Seeking Alpha
Profile| Send Message|
( followers)  

The construction of dams to convert the potential energy of water into work has a long history. For many countries with abundant water resources or strong river flows, hydroelectricity has been the method of choice to source cheap and reliable electricity. Hydroelectricity has some key advantages over other energy sources.

  • The technology is simple (build a dam with a turbine to convert the flow into electrical current).
  • The plants can be constructed in various scales (from a small river generator to mega projects like the Three Gorges Dam).
  • There is no fuel cost (a substantial part of the generation costs in electricity from fossil fuels, less so in nuclear power). Hydroelectric generation is not affected by rising prices for oil, gas or coal and lignite.
  • The plants have a very long lifetime (up to a century), and require only ongoing maintenance expenses after being built.
  • The water flow in rivers is largely stable over long timeframes (centuries, longer than the lifetime of the plants). It certainly fluctuates, but is far more reliable than for example wind power. It can also be more easily regulated so that electricity is available when it is needed.
  • Dam reservoirs can store water in times of abundant supply and unload it in times of demand. This is not only beneficial for agriculture (irrigation) and the population (drinking water) [added benefits], but also for electricity generation. Supply disruptions are very rare.
  • Pumped-storage facilities are currently the only available large-scale means to regulate and store excess energy in the grid.

These are all what one could call “durable competitive advantages” that hydroelectric facilities have over other means of electricity generation.

When looking at the worldwide generation statistics, the total net generation from hydroelectric facilities stood at about 16% of total generation in 2007 (see table below, data from the EIA). Fossil fuels account for nearly 70% of worldwide electricity generation, and nuclear for about 14%.

Data from EIA, annual energy review 2010

1980

1990

2007

Total net generation [bn kWh]

8,016.8

11,294.2

18,778.7

From fossil fuels

69.7%

63.2%

67.8%

From nuclear power

8.5%

16.9%

13.8%

From hydroelectricity

21.4%

18.8%

15.8%

The total net generation of electricity worldwide has grown at a fast pace: between 1980 and 2007, net generation increased by 134%. That is a good thing. Electricity means civilisation and rise out of poverty. Giving people access to electricity is the first thing required for a decent life and unlocking human potential. Electricity is the basis for clean water, lighting, heat, food storage and many other amenities we take for granted.

Although rising on an absolute basis, the share of hydroelectricity in worldwide total net generation has fallen over the past years, from 21% in 1980 to just 16% in 2007. Overall, the sources of electricity have become more diverse since the 1980s. While fossil fuels, nuclear and hydro accounted for 99.6% of all electricity generation in 1980, the rate was ‘only’ 97.4% in 2007. However, the world still relies mainly on fossil sources for its electricity, a source that is finite, vulnerable to supply disruptions and to rises in the price of fuel. Of all the ‘renewable’ sources of electricity, hydropower currently remains the only source with a meaningful contribution to overall generation.

Most of the largest hydroelectric generation facilities are state-owned. In the US, most of the main large dams have been built and are operated by either the army corps of engineers (USACE) or the bureau of reclamation. Of the seven largest, only the Bath County pumped-storage station (2.8 GW, the largest pumped-storage station in the world) is jointly owned by Dominion (D) and FirstEnergy (FE).

In Canada, Hydro-Quebec, Hydro One and Ontario Power are all government-owned. Other famous examples of large state-owned hydroelectric facilities are the Itaipu dam between Brazil and Paraguay, the Aswan dam in Egypt or the Guri dam in Venezuela.

For the private investor who wants to add a stable source of electricity supply to his portfolio which is not impacted by rising commodity prices, the choices are surprisingly limited. While many of the world’s large utility companies have hydroelectric power stations in their generation portfolio, finding listed companies which mainly produce electricity from hydroelectric plants is not so easy.

In this article, I have tried to compile the worldwide publicly listed companies that generate the overwhelming part of their electricity from hydropower. I cannot assure that the list is totally exhaustive, but I have tried to be as thorough as possible. I have uncovered 24 companies in nine countries that fit the criterion.

The list is provided in the table below (click to enlarge image), sorted by country and by market capitalization, together with some key operational figures and valuation metrics (if available).

overview

The ten largest publicly listed companies (by market capitalization) that generate nearly all of their electricity from hydropower are

Market cap. (in million USD)

China Yangtze Power

$20,133

Verbund (OTC:OEZVF) (OTCPK:OEZVY)

$14,913

Rushydro (OTCQX:RSHYY)

$14,147

Tractebel Energia (OTCPK:TBLEY)

$11,090

NHPC (Natl. Hydropower Corp.)

$6,651

AES Tiete (OTCPK:AESYY) (OTCPK:AESAY)

$5,514

Brookfield Renewable Power Fund (BRPFF.PK)

$2,474

Jaiprakash Power Ventures

$2,243

Guangdong Meiyan Hydropower

$1,094

Innergex Renewable Energy (OTC:INGXF)

$832

Hydropower in China

China Yangtze Power, which operates the three gorges dam, is largest publicly listed hydropower company by market capitalization. Its stock trades under the number 600900 in Shanghai. Like the other Chinese hydro companies, Guangdong Meiyan Hydropower and Sichuan Minjiang Hydropower, its shares are (domestic) A-shares. These are currently only available to Chinese nationals and a selected number of foreign institutions that have a government authorization. Both of these hydropower giants are thus currently out of reach for the private investor. A future removal of restrictions on trade in Yuan-denominated stocks might make these stocks accessible at some point.

