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 (BestGrowthStock) – 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)

IPO VIEW-First Wind IPO could face turbulent debut