March 8th, 2009

I realized from my China-post that I had kind of forgot about alternative energy lately, what with the financial crisis and all. I think it is still a market that should be overviewed, not only because of the long-term problems of energy sustainability, but also because the strive for clean energy is very much alive, despite the economic worries. I beleive that today there are a couple of really good and sustainable clean energy alternatives; wind, water, thermal and solar power. I still have a few doubts about wave-power... but, economically I can't see how these alternatives could ever really go out of fashion - if it was economically feasable to build wind-mills in the harsh economic climate of 500 years ago, then it will be so 500 years from now as well. When alternative energy comes up people usually point to how much cheaper nuclear-energy is, and they're right, it is much cheaper. But we all know it isn't sustainable and if it is economically sound to produce alternative energy today to make the transition easier when uranium starts running out, then why not. The four alternatives I mentioned above are all economically sound today and were actually so even before energy prices started rising a few years ago. Obviously water is the best alternative, second to it I think wind is the best choice (unless you're living in Iceland with heat boiling up from the ground all over the place). So, I decided to take a look at a smaller wind-power company that is in a good position to grow, and I think that AAE fits that position perfectly.

AAE has just opened up a production facility for turbines in Quebec/Canada and so far they've delivered two turbines. The technology used is one acquired from Germany and is licensed for unlimited use in North America, the UK and France. The business-model is very simple; instead of focusing on huge wind-parks like many of the larger players do, AAE will focus on smaller parks or just deliveries of one turbine at a time, with turbine-sizes of 1-2MW. This model will make margins thinner than for large producers, but there's no reason to doubt it's profitability.
They have an agreement to deliver 61 turbines in 2010 for Mont Louis Wind, and they have agreements of one or two single-turbine deliveries. So far there have been a couple of public offerings and private placements of equity financing and it looks likely that there will be further dilution until 2010, when some real money starts rolling in.

Today AAE has an mcap of ~CDN$23M and basically no debt. They already have a good bunch of ordered turbines and although these things are impossible to predict I think that orders will keep on coming. The market for wind-power is still growing and it is still a seller's market. Even if the economic crisis could take a good bite out of this business, AAE could actually benefit as they are focusing on smaller scale projects, which may become more attractive as funds shrink in all sectors. At least AAE has it's operation pretty much secured until the end of 2010, and with that considered they have a lot of time to try and get new orders.
Let's assume that AAE is able to sell 50 turbines a year, and with a net profit of CDN$0.3M per turbine, then the 23M mcap isn't looking too expensive. I could be way off in my guesstimate here, but a alot will really be uncertain until some real money starts moving in this company. But on the whole they are in a really good position and if they land some more larger orders then they should be set to start climbing.