WNEA OTC BB $1.23 $2.98 Speculative Buy 49.51 Million $60.89 Million 2,200 Symbol Exchanges Current Price Price Target Rating Outstanding Shares Market Cap. Average 3-m Volume Boreal Energy acquisition provides WNEA with 1,200 MW project pipeline 1) Development rights to numerous wind farm projects in the upper Midwest and Great Plains regions, including Iowa, Minnesota, North and South Dakota, Montana, Wisconsin and southern Ontario, Canada;
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BEACON EQUITY RESEARCH Analyst: Victor Sula, Ph.D. Initial Report June 23rd, 2008 Wind Energy America Inc. 12100 Singletree Lane Eden Prairie, MN 55344 Phone: (952) 746-1313 Fax: (952) 746-1201 Web site: www.windenergyamerica.com Company Introduction Market Data Symbol Exchanges Current Price Price Target Rating Outstanding Shares Market Cap. Average 3-m Volume Source: Yahoo Finance, Analyst estimates WNEA OTC BB $1.23 $2.98 Speculative Buy 49.51 Million $60.89 Million 2,200 WNEA daily 6/19/2008 volume 1.5 1.4 1.3 1.2 1.1 1.0 0.9 400 300 200 100 0 Thousands Wind Energy America Inc. (OTCBB: WNEA) develops and operates wind en- ergy projects in the Great Plains and the Midwest, regions known for their high quality wind energy resources. The Company owns interests in three wind farms: Shaokatan Hills LLC, Lakota Ridge LLC and CHI Energy. At present, WNEA owns a developer’s stake and a minimal interest producing negligible cash flow in these wind farms. Over the next two years the devel- oper’s stake will begin producing significant cash flow from these projects. The three wind farms together contain 79 modern wind turbines and have a total rated capacity of 53.5 megawas (MW). They are collectively generat- ing approximately 160 million kilowa hours (kWh) of electricity annually. In addition to these properties, the Company owns a 3 percent equity interest in Averill Wind LLC, a 10 MW wind farm being developed near Fargo, N.D., another region favorable for wind power energy. During 2008, WNEA acquired wind power assets owned by Boreal Energy Inc. which include property and development rights to numerous wind farm projects in the upper Midwest and Great Plains, including Iowa, Minnesota, North and South Dakota, Montana, Wisconsin and southern Ontario, Cana- da. Through this acquisition, WNEA gained ownership interests in develop- ment stage wind energy projects representing approximately 1,200 MW of additional generating capacity. These projects are located in areas of North America well-suited for wind turbine installations. April May June
Transcript
BEACON EQUITY RESEARCHAnalyst: Victor Sula, Ph.D. Initial Report June 23rd, 2008
Wind Energy America Inc. 12100 Singletree LaneEden Prairie, MN 55344
Wind Energy America Inc. (OTCBB: WNEA) develops and operates wind en-ergy projects in the Great Plains and the Midwest, regions known for their high quality wind energy resources. The Company owns interests in three wind farms: Shaokatan Hills LLC, Lakota Ridge LLC and CHI Energy. At present, WNEA owns a developer’s stake and a minimal interest producing negligible cash flow in these wind farms. Over the next two years the devel-oper’s stake will begin producing significant cash flow from these projects. The three wind farms together contain 79 modern wind turbines and have a total rated capacity of 53.5 megawatts (MW). They are collectively generat-ing approximately 160 million kilowatt hours (kWh) of electricity annually. In addition to these properties, the Company owns a 3 percent equity interest in Averill Wind LLC, a 10 MW wind farm being developed near Fargo, N.D., another region favorable for wind power energy.
During 2008, WNEA acquired wind power assets owned by Boreal Energy Inc. which include property and development rights to numerous wind farm projects in the upper Midwest and Great Plains, including Iowa, Minnesota, North and South Dakota, Montana, Wisconsin and southern Ontario, Cana-da. Through this acquisition, WNEA gained ownership interests in develop-ment stage wind energy projects representing approximately 1,200 MW of additional generating capacity. These projects are located in areas of North America well-suited for wind turbine installations.
