On July 10, shares of Western Wind Energy (WNDEF.PK) plummeted because of a $12.2 million shortfall in the 1603 cash grant from the U.S. 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 10th, 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 the following:
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.
This article was first published on the author's Forbes.com blog, Green Stocks, then on AltEnergyStocks.com as "Western Wind Expects Full Cash Grant For Windstar."
Disclosure: Long WNDEF.PK.
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