Bankruptcy in Wind Turbine Maker Highlights Sector Risks (GE, SI, ZOLT, OTTR, BWEN)

Wind energy is supposed to be one of the key puzzle pieces in the quest to get off the dependence of foreign energy sources. Yet a fairly disturbing story from the Daily Camera in Boulder. Colorado last night highlighted how all the federal grant money and all the alternative energy money in the world will still not be enough to keep every player alive. Entegrity Wind Systems Inc. is a Canada-based wind turbine manufacturer that has based some operations in Boulder, CO. And now the company has gone bankrupt. In now way will this kill the efforts and ambition of the two giants in the U.S.: General Electric Co. (NYSE: GE) and Siemens AG (NYSE: SI). It might even be good news for the giants as one less future competitor may be gone. However, it does highlight at least some of the potential risks and ongoing risks for three smaller companies:

Zoltek Companies Inc. (NASDAQ: ZOLT), which makes carbon fibers for wind turbines and other key infrastructure;
Otter Tail Corporation (NASDAQ: OTTR), a small conglomerate in Minnesota with wind operations;
Broadwind Energy, Inc. (NASDAQ: BWEN), which manufactures and sells high precision gears for wind turbines.

Even though these three companies are very small compared to the giants, they are also relatively giants if you compare these to the bankrupt company. And in no way is there a direct tie that we are aware of. This bankruptcy might even benefit all existing players because it makes them all have one less competitor if this bankruptcy goes along the same path as many other bankruptcies that go from protection to liquidation.

The bankruptcy news from Entegrity Wind Systems was actually out of Canada over recent days but is small enough that it flew under the radar. The article noted that New Brunswick-based A.C. Poirier & Associates Inc. is going to be the receiver and manager of Entegrity during the bankruptcy. Where this gets a bit disturbing for the green crowd is that the debt is just not that large considering the hype and hope for the field of wind energy. And for the field of alternative energy.

Listed was a debt of over $3 million to Mercantile Finance Services in Toronto and over $6 million to other institutions. Then there is the widening loss because of manufacturing problems in some of the turbines.

You can read the full story from the Daily Camera with many more issues outlined in the piece over the last two weeks since the bankruptcy filing in Canada. This may be of little or no concern to the larger players. In fact, this is just one less rodent to deal with as far as they are concerned. But it also highlights the risks that are still present in an emerging field full of hope and hype. You could even take the same approach in solar, where this earnings season should set apart the children from the adults in that sector.

Jon C. Ogg