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Local wind developer gets global owner -- Spanish utility Iberdrola marches into the US wind market

In the latest in a series of consolidation deals in the US wind industry which have seen local developers acquired by the global leaders of power sector investment, Spanish utility Iberdrola has entered the American market with a $30 million, 100% takeover of Community Energy Inc (CEI), a wind developer and marketer based in Pennsylvania. Iberdrola, currently with 3600 MW of operating wind power capacity on its books, rivals American FPL Energy as the world's biggest wind power owner.

The purchase of CEI gives Iberdrola access to 200 MW of US wind projects close to construction and another 200 MW in development. It is the Spanish company's first venture of any kind into the American power generation business, with wind providing the springboard to make the leap.

For CEI, the deal means a significant increase in muscle, taking the form of fresh capital, industry expertise and access to turbines. Iberdrola, which says it will put $1.5 billion into CEI developments, owns a significant 18% interest in Spanish Gamesa, one of the world's leading turbine suppliers, which is currently building three factories in Pennsylvania to produce complete nacelles, rotor blades and towers.

Iberdrola's purchase of CEI came about after Iberdrola opened its first US office in January, choosing to locate in Virginia, a neighbour state to Pennsylvania. After that the two companies developed their relationship. "It became a very nice fit," says Erik Blank, a co-founder of CEI. "These guys have the ability to raise capital and that's an enormous advantage for us. At the same time, they had no US presence and so we gave them a platform. We pre-empted any other processes to work directly with them."

CEI's Brent Alderfer adds that securing turbines was a major consideration in seeking a financially strong partner. "We were too small and too thin to take the rest on alone, especially given the current US wind boom, which has tightened turbine supply, raising capital costs," he says. Blank says there is more to the deal than Iberdrola's access to Gamesa turbines. "It's not so much turbine availability as the capital required to compete effectively in the industry," he says. "At the same time, the ability to acquire turbines was becoming a significant barrier for us. Now we've put ourselves in a position to continue to be an industry leader in all aspects," he adds.

SIGNIFICANT ADVANTAGE

"The whole of this marriage is greater than the sum of its parts," says Blank. "It really creates an entity that has a significant competitive advantage over anyone in the US industry and nobody has access to this kind of expertise and capital. It's a powerhouse."

With Iberdrola on board, Alderfer is confident of completing the first 200 MW of projects by end-2007 when the current production tax credit (PTC) period expires. They are the 150 MW Jordanville project in New York, the 26 MW Locust Ridge project in Pennsylvania and the 24 MW Lempster project in New Hampshire. Blank expects all three to use Gamesa turbines, but adds, "It will depend on site suitability, availability, the usual stuff."

The next step is to "accelerate the rest of the pipeline and to complete as much of that as possible within the PTC window," says Alderfer. The projects "are well diversified throughout the Northeast, Midwest and the Rocky Mountain West," says Blank, while declining to give specifics.

Green credit sales

CEI has already completed over 100 MW of wind projects, including the 70 MW Crescent Ridge plant in Illinois, which it sold to Japan's Eurus Energy, a major wind developer and operator. The company's green power marketing arm has sold more than two billion kilowatt hours of renewable energy certificates to some 75,000 residential and business customers and 18 utilities.

Humble beginnings

The company, which currently employs about 35 people, has come a long way from humble beginnings and expects to add employees both on the wind development and marketing side. "We began in 1999 working out of a basement," says Blank. "We started the company during a recession and built a profitable business during some very challenging economic times." Back then Pennsylvania had no operating wind farms, no equipment manufacturers and no customers. "There were just a handful of advocates trying to create an industry," he says. "Some utilities and customers took the lead and then there was enough critical mass to attract Gamesa to land there. It's a pretty incredible success story and Iberdrola just adds to the momentum."

Upon regulatory approval, the company will be renamed, although CEI will remain a separate company with the same plan, structure and method, retaining its executive and senior management team. Blank says he intends to stay onboard at least through the end of 2007. "My crystal ball doesn't go beyond that," he says. "But personally and professionally I'm very pleased. We're going to be the nation's and the world's leading alternative energy company within two to three years."

Iberdrola, meanwhile, says it plans to "look out for further opportunities" in the US and does not "discard the possibility of further acquisitions." The company's Ignacio Galán says the CEI deal provides "a platform for rapid and large-scale growth [in the US]." Worldwide, Iberdrola expects to own 6200 MW of installed renewables capacity by 2008 and more than 10,000 MW by 2011.

Iberdrola's purchase of CEI, subject to approval by federal antitrust authorities, was expected to close within 60 days of the deal's announcement.

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