Algonquin Power buys in to American wind facility
On October 19,2015 Algonquin Power announced that it had bought in the construction stage a 150MW wind project with Renewable Energy Systems;it is located in central Michigan on 20,000 acres of land.It is a joint project and there is room to expand.Algonquin says that it will utilize proven turbine technology and will generate 555GW hours annually.The Deerfield project has 38MW of power generation here and a 20 year power agreement with Wolverine Power Supply.
Financing
The total project cost will be $303 million and there will be $151 million of tax equity financing. It will achieve commercial operation in 2016.This blog is not familiar with the working of tax equity financing but it is likely that AQN will only get the earnings from 38MW here.This will fit in with the three additions it had in the last quarter which added another 60MW of power generation.That is, Algonquin has added 100MW of power generation in the last two quarters.However the new earnings generated here will be less than that from the addition of the (regulated) Park Water System that was bought in late 2014 and is being financed in 2015.It won't be in commercial operation until 2016.
Regulated and unregulated utilities
This blog has criticized Algonquin Power in the past for lack of diversification.It owns quite a few regulated utilities in a handful of American states.In the past two years AQN has received quite generous and quick rate increases.Further investments and forecast of EBITDA should not be based on more rate increases that are as good or as fast.This blog has warned AQN to diversify by acquiring unregulated utilities with secure power purchase agreements.The Deerfield project is a good example of doing exactly this.However it is not clear what the breakdown of earnings will be with the tax equity investors.This however is more than a very good start to long run diversification.
Long run Diversification
This blog understands that Algonquin has received a number of fast,healthy rate increases from American regulators.This should not be expected to continue over the next five years.The blog also understands that the properties picked up were in disrepair and bought at a good price.Good management dictates that they pare down some of these assets.First they must decide which jurisdictions can be counted on and which are unpredictable.Next spend money and refurbish those assets in questionable jurisdictions in order to be ready for divestiture. Lastly over a number of quarters one or two must be sold.With that in mind the Deerfield project is taken as a step in the right direction.
Financing
The total project cost will be $303 million and there will be $151 million of tax equity financing. It will achieve commercial operation in 2016.This blog is not familiar with the working of tax equity financing but it is likely that AQN will only get the earnings from 38MW here.This will fit in with the three additions it had in the last quarter which added another 60MW of power generation.That is, Algonquin has added 100MW of power generation in the last two quarters.However the new earnings generated here will be less than that from the addition of the (regulated) Park Water System that was bought in late 2014 and is being financed in 2015.It won't be in commercial operation until 2016.
Regulated and unregulated utilities
This blog has criticized Algonquin Power in the past for lack of diversification.It owns quite a few regulated utilities in a handful of American states.In the past two years AQN has received quite generous and quick rate increases.Further investments and forecast of EBITDA should not be based on more rate increases that are as good or as fast.This blog has warned AQN to diversify by acquiring unregulated utilities with secure power purchase agreements.The Deerfield project is a good example of doing exactly this.However it is not clear what the breakdown of earnings will be with the tax equity investors.This however is more than a very good start to long run diversification.
Long run Diversification
This blog understands that Algonquin has received a number of fast,healthy rate increases from American regulators.This should not be expected to continue over the next five years.The blog also understands that the properties picked up were in disrepair and bought at a good price.Good management dictates that they pare down some of these assets.First they must decide which jurisdictions can be counted on and which are unpredictable.Next spend money and refurbish those assets in questionable jurisdictions in order to be ready for divestiture. Lastly over a number of quarters one or two must be sold.With that in mind the Deerfield project is taken as a step in the right direction.
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