GOING PUBLIC: First Wind Energy Co. IPO Planned In US

GOING PUBLIC: First Wind Energy Co. IPO Planned In US
Last Update: 5/22/2008 2:15:58 PM
By Lynn CowanOf DOW JONES NEWSWIRES
In a first-ever for the U.S., a company focused entirely on wind energy isplanning to come public, with Noble Environmental Power Inc. registering an IPOto list on the Nasdaq later this year.
Based in Essex, Conn., Noble Environmental registered earlier this month with theSecurities and Exchange Commission to raise as much as $375 million through aninitial public offering. The amounts actually raised in IPOs can varydramatically from the registration figure; Noble Environmental has not set aprice range, share size or date yet for its offering, which it plans to listunder the symbol “NEPI.”
Noble Environmental currently operates 282 megawatts of electrical generatingcapacity in New York state and has 950 megawatts that it expects to bring onlinein 2008 and 2009. By the end of 2012, it expects to have 3,580 megawatts ofcapacity by expanding to other states, including Maine, Minnesota and Wyoming.
No other company focused exclusively on wind power generation has ever launchedan IPO in the U.S., although there have been 17 such offerings in other parts ofthe world since 1995, according to data tracker Dealogic. But it was inevitablethat a wind-related offering would come to market in the U.S., given the growthin the industry and a rise in private investments in the sector, says RandallSwisher, executive director of the American Wind Energy Association, a tradegroup that promotes wind power.
Europe has about three times the amount of installed wind power capacity of theU.S., but the U.S. has been the largest market in the world for new wind turbinesales in the last three years, reflecting the growth in wind farms across thecountry, says Swisher. Worldwide, established renewable energy companies areeyeing the U.S. as a future source of wind farm growth due to its size, theavailable space for wind farms and expectations for changing government policiesfavoring more renewable energy investment, say experts.
A report earlier this month by the U.S. Department of Energy forecasts that in2008, wind energy will generate about 1% of the nation’s electricity; it modeleda scenario under which the U.S. could generate 20% through wind energy by 2030“if significant challenges” are overcome, including major changes to thetransmission system to deliver it to the electrical grid, improved power turbinetechnology and expanded markets.
Political, Equipment And Location Obstacles
Wind energy has had its share of challenges already: Federal tax credits havebeen allowed to expire three times in the last decade, turbine production ishaving difficulty keeping up with demand, and environmental and local communityconcerns can be a barrier to locating wind farms. But supporters of wind energysay that they believe the U.S. government will soon shift toward more permanentpolicies to support clean energy sources and reduce carbon emissions, laying thegroundwork for more industry growth.

“We already have renewable portfolio standards (that dictate how much renewablepower utilities must use) in 26 states, and no matter who becomes president,there will be a national renewable portfolio standard next year. I believe withcertainty that this country is ready to commit to reducing carbon emissions, andthat would change the playing field for renewable energy, leveling it out” interms of price competition with fossil fuels, says Phil Angelides, a principal atreal estate investment firm Canyon Capital Realty Advisors LLC and chairman ofthe Apollo Alliance, a group that is focused on promoting renewable energy andjob growth in the sector.
Apollo communications director Keith Schneider says Noble Environmental wasestablished in large part because state policies in New York expanded the needfor renewable energy. The company was founded in 2004, the same year the state’spublic service commission voted to adopt a renewable portfolio standard.
But Noble Environmental only began operating wind farms three months ago. It’shoping that growth in demand for alternative energy sources, as well aslegislative incentives for wind power, will benefit its business. Increasedenergy demand, rising fossil fuel costs, improvements in wind energy technologyand an abundance of wind in the U.S. are among the industry strengths NobleEnvironmental cites in its prospectus.
However, Noble Environmental has no financial track record and is essentially adevelopment-stage company. It has never generated any annual revenue, and netlosses have been rising at a fast clip, doubling to $42.5 million in 2007 from2006. The company expects to incur “substantial” pretax losses over the nextseveral years as it constructs new wind farms, hires new employees and expands.
Awaiting New Legislation
Legislatively, the wind farm industry is facing the possibility of losing sometax benefits. Federal production tax credits for the wind energy industry are setto expire at the end of this year. The House of Representatives passed a billextending them this week, but President Bush has threatened to veto it unlessprovisions he opposes are removed. Noble Environmental doesn’t have the taxableincome to use the tax credits anyway, but it warns that in the future, if thecredits aren’t extended or are renewed at a lower rate, its financing anddevelopment options for wind farms will be hurt.
The company currently finances its wind farms with a tax equity structure thatchannels ownership of the farms through limited liability companies. The methodallows investors of the limited liability companies to use the production taxcredits and allows the company to accelerate tax depreciation.
But investors in the limited liability companies - as opposed to investors in theIPO - typically receive all of the cash flows from the wind farms until atargeted rate of return is reached, reducing the cash available to NobleEnvironmental. The period of time during which the cash is diverted to theseinvestors can drag on longer than expected if the wind farms underperform,according to the company’s prospectus.
Noble Environmental’s primary owners, underwriter JPMorgan Chase & Co.’s (JPM)private equity division and the Canada Pension Plan, will continue to hold stakesin the company post-IPO, but that level hasn’t been determined yet. In additionto JPMorgan, Lehman Brothers Holdings Inc. (LEH) and Credit Suisse Group Inc.(CS) are the co-lead managers on the offering.