April May June
Analyst: Victor Sula, Ph.D. Initial Report June 23rd, 2008
Wind Energy America Inc. (OTCBB: WNEA) 2
Robust demand for wind energy
The U.S. Department of Energy predicts 71 percent growth in world energy consumption between 2005 and 2030. High oil prices and concerns regarding greenhouse gas emissions have created strong interest in clean energy. Wind power is one of the least expensive, most easily deployed energy sources. According to the Global Wind Energy Council, cumulative capacity of wind energy installations will reach 149.5 GW by the end of this decade, more than double present installed capacity. According to Clean Edge research, the wind energy market will grow from $11.8 billion in 2005 to $51.1 billion by 2015.
Tax incentives encourage wind energy deployment
Federal authorities are encouraging new wind energy installations through a 2 cent per kWh Production Tax Credit (PTC) on electricity generated from renewable energy resources, including wind, biomass, geothermal and hydropower. The PTC system was renewed in 2007 and again in April 2008 when the U.S. Senate over-whelmingly approved an amendment to the Clean Energy Stimulus Act providing for a one-year extension of the Production Tax Credit. The credit can be claimed for 10 years.
Business model based on promising wind energy projects
WNEA is building a large portfolio of wind farm assets in areas known to have favorable wind conditions, demand for renewable energy generation capacity, the political will to support wind energy development, and existing or anticipated attractive pricing for wind energy. The Company is concentrating its wind energy asset acquisition and development efforts in North America’s upper Great Plains and Midwest and has projects in Minnesota, Iowa and the Dakotas.
Installed wind energy capacity exceeding 120 MW
The Company’s wind farms, Shaokatan Hills, Lakota Ridge and CHI Energy, in Buffalo Ridge, Minn., contain 79 modern Vestas and Micon wind turbines representing a rated capacity of 53.5 MW. These farms collectively produce 165 million kWh of electricity annually. In 2010, WNEA’s ownership interest in Lakota Ridge and Shao-katan increases to 80 percent; its interest in CHI Energy rises to 30 percent for five years before increasing to 49 percent.
The Company is also developing the 10 MW Averill project, scheduled for completion and generation of electric-ity in the first half of 2008. This project is located in Minnesota near Fargo/Moorhead, N.D.
In February 2008, the Company acquired significant wind energy assets from Boreal Energy, including approxi-mately 40MW of wind energy projects in various pre-construction stages of development.
Boreal Energy acquisition provides WNEA with 1,200 MW project pipeline
Analyst: Victor Sula, Ph.D. Initial Report June 23rd, 2008
Wind Energy America Inc. (OTCBB: WNEA) 3
As a result of the Boreal Energy acquisition, WNEA’s asset base has expanded to include:
1) Development rights to numerous wind farm projects in the upper Midwest and Great Plains regions, including Iowa, Minnesota, North and South Dakota, Montana, Wisconsin and southern Ontario, Canada;
2) rights to an extensive 1,200 MW pipeline of wind energy projects in development; and
3) 15 percent economic interest in Navitas Energy Inc., a Minneapolis-based wind farm developer that is majority-owned by Gamesa SA, one of the world’s largest manufacturers of wind turbines.
Near-term revenues result from capacity expansion program
The Company plans to expand generating capacity of its acquired Boreal Energy assets by an additional 280 MW and achieve a total installed capacity of 400 MW over the next four years. Based on current wind energy prices, this should allow the Company to reach $80 million in sales by fiscal year-end 2012. On $80 million in sales, annual income could exceed $40 million to $45 million. To achieve its targeted capacity expansion, WNEA estimates it must raise approximately $69 million in external funding.
Analyst: Victor Sula, Ph.D. Initial Report June 23rd, 2008
Wind Energy America Inc. (OTCBB: WNEA) 4
The Company develops and operates wind energy assets. At present, WNEA owns interests in three wind farms in Buffalo Bridge, Minn., (Shaokatan Hills, Lakota Ridge and CHI Energy) which are owned by LLCs. In 2010, the Company’s ownership interest in Lakota Ridge and Shaokatan Hills increases to 80 percent and its stake in CHI Energy increases to 30 percent. These wind farms contain 79 Vestas and Micon wind turbines and have a rated capacity of 53.5 MW. In recent years, these projects have collectively produced approximately 165 million kWh of electricity annually.
The Company is also developing the Averill project. The 10 MW Averill project is in late development stage and is expected to come online in 2008. The project is expected to generate a 17 percent annual return.
In February 2008, WNEA acquired other wind energy assets from Boreal Energy which include:
• A 15 percent equity interest in Navitas Energy Inc., a Minneapolis-based wind farm developer. Navitas is majority-owned by Gamesa SA, a leading global wind turbine manufacturer. Gamesa holds a 15 percent share of the world wind turbine market.
