LONDON: IGas Energy has entered into a share purchase agreement (SPA) to acquire GT Energy UK Limited, a developer of deep geothermal heat projects onshore in the UK.
Under the terms of the SPA, IGas will make an initial payment of £500,000 to the sellers to be satisfied in 2.22 million IGas ordinary shares on completion by the transfer of 1.844 million shares held by IGas and allotment and issue of 377,586 shares.
The Initial Purchase Price will be subject to post-completion adjustment following the preparation of completion accounts, with any positive or negative adjustment being made against any additional consideration upon satisfaction of future milestone events.
The acquisition is in line with IGas’s strategy of diversifying into the wider UK energy market whilst leveraging its core competencies as an UK onshore operator.
Geothermal energy, a type of renewable energy, is increasingly being used across the world, with a number of towns and cities adopting it to provide heat and electricity to both significant users, such as large council buildings, warehouses and the general public through district heating systems.
Within Europe alone, in the past 5 years, the installed capacity of deep geothermal heating and cooling plants has increased by over 1GWth, with 327 plants, a total capacity of 5.5GWth, in operation. There are 57 plants in the Paris basin, providing heat around Paris and in the area around Munich, Southern Germany, there are 37 projects that supply significant quantities of renewable heat to suburbs and towns.
Currently in the UK, residential heating alone represents over 20% of primary energy demand, more than 90% of which is from non-renewable sources. In the challenge to meet net-zero, decarbonising heat will be fundamental. There is the potential for approximately 50-100 geothermal projects across the UK with an average size of 10MWhth.
This acquisition is IGas’s entry point into this fast emerging sector, an area that through the energy transition IGas expects to see significant growth.
GT Energy’s principal project is a 14MW deep geothermal project in the Etruria Valley, Stoke-on-Trent. The project is anticipated to supply zero carbon heat to the city of Stoke-on-Trent on a long-term ‘take or pay’ contract (TPA) with Stoke-on-Trent City Council (SoTCC). It is anticipated that the heat will be supplied through the SoTCC owned and operated district heating network, which is undergoing installation.
The project received pre-accreditation from the Department of Business, Enterprise and Industrial Strategy under the Renewable Heat Incentive scheme earlier in 2020 and it will have tariff guarantee from Ofgem prior to construction.
All the geophysical work on the project is complete and the necessary permitting in place. Planning was granted historically for the project and needs to be renewed. Under the current timetable it is anticipated that drilling and testing could commence in Q2/Q3 2021 with the installation operational by March 2022.
The combination of the two businesses will create significant synergies, utilising IGas’s expertise in well engineering, drilling and onshore operations with GT Energy’s knowledge in deep geothermal projects, including negotiating long-term heat supply contracts. This will allow both the efficient execution of the Stoke-on-Trent project and the building of a significant pipeline of projects some of which could utilise IGas’s existing well stock and longstanding relationships in its current operational areas.
The key sellers of GT Energy holding in excess of 10% are AURUM (Development) Nominees Ireland Limited; Vivienne Keane; Low Carbon Innovation Fund and Padraig Hanly.
Padraig Hanly, the founder and Managing Director of GT Energy, will continue to run the business, remaining on the board of GT Energy and joining IGas’s Executive Committee.
In the year ended 31 December 2019, the Company did not generate any turnover and incurred a loss of £0.11 million related to expenditure on progressing its geothermal project. Net assets were £0.99 million, primarily consisting of capitalised geothermal research and development expenditure.
Commenting Stephen Bowler, Chief Executive Officer, said: “I am delighted to be announcing the acquisition of GT Energy today, a leading geothermal energy business in the UK, a major strategic milestone for the Company and a logical step given the operational synergies of our onshore business.
“Whilst there is a clear need for oil and gas in a 2050 net zero environment, it is our intention to also play an important role in the UK’s energy transition. The acquisition of GT Energy provides us with an exciting entry point into this highly attractive, growth market, one that has seen material progress in Europe over the past five years.
“The decarbonisation of electricity generation has already made significant steps forwards with renewables and gas replacing coal, and the next significant area that must be addressed, to achieve the UK’s net zero ambitions, is the decarbonisation of heat. We anticipate that this will dramatically increase the development of deep geothermal heating plants in the UK and across Europe.
“There are considerable growth opportunities for IGas, a leading UK onshore operator, as we continue to look at ways of maximising returns from our existing operations and engineering expertise, and also seek to high-grade potential opportunities for other forms of energy, including electricity generation and storage. We are well positioned to become a leading operator of a variety of energy sources in the UK.”
Padraig Hanly, GT Energy founder, commented: “IGas, as a long established and trusted onshore operator, is the perfect partner to realise the GT Energy vision to deliver affordable, renewable heat from deep geothermal energy.
The SoTCC District Heat Network will use our deep geothermal heat energy to produce up to 45 GWh a year, save 10,000 tonnes of CO2 a year and lower energy costs by up to 10%. It’s the UK’s first ever low-carbon heat network system on this scale, and will help heat thousands of homes and businesses in the city.”