolic trough power plant with 9-hour thermal storage capacity. The Ibersol power plant developed by Solar Millennium, for instance, has storage for roughly 8 hours and is expected to reach 3,400 full-load hours per year on average, meaning the regulations allow for a sufficiently large buffer in particularly sunny years. Another regulation refers to the first year of power plant operation: a regulated fixed tariff applies for this period. Starting from the second year of operation, power plant operators can chose between a fixed and a variable tariff that consists of the pool market price for electricity plus a premium. The Decree furthermore filled a legal loophole, meaning that retroactive changes for pre-registered power plants, such as Andasol 3 and Ibersol, will be excluded in the future. The Spanish Concentrated Solar Power (CSP) Industry Association Protermosolar also agrees that this Decree will finally put an end to the past year’s discussions of the feed-in tariffs.

Also in December US President Barack Obama signed a bill that prolongs Renewable Cash Grant by another year. This subsidy scheme provides for a direct grant of up to 30% of investment costs instead of subsequent tax relief for investments in alternative energies such as solar-thermal power plants. Originally, this subsidy was only meant to apply to power plant projects that commenced construction before the end of 2010. The Blythe project developed by Solar Millennium would have met this condition in any case, since preparatory construction works have already started. However, the extension of this subsidy scheme will now improve the economic environment for additional solar-thermal power plant projects. If construction commences before the end of 2011, these could likewise qualify for the grant.

In the scope of its solar energy promotion project, Morocco has tendered a solar-thermal power plant with a capacity of 125 MW. 19 consortia had applied for the opportunity to build the power plant, but only four were pre-qualified. Solar Millennium AG is in one of these consortia, together with Evonik Steag GmbH and Orascom Construction Industries, the Egyptian partner with whom the company already carried out the Egyptian hybrid power plant in Kuraymat. In a next step, the consortium will submit a concrete proposal for the power plant to be built on the edge of the High Atlas Mountains at the Ouazarzate location.

International studies have also announced the continuous rise of solar-thermal power plants. For example, the current study by the Swiss bank Sarasin forecasts installed output worth 32 gigawatts (GW) in 2020. The Solar Thermal Electricity Study 2025 (by AT Kearney / ESTELA) even assumes that installed global output could amount to 100 gigawatts in the ideal case. Both studies are confident that the power generation costs of solar-thermal power plants will drop by some 30 to 50 percent in the same period. Levelized costs of electricity would thus reach € 0.08 to 0.10 per kWh.