• Development rights to multiple wind farm projects in the upper Midwest and Great Plains and an exten-sive 1,200 MW pipeline of wind energy projects in development.
WNEA will generate revenues from the sale of electricity and from federal Production Tax Credits, which pro-vide a 2 cent per kWh tax credit on electricity generated from renewable sources for 10 years.
Corporate strategy
The Company’s business strategy focuses on building a diversified portfolio of wind farm assets, while gener-ating cash flow that can be used to construct or acquire new capacity. WNEA focuses on U.S. markets known for favorable wind conditions, increasing demand for renewable energy generation capacity, the political will to support wind energy development, and existing or expected attractive wind energy pricing. The Company plans to diversify geographically so as to limit its exposure to risks associated with local weather conditions and regulations. At present, WNEA is concentrating its acquisition and development activities in the upper Great Plains and Midwest, including Minnesota, Iowa and the Dakotas.
The Company acquires and/or develops wind farms based on the following criteria:
- Superior wind resources to justify a commercial wind energy facility;- Availability and access to transmission grid;- Permitting and zoning policies that allow wind farm development;- Satisfactory environmental and archaeological studies;- Satisfactory terrain and geographic features;- Regional support of renewable energy;- Local politics promote the wind power development;- Growing demand for electricity;- Adequate incentives at the federal and state levels; and- Attractive electricity prices.
Business Model
Wind Energy Projects
Analyst: Victor Sula, Ph.D. Initial Report June 23rd, 2008
Wind Energy America Inc. (OTCBB: WNEA) 5
Over the next 12 months, the Company’s primary focus will be completing the development of wind farm proj-ects acquired from Boreal Energy. WNEA employs its own consultants as well as third-party consultants who are experienced in assessing wind resources and completing wind farm projects. The Company also plans to establish close partnerships with local outsourcing partners who can assist WNEA in accessing wind energy project opportunities and who provide good quality technical, engineering and construction resources.
Wind Energy Projects
The Company owns interests in the following projects:
Shaokatan Hills
Shaokatan Hills is a wind farm located in Buffalo Ridge, Minn. It was originally built by Northern Alternative Energy Inc. and put in service in June, 1999. The wind farm consists of 18 modern wind turbines on 1,000 acres, having a total rated capacity of 11.88 MW.
The Company purchased the developer’s stake in this farm in April 2007.
Lakota Ridge
Lakota Ridge is a wind farm located north and adjacent to Shaoka-tan Hills. It was built by Northern Alternative Energy Inc. and put in service in June, 1999. Lakota Ridge has 15 modern wind turbines on 640 acres and has a total rated capacity of 11.25 MW.
Analyst: Victor Sula, Ph.D. Initial Report June 23rd, 2008
Wind Energy America Inc. (OTCBB: WNEA) 6
The Company purchased the developer’s stake in this farm in April 2007.
In recent years, the Shaokatan Hills/Lakota Ridge wind farms have generated electricity at an average annual rate of 70 million kWh. The LLCs that operate the farms lease the land on which the turbines and transmission facilities are built. The Shaokatan Hills and Lakota Ridge wind farms use approximately 2 percent of the land area; the remaining land area is leased for agricultural use until 2013.
CHI Energy
This operation consists of 16 separate wind farms which are managed and maintained collectively and are locat-ed near Shaokatan Hills/Lakota Ridge. The farms collectively contain 46 modern wind turbines (Vestas turbines rated 660 kW) representing a total rated capacity of 30.36 MW. In recent years, these wind farms have generated electricity at an average annual rate of 93 million kWh. Northern Alternative Energy Inc. developed CHI Energy in the late 1990s and began operating these assets in 2000.
WNEA purchased the developers stake in CHI Energy in December 2007.
Averill project
expected to come online in 2008. Three turbines owned by CHI Energy are located on-site. The area where Averill is sited is a particularly fa-vorable region for wind power. Wind data for the site, derived from the performance of existing adjacent turbines over a six-year period, suggests returns on this project exceeding 17 percent annually.
WNEA purchased a 3 percent equity stake in Averill Wind LLC in Feb-ruary 2007.
