Developing Wind Energy in Canada - Keewatin Windpower (KWPW.OB)

Apr 21, 2009
Author: SCP Editor

April 21, 2009 – Keewatin Windpower (KWPW.OB) is is a wind energy developer in Saskatchewan Province, Canada, currently working on a 150MW project. In wind, capacity factors are a key metric, and will dictate whether the project is viable economically. Typically capacity factors are 20-40%. The capacity factor at the project Keewatin is developing is at the high end of this range, indicating that the project will have a greater level of annual wind production.

A 150MW facility will generate about 500 million kWh per year of energy (not adjusting for capacity factors). At about $0.08 per/kWh, this would generate about $40 million in revenues. And the predictability of the revenues that Keewatin is anticipating is as high as it can get, since it the project it is developing is one that it anticipates selling to the government-owned entity, so the 20-year power purchase agreement is backed by the government. This is 20 years of a predictable revenue flow of about $40 million on this project (not including additional revenues from carbon credits, and factoring additional profitability through higher capacity yields). T

he market cap on the stock is currently about $18 to $20 million.

The catalysts for the stock, near term are:

(a) anticipating a power call from the provincial utility, which is has formed a Wind Power Integration and Development Unit to study and assess of wind power on the provincial system. Last spring, the WPIDU invited developers in the Saskatchewan province to participate in the Saskatchewan Wind Data Study (Keewatin was invited to participate in this) to help it determine plans to develop wind resources. The utility recently said that it “Is planning to develop a wind power deployment strategy in 2009 using the work of the WPIDU as the basis of the strategy.”

A further note on this – Canada is generally making significant overtures to wind. In 2008, Canada became the twelth country in the world to surpass the 2,000MW mark of installed capacity ending the year with 2,369MW. The Global Wind Energy Council recently reported that provincial targets throughout the country, if achieved, would result in a minimum of 12,0000MW of installed wind energy capacity by 2015. Wind is a growth industry in Canada. And Canada is going to need to bring on new energy resources with coal becoming increasingly out of favor. Natural gas prices are expected to move higher in the coming years. Wind energy, through 20-year PPAs provides price stability.

(b) potential for announcement of JV partner which will work with Keewatin in responding to the power call. This is a smart move and attractive on a number of levels – chances are good that Keewatin will turn to a much larger, more established wind developer to develop the project with and this will mitigate execution risk. It will also help spread the cost of the project. Finally, it will help from an optic perspective to validating the project and Keewatin’s work to date. I would expect the Street to react positively to this development and that should drive the stock.  

(c) winning the PPA should also be a significant, and largest catalyst for the stock. This is the actual contract announcement. There is a risk that Keewatin doesn’t win a PPA for its project. But I think that is mitigated by the fact that Keewatin has a better location (transmission grids running through property will reduce about $20 million of the cost of bringing the energy online – this will provide Keewatin with greater elasticity in bidding on the power call); it has higher than average capacity factors (not disclosing exactly what these are for competitive reasons); and it is going to JV on the project with a much larger, more established developer. Also, Keewatin has remained focused on this single development, making sure its environmental studies, etc. are in order. Other bidders on the power call will likely be constrained by cash and resources given the fact that they have other projects that also need funding and this is a cash constrained environment.  

Worst case scenario – Keewatin sells the energy in a later power call. With the amount of installed capacity expected to move from 2,369MW to 12,000MW in the next six years, there will be demand for Keewatin’s wind project. No doubt about that. Keep in mind that Keewatin has another project of similar size that it is planning after it executes on the existing one.

From a stock perspective, there doesn’t appear to be any sellers of the stock at current $0.50 to $0.60 levels. So this is anecdotal evidence supporting the notion that the downside risk here is limited, while, based on the underlying fundamentals and outlook I spoke of above, the upside is significant. The best way to make money in the markets is to find out where everyone is going and get there first. This is one of those cases that I think fits the bill.  O

ur team at Aspire is working with, and has been engaged by Keewatin to develop the story and build awareness on the Street for the company, and its stock. We think that the outlook for the business is compelling and the management team is focused. The secular trends in on a broader scale (energy demand, rising natural gas prices, climate change and energy independence) bode well for the sector as do the trends within the Canadian alternative energy industry.

If you have any questions about the company, or about the wind and alternative energy markets in general, we encourage you to contact us at 760-798-7579, or on our website at www.aspirecleantech.com.