First Wind set to test the waters with IPO

Maine's most prominent wind energy developer is attempting to go public and issue stock, aiming to fund aggressive growth plans.

Boston-based First Wind Holdings LLC is preparing an initial public offering, in which it hopes to list common stock on the Nasdaq market under the symbol WIND. The prospectus, which remains incomplete, doesn't specify the number of shares being offered or the price per share. Also missing is how much money the company hopes to raise.

The outcome of First Wind's effort could affect Maine's energy future and the public debate over how many wind turbines to erect and where to put them.

First Wind has benefited recently from hundreds of millions of dollars in federal stimulus money. Capital from private investors will improve its chances of carrying out its expansion plans, on a timetable that meets its financial objectives and complements government policies aimed at promoting wind power.

"It really will be a bellwether for how comfortable investors are with U.S. wind power investments," said Ethan Zindler, who heads North American research for Bloomberg New Energy Finance.

First Wind has three operating wind farms in Maine, at Mars Hill and a two-phase project at Stetson Mountain. It has at least two others pending -- Rollins and Oakfield. Together they would comprise 157 turbines and have the capacity to generate 235 megawatts.

Maine lawmakers have set a goal of installing 2,000 megawatts of wind power capacity by 2015. But that policy has led to pushback from residents who don't want to live near the giant towers and activists who say wind doesn't produce enough power to justify hundreds of turbines along Maine's forested ridge lines. They also say wind energy will increase power bills.

"Ratepayers are going to pay for all the government mandates," said William Downes, a financial analyst in Cape Elizabeth who has been tracking First Wind's IPO. "The market isn't driving this. The government is driving this."

First Wind has declined to comment on any aspect of its initial public offering. But a review of its stock proposal offers a look at what role the company may play in the evolving dispute over wind power in Maine.

EXPANSIVE PLANS

First Wind has a high profile in Maine, which is the cornerstone of its Northeast operations. The company also is very active in the West and Hawaii. It plans to have projects with a total capacity rating of 1,000 megawatts operating or under construction by the end of next year, and more than 2,000 megawatts by the end of 2014.

Wind farms are expensive to build, roughly $2 million for every megawatt of capacity. As is typical in the industry, First Wind has raised money from investors, borrowed from banks and, most recently, won grants and been promised loan guarantees from the federal government.

First Wind Holdings has two equity partners, which have put up money in exchange for ownership shares and generous tax benefits. They are affiliates of big private equity investment firms, D.E. Shaw Group and Madison Dearborn Partners LLC. Those partners would own the overall balance of economic interests after the stock offering, documents indicate.

In recent months, First Wind has used money from federal stimulus grants to help pay down hundreds of millions of dollars in bank debt and construction loans. Maine's Stetson I project was among those sharing $235 million in stimulus cash.

"Had stimulus for wind not come along last year, a substantial amount of development wouldn't have been done," Zindler said. "It threw the industry a lifeline."

The wind power industry is in the midst of a massive global expansion, Zindler noted, backed by government policies aimed at reducing dependence on petroleum and the effects of climate change. Big players are dominating that expansion, including two that own assets in Maine -- Iberdrola, the Spanish utility, and NextEra Energy, formerly Florida-based FPL Energy.

First Wind is unusual in the industry, Zindler said. It's an independent, New England company focused solely on wind development. For that reason, the company's pending stock offering will be an important market indicator.

First Wind prepared an IPO initially in September of 2008, hoping to raise $450 million. The offering coincided with the near-collapse of the financial markets, and the IPO was withdrawn.

The timing is much better now, Zindler said. The stock market is recovering and the federal government is strongly supporting renewable power development, with energy programs and stimulus funds.

UPFRONT ABOUT RISKS

Investing in any startup company is risky, though, especially one that relies on private investors and banks to grow in a capital-intensive industry. In its financial documents, First Wind details those risks, including:

• The eight-year-old company has $523 million in outstanding debt.

• It has substantial net losses from operations, totaling $191.2 million since it formed. Net losses and negative cash flows will grow as more development is done, although projects typically generate positive income after commercial operation, the company says.

• First Wind is heavily dependent on government policies, notably tax credits. Changes in such incentives would hurt the company's ability to get financing.

• Most of the company's revenue comes from the sale of electricity and renewable energy credits used to subsidize green power production. A significant, sustained decline in those prices could hurt project development.

First Wind has signed power purchase agreements, including a long-term contract with Harvard University for half the output from Stetson II. In southern California, it has a long-term agreement for electricity from its largest project, Milford I in Utah.

Downes is critical of the agreements, which he says will boost electricity prices for consumers. In Los Angeles, there's opposition to a proposed rate hike that would help the city get more of its electricity from wind and solar energy.

First Wind has 25 days after its initial public offering to issue stock and raise money, Downes said.