Wind Energy America Inc (WNEA) Review – A Proper Wind Energy Roll-Up Strategy
The company increased in March the authorized from 50,000,000 shares to 100,000,000 in a DEF 14 C filing. The company has over $13,000,000 in investment into their Wind Projects according to their most recent Q. The company since its entry into Wind Energy in 2007 has made a variety of interesting and promising transactions within this field, namely:
1. Averill Wind LLC, In early 2007, the Company entered into its first transaction to engage in the industry of generating electricity from wind power turbines, which consisted of its purchase of a $200,000 equity interest in Averill Wind, LLC, a 10-megawatt (10,000 kilowatts) wind farm under development in Minnesota near Fargo/Moorhead.
2. Shaokatan Hills/Lakota Ridge Wind Farms – In August 2007, the Company completed a wind power asset purchase through its acquisition of Northern Alternative Energy Shaokatan, LLC, which owns the developer’s stake in two adjoining wind farms in Lincoln County, Minnesota. The acquisition price was $2,300,000 in cash.
These two wind farms, known as Shaokatan Hills LLC and Lakota Ridge LLC, were completed in 1999 and have been generating wind power electricity from their prime location on Buffalo Ridge for several years. These two wind farms contain 33 modern wind turbines, having a total rated power capacity of 23 megawatts. (23,000 kilowatts). The Company’s ownership of the developer’s stake in the wind farms will be only a minimal percentage interest with negligible cash flow until 2010, when the developer’s stake (the Company’s interest) converts into an 80% equity ownership of the two wind farms provided certain financial returns to the current principal owners have been satisfied. Over the past few years, these 33 wind turbines have generated electricity at an average annual rate of approximately 68,000,000 kilowatt hours.
3. Zulu Wind LLC – In May 2007, the Company, in connection with a Memorandum of Understanding, (“MOU”) with Boreal Energy, Inc., a Minnesota corporation, invested $50,000 in an Interconnection System Impact Study to connect 300 MW (megawatts) of wind generated electricity to Excel Energy’s ZULU substation in southeast Lincoln County, Minnesota. If undertaken in the future, this proposed wind farm project will be located east of the Zulu substation, but it cannot be developed until a planned large power transmission line is completed from Minneapolis to Buffalo Ridge.
4. CHI Energy Wind Farms – In the fall of 2007, the Company acquired the developer’s stake in a group of 16 separate small wind farms which are managed and maintained collectively and contain 46 modern wind turbines having a total rated power capacity of 30.36 megawatts. Virtually all of these CHI Energy wind farms are located on Buffalo Ridge in Lincoln County MN, and in the aggregate these 16 wind farms generate electricity at an average annual rate of approximately 93,000,000 kilowatt hours (kwh). The Company will receive only minimal revenues from the Chi Energy wind farms until 2010 when its interest in revenues will convert to 30% and eventually thereafter to 49%.
5. Acquisition of Boreal Assets – In February 2008, the Company acquired a group of wind energy projects from Boreal Energy, Inc., consisting of certain wind farm projects under development and a “pipeline’ of proposed projects in various stages of design. These Boreal assets were purchased by the Company in consideration for 28,500,000 shares of unregistered common stock of the Company. There was no material relationship between Boreal and the Company or their respective officers, directors or affiliates prior to this transaction.
As I have always stated within the Wind Power industry, Joint Ventures, Partnerships, factoring and financings of contracts, and other such non-dillutive financings can have immediate positive effects on the welfare of a business. An example of this within this firm is:
In November 2008 the Company obtained significant funding through a sale/leaseback of its Midwest Wind Energy Center (“MWEC”) with Trident Holding Group Inc.(“Trident”). This transaction included the MWEC building along with the 160 acres in western Lincoln County MN where the MWEC is located. Neither Trident nor any of its principals have had any relationship to, or other dealings with, WNEA prior to this transaction.
Trident paid $3.2 Million to purchase this MWEC property, consisting of $1.6 Million in cash paid at closing and the balance of $1.6 Million through a 15-year term Promissory Note requiring monthly interest payments from Trident at a rate of 7.5% per annum, with the entire principal due at the end of the 15-year term.
Concurrent with this sale, Trident leased the MWEC property back to the Company under a lease providing that all operating expenses and taxes are the responsibility of the Company, and the Company is entitled to any operating income from the property such as lodging and rental income from the wind energy center and farm lease income from the land. WNEA is required to make lease payments to Trident of $23,333 monthly for lease years 1-2 ($280,000 annually), $30,000 monthly for lease years 3-5 ($360,000 annually), and $43,333 monthly for lease years 6-15 ($520,000 annually). The lease grants WNEA the right to repurchase the MWEC property during lease years 3-6, with the repurchase prices being $3,250,000 during year 3 (which is $50,000 more than the initial purchase paid by Trident), $3,300,000 during year 4, $3,350,000 during year 5, and $3,400,000 during year 6.
Incident to this sale/leaseback transaction, WNEA also granted Trident a security interest in the two Gamesa 850-kw wind turbines situated on the property along with future revenues generated by these two turbines.
Funding from this sale/leaseback has enabled the Company to order parts and materials to commence transformer and turbine upgrading, grid interconnection, and commissioning of the two Gamesa turbines on the MWEC property, as well as to satisfy substantial bank debt and retain an experienced wind power contractor to complete the wind farm project for the Company.
The company as a whole targets areas in the North West that are open to wind energy projects, has positioned themselves respectfully with assets for joint venture and development, and continues to seek financing and growth. It is encouraging to see the proper roll-up strategy of Wind Energy in a regional area with competent business development efforts and results.
Updated July 13th 2009:
Here is a 19 page report on the company: http://www.baystreet.ca/articles/research_reports/beacon_research/WNEA062708.pdf