Are These New Solar Projects A Sign Of A Brighter Future For BBR Holdings (S) Ltd?

BBR Holdings (S) Ltd. (SGX: KJ5) announced yesterday night that it has won two contracts to install solar photovoltaic systems in Singapore.

The company has secured a solar leasing contract with GKE Corporation Ltd (SGX: 595) for its warehouse in Pioneer Road. The contract, a 25-year power purchase agreement, would see BBR design, install, commission, and maintain a 590KWp solar photovoltaic (PV) system. The system consists of 1,848 multi-crystalline panels installed on the rooftop of the Pioneer Road warehouse. It is able to generate more than 576,000 KWh of energy in the first year and should be able to contribute 80% of the energy needs of GKE.

The second contract is from The People’s Buddhism Study Society and would see BBR design, install and commission a glass-to-glass solar canopy PV system at its Geylang
premise to tap solar energy. The target completion date is December 2014.

This is actually not the first time the company had won contracts for solar projects. Earlier this week, the company clinched a contract from the Housing Development Board (HDB) to install PV Systems on the rooftops of more than 75 HDB flats in Ang Mo Kio Town. In a similar manner to the GKE contract, BBR’s contract with the HDB is a 20-year power purchase agreement for all the power generated from the PV systems. The project is expected to be the largest solar-leasing project in Singapore with a system size of 5MWp.

These new solar projects are certainly an interesting development for BBR. It allows the company to diversify away from its construction business, which generates irregular earnings, as the power leasing business can earn stable and recurring revenue.

The HDB project is expected to generate 6GWh of power annually while the GKE project, as mentioned earlier, is expected to produce 576,000KWh of power in its first year of operation. According to the announcement for the HDB project, “The Ang Mo Kio Town Council will undertake a power purchase agreement over a 20-year tenure to pay for the solar generated electricity, at a preferential rate that is not higher than retail electricity tariff rate.” 

From that, we can estimate that the electricity purchased by Ang Mo Kio Town from the PV systems would increase BBR’s annual revenue by S$1.66 million (if the current tariff rate of 25.28 cents per KWh is used). Although S$1.66 million might be considered small when compared with BBR’s revenue of S$426 million in 2013, the revenue generated from the solar projects generally carry a much higher profit margin.

Foolish Summary

The two project wins might be just a small contributor to BBR’s business currently. But, they signify the possibilities of BBR expanding into the green energy market. If the two projects are successful, we might see more of such projects for BBR in the future.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Stanley Lim doesn’t own shares in any companies mentioned.