King Coal Has Collapsed in Canada


St. Joseph Wind Farm    Source: Pattern Energy Group



In Ontario, Canada, wind power accounts for 5.2% of currently installed generation, after contributing 3.4% of total energy produced in 2013. Meanwhile, current total installed generation for coal is 0.9%, and total energy produced from coal in 2013 equaled 2.1%. In terms of the whole country, the Canadian Wind Energy Association, or CanWEA, has loftier aspirations than just what's happening in Ontario; the organization's goal is for Canada to generate 20% of its energy needs through wind power by 2025. As Ontario and the rest of the country work toward realizing that goal, one company that stands to benefit is Pattern Energy Group (NASDAQ: PEGI  ) .

O, Ontario
Pattern Energy Group is an independent power company that owns and operates 10 wind power projects in Canada, the U.S., and Chile. The company has about 1,255 MW of total owned capacity. Two projects in Ontario that are expected to begin operations this year are South Kent and Grand Renewable. Expected to begin operations in the second quarter of 2014, South Kent is Pattern Energy's 270 MW wind project in southern Ontario.

The project, consisting of 124 Siemens AG (NASDAQOTH: SIEGY  ) turbines, will sell 100% of its electrical output to the Ontario Power Authority. Also located in Ontario is the company's Grand Renewable Wind -- a 149 MW project which consists of 67 Siemens turbines. The project is expected to begin commercial operations in the fourth quarter of 2014, and, like South Kent, it will sell 100% of its output to the Ontario Power Authority.

Elsewhere in the province, two projects are further behind in development. Hiring began in February for the K2 wind power project, while construction is expected to begin soon on the 270 MW facility. Operations are expected to begin in the second half of 2015. Towards the end of the year, construction is expected to begin on the Armow Wind Project. The 180 MW wind energy generation project is expected to begin commercial operations in the fourth quarter of 2015.

Westward expansion
Operating in Manitoba, Pattern Energy is currently running the largest wind facility in the province. At 138 MW, the St. Joseph Wind project is comprised of 60 Siemens turbines. Pattern Energy sells 100% of the generated power to Manitoba Hydro under a long-term power purchase agreement. The company doesn't only have a presence in these two provinces.

Although not as vested as Ontario, British Columbia is also committed to wind energy. As of October 2013, the province has projects totaling over 1,900 MW in development. Taking another step toward expanding its wind power portfolio, Patten Energy jumped the last major hurdle in obtaining the Meikle Wind project last week when it, Finavera Wind Energy, Pattern Energy, and Canadian utility British Columbia Power and Hydro Authority executed agreements to assign the electricity purchase agreement for the 184 MW Meikle wind project from Finavera to Pattern Energy. Construction is expected to begin in 2015 while operations are expected to begin in 2016.

Riding the tailwind
The momentum behind wind power in Canada is clearly growing. Pattern Energy recognizes this and foresees the trend continuing, thereby providing the company with the opportunity to grow its portfolio of projects, a key component of its strategy for growth. In the company's 10-K, it articulates this strategy as "focused on the acquisition of operational and construction-ready power projects from Pattern Development and other third parties that we believe will contribute to the growth of our business and enable us to increase our dividend per Class A share over time."

The company initiated a quarterly dividend of $0.3125 per Class A share in Q4 2013, and it declared a dividend for the same amount in this quarter. It seems that, for now, the dividend growth will be well-sustained. As of the latest earnings release, the company announced that its cash available for distribution rose 141% from 2012 to $42.6 million in 2013.

Foolish final words...

According to CanWEA, new wind power generating capacity is expected to average 1,500 MW per year for the next four years, resulting in over 12 GW of generating capacity in the country by 2016. That's ample opportunity for Pattern Energy to succeed in this, one of three markets in which it operates. Pattern Energy is well-positioned to take advantage of the growing adoption of wind power. Making an outperform CAPS call on the stock, I've been bullish on the company for a long time, and, at some point in the near future, I plan on adding shares to my own portfolio.

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  • Report this Comment On March 20, 2014, at 2:02 PM, speculawyer wrote:

    Good! We don't need any more coal. Coal is dirty/dangerous to mine, it is dirty to transport, it emits mercury, arsenic, SO2, CO2, etc. when burned, it produces radioactive ash laden with heavy metals. There is only one somewhat good thing about coal . . . it is somewhat cheap. But that is only if you completely ignore all of the above problems.

    We can do fine with Solar PV, wind, solar thermal, natural gas, hydropower, geothermal, nuclear, and other sources. No need for coal.

    And if you want a good investment, self-install a solar PV system on your roof. It is a guaranteed good safe return on your investment. Can't do it yourself? Then take out a home equity loan (you can deduct the interest!) and give the job to the lowest bidder. I'd avoid the solar leases as they are good for the leasing company but not good for the consumer.

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