The Cat is Out of the Bag – Part 2 (Arise Windpower)

The electricity market in Sweden has been very soft in 2015 due to a number of factors. The biggest contributing factor has been an abnormally wet year increasing the hydropower supply. Other factors: more wind capacity added to the system, a rather slow overall economic recovery, warmer than average temperatures and more than average wind conditions (reflected in the good operating results). In other words, when it comes to electricity prices 2015 has been hit by a perfect storm in almost all respects. In a normalized setting, power prices ought to increase – especially given the fact that four nuclear reactors – 13% of the overall supply – is in the process of being taken out of the system from now until 2020.

As a result Arise Windpower decided to write down their assets by about 10%. In my opinion a bit on the cautious side to do so given that they still have nice hedges in place until mid next year and thus plenty of time to see how the price situation plays out but it is after all a technicality and the market has already discounted the depressed conditions in the price of the Arise shares, which even after the write-down trades at 50% of book value despite a flow of high margin project sales.

Important to note also that about 70% of the production from their co-owned windfarms in Jädraås (about 40% of their overall production) have hedges in the 630-640 SEK/MWh range until the end of 2017 (compared to market prices, including e-certificates, of around 400 SEK currently) thus providing a nice cushion should electricity prices continue to be depressed.

Eolus Wind had written down their assets on Oct. 16th – their write-down was 15%, but I believe their assets are also older on average and thus bought at a time when wind turbine prices were higher. Other wind farm operators have chosen not to write down their assets but they may be forced to do so in the future.

I recently wrote a longer post about the e-certificate situation, thoughts on the future for ocean-based wind farms and possible project sales in the coming years for subscribers on inrater.com and I plan to write a more in-depth post on the overall situation on there soon.

Meanwhile, let’s hope El Nino brings wrath to the Scandinavian winter… May we all suffer a cold and painful winter and may the winds blaze through our lands at violent speeds!

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