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Geothermal Greenhouse Investment in Iceland

Navigator consulted an Icelandic investment group to develop the first large-scale geothermal energy-powered greenhouse in the world. Project activities comprised of due diligence, financial modelling and investments search.

Iceland’s geothermal power sector provides over 50% of total energy consumed nationally. This is a cheap and continually available energy source, which combines electricity production with supplies of high purity cold and hot water and CO2. Cold water is a key input for greenhouse cultivation: the Iceland water sourced is abundant and of exceptional quality.

The GeoGreenhouse project comprises an investment of EUR 12.75 mln to construct a state-of-the-art frost-resistant, geothermally powered, 50,000 m2 greenhouse area with an annual production of 2,800tonnes of tomatoes. Exports from Iceland are shipped to the UK to high-end supermarket chains using the same transport routes used for fresh fish exports: pilot testing with UK exports was successful.

First tomato production requires a 15 month lead time from investment close. Maximum growth capacity is scheduled for 2014. The products are sustainable: this will be one of the few zero-carbon large-scale greenhouses in the world.

The tomatoes are pesticide-free due to their remote location in Iceland, the cold weather (which makes propagation of insects difficult) and the distance between greenhouse farms. Biological control is used in greenhouse operations. The tomatoes have a zero carbon footprint: the geothermal energy is zero-carbon: carbon is used in the transport chain, but more less than equivalent exports from Spain, Italy, Greece or Turkey.

CO2 used for growth stimulation is a bi-product from the Sorpa methane production plant. Hekla pumice (produced in Iceland) is used as a substrate in hydroponic growth of tomatoes, and is reusable following sterilisation in a steaming process.

The greenhouse investment location is planned to be near an existing geothermal Power Station in Iceland, the second largest geothermal plant in the world with a capacity of 303 MW electricity and 133 MW hot water.

In the first stage of the project, the investment sponsors have arranged investment support in a form of loan finance from a Nordic Development Bank at concessional rates of 1.5-2%. We supported our client close an equity finance contribution of EUR 4,305,000, which represented 71% of total equity capital.

The availability to expand the greenhouse site to 20 hectares (200,000 m2) in Iceland was planned as a three-stage investment plan.

Products

The investment focussed on four varieties of tomatoes using monocrop methods, dividing the output equally between large, mini-plum, sun stream and cherry tomatoes on the vine: designating these products for supermarket sales in the UK.

In general, the growth time from greenhouse seeding to harvest is approximately 10-12 weeks. All products are individually harvested in Iceland based on their ripeness: this requires well-trained staff and managers capable of implementing a quality-first approach. Since the UK was targeted as the primary export market, market conditions require annual negotiations on tomato varieties each year.

Markets and Customers

The greenhouse investment produce is intended for export from Reykjavic, Iceland to the UK. Vine tomatoes are becoming increasingly popular in the UK, and in 2010 accounted for 54% of total UK consumption. The UK grows less than 20% of total tomato consumption: 80% is imported, primarily from The Netherlands and southern Europe.

Two Icelandic container shipping lines serve the UK market. Refrigerated containers take 3 days to arrive at Immingham, from which trans-shipment to the UK distributor’s warehouses and directly to supermarkets or supermarket distribution centres is assured.

Pilot test shipments were conducted successfully before the project start, from December 2011 to April 2012. The greenhouse produce included Elegance, Annamay, Picolo and Sun-stream tomatoes. All four varieties were test grown in Iceland and shipped to the UK, meeting quality control standards.

The Icelandic investment sponsors have already implemented a trial cultivation and implemented negotiations with a premium UK wholeseller/distributor, who was prepared to take 100% of the crop for placement in premium UK supermarkets such as Tesco, Marks & Spencer, Waitrose, Asda, Morrisons and Sainsbury in the initial stage of the project.

Capital Expenditure

Total greenhouse investment capital expenditure for Phase I was budgeted at EUR 10,427,460 for a 50,000 m2 area in Phase I.

Navigator’s work within the project included:

  • Initial review of the greenhouse investment concept;

  • Analysis of geothermal energy production and costs

  • Due diligence on the greenhouse project investment structure;

  • Financial modelling and assessment;

  • Assessment of political, investment and financial risk issues in Iceland

  • Drafting and distribution of an investment memorandum;

  • Initial presentations to potential investors;

  • Support for financing negotiations and contracting.

Navigator Consulting Group has extensive experience in Investment Advisory Services, including: Due Diligence, Business Planning, Risk Analysis, Investment Monitoring, and Tax Planning and Optimisation.

 

Please contact Philip Ammerman at pga@navigator-consulting.com for further information.