Tom Konrad CFA
|The Windstar Wind Farm. Photo credit: Western Wind Energy
On July 10, shares of Western Wind Energy (TSX:WND, OTC:WNDEF)plummeted because of a $12.2 million shortfall in the 1603 cash grant from the US Treasury for the company’s Windstar wind farm compared to the application. In order to reassure skittish investors, the company held a conference call on Monday, July 16.
On the tenth, I thought that investors should write off the 1603 cash grant shortfall, despite the fact that the company intended to send a delegation to Washington consisting of company management along with their advisers in order to argue for the full cash grant. I wrote,
“I’m sure the company was already engaging in discussions with the Treasury while the grant was being processed. Why should new discussions achieve a different result?”
Western Wind President and CEO Jeffrey Ciachurski disagrees. Here is his argument:
- The Treasury was hit by a flood of 1603 tax grants for rooftop solar leaseback projects with “inflated” developer fees. As a result, the Treasury went against IRS guidelines and put a 5% cap (as a percentage of other expenses) on all developer fees for both solar and wind projects.
- Wind projects are generally more complex than solar projects, and typically have developer fees at 10% to 30% of costs.
- Western Wind’s independent advisers’ opinion is that a developer fee between 27% and 41% of assets would be fair for Windstar, based on the fair market value of the project.
- Western Wind applied for a relatively conservative 20% developer fee for Windstar.
- Western Wind’s earlier Mesa project had a 15% developer fee, which was granted in full.
Ciachurski went on to say that, in 95% of cases, Treasury is right about developer fees, but in the case of Windstar and a few other extremely profitable wind farms, they are wrong, and so he and his advisers need to go to Washington to make the case in person.
Will they succeed? I hesitate to predict. For me, I think it’s best to wait and see.
Disclosure: Long WNDEF
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