安普若经典文章Blog汇集

ALTERNATIVE ENERGY
Wind firm seeks strategy shakeup

RICHARD BLACKWELL

August 22, 2008

One of Canada’s up-and-coming wind power developers, EarthFirst Canada Inc., has called in consultants to look for "strategic alternatives" after its key project in British Columbia was hit with cost overruns and a lowered estimate of potential energy production.

EarthFirst’s predicament underlines the precarious economics of the wind business - especially for small developers - even at a time of booming growth for the industry.

The Calgary-based firm said yesterday that it has hired Blair Franklin Capital Partners Inc. and GMP Securities Ltd. to advise a special board committee on how to "maximize shareholder value" - a move that sometimes results in the sale of a company or its assets.

EarthFirst has seen its stock price plunge to less than 50 cents in the past few months from almost $2 a share. It was hit particularly hard after the announcement in early July that the projected capital cost of building its initial Dokie 1 wind project in northeastern British Columbia had risen by $35-million, to $360-million, mainly because construction costs were inflated by the natural gas boom in the region.

At the same time, the company revealed that the estimates for energy production at the 144-megawatt wind farm were 2.3 per cent lower than originally expected.

The Dokie project is already under construction, and some of the turbines have been delivered to the site, about 150 kilometres southwest of Fort St. John, B.C.

EarthFirst went public in 2007 when it raised about $140-million in an offering of shares priced at $2.10 each. Now it says it needs to raise $50-million more to complete the Dokie project.

Getting that additional financing is clearly one of the options the board will consider, EarthFirst chief executive officer Linda Chambers said in an interview yesterday. Forming a strategic partnership is another possibility, but it will be up to the advisers to come up with a "full spectrum" of suggestions to raise shareholder value, she said.

Ms. Chambers acknowledged that investors have punished EarthFirst severely for the problems at the Dokie project, but she put part of the blame on sensitive, and volatile, markets.

"Right now we’re in a time of very unforgiving markets," she said. "When you have a misstep on a project like this, particularly an early flagship project, there tends to be a very strong reaction and not a lot of tolerance in the market."

Investors did react well to the company’s announcement that it has hired advisers, as EarthFirst stock rose 22.5 cents, or 90 per cent, to close at 47.5 cents on the Toronto Stock Exchange yesterday.

Analyst Rupert Merer of National Bank Financial said the key decision EarthFirst has to make is whether to try to get the extra financing and complete the Dokie project. If not, it could sell off assets - such as the turbines it has already purchased, or turn to other projects that might generate better returns, he said.

EarthFirst is planning two more wind farms in B.C., if it succeeds in winning contracts from the government later this year, and it has a project planned for Nova Scotia where construction could start as early as next year.

The problems at EarthFirst should be a cautionary tale for other companies in the wind business, Mr. Meyer said. Developers with a limited number of projects could potentially face the same kind of cost squeeze.

"[Many] companies … seem to have their financing worked out pretty well, but if their costs escalate to the same degree then some of the others could come under pressure."

However, some wind companies have much more diversified portfolios than EarthFirst, and thus are less likely to be put in jeopardy by rising costs at any one project, Mr. Meyer said. Canadian Hydro Developers Inc., for instance, has several operating wind farms in Alberta, Ontario and Quebec, along with hydro-electric projects and one biomass plant.

Sean Whittaker, policy director at the Canadian Wind Energy Association, warned of the risks facing individual wind power projects in a recent issue of the organization’s magazine. He said developers can sometimes be blind to the risks involved in getting financing, winning power-purchase agreements from provincial governments, keeping construction costs under control, and making sure that the energy generated by the turbines meets initial estimates.

If any one of those factors turns into a roadblock, it "can put even the best project on shaky financial ground," Mr. Whittaker wrote. "Two or three can put it out of commission entirely."

This entry was posted on Friday, August 22nd, 2008 at 10:38 pm and is filed under Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.