Gamesa
WNEA has an option to purchase the Gamesa project, located adjacent to the CHI Energy development. The project consists of 2 Gamesa 850 KW turbines and has a total rated capacity of 1.7 MW. The project is owned by NAE Shaokatan Power Purchasers LLC and commenced operations in May 2003. Federal Production Tax Cred-its, as well as a state subsidy, extend through April 2013. The LLC leases the land where the turbines are located and has a 30-year-lease term.
Boreal Energy assets
two turbine expansion, increasing total capacity to 9.86 MW. Project returns are forecast to exceed 18 percent annually.
Gascoyne, North Dakota
The first 20 MW stage of the Gascoyne project is ready for construction. This project is expected to produce annual
Analyst: Victor Sula, Ph.D. Initial Report June 23rd, 2008
Wind Energy America Inc. (OTCBB: WNEA) 7
returns exceeding 22 percent. Boreal Energy is also in the final stages of negotiating a 300 MW project expansion with its North Dakota partner, Crownbutte Wind Power LLC.
Ontario, Canada
Boreal Energy owns options on development sites in Ontario, Canada. Initially, two 9.5 MW wind farms are planned. Boreal Energy has also identified five suitable sites for 10 MW farms and believes there is the potential for an additional 200+MW of generating capacity in Ontario under the standard offer program. Expected annual returns on the Ontario projects are 18 percent.
Navitas Energy Inc.
The acquired Boreal Energy assets also include an economic interest in 3.8 million shares of common stock (15 percent equity interest) in Navitas Energy Inc., a Minneapolis-based wind farm developer that is majority-owned by Gamesa, a large Spanish wind turbine manufacturer. Boreal Energy is negotiating the sale of the stock back to Navitas in exchange for wind turbines and other wind farm assets and projects. WNEA has agreed to pay 10 million shares of its common stock for the assets Boreal Energy receives from this stock sale.
Ongoing development pipeline
In addition to the above-mentioned projects, Boreal Energy has a pipeline of development projects representing around 1,200 MW of additional capacity. These projects are at various stages of development, have validated wind speeds, and existing or planned transmission potential. The geographic breakdown of the pipeline projects is: 300 MW in North Dakota; 200 MW in South Dakota; 200 MW in Ontario, Canada; 200 MW in Wisconsin; and 300 MW in western Minnesota.
Wind Farm Development Process
The development of a wind farm involves five distinct stages, though most stages overlap in the creation of larger wind farms. The costs involved increase at every step, along with the probability of success and the value of the wind farm development asset.
Initial prospecting and opportunity analysis
A wind farm developer can log on to many countries’ national wind resource sites (such as the National Renewable Energy Laboratory in the United States) and use wind resource maps to assess a proposed site or identify a new greenfield site. From these, a developer can overlay contour maps to find areas of elevation (or large plains) and existing transmission networks (as well as planned transmission lines or line upgrades). Potential sites can then be analyzed in greater depth using satellite imagery to assess transportation infrastructure, and the location of struc-tures and trees that may affect the wind flow.
Analyst: Victor Sula, Ph.D. Initial Report June 23rd, 2008
Wind Energy America Inc. (OTCBB: WNEA) 8
Once initial prospecting is completed, the developer will then analyze the project’s economic potential. If the project surpasses a minimum return threshold, the developer will fund a wind study using a meteorological tower. A wind study measures wind speed, direction, variability and turbulence and is usually performed over an 18-to-24-month period. A meteorological tower typically costs $10,000 to $15,000 and additional costs can be incurred for renting the land and for data recovery and analysis.
Project development
After an economically viable site has been selected and wind speeds validated, the next step is to plan the specific development. This entails legal documentation and processes. The majority of costs incurred at this stage relate to the developer’s time and cost of legal services. These steps include:
evaluating land ownership and negotiating leases and sales; incorporating the wind farm as a separate limited liability company or partnership; obtaining permitting (environmental and local); negotiating grid interconnections; negotiating off-take agreements; ascertaining financing structure and obtaining funding; and negotiating turbine and balance of plant delivery contracts.
Project design
The next step is to design the site and make it ready for construction. This includes building access roads and foun-dations and designing intra-farm transmission and interconnection grids. These services are usually performed by specialist construction and electrical engineering companies.
Construction and commissioning
Construction of a typical 10-to-20 MW wind farm consists of site preparation, turbine installation and intercon-nection. This is a relatively simple process often performed by specialists, but easily learnt by general construction teams. A small wind farm can generally be built in six months. However, larger turbine farms typically require the services of specialist crane and construction teams and can involve long lead times. After the farm has been constructed, all turbines and electrical systems must be rigorously tested before final ap-proval is given to begin generating electricity and feeding into a transmission network.
