Energy developer to start stock sale

After a long delay, a privately held wind energy development company with major investments in Maine is poised to go public and issue stock, aiming to repay debt and fund its growth plans.

Boston-based First Wind Holdings LLC wants to raise as much as $312 million by offering 12 million shares of stock. It has priced each share in this initial public offering between $24 and $26, according to a recent Securities and Exchange Commission filing.

While the timetable could change, the offering is expected to take place before the end of this week. First Wind has proposed trading on the Nasdaq exchange under the symbol WIND.

"We've been waiting patiently, and we hope the market is good for an IPO, and for the wind industry in particular," said John Lamontagne, a company spokesman. "It's an opportunity for us to raise some capital to continue our development strategy through 2013."

Investor interest in First Wind's stock could be an important indicator of the health of the wind power industry, both nationally and in Maine.

The industry's rapid growth has been sapped this year by the economic downturn, and by low natural gas prices that have driven down wholesale electricity costs and made wind less competitive. Installed capacity is off 71 percent from last year, down to 2007 levels, according to the American Wind Energy Association.

In Maine, First Wind operates two of New England's largest wind farms -- Mars Hill in Aroostook County and Stetson I and II in Washington Country. It broke ground last month for the Rollins wind farm, near Lincoln. The project has survived repeated legal challenges from opponents.

Maine's windy ridgelines are prime locations for First Wind's growth plans. These plans complement a goal set by Maine lawmakers to install 2,000 megawatts of wind power capacity by 2015.

Both energy analysts and wind power critics will be closely watching First Wind's IPO. Some global utilities, such as Central Maine Power Co.'s parent, Iberdrola of Spain, operate large wind power subsidiaries in the United States. But First Wind would be unique: a publicly traded, U.S.-based company solely devoted to wind energy in the Northeast, the West and Hawaii.

First Wind is strategically focused in regions with strong winds, high electric rates and state and local incentives to buy renewable energy. This business model could offer good growth potential for investors, according to Michael Hennessy, a wind energy analyst at Bloomberg New Energy Finance in New York City.

At the same time, Hennessy said, wind development is capital-intensive and filled with risk. The industry is heavily dependent on government financial incentives and policies, which have funneled hundreds of millions of dollars to First Wind. The industry also is subject to legal challenges from residents who live near projects, a dynamic that's familiar in Maine.

"It will be read as a vote of confidence or a vote of no confidence for the industry," Hennessy said of the pending stock sale.

Adding to the risk for investors in First Wind is the amount of money the company owes for turbines and project development, estimated at nearly $516 million as of the last fiscal quarter. In its financial filings, First Wind discloses that it has substantial, short-term debt and insufficient money to pay back the loans, which could affect its ability to grow, or even to stay in business.

First Wind filed its initial stock plans in 2008, but withdrew them as the banking crisis and deepening recession throttled the financial system. It began testing the waters again last winter. Since then, the market for initial stock offerings has improved somewhat.

Investors weighed in on wind energy early this month, Hennessy noted, when a private Chinese wind turbine maker, China Ming Yang Power Group, debuted in the U.S. stock market. The company sold 25 million shares at $14 each, on the low end of its planned range. The stock has been trending down recently and was trading last week in the $11 range.

This downward trend reflects the thinking of William Downes, a financial analyst in Cape Elizabeth and opponent of utility-scale wind power. Most investors are concluding that wind energy is too risky now, Downes said.

He expects little trading in First Wind's stock, and he suspects the underwriters bringing the shares to the market -- Credit Suisse, Morgan Stanley, Goldman Sachs and Deutsche Bank Securities -- will end up buying much of the offering.

"I just don't see a lot of demand for this company," Downes said.

One of the key factors influencing the outlook for wind is the cost of its electricity compared to other sources over time, such as oil and natural gas. National and state policies that provide grants and incentives for renewable energy are based on the assumption that, as petroleum prices rise, the cost of wind will remain stable.

First Wind has taken advantage of these policies by receiving long-term power contracts that pay premium prices for its operating projects. For instance: Its large wind farm in Utah has a 20-year contract with cities in southern California. Half of Stetson II's output is being bought by Harvard University. All of Rollins' electricity will go to CMP and Bangor Hydro Electric customers, under a deal approved by the Maine Public Utilities Commission.

These contracts and government incentives are crucial because wind can't compete today with natural gas, a growing and favored source of electricity generation.

A modern gas plant can produce electricity today at 4 cents a kilowatt hour, according to Rich Silkman, co-founder of Competitive Energy Services in Portland, which negotiates power contracts. Wind turbines, even after tax and financial incentives, can't get below the 5- to 8-cent range, he said.

So investors who consider various energy stocks are gambling when they pick wind that natural gas prices will rise, as they did two years ago.

"If you invest in wind, it's a positive bet on wind and a negative bet on gas," Silkman said.

But because First Wind has secured long-term power contracts, taken financial hedges for its output or both, the company is somewhat insulated from these price swings, according to Hennessy.

He'll be watching to see whether the IPO attracts long-term investors who believe in the management team's vision and ability to carry out its business plan, as opposed to hedge funds and short-term investors hoping to flip the stock for quick money.

"That will tell us what people think about their story," he said.