U.S. Wind Farming, Inc. (USWF) -- Strong Buy
BREAKING NEWS:
Congress has now put America’s emerging wind farm industry on the front-lines for pollution-free energy. The American Wind Energy Association (AWEA) reported on 24 September 2004 that the wind energy production tax credit (PTC)—a critical factor in financing new wind power installations—will be reinstated through 2005 as part of a major tax package (H.R. 1308) extending a number of individual and business tax provisions. The House and Senate approved the bill on September 23, and President Bush is expected to sign it into law. The PTC now provides a 1.8-¢/kWh tax credit (adjusted annually for inflation) for electricity generated with wind turbines.
The passage of this legislation to put the wind farm industry on equal footing with coal and natural gas industries will make industrialized wind power projects financially feasible and here to stay. Since 2002, some of the biggest players in the American power industry using fossil fuels have handed their big oil and gas burning power plants back to the banks but retained their wind farm assets.
This legislation for the wind farm industry will unlock over $3 billion of wind farm projects. The national energy policy is to have 5% of America’s energy demands met by wind power by 2020, about as much as hydropower provides today. Today, it is well under 1%. A U.S. Department of Energy wind resource inventory found that three states—North Dakota, Kansas, and Texas—have enough harnessable wind energy to meet electricity needs for the whole country. The Bush plan to add 393,000 megawatts of electricity nationwide by 2020 could be satisfied from wind alone. The new legislation for wind farm tax credits means an industry growth rate of 31% per year. The frontier of a profitable "Green Energy" industry has been given birth in 2004 and U.S. Wind Farms is at the cutting edge of the technology to be utilized.
THE COMPANY
U. S. Wind Farming, Inc. (USWF) is an emerging public renewable energy developer in North America establishing wind generated electrical power cooperatives with America's farmers in cooperation with General Electric. USWF is a Nationwide Public Renewable Energy Developer and a partner in Agricultural Renewable Energy Cooperatives enlists the nation's farming community to provide "renewable" energy (Wind Generated Electrical Power) for their local community and the nation utilizing Small Distributed Wind Turbine Agricultural Renewable Energy Cooperatives.
KEY DATA POINTS
Shares Outstanding 210 Million
Shares Float 43 Million
Average Daily Volume 300,000
Current Price $0.03
Price Target $0.15
INVESTMENT THESIS
With the advent of an enormous and growing movement towards renewable energy and fixed long-term "non-fossil fuel" contracts to the nation's power utilities, USWF is to provide our nation's farmers with the ability to use their properties to "farm" the most abundant of all of the earth's natural resources, the "WIND." USWF partners with the farmer and the Agricultural Renewable Energy Cooperative for the warranty life of the wind turbine electrical generating system. The farmer benefits from this partnership by capturing a percentage (5%) of the income derived from the sale of the electricity generated from cooperative, where power production will be sold to electrical utilities nationwide.
USWF claims to be the only publicly traded wind farm company in the United States. USFW is developing a unique niche working to provide agricultural farms an additional source of income by also becoming small wind farms. Since farmers have no money, cooperatives are set-up to generate the working capital to construct the wind farm and the farmer would receive proceeds from the sale of electricity.
USWF provides a total turn key solution to bring small wind farms on line while also being well-positioned for the rebuilding of existing outdated wind farms. Each small wind farm will be fitted with six to ten units, generating enough energy to power 3,500 homes. Based purely on pro-forma data, USWF expects to receive $1 million annually paid on a monthly basis by the local utility that is under contract to purchase energy from these farms for a period of 30 years.
USWF and the wind energy producing market:
A worker prepares to enter the hub of a 1.5-megawatt wind turbine. With the passage of new tax laws for wind farms by Congress, more of these industrial-size turbines will be providing pollution-free power for America.
Wind produces electrical energy by turning the fan blades attached to a high tower that is connected to a generator. A large wind tower is capable of producing between 1.8 to 2 megawatts of power, which is enough electricity to satisfy about 550 average households. On a typical wind farm, there are 40 to 70 towers. These towers are connected to a power grid, which feeds into a specially designed transfer system.
A tower capable of producing between 1.8 and 2 megawatts can range between 150 feet and 180 feet tall, takes about three months to construct and costs just under $1.7 million. Ideal sites are usually flatlands or a ridge on hilly terrain. A landowner usually signs a long-term lease with payments of a few thousands dollars a year per tower. The costs per kilowatt-hour are 4.7 cents vs. an average 5.2 cents for natural gas generated power. Be mindful that this is a renewable energy source with zero pollution emissions.