Operations and maintenance
Turbines are generally sold with a five-year guarantee and a maintenance contract. Maintenance contracts vary sig-nificantly in price and can range from $8,000/MW (direct drive designs) to $14,000/MW (traditional geared designs). In terms of maintenance, the key components that require regular service are the hydraulic systems (used for cooling and yaw movement), lubrication systems and the gearbox. All modern turbines incorporate remote monitoring, optimisation and management systems. These tools allow wind farm operators to maximize operating efficiency by remotely diagnosing problems, throttling power output
Analyst: Victor Sula, Ph.D. Initial Report June 23rd, 2008
Wind Energy America Inc. (OTCBB: WNEA) 9
(large utilities) and remotely locking down turbines in case of extreme weather conditions.
Value creation during development process
The chart below provides a rough guide to the time required for each development step and the value created at each stage (excluding construction and turbine costs which currently range around $1.3 million to $1.6 million per MW.)
Analyst: Victor Sula, Ph.D. Initial Report June 23rd, 2008
Wind Energy America Inc. (OTCBB: WNEA) 10
Wind energy is the fastest-growing segment of the $650 billion annual worldwide electricity market. For the past 10 years, the global wind energy market has been growing nearly 30 percent annually. According to the 2007 Global Wind Energy Council (GWEC) annual report, wind farms now produce 94,123 MW of power worldwide, up 3 percent from 2006. That’s enough electricity to power 28.5 million homes. GWEC is also forecasting 155 percent growth in the global wind market to 240 GW of installed capacity by 2012. Electricity produced from wind energy will exceed 500 TWh in 2012 (up from 200 TWh in 2007) and represent 3 percent of global electricity consumption (up from 1 percent in 2007).
world’s installed wind energy capacity. Asia, and particularly China, will likely play a key role in the industry’s future growth because of that region’s insatiable demand for energy and its industrial infrastructure and man-power. Asia is becoming a powerhouse for wind turbine production. In China, more than 40 companies are pres-ently involved in turbine manufacturing, and by 2010, the country is expected to emerge as the leading global wind turbine producer. 4
Analyst: Victor Sula, Ph.D. Initial Report June 23rd, 2008
Wind Energy America Inc. (OTCBB: WNEA) 11
5 www.awea.org/projects/
U.S. wind energy industry
In its 2007 Annual Energy Outlook, the U.S. Energy Information Agency estimated that U.S. electricity demand will grow 39 percent between 2005 and 2030 to 5.8 billion MWh. In 2007, wind was one of America’s fastest growing sources for electricity, second only to natural gas for the third consecutive year. This growth translates into roughly $9 billion invested in U.S. wind project installations in 2007 and cumulative spending of nearly $28 billion since the 1980s. There are wind farms in 34 states; as of April 2008, U.S. wind farms had a combined capacity of 18,302 MW.
Analyst: Victor Sula, Ph.D. Initial Report June 23rd, 2008
Wind Energy America Inc. (OTCBB: WNEA) 12
In 2006, President Bush emphasized a national imperative for greater energy efficiency and a more diversified en-ergy portfolio. One of the goals of his national energy policy is to produce 20 percent of U.S. electricity from wind power by 2030. To accomplish that objective, U.S. wind power capacity must increase to 300+ GW or more than 300,000 MW. This would require 290 GW of capacity expansion within 23 years.
The United States reported a record 5.2 GW of new installed capacity in 2007, more than double the 2006 figure. Wind power accounted for about 30 percent of the country’s new power production capacity. Overall U.S. wind power generating capacity grew 45 percent in 2007; total installed capacity increased to 16.8 GW. New wind farms contributed roughly 35 percent of the new capacity added to the U.S. electrical grid in 2007, compared to 19 percent in 2006, 12 percent in 2005, and less than 4 percent from 2000 through 2004. According to an American Wind Energy Association report, new wind power installations continued at a rapid pace during the first quarter of 2008. Ap-proximately 1.4 GW or $3 billion worth of new generating capacity was installed, sufficient to serve the electricity needs of 400,000 homes. U.S. wind farms are expected to generate 48 billion kWh of wind energy in 2008, more than one percent of the U.S. electricity supply.
