Tuesday, December 04, 2007

Blowin' in the Wind

How many times must a man look up
Before he can see the sky?
The answer, my friend,
Is blowin’ in the wind.

Bob Dylan, Blowin’ in the Wind, 1971

Dylan’s lyrics have absolutely nothing to do with the topic of this post - alternative energy - but any discussion of wind in an energy context engenders a litany of euphemisms. References to the iconic folksinger, storms, vociferous speakers (especially stock brokers) are typical of wind energy discussions. At least that was the case in a recent presentation and Q&A session for Western Wind Energy Corp. (WND: TSXV or WNDEF: OTC/PK).

Western Wind is a Canadian company, but its principal operations are in the U.S. It is producing 34.5 MW of electricity from 500 wind turbine generators in Southern California. The company has power sales agreements totaling 155 MW to two different utilities, so it is keen to increase its current output.

To that end, Western completed a $2.9 million private placement of common stock and warrants. The company has already started shopping for wind turbines and is in negotiations with turbine manufacturers to buy up to 120 MW wind turbine generators.

Western Wind is out looking for new sites too - windy places in California, Arizona and Texas. However, there is plenty of room for expansion on property already under the company’s control. Its Mesa Wind Park in California can be expanded to 50 MW from 30 MW. Once completed the Steel Park Project in Arizona could generate 215 MW and there may be potential to expand that by another 200 MW. Its Windstar site in California, which could produce up to 120 MW, is still in the permitting and engineering phase.

Permitting is one of the obstacles to wind energy development. Everyone wants green energy development and less dependence upon fossil fuels, but no one wants a towering wind mill in their back yard.

Asked about the seriousness of local opposition during the permitting process, CEO Jeff Ciachurski, responded “screw them.” Although not the most diplomatic response for an investor presentation, it did make clear this company’s “go for it” attitude. Management also expressed confidence that its wind energy business model has potential to deliver profits.

Profit is something Western Wind has yet to produce. The net loss from inception to July 2007, was CND$24.3 million. However, in the July 2007 quarter revenue increased to CND$2.0 million and the net loss reduced to $20,160, essentially breakeven on a per share basis. Cash generated by operations in the first six months of FY08 (January) was CND$915,784.

While that sounds promising, it is not yet clear that Western Wind can consistently produce profits. Wind energy has been the province of the large utility companies up to this point. Some have backed off from earlier plans to aggressively build out wind mill farms. For example, Duke Energy began rethinking its wind energy component as it became clearer that large wind farms could reduce migratory bird populations by significant amounts.

It is only logical - the best place to locate a wind turbine is on the major wind currents and this is also the best place to fly if you are a migratory bird with a lot of miles to cover. The problem is that birds in flight look down and not forward to keep track of where they are going. They do not see those very long wind vanes. So along with the community they “get screwed.”

Investors in Western Wind might worry they could suffer the same fate. There is the matter of dilution as the company seeks capital through the sale of common stock to fund its expansion plans. Some investors may also be put off by the Pink Sheet listing. We note that Western Wind is fully reporting under Canadian GAAP and trades on the Toronto exchange.

Neither the author of the Small Cap Copy web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.


Anonymous said...

This firm has a history. Check out projects in arizona in 2004 that didn't work http://www.secinfo.com/d15Vkr.1t.5.htm

It also had a few subsidiaries that didn't deliver much.

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