IPO VIEW-First Wind IPO could face turbulent debut

* First Wind IPO set to raise about $300 mln next week

* Loss-making First Wind had $582 mln of debt on Sept 30

* Says may default on outstanding debt, sell collateral

* Some U.S. government subsidies may end at year-end

* Electricity prices stabilizing, demand seen rising

By Clare Baldwin and Scott Malone

NEW YORK/BOSTON, Oct 22 (Reuters) - Wind farm owner and operator First Wind Holdings Inc WIND.O, which is planning a $300 million IPO for next week, may be a risky bet in the current energy climate.

First Wind finances, develops and operates utility-scale wind energy projects in the Northeastern and Western United States and Hawaii. Seven projects now operating had the capacity to generate 504 megawatts of electricity as of Sept. 30. It expects to have capacity for another 268 megawatts in operation or under construction by year-end.

The Boston-based company, mostly owned by private equity firm Madison Dearborn and hedge fund operator D.E. Shaw foresees rapid growth. By 2014, First Wind plans to have 1900 megawatts in operation or under construction. One megawatt produces enough power to meet the electricity needs of 800 typical American homes.

But wind energy is expensive and financing is complicated. As of Sept. 30, First Wind had accumulated losses of $233 million and outstanding debt of $582.2 million. It does not have enough cash or liquid short-term investments to pay the debt and acknowledged in a filing that default was a risk.

Some U.S. government financing may also be suspended at the end of the year and market prices for electricity may be too low to spur growth. First Wind has never been profitable.

UNCERTAIN FUTURE

"It's all about a bet on an uncertain future. Who knows if this company will actually be able to build the infrastructure that it promises?" said Josef Schuster, founder of Chicago-based IPO research firm IPOX Schuster LLC.

"It deserves attention but I don't see it as a big winner," he said.

One of the company's main turbine suppliers is Clipper Windpower Plc (CWPR.L), which diversified U.S. manufacturer United Technologies Corp (UTX.N) agreed to buy on Oct. 20 after the Carpinteria, California-based company ran into money trouble in the face of a slowdown in U.S. wind investment.

New U.S. wind installations were down 71 percent through the first six months of 2010, according to the American Wind Energy Association.

First Wind has received hundreds of millions of dollars in U.S. government support. It received a $117 million Department of Energy loan guarantee in July and has netted $254 million worth of grants from the U.S. Treasury since September 2009.

But some U.S. government subsidies could end. Cash grants to cover a portion of the costs of project construction, paid out under the Obama administration's stimulus bill, will only apply to projects that break ground by the end of 2010.

Furthermore, low electricity prices make it more difficult to get contracts that are needed to secure private financing to build wind farms. First Wind's average price per megawatt hour has fallen each of the past three years and is on course to do so again in 2010.

"What we've been hearing from most of the utilities that have been reporting is that we have seen stabilization in pricing but we haven't seen any significant increases," said John Hardy, an analyst at Gleacher & Co.

Private financing for wind projects often comes in the form of power purchase agreements, or PPAs, which last between five and 20 years and whose value is calculated based in part on electricity prices.

"The PPA environment is still pretty challenging as it relates to where we were 18 or 24 months ago. That environment will improve with power utilization rates over the next 12 months or so," Hardy said.

First Wind's PPA partners include Harvard University, Southern California Public Power Authority, and the cities of Los Angeles, Burbank and Pasadena. It has PPAs or hedges on all seven of its operating projects, and, as of Sept. 30, had hedged about 90 percent of its estimated revenue through 2011.

One factor driving utilities to sign PPAs with developers of wind farms and solar installations has been the adoption of standards by some U.S. states requiring their electricity suppliers to generate a certain percentage of their energy from renewable resources.

Massachusetts, where First Wind is based, for example, will require utilities to get 25 percent of their power from renewables by 2020. That has prompted local utility National Grid (NG.L) to sign PPAs with wind farm developers including Cape Wind, which has proposed a controversial offshore installation off the Cape Cod resort area.

The IPO is expected to sell 12 million shares for $24 to $26 each.

First Wind did not return a request for comment. (Reporting by Clare Baldwin in New York and Scott Malone in Boston, additional reporting by Matt Daily in New York; Editing by Gary Hill)