The Production Tax Credit or PTC is unique to U.S. energy policy and can be viewed as a variant of the fixed price system. PTCs provide at 2 cents per kWh tax incentive to facilities that produce electricity from renewable energy resources such as wind, biomass, geothermal and hydropower. The credit can be claimed for 10 years, beginning on the date the qualified facility is placed in service. The facility must begin operation before the credit expires.
Although the PTC system was due to expire at year-end 2005, a two-year extension to December 2007 (the date by which a wind farm must begin operation to qualify for the 10 year credit) was included in the Energy Policy
Analyst: Victor Sula, Ph.D. Initial Report June 23rd, 2008
Wind Energy America Inc. (OTCBB: WNEA) 14
Act that President Bush signed into law in August 2005. In 2007, PTC was renewed again and the expiration date was moved to December 2008. On April 10, 2008, the U.S. Senate overwhelmingly approved an amendment to the Clean Energy Stimulus Act, which provides for a one-year extension of the Production Tax Credit.
Financial Record
The Company plans to generate revenues from the sale of electricity produced from its operating wind energy projects. During the nine months ended March 31, 2008, and March 31, 2007, WNEA produced no revenues from electricity sales. Operating expenses rose to $365,741 during the nine months ended March 31, 2008, due to increased professional fees, and expenses relating to an employment termination agreement with the Company’s former CEO/CFO effec-tive March 1, 2008.
Income statement, $
Source: SEC Filings, fiscal year ending June 30.
Total Revenue
General & Administrative Professional fees Total Expenses Operating loss Income taxes benefit Net Loss Diluted EPS
Q3 FY 2007
0
89,607-
89,607
-89,607-50,710
($140,317)
($0.01)
Q3 FY 2008
0
72,807116,321189,128
-189,128-
($189,128)
($0.01)
9 months FY 2007
0
267,0669,350
276,416
-276,416-117,338
($393,754)
($0.03)
9 months FY 2008
0
195,183170,558365,741
-365,741-
($365,741)
($0.01)
The Company is generating losses from operations, has negative cash flows and a small cash balance. These are all factors that raise questions about WNEA’s ability to execute its growth strategy. During the first nine months of FY 2008, WNEA consumed $267,054 in operating activities and used $851,175 in investing activities, consisting of investments in various wind farm developments. The Company raised $1 million through its financing activities, which included $945,416 from a private equity placement and a $100,000 short-term loan.
WNEA has relied primarily on equity private placements to provide funding for its wind farm development and acquisition activities. The Company’s current business plan focuses on developing the assets it acquired from Boreal Energy. However, WNEA lacks sufficient funding to complete its development plans and must pursue additional debt or equity financing. There is no assurance that the Company will be able to raise the needed capital.
Analyst: Victor Sula, Ph.D. Initial Report June 23rd, 2008
Wind Energy America Inc. (OTCBB: WNEA) 15
Balance sheet, $
Source: SEC Filings, fiscal year ending June 30.
Total Current Assets, includingCash and equivalents
Investments in wind farmsInvestments in wind projectsInvestment in Grand Sierra Resort Corp.Investment in Navitas Energy Inc.GoodwillTotal Assets
Analyst: Victor Sula, Ph.D. Initial Report June 23rd, 2008
Wind Energy America Inc. (OTCBB: WNEA) 16
Valuation
Over the next four years, WNEA plans to complete approximately 280 MW of wind energy projects in the upper Great Plains and Midwest. The Company estimates approximately $69 million of external funding will be required to complete these projects, including $40 million from equity financing. Assuming funding is secured and the vari-ous projects are completed, WNEA would expand installed capacity to 400 MW over the next four years. At this generating capacity level, the Company could be producing annual revenues exceeding $80 million from electricity sales and annual income ranging between $40 million and $45 million.