The wind energy industry is truly a global industry. Wind plants now power the equivalent of 9 million average American homes (19 million average European homes) worldwide. Growth is widely forecast to continue in the double-digits into the next decade, even as the industry matures. Investment in 2004 is flat due to the uncertainty of renewable energy tax credits. Some $9 billion were invested in new wind power generating equipment in 2003, up from $7 billion in 2002.
According to the American Wind Energy Association, the force behind legislation to stabilize and encourage growth of the wind energy industry, the "break-out" of the industry will occur when the federal government adopts the same "Renewable Portfolio Standard" currently in force by 13 states. In these states, a minimum amount of consumable energy must be wind derived energy and there are penalties for non-compliance. Some states have taken a strong lead in the adoption of wind power as a mainstay. For example, the State of New York just recently passed a law increasing the amount of wind energy consumed in the state to be increased from 18% to 25%.
Congress is likely to make some positive changes in the federal statutes along the 1999 Wind Powering America, U.S. Department of Energy (DOE) initiative. The goal of this initiative is to have 5% of America's total electricity supplied by wind power by 2020. Today, it is less than 1%. Most of the country's power comes from coal (over 50%), nuclear (20%), natural gas (18%), and hydropower (7%).
The US wind farm industry ranges from the small enterprise providing electricity to rural communities to the giants such as Florida Power & Light, the largest wind-power producer in the United States. FPL owns 43 wind farms across the nation that comprise nearly 7,000 turbines producing 2,800 megawatts, or nearly 30 percent of FPL's total generating capacity.
The main problem with the major wind power companies (i.e. public utilities) is the passage of Production Tax Credits (PTC's) by Congress. These tax credits have been languishing in the Republican controlled congress. Florida Power and Light owns and operates the largest commercial wind farm operation in America. It is currently holding 50% of the major projects sitting on the boards waiting for the PTC's to become law. The PTC's will allow the wind industry to continue building on previous year's momentum, but it is insufficient for sustaining the long term growth of renewable energy. The planning and permitting process for new wind facilities can take up to two years or longer to complete. As a result, many renewable energy developers that depend on the PTCs to improve a facility's cost effectiveness may hesitate to start a new project due to the uncertainty that the credit will still be available to them when the project is completed. The short-term outlook (2004) is uncertain; due to the pending federal production tax credit (PTC), and the failure of Congress to adopt the credit to ensure continued, orderly growth of the wind energy market. The delay in the PTC's is inflicting a high cost on the industry – initial estimates are that some 2,000 MW of new capacity would have been installed in 2004. Instead, many large-scale projects are on hold pending the credit.
The average ultimate consumer revenue per kilowatt hour ranged from 2.5 to 6.9 cents depending on the type of electric utility servicing them. The overall average was 6.8 cents. The average sales for resale revenue per kilowatt-hour ranged from 3.6 to 4.5 cents, depending on the type of electric utility making the sale. The overall average was 4.1 cents. A well located wind farm can sell power on the order of 3 to 4 cents per kilowatt hour. The PTC for a wind farm provides a 1.8 cent per kilowatt hour benefit for the first ten years of a facility's operation. The average lifespan of a wind farm is 20 years and technology is pushing this up to 50 years.
Institutional Investor.com ran a recent article on USWF wherein the financing of the cooperative ventures are based on bonds sold in denominations of $10,000 with a 30 year 7% yield. The article noted that financing of the wind farms is currently independent of the PTC's. This is a huge plus. PTC's are not needed to make USFW's projects viable. The business model is designed without the benefit of Energy Production Tax Credits, but the recent passage of the extension of PTCs shows good intent by Congress and opens the way for long-range capital spending on wind farming by utilities and private pools of investment funds.
The success of a wind farm is based upon its zone of wind energy in the United States which range on a scale from Class 1 to 5. The Aleutian Islands are a Class 7 and parts of Hawaii are Class 6. The terrain of the land is also important because this defines the size of the corridor or cell where the wind energy is collected. For a wind farm to be successful a minimum of Class 3 is required and the reliability of the wind during the seasons must be sustainable. Once the energy is produced, it must reach the market on available infrastructure. If the location of the market is far away and/or the power lines insufficient or inefficient to transport bulk energy, then the cost of transporting electricity to the market may defeat the purpose of generating electricity from wind. Therefore, the location of a wind farm to a source of reliable wind energy and its ultimate market is paramount.
The DOE publishes wind maps. At this time, USWF has identified 15 sites and is studying these for feasibility.
