Parkmead Acquires Kempstone Hill: Can Small Energy Corporations Benefit from entering the Highly Concentrated Renewables Energy Market?

On 1st February 2022, oil and gas group Parkmead announced their acquisition of wind farm owner Kempstone Hill for a price of 3.29 million GBP. The deal adds a 1.5-megawatt (MW) Scotland-based onshore wind farm to Parkmead’s portfolio. This transaction will be completed through a 990,000 GBP loan. Parkmead said the acquisition will help it to build “a robust and balanced European energy business”, and the board is “actively looking to further enhance in cleaner and renewable energies”.

The Aberdeen-based small/medium sized enterprise focuses on providing energy to the British and Dutch National Grids. Within this, they hold a selection of assets in the supply development stages of the oil and gas asset life cycle. They are listed on the Alternative Investment Market of the London Stock Exchange. The group has a portfolio that consists of four gas fields in the Netherlands, and it retains oil licenses in the UK North Sea which span 26 exploration and production blocks. This deal is Parkmead’s first foray into renewable energy production for the UK National Grid.

Kempstone Hill Wind Energy Limited are an owner-run renewable energy developer with capabilities of generating 1.5 megawatts (MW) of wind energy through their onshore wind farm. This is equivalent to the amount of energy needed to power 1000 homes. This deal, albeit modest in size, is particularly notable because small hydrocarbon firms tend to not to enter the highly concentrated, and to some extent monopolistic, market of renewable energy. In the wind power generation market, corporations such as Ecotricity have established themselves as market leaders with their UK portfolio consisting of 25 wind parks and over 70 wind turbines which enable a capacity of 90 MW, enough to power over 200,000 customers.

In the wind energy market, the key players tend to fit the mould of either traditional energy companies that have specialised solely on the development of renewable energy resources from their inception (like Vestas Wind Systems and Ecotricity) or companies with well funded and established renewable energy sectors (like EDF Renewables and Siemens Gamesa Renewables). In the latter case, the major incentive behind a transition to renewables has come from mounting pressure due to social reform about environmental issues and new government legislation like the UK’s 2050 Net Zero goals.

Smaller energy developers often slip under the radar of these, so generally have not transitioned to renewables. Another disincentive for the transition to renewables for smaller companies is that they have to overcome the significant costs needed to establish renewable energy sites. These will have a disproportionate effect on corporations of their magnitude. Furthermore, investment into renewables does not ensure a reliable yield of energy when demand changes.

On a macroscopic level, the implications of this deal on the energy market may seem insignificant. However, in this case, the small scale of power produced by this farm is advantageous for Parkmead. Prior to the acquisition, Kempstone Hill were able to register the wind farm on the Feed-in Tariff scheme. This is a government policy introduced in April 2010, designed to promote the uptake of renewable and low-carbon electricity generation technologies for small energy developers with a capacity of up to 5MW. The tariff means that the National Grid will pay Parkmead a higher rate for the electricity than larger corporations will receive. In the financial year up to 30th September 2021, the wind farm generated nearly 400,000 GBP in revenue.

Another advantage of this deal is that it will provide “another revenue generating asset to Parkmead, which has long-life and a very steady stream of cash flow”, according to Parkmead’s chief executive, Tom Cross. The deal will provide Parkmead with exposure to the rising wholesale electricity prices. Shell reported on 7th October 2021 that the price of wholesale energy had increased fivefold since July 2020. This drastic rise is a result of the record low levels of gas stored both in Britain and Continental Europe. This shortage has impacted the price of energy from every source, even renewable. This is an extremely lucrative prospect for Parkmead, because the value of their electricity output is far greater.

The acquisition will have a relatively small impact on the renewable energy market overall, but it will provide Parkmead with a profitable asset that will produce consistent cash flow through this tumultuous period for non-renewable energy. Furthermore, the fact that a small oil and gas company is expanding into renewable energy resources, without the external pressures that large corporations face to do so, bodes well for the sustainable movement as a whole and domestically for the 2050 Net Zero goals set by the British Government.

By Paul Brown

Sector Head: Hortense Comon

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