Income estimates
Source: Analyst estimates, management guidance
Year-End December ($ 000)
Income from Boreal AssetsIncome from Boreal Equity in farm projectsRevenue from early stage partnershipsNavitas DividendIncome from “Big 3 farms”Other incomeTotal Income
EPS, $Weighted average shares outstanding, Million
2008E
1,319 419
0900
0 30
1,349
-3,381-2,031
28000
-1,751
0-1,414
-0.02949.51
2009E
7,852 4,2521,8001,800
0 58
7,910
-4,3543,556
280-591-88
3,157
-549.52,608
0.03869.51
2010E
18,331 9,3317,2001,8008,904
61 27,295
-6,46620,830
120-2,494-488
17,968
-3127.514,840
0.18779.51
2011E
25,010 15,1107,2002,7009,349
64 34,423
-8,27726,146
120-4,491-488
21,287
-3705.217,582
0.19689.51
2012E
32,078 20,0789,3002,7009,816
67 41,961
-10,09831,864
120-4,573-968
26,443
-4602.621,840
0.21999.51
The Company’s business model is highly scalable. With the significant pipeline of development projects included as part of the Boreal Energy acquisition, we believe WNEA has excellent growth opportunities and income potential much greater than the profits modeled in or 2008-2012 forecasts.
Peer comparison
We believe WNEA should trade at valuation multiples comparable to other alternative energy stocks. Reflecting the alternative energy sector’s strong growth momentum, wind and solar energy stocks were recently trading at 67 times P/E multiples and 39 times forward P/E multiples. Given the Company’s early development stage and need for additional financing, we value WNEA at a 16 times forward P/E multiple.
Valuation
Analyst: Victor Sula, Ph.D. Initial Report June 23rd, 2008
Wind Energy America Inc. (OTCBB: WNEA) 17
Comparative analysis
Source: Yahoo Finance
Company Name Ticker Symbol Price
Mrkt. Cap. Mn
PE
ttm 2008E 2009E
BBW.AXCWPR.LEEN.PAREH.L
TEO.PA
FSLRSTP
ESLR
Babcock and Brown Wind A$Clipper Windpower GBPEDF Energies Nouvelles` EURRenewable Energy Holdings GBPTheolia EUR
First Solar Inc. , $Suntech Power Holdings, $Evergreen Solar Inc. ,$Median
$1.706.1745.6
48.5023.15
$267.54$42.54$10.40
1,110.57796.61
2,825.4231.8
882.4
2134065701260
100.98n/m
55.01n/m54.2
106.4241.79n/m55.0
n/mn/a
43.02n/m
1157.50
91.3127.27n/m67.2
n/mn/a
31.23n/m
100.65
46.6916.4922.6139.0
Source: Reuters
By multiplying our 18 cent 2010 EPS estimate by a 16 times forward P/E multiple, we derive a $2.98 target price for WNEA shares.
The recently signed record contract between Gamesa SA and Iberdrola Renovables SA to provide wind turbines, construction and services valued at $9.7 billion is indicative of the rapid development in the wind energy sector and supports the prospects for strong wind market growth across the globe. Moreover, the improvement in the wind generation technology; decreasing costs and greater competitiveness of wind energy; environmental concerns as well as high degree of governmental support will enhance the wind energy industry growth rates and market share gains in the overall energy market.
We believe WNEA is providing strong exposure for investors to wind energy market fundamentals and accordingly rate these shares a Speculative Buy. The Company has established wind energy assets and a robust pipeline of new projects but must secure significant external funding to implement its business plan. We are initiating coverage of Wind Energy America with a $2.98 price target.
Additional capital required to execute on development plans
The Company will require additional financing to complete its wind energy projects. Management estimates spending of $69 million will be required over the next four years to complete approximately 280 MW of wind en-ergy projects. If the Company fails to obtain sufficient funding, it will be unable to complete its business plan.
Investment Risks
Analyst: Victor Sula, Ph.D. Initial Report June 23rd, 2008
Wind Energy America Inc. (OTCBB: WNEA) 18
History of losses
WNEA has operating losses, negative cash flow and an accumulated deficit that raises doubts about its ability to execute its expansion plans. While the Company anticipates generating profits in 2009, there is no assurance that WNEA can develop the required new generating capacity within that short timeframe.
Threat from alternative energy sources
Alternative energy resources such as hydro or solar power may become more economically viable and limit the deployment of wind energy as a power source. In addition, if oil prices decline significantly, wind energy’s competitive advantages over fossil fuel are reduced.
Spot power market prices
WNEA plans to sell a significant proportion of its generating capacity into the emerging merchant power mar-ket. Prices are expected to rise due to power generation shortfalls in the Midwest. The risk exists, however, that new generating capacity coming online will reduce spot price and WNEA’s returns. This risk is mitigated by the fact that new nuclear energy facilities take many years to build, oil prices are expected to remain high and opposition to new coal power plants is growing due to pollution concerns.
Management
Mr. Kluge brings to the Company more than 19 years of experience in invest-ment banking, working mainly with local emerging growth companies.
