Running with the wind
Want to buy some wind?
Public investors can buy into all kinds of alternative energy companies. Anyone interested in purchasing some solar power stocks or shares in fuel cell companies has plenty of options.
Wind power has been a different story. Wind farms and other facilities that capture the breeze to generate electricity are popping up all over the map. But they are big projects financed with deep pockets and owned almost exclusively by private investment interests.
That appears to be changing.
First Wind Holdings Inc. of Newton filed preliminary paperwork Thursday for an initial public stock offering of as much as $425 million. It followed Noble Environmental Power LLC of Essex, Conn., which in May filed its own documents for a planned IPO of as much as $375 million.
They would appear to be in line to become the first pure-play US investments in wind power available to public stock investors. Both companies site and build wind energy projects, then make arrangements to sell the power they generate.
That can be an expensive proposition, at least at first. First Wind Holdings, with three completed projects and a long roster of other wind farms in various stages of development, lost $68 million last year. Noble Environmental lost $42 million in 2007.
Wind power projects were going up all over America last year. Investors spent about $9 billion to add about 5 gigawatts of capacity and increase American wind power by 46 percent. But most of those projects were backed by sophisticated investors and private funds.
From the start, both First Wind and Noble Environmental have been supported by investors like that. First Wind counts private equity giant D.E. Shaw, along with Madison Dearborn and UPC Wind Partners II, among its principal investors. Noble Environmental is backed by a J.P. Morgan fund and the Canadian Pension Plan investment board.
"This has been a specialty sector," says Joe Muscat, leader of the cleantech practice at Ernst & Young. "It's got real estate, a big capital expenditure, and arrangements to get the power in the hands of people who can distribute it. These are decade-long projects."
They can also be complicated and controversial. Many people who live near big wind turbines don't appreciate them, such as those who hate the idea of a farm off the coast of Cape Cod. Successful wind farm projects rely on tax credits for financing, and on other government efforts to nudge utilities toward buying some of that electricity. Some of those benefits, particularly the federal tax credits, are routinely challenged and could lapse.
There are also questions about how the wind business gets done. New York's attorney general, Andrew Cuomo, sent subpoenas to First Wind and Noble Environmental last month as part of an investigation into how the two companies got control of the land where they want to build farms. Cuomo said investigators are looking into whether wind companies improperly obtained land-use agreements and if public officials were given improper benefits to influence their actions.
First Wind officials confirmed they had received the subpoenas and said the company was cooperating with the attorney general.
But wind has a lot going for it, too. The United States led the world in new wind power capacity added last year and generated more electricity from wind than any other country.
On the other hand, wind power represents only about 1.2 percent of the total electricity in the United States. (Denmark, the world's wind power leader, generates about 20 percent of its electricity from that source.)
Even a famous oilman, T. Boone Pickens, has been all over the papers and running ads on TV this summer, talking up wind power as the best answer to America's oil-dependence problems. Pickens promotes placing big wind farms in a blustery section of mid-America stretching from Texas to Canada, but that would require better transmission lines to get the electricity to the cities that would consume much of it.
First Wind is focused on the Northeast, the West, and Hawaii to produce the best investment returns. The idea: Aim for areas with high electricity prices, state programs mandating renewable electricity generation, and, most important, good wind conditions.
The company has lots of projects in various stages of development, but just three up and running. One, on Mars Hill Mountain in Maine, generates about 42 megawatts of power from 28 huge turbines atop the mountain. That's enough electricity to power about 45,000 average homes, according to First Wind.
The company's two other wind power projects are in Lackawanna, N.Y., and Maui, Hawaii. Another two projects are under construction in Maine and New York, and 10 more are in "advanced" planning.
Wind power has a lot of potential as a growing source of electricity. But long planning cycles and expensive projects can be a bad combination for young companies with limited capital and a dependence on government support. Making the real money in wind will require a long view and a gift for knowing when to get in and out of stocks.
Steven Syre is a Globe columnist. He can be reached at syre@globe.com. 