Algonquin to buy Spanish co's U.S. wind farms for $888 million

www.reuters.com
9 Mar 2012

(Reuters)-Algonquin Power and Utilities Corp (AQN.TO) will buy a 480 MW portfolio of U.S, wind power projects from Spanish wind turbine maker Gamesa (GAM.MC) for $888 million to gain a significant foothold in the country's wind power market. The United States, once the world's top wind power market, ceded the mantle to China in 2010 as a weak economy halted growth, but business has picked up since the middle of last year.

The global wind power capacity will more than double to 450 GWs in 2015 from 194.4 GWs at the end of 2010, according to a Global Wind Energy Council forecast. The Canadian company, which operates a portfolio of more than $1.2 billion of renewable energy assets in North America, had tripped on some of its earlier buyout attempts. It had to bow out of the deal to buy a stake in US-based wind farm operator First Wind Holdings earlier this year, while late last year Western Wind Energy (WND.V) asked shareholders to snub Algonquin's "low-ball" offer.

The company said the portfolio it was buying from Gamesa consisted of four facilities--Minonk, Senate, Pocahontas Prairie and Sandy Ridge, in the states of Illinois, Texas, Iowa and Pennsylvania, respectively. "If you look at the footprint of these generating stations, they are located sort of outside our existing footprint and so, we will get the benefit of further diversification", Chief Executive Ian Robertson said on a conference call.

The company expects the total annual production from the four facilities to be 1,644 GW-hours per year. "I think this (deal) moves them pretty far down the field in terms of expanding on power development projects", analyst Ian Tharp of CIBC World Markets told Reuters. "On the face of it, 480 MWs at $888 million comes out to $1.85 million a MW", Tharp said. "It looks quite good". The acquisition doubles Algonquin's independent power generation portfolio, the CEO said.

In a similar US-focused deal last month, independent power producer Atlantic Power Corp (ATP.TO) acquired a majority stake in Canadian Hills LLC, which owns a 300 MWs wind power project in Oklahoma.

Gamesa Contract
Algonquin said the four projects have a 20-year contract with Gamesa to provide operations, warranty and maintenance services for the wind turbines. "Only about 73% of the revenue from these projects is under long-term contract, so there is still some merchant risk--which means you are selling power in the real time or day-ahead power markets--in these contracts that Algonquin will need to manage over time", CIBC's Tharp said. The company, which last month entered into a 25-year power purchase agreement with Saskatchewan Power Corp for its upcoming 177 MW Chaplin Wind project, plans to finance its investment with about 45% debt and 55% equity.

The projects will be acquired through American Wind Portfolio Holdings LLC, a newly formed partnership in which Algonquin holds 51% interest and Gamesa 49%. Gamesa said the sale would add $35 million to earnings before interest and tax (EBIT), excluding operation and maintenance. TD Securities was adviser to Algonquin, which reported a 63% drop in fourth-quarter adjusted profit late on Thursday.