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NZ Windfarms Ltd

by Jenny Ruth

Wednesday 2nd November 2005

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 Jenny Ruth
Windflow currently has just one of its two-bladed wind turbines in operation at Gebbies Pass on Banks Peninsula - it's the second turbine erected on that site after a fierce storm destroyed the original prototype in March.

Another five turbines are in production and planned to be sold into NZ Windfarms as the first stage of a four stage building of the Te Rere Hau 97 turbine windfarm in Manawatu adjacent to Trustpower and Meridian's existing windfarms.

Certainly, Trustpower and Meridian have been publicly sceptical about Windflow's technology, both sourcing their turbines from offshore manufacturers.

In September, Windflow founder and managing director Geoff Henderson felt obliged to answer that criticism. "It was very disappointing to see the inaccurate criticism of our technology," he told the New Zealand Exchange.

Windflow's tow-bladed turbine was based on a proven British design which has been in operation since 1993, he said. Both Trustpower and Meridian use three-bladed turbines.

"We are aware that some doubt was thrown over the design after the turbine was damaged by a freak wind change in March." But the company's insurers have recently approved its claim for all the damage.

"This confirms that the accident was caused by events that would not be reasonably anticipated by any professional engineer." Nevertheless, Windflow has made modifications to its turbine design and control systems to ensure the same conditions won't damage them, Henderson said.

Windflow claims cost and lower noise advantages for its technology over the type its two rivals are using - the prospectus says it will provide a 15% cost advantage over competing three-bladed turbines.

Boosting the company's credibility is that two major power companies are currently conducting due diligence with a view to forming a joint-venture to build the Te Rere Hau windfarm, although the NZ Windfarms' prospectus doesn't belabour that point.

The potential partners are Australia-listed Babcock & Brown, which recently took over Powerco, and the Australian arm of National Power, a US firm that develops, owns or operates smaller and medium sized electric generating facilities in the US and Australia.

"They're still working through the due diligence process and that's unlikely to be completed before we've completed our capital raising," says Chris Freear, NZ Windfarms' chief executive who joined windflow in 2003. Freear is an engineer who has been working in the electricity industry since 1995.

"We're trying to - not undersell it, but not make promises that don't exist either," Freear says.

But the two potential partners are in the final stages of the process. "I don't think we would've got to this point if things weren't going well."

Freear says just the fact that Windflow's technology is a little different shouldn't be scary. In any case, he has various warranties and guarantees that the turbines will perform to specifications. "If it doesn't perform to that level, then I'm not going to be out of pocket," he says.

Another credibility booster is that NZ Windfarms' independent chairman is Derek Walker, former chief executive of CentralPower who oversaw the initial development of what is now Trustpower's Manawatu windfarm. It doesn't hurt either that Barrie Leay, former executive director of the Electricity Supply Association, and Keith McConnell, chief executive of a number of electricity companies in the Otago/Southland region between 1994 and 1997, are also directors.

NZ Windfarms is looking to raise a theoretical maximum of $11 million, although it likely to be closer to $10 million since Windflow's shareholders and those prepared to buy at least 250,000 shares are being offered them at a discount of $1 each. Other investors will have to pay $1.10 a share.

Perhaps one guide to how successful the capital raising will be is that Windflow's last rights issue managed to raise only $3 million, half what it had sought. The minimum NZ Windfarms is seeking is $3 million. If only that much is raised, Windflow will finance the rest of stage one. "NZ Windfarms believes that Stage One will be viable in its own right," the prospectus says.

It also makes it clear that this won't be the first time it asks shareholders for money, even if Babcock & Brown and NP Power come in as joint venture partners. The windfarm is expected to cost $80 million to complete.

For Stage Two, planned for October 2006, will aim to raise $18 million in equity, Stage Three, in June or July 2007, $26 million in equity and Stage Four, between April and September 2008, $28 million in debt funding.

While the prospectus is full of provisos accounting for delays, if everything goes to plan, NZ Windfarms expects to start reporting profits in the year ending June 2009 when it expects to pay its first dividend of five cents a share.

Related links: IPO Information Media Release

Bond Offer: Infratil Ltd, 7.2 year & 10.2 year unsecured unsubordinated bond


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