As the largest producer of distributed power generation (DPG) systems, and more recently, a potential producer of wind turbines in China, the Shenyang China based company, A-Power Energy Generation Systems, will become the leading alternative energy company in Asia over the next several years. Fortunately, with the current global economic downturn, shares in this company have fallen to levels that provide, in my estimation, a 75% discount to intrinsic value.

Operating History and Highlights

• Founded by current CEO, Mr. Lu Jinxiang, in 2003.
• Leading producer of DPG in China
• Leading potential position in China’s growing wind power market
• Proven operating history with Chinese government
• Excellent YOY revenue and income growth
• Excellent management team with high insider ownership (36% held by insiders)

DPG Background, Wind Power Background, and Market Opportunities

China’s growing demand for electricity has consistently exceeded supply, and an estimated 30M people in 28,000 villages are without power, with 60% of China experiencing power shortages.

DPG systems are used to power steel, chemical, cement, and food processing facilities, as well as residential areas. DPG is superior to conventional power production because DPG:

• utilizes factory byproducts (excess steam) to produce energy
• reduces greenhouse emissions
• increases efficiency
• costs 3x to 5x less than traditional energy
• results in more reliable energy (less brownouts)
• is easily maintained because of proximity to factory or residential area

Less than 1% of China’s total energy production in 2006 was from wind. China estimates wind energy will account for 15% of total energy production as early as 2020. Government mandates state that state-owned power companies purchase 100% of the energy produced from wind farms under long-term (20-30 year) contracts, and requires all wind turbines to be installed in China, to be assembled in China.

According to the DOE, it is currently evaluatng the wind power development projects of Energy Development Corp., Northern Luzon UPC Asia Corp. and Constellation Energy Corp.

EDC has a pending application to develop wind energy resources in Nasurot and Pagudpud, Ilocos Norte.

The Lopez firm said it is studying the possiblity of putting up a 140-megawatt (MW) wind power facility in Ilocos Norte with the initial phase to start at 42 MW.

UPC Asia also submitted its requirement but was found to have overlapping areas with EDC.

Based on UPC Asia’s application, it intends to develop two sites in Pagudpud, Ilocos Norte with the possibility of putting up a 100-MW wind farm.

UPC Asia is a member of UPC Group, one of Europe’s largest and most successful wind farm developers. The group has installed and operates over 650 MW of large-scale wind turbine generators in southern Italy and the island of Sardinia.

US firm Constellation Energy Corp., on the other hand, is assessing two projects in Ilog, Negros Occidental and Bais City, Bayawan, Tanjay and Pamplona in Negros Oriental.

Constellation Energy is in the business of nuclear, coal, natural gas, oil and renewable and alternative energy sources such as solar, geothermal, hydro and biomass. Last year, it posted revenues of $21 billion, making it to the Fortune 125 list.

The DOE has expressed optimism that with the passage of the Renewable Energy Bill, ithe country will attract more projects on wind energy.

The Philippines is looking at around 200 MW of wind power projects in various parts of the country with potential investments of around $500 million. A study conducted by the World Wide Fund said the potential wind power capacity is 7,404 MW in 1,038 surveyed sites nationwide.

Likewise, the Wind Energy Resource Atlas of the Philippines reported that the best wind resources are in Batanes, Babuyan Island, Ilocos Norte, Mindoro, Samar, Leyte, Panay, Negros, Cebu and Palawan. – By Donnabelle L. Gatdula (Philstar News Service