Top Spot for Austria

The alphabet soup of hydropower stocks is dominated by the well-known letters B,R,I,C – but tiny Austria can add its first letter to the list. The company with the second-largest market capitalization is Verbund AG (OTC:OEZVF) with nearly $15bn. It is Austria’s largest electricity provider (40% of the market) and owns the country’s largest high-voltage grid. Nearly 90% of the electricity generated by Verbund’s plants is hydroelectric. Its installed capacity is around 6.6 Gigawatt.

Russia’s Sleeping Giant

Only third in terms of market capitalization, Russia’s JSC Rushydro has by far the largest installed capacity of all the listed companies (26 Gigawatt). Rushydro has a large investment program underway to further increase capacity and modernize its plants. Analysts from RMG estimate that Rushydro will achieve positive free cashflow by 2013 and more than $1.5bn of FCF thereafter. Total revenue is expected to more than double over the next five years. Earnings per ADR are projected to be $0.49 in 2011 and $0.53 in 2012, and the company’s balance sheet is unleveraged. It has the lowest EV/Sales (3.0), EV/EBITDA (6.2) and forward P/E (10) ratios among its large listed peers.

Brazilian Subsidiaries

The two largest hydroelectric companies in Brazil are Tractebel Energia (OTCPK:TBLEY) and AES Tiete [preferred stock: (OTCPK:AESYY), common stock (OTCPK:AESAY)]. Tractebel Energia, as the name indicates, was formerly a subsidiary of Belgian company Tractebel, and is now part of the GDF Suez group (OTCPK:GDFZY), one of the world’s largest utility companies. GDF Suez owns about 70% of the share capital. AES Tiete is a subsidiary of AES Corporation (AES). Brasiliana Energia, a joint-venture of AES and the Brazilian Development Bank, controls 71.4% of the ordinary shares and 32.3% of the preferred shares. AES Tiete sells all of its electricity under long-term contracts to another subsidiary of AES Corp called AES Eletropaulo.

India: Strong Growth in Capacity

India also has two large hydroelectric power utilities, the largest being the state-controlled NHPC (National hydropower corp). The stock trades on the Bombay stock exchange under the number 533098 and has a market capitalization of $6.6bn. NHPC has 5.3 GW of installed capacity, and a further 4.5 GW currently under construction. The other large company is Jaiprakash Power Ventures ($2.2bn) which is the largest private sector operator. The company has 0.7 GW installed in two currently operating plants, and has 4.9 GW of further projects under construction in its pipeline. Both companies are obviously eager to substantially grow their generation capacity.

Canada: In the Shadow of the Giant

In Canada, some smaller publicly listed hydroelectric companies thrive in the shadows of giant Hydro-Québec, the world’s largest generator of hydroelectricity (37 GW of installed capacity). The two main companies are income trusts that had changes in their structure after the Canadian government chose to destroy this highly attractive type of investment. The Great Lakes Hydro income trust is now called the Brookfield Renewable Power Fund (BRPFF.PK), and the Innergex Power Income Fund has merged with Innergex Renewable Energy (OTC:INGXF) and converted to a corporation. The Brookfield fund has not yet made a final decision on its conversion after it initially planned to convert this year. Both companies have also added other renewable energy sources (mainly wind) to their portfolios, but hydroelectricity remains the major generation source.

There are two other micro-caps mainly involved in hydroelectric generation in Canada, Synex (SYITF.PK) and Run of River (OTC:RNORF) that I have added for the sake of completeness.

Vietnam: Many Small Producers

During my research, I was surprised to find out that Vietnam has the largest number of publicly listed hydropower companies (nine companies in total). The market capitalization of these companies is however small, many only owning a few small generating facilities. The total market capitalization of all nine stocks only adds up to about $240m. I believe however that these companies are really under the radar of most investors and might present an interesting opportunity. It is quite hard to find financial data on the companies (as you can see there are many empty fields in the table), but the data that I could find at least suggested that some of the companies are very attractively priced.

Other Countries

In France, Velcan Energy is a mid-cap company which develops, finances and operates hydro power concessions in emerging markets. It currently has 628 MW of hydroelectric concessions in Brazil, India and Laos that it is going to build, and one 15 MW plant in operation in Brazil.

In Sri Lanka, Vallibel Power Erathna operates a hydroelectric plant which has generated 44.6 million kWh last year. The company has 9.9 MW of installed capacity and 11.85 MW under construction, scheduled to be completed this year.

This concludes my virtual trip around the globe in the search of hydropower companies. I hope you enjoyed the ride and maybe found something that aroused your curiosity or interest in further research. Hydropower represents, in my view, a very attractive field for investment in the utility sector because of its durable competitive advantages over other sources of power generation.

Source: Investing in Global Hydropower Stocks