Darrel KlugeInterim CEO
Mr. Cross began his career at Arthur Andersen and Co. where he developed expertise in creating and syndicating investment vehicles used to raise capital for natural resource development projects. After becoming a partner with the firm, he left public accounting to serve as the CFO for a number of private companies. He is a CPA and earned his Bachelor of Arts, Master of Business Administration and holds a Juris Doctor from the University of South Da-kota.
Alan CrossChief Financial Officer
Mr. Williams has been a director and chairman of the board since April 2007. Mr. Williams is the founder and principal owner of Bobby and Steve’s Auto World, which owns and operates eight gas/service stations in the Minneapo-lis/St. Paul area. Mr. Williams serves on the city council of Columbia Heights, Minn.
Robert A. WilliamsDirector and Chairman of the Board
Mr. Knapp is president and CEO of Space Center Ventures, a St. Paul, Minne-sota-based venture capital fund that invests in emerging Twin City companies. He has served on the boards of a number of private and public companies, and currently serves as a director of Minneapolis-based Venture Bank. Mr. Knapp is a 1982 graduate of The College of St. Thomas and a 1985 graduate of William Mitchell College of Law.
Paul R. KnappDirector
Analyst: Victor Sula, Ph.D. Initial Report June 23rd, 2008
Wind Energy America Inc. (OTCBB: WNEA) 19
Management
Beacon Equity Research (otherwise known as BER) is an independent research firm specializing in small and micro capitalization companies. BER has no investment banking or consultation conflicts thereby minimizing the inherent conflicts of interest between the research analysts and the companies they cover. BER is not a registered investment advisor or broker dealer. No information in this report should be construed as an endorsement to either buy or sell any securities mentioned in this report. The analyst(s) who prepared this report rely on publicly avail¬able information which neither the analyst, nor BER, can guarantee to be error-free or factually accurate. All conclusions in this report are deemed reasonable and appropriate by the author. The Private Securities Litigation Reform Act of 1995 provides investors a “safe harbor” in regard to forward-looking statements. To fully comply with the requirements of this law, BER cautions all investors that such forward-looking state-ments in this report are not guarantees of future performance. Unknown risk, uncertainties, as well as other uncontrollable or unknown factors may cause actual results to materially differ from the results, performance or expectations expressed or implied by such forward-look¬ing statements. Investors should exercise good judgment and perform adequate due-diligence prior to making any investment. Beacon Equity Resources and its affiliates have been compensated a total of one hundred fifty thousand Restricted Rule 144 shares directly from Boreal En-ergy Inc. for enrollment of WNEA in its research program and other services. Ratings and price targets in this report should not be construed as recommendations or stock price predictors. Readers of this report are urged to use due-diligence in any purchase of security listed herein. Readers should consult the Company’s SEC filings as well as our initial report on the firm to better understand the inherent risks associated with this security. There may be many uncontrollable or unknown factors which may cause actual results to materially differ from the results, performance or expectations expressed or implied by such forward-looking statements. Investors should exercise good judgment and perform adequate due-diligence prior to making any investment.
Disclaimer
All decisions are made solely by the analyst and independent of outside parties or influence.
I, Victor Sula, Ph.D, the author of this report, certify that the material and views presented herein represent my personal opinion regarding the content and securities included in this report. In no way has my opinion been influenced by outside parties, nor has my compensation been either directly or indirectly tied to the performance of any security listed. I certify that I do not currently own, nor will own and shares or se-curities in any of the companies featured in this report.
Victor Sula, Ph.D. - Senior Analyst
Victor Sula, Ph.D. has held the position of Senior Analyst with several independent investment research firms since 2004. Prior to 2004, Mr. Sula held Senior Financial Consultant positions within the World Bank sponsored Agency for Restructuring and Enterprise Assistance and TACIS sponsored Center for Productivity and Competitiveness of Moldova, where he was involved in corporate reorganization and liquidation. He is also employed as Associate Professor at the Academy of Economic Studies of Moldova. Mr. Sula earned his Ph.D. degree in 2001 and bachelor’s degree in Finance in 1997 from the Academy of Economic Studies of Moldova. Mr. Sula is currently a level III candidate in the CFA program.
![Sula Project DONEt[1]](https://static.documents.pub/doc/80x56/55cf9ce3550346d033ab6aa0/sula-project-donet1.jpg)
