A new study, “Lights Out In 2009?,” warns that the U.S. “faces potentially crippling electricity brownouts and blackouts beginning in the summer of 2009, which may cost tens of billions of dollars and threaten lives.”

A 12% to 15% capacity reserve margin is the minimum required to ensure reliability and stability of the nation’s electricity system. Compounding this capacity deficiency, the projected U.S. demand in the next 10 years is forecast to grow by 18%, far exceeding the projected 8% growth in baseload generation capacity between now and 2016.

The study estimates that the U.S. will need about 120 GW of new generation just to maintain a 15% reserve margin. That will require at least $300 billion in generation and transmission facility investments by 2016.

The study also identified the primary barriers to getting new power plants and transmission lines built. Chief among these is the “opposition of well-funded environmental groups that oppose and file lawsuits against virtually every new infrastructure project proposed.”

Congress didn’t treat the wind energy so generously. The production tax credit for generating renewable energy was extended by just one year, guaranteeing the industry’s will continue to live year by year (at least through 2009). But given that 30% of all new power generation built in the United States in 2007 was wind, and that the amount of wind power installed by the end of 2008 is expected to rise 60% over the record set last year, the wind biz should do just fine.

But Congress did give a break to those who buy small-scale wind turbines. Systems under 100 kilowatts qualify for a 30% tax credit up to $4,000. Homeowners get a $1,000 tax credit for each kilowatt of wind they install.

“This is a huge break through for small wind,” says Scott Weinbrandt, president of Helix Wind, a San Diego-based manufacturer of 2-and-4-kilowatt turbines.

nothing like me buying on Thursday and then Friday APWR drops 20% in one day………then, after hours, Raymond James analyst goes “”Strong Buy”’ on APWR with price target of $26.

strong buy

A-Power Energy Generation
Systems, Ltd.
(APWR:NASDAQ) Strong Buy 1
A-Power Energy Generation Systems ( www.apowerenergy.com) operates in two
principal business segments. The wind power segment manufactures wind
turbines. The distributed power segment designs, builds, and installs power
generation systems, primarily for industrial customers. The company is based in
China.
APWR: Market Skepticism on Turbine Sales Presents
Intriguing Entry Point
? Last Friday, A-Power announced yet another contract in its distributed
power segment – a $195 million deal to build two power plants in
China’s Jilin Province. The first phase of the project is a 24 MW plant,
with construction starting this month; the second phase, a 100 MW
plant, is set to commence in January 2009. With this contract, APower’s
distributed power backlog now exceeds $800 million, up
20+% from $650 million at August 20 (when A-Power reported 2Q08).
? Despite this positive news, A-Power shares fell another 9% on Friday
and are now down 47% for the month of September – a decline that we
find perplexing and unwarranted, to say the least. During this past
month, in addition to booking the above contract, A-Power secured its
first set of wind turbine components, as well as its first turbine sales
contract. Despite what we view as tangible progress toward starting
turbine production, the market appears to give essentially no credit
for A-Power’s wind business. While we have readily acknowledged
that sourcing components in a cost-effective and timely manner is not a
trivial proposition given the tightness in the supply chain, we view the
market’s degree of skepticism in A-Power’s ability to execute as highly
excessive, particularly in light of the recent announcements. As we
detail on pages 2-3, we view the current entry point as intriguing.
? A-Power offers investors direct leverage to two key long-term themes in
the Chinese power market: rapid expansion of wind generation capacity
and continued robust development of distributed power systems.
Having achieved consistent profitability with the distributed power
business in recent years, the start-up of wind turbine sales later this
year should accelerate A-Power’s revenue ramp-up. We reiterate our
Strong Buy rating. Given the recent multiple contraction across the
alternative energy sector, we are reducing our target price from $32.00
to $26.00, based on a ~12.5x multiple to our 2009 EPS estimate of
$2.04, which we believe is conservative given our view that the
company can achieve three-year compounded EPS growth of at least
25%.
Non-GAAP
EPS Q1 Q2 Q3 Q4 Full
GAAP EPS
Full
FY= Dec Mar Jun Sep Dec Year Year
2007A NA NA NA NA $1.78 $1.78
Old 2008E 0.09A 0.19A 0.32 0.59 1.19 1.19
New 2008E 0.09A 0.19A 0.32 0.59 1.19 1.19
Old 2009E 0.33 0.42 0.54 0.74 2.04 2.04
New 2009E 0.33 0.42 0.54 0.74 2.04 2.04
Rows may not add due to rounding. Non-GAAP EPS excludes extraordinary items.
EQUITY
RESEARCH
September 29, 2008
Alternative Energy
Company Comment
Pavel Molchanov
(713) 278-5270
Pavel.Molchanov@RaymondJames.com
Cory Garcia
Senior Research Associate
(713) 278-5240
Current Price
(9/26/2008 close) $11.10
Projected 12-Month Target Price:
Old: $32.00 New: $26.00
52-Week Range $31.89-$8.79
Dividend/Yield $0.00/0.0%
Book Value (06/08) $4.01
Suitability Aggressive Growth
Shares Out. (mil.) 33.0
Market Cap. (mil.) $366
Avg. Daily Vol. (10 day) 960,790
Proj. 3-Yr EPS Growth Rate 25%
LT Debt (mil.)/% Cap. $0/0%
P/E Ratios (Non-GAAP)
2008E 9.3x
2009E 5.4x
Revenues (mil.)
Old New
2007A $153 $153
2008E $386 $386
2009E $914 $914
EBITDA (mil.)
Old New
2007A $18 $18
2008E $40 $40
2009E $89 $89
Cash Flow/Share
Old New
2007A $1.91 $1.91
2008E $1.29 $1.29
2009E $2.35 $2.35

Sentiment : Strong Buy

The good news is that the tax credits passed today making solar and wind more affordable into the future. Bad news is that stocks of solar and wind got pulverized today again along with the rest of the markets. PBW, ZOLT, APWR (down 20%), etc etc……….First Solar bigtime red in last five days.