TTC Group’s Gia Lai Electrical converts to renewable energy

Some 204 million GEG shares of Gia Lai Electrical Joint Stock Company, a member of TTC Group, were officially transferred to Ho Chi Minh Stock Exchange. What makes this company’s shares appealing in investors’ eyes?  

Renewable energy star

Gia Lai Electrical is the only company on HoSE that operates in renewable energy sector. The special thing is that the company’s power plants not only sell electricity to Vietnam Electricity Corporation. For every megawatt hour electricity generated, GEC can also sell it as renewable energy certificate.

Currently, TTC Group’s subsidiary has 5 solar power plants. Except Truc Son power plant, which was purchased from Spanish investors, the rest are invested by itself. Those solar power plants were put into operation a year ago.

The plants account for about 5% of Vietnam's solar power market share since the company enjoys preferential electricity price of 9.35 cents per kWh. The plants also contribute up to 69% of GEC’s total electricity capacity.

According to the Company's leaders, solar power plants in Thua Thien – Hue province’s Phong Dien and Gia Lai province’s Krong Pa also earn revenue from selling electricity certificates. The solar power plant in Phong Dien has revenue from selling I-REC certificates.

With an estimated price of $0.8 per MWh of solar power, GEC is expected to sell more than 100,000 REC solar to the market this year. This is one of the ways GEC diversifies its revenue. In the first 6 months of 2019, 5 solar power plants have contributed nearly 62% of total revenue of the company.

In fact, before expanding its investment activities into solar power, hydroelectricity has been the core business of the enterprise. So far, GEC still owns 14 hydropower plants.

These hydropower plants are quite modest in scale and contribute about 31% of the total capacity of GEC, equivalent to 85.1MW. However, the Company expects hydropower will help it to sell up to 230,000 REC. Based on the price of $0.35 per MWh, this would be a significant source of revenue.

New ambition

In the long-term development strategy, GEC does not give priority to hydroelectricity but solar and wind power. By 2020, GEC expects that solar power will contribute more than 63% (about 817MW) and wind power will contribute 30.1% (about 389MW) of the total capacity of 1,290MW.

This strategy is evaluated as appropriate with Vietnam's electricity industry plan. By 2030, the proportion of renewable energy capacity is expected to contribute 21% of total energy capacity.

The volume of imported and exported renewable energy is seen to increase significantly, with an estimated growth of 14% annually. However, in order to seize opportunities in renewable energy industry, GEC has to accelerate investment.

As planned, besides 5 projects already in operation, the company will invest 12 more solar power plants in Binh Thuan and gradually expand to Binh Dinh, Quang Ngai and Thanh Hoa provinces.

Regarding wind power, GEC is preparing legal procedures for 4 projects in Ninh Thuan, Tien Giang and Gia Lai provinces. GEC estimates that it takes about 2-3 years for these investments.

GEC needs large financial resources to enhance the investment. For wind power alone, it is estimated that the company needs about $732.5 million and the equivalent investment for solar power projects. Therefore, GEC will continue to raise capital from several channels.

From 2017, GEC has increased its capital four times to raise its current chartered capital to more than $86 million. In 2018 alone, GEC raised a large amount of cash thanks to doubling its charter capital.

Rong Viet Securities Company (VDSC) forecasts that GEC will continue to increase capital as well as get loans to finance projects. GEC leaders are expected to raise $100 million from issuing bonds to foreign investors, to finance four wind power projects.

Success of GEC’s investment plan depends on the legality of wind power projects.

However, with the pioneering advantage in the industry and potential from its parent company, TTC Group, with the reputation of IFC, a major shareholder, joined GEC in 2016 and currently holds a 15.96% stake, the company has an optimistic basis.

In addition, hydropower plants provide stable revenue, have no debt and have depreciated about 50%. Bao Viet Securities Company assessed these as good assets. In addition to creating good cash flow, GEC can use these assets for mortgage purposes. These plants have also been valued at about $129.3 million.

Once deployed and put into commercial operation of the above projects, GEC is seen to grow quickly.

However, since renewable energy is a new industry in Vietnam and many GEC projects are under investment preparation, and with uncertainty about legal procedures, BVSC believes that investors may need more time to monitor the progress of investments, operations and performance of plants.

Currently, GEC still makes efforts for short-term and long-term goals. For example, GEC has cooperated with Sharp Vietnam and TTC Energy on many farm projects to develop rooftop solar power.

The company also intends to move into the renewable energy industry in Cambodia through bidding for a solar power project with a capacity of 60 MW.

Besides renewable energy sector, GEC is now expanding its operations to maintenance services for solar power projects. Although this segment contributes only 4% of revenue to GEC, the gross profit margin reaches 26%.

According to VDSC, effective maintenance and maintenance will also help GEC to optimize operational efficiency and operating costs.