The technology of wind power in Zones 3 to 5 is competitive against fossil fuels with the PTC's in place. In the 1980's, wind power was in the horse and buggy phase. Today, it is a Model T and is fast evolving.
The global wind energy market is consolidating as it is maturing. Vestas, already the world's largest wind turbine manufacturer (20.6% accumulated market share in 2002), and NEG-Micon, the second largest (17.3% accumulated share at end of 2002) announced at the end of 2003 that they would merge their operations, creating the world’s single largest wind turbine manufacturing group. GE Wind is increasing its market share, and sold more than half of the generating capacity installed in the U.S. in 2003. Foreign manufacturers Gamesa and Suzlon are expanding operations outside of their country of origin and installed their first turbines in the U.S. last year.
Globally, wind power is growing faster in countries with reliable and sustainable wind resources such as the United Kingdom, and other countries with Green policies as a major platform of the political agenda. Cumulative wind power generating capacity, by region: Europe - 74%; U.S. - 16%; Rest of World - 10%.
Wind as a resource is not predicable and therefore, is always a risk. There are two types of power generation - base load and peak load. Base load is steady power 24 - 7. Peak load is to add energy at peak times such as morning and dinner times, or during hot summer days, etc. Base load power is the highest priority. Wind power as a base load supplier is unlikely except in rural communities where power storage then becomes the next biggest hurdle/cost. USFW has elected to serve the rural communities.
RECENT DEVELOPMENTS
August 16, 2004—U.S. Wind Farming to conduct repowering of Altamont Pass, California. The Altamont Pass Wind Resource Area contains the second-largest wind resource in California, and it could be relied upon to meet a significant part of the state's renewable portfolio standard of 13% by 2010 and 20% by 2017. U.S. Wind Farming (Pink Sheets:USWF), America's only publicly traded wind farming company, will establish cooperatives within this area to help the CEC meet these goals.
August 10, 2004—U.S. Wind Farming has selected its first 15 agricultural sites to install the 1.5 MW (mega watt) and 2.5 MW GE (GE) Wind Turbines. GE Wind Energy, Vaisala Group and Rosendin Electric will be commissioned to evaluate these sites for renewable energy development. USWF is anticipating that these sites will produce in excess of 225-MW of power with over $12 million in revenues during the upcoming year.
July 6, 2004—USWF enlists farmers to "Harvest the Power of the Wind" by creating a 30-year annuity paid to the farmer without disturbing their ongoing agricultural operation. Each Cooperative will typically produce enough electricity to run roughly 4,500 typical homes and can provide the farmer with up to $100,000 in annual income for 30 years. Each Cooperative provides USWF with over $800,000 in net revenue annually or over $24,000,000 for the course of the 30-year fixed-rate renewable energy contract.
June 28, 2004—USWF expects to utilize the resources of GE Wind Energy, a division of General Electric, to provide the industry's finest companies and wind turbine suppliers. With over 6,100 worldwide wind turbine installations comprising more than 4,000 MW of capacity, the company's knowledge and expertise spans more than two decades.
May 14, 2004—U. S. Wind Farming, Inc. announced today its intention to start trading on the Pink Sheets under the ticker symbol USWF. It is America's only publicly traded wind energy company.
March 29, 2004—GE Energy’s activities in the global wind industry produced more than $1.2 billion in revenues for 2003, a 150% increase above the previous year’s total, the company reported at Global Windpower 2004. "The growth of this business within the GE Energy portfolio is a clear indication of the tremendous interest in wind power, which has become the world’s fastest growing energy source," said Steve Zwolinski, CEO of GE Energy’s wind operations. In the U.S., GE Energy’s wind turbine installations for 2003 totaled 873 megawatts of new wind-generated capacity, enough to serve the annual electricity needs of more than 270,000 average households. These orders alone represent more than 110% more capacity than reported by the American Wind Energy Association to have been installed in total throughout the U.S. during 2002.
SUMMARY
U.S. Wind Farming (USWF) is a company that is still early stage growth company. Securing and executing on the retrofitting contracts for the exisiting Altamont Pass and Palm Springs wind farms in the next few months will generate and initial revenue stream necessary to finance the build out of new wind farms. It is the goal of the company to install 45 megawatts of power generating wind turbines by the end of 2004, re-powering obsolete wind farms and add 180 megawatts in 2005 from new wind farm installations. With the recent passage of the extension of Energy Production Tax Credits, the company should be successful in securing financing and closing several contracts that have been pending due to the PTC legislation. Now that the incentives are in place, the wind should be to the back of USWF shares going forward.
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