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Start up problems lead to big loss -- Clipper results 2007

American wind turbine manufacturer Clipper Windpower announced preliminary results for 2007 that reflect widely expected losses due to technology problems and manufacturing snags with commercialising its 2.5 MW Liberty machine. Provisions for remedial work on turbines already installed or produced, loss making contracts as a result of the problems, warranty payments, inventory obsolescence and liquidated damages on late turbine deliveries accounted for $107.1 million out of a full year loss of $192.5 million.

From a combined total of 145 turbines produced in 2006 and 2007, 63 required drivetrain repair work. The planned remedial work is expected to be largely finished in the third quarter of this year with completion dates driven by factors including weather conditions and crane scheduling. The work has delayed completion of Clipper wind farm projects, negatively affecting revenue.

Moving into 2008, the company started an additional repair program to strengthen 780 blades on 260 rotors, of which 150 rotors have already delivered to customers (Windpower Monthly, February 2008). Clipper expects to register a cost of $15 million for blade repairs on its 2008 balance sheet, although the sum includes some overlap with drivetrain repair costs as the two tasks are co-ordinated to minimize cost.

"While we have indicated the major factors which accounted for this difficult start-up year, the fact is that we did not execute to the level we needed on these issues, and it was expensive," says Clipper's chairman and CEO, James Dehlsen. "We have addressed shortcomings aggressively and will continue to do so."

Analysts remain hopeful the company will win through. "The results were pretty weak but much of this is due to -- hopefully -- one-off charges for remediation as well as delayed revenue recognition until the remediation program is complete," says Michael McNamara, an equities analyst with Jefferies & Co. "The story remains the same: if there are no further component issues with resulting remediation cost and production delays, the story is attractive."

Orders for Clipper units remain a strong point. "There is a lot of unrecognised revenue sitting in the inventory line," says McNamara. During 2007, cumulative third party orders rose from 925 MW to 2063 MW. As of December 2007, a further 3750 MW was on Clipper's books in joint development and contingent sale agreements.

During 2007 Clipper produced turbines with a cumulative capacity of 343 MW at its Cedar Rapids facility in Iowa, compared with just 20 MW produced in the second half of 2006. Clipper expects to produce 777.5 MW this year.

Hat in hand

To pay for it all, Clipper has been out hat in hand. In late March a share issues raised about $50 million. Soon after came news of a $60 million credit facility backed by an unnamed customer (BP Alternative Energy is Clipper's main customer), followed by yet another cash injection when One Equity Partners, a JP Morgan Chase private equity firm, agreed to invest $150 million in return for an ownership stake in the company of about 12%. One Equity Partners has a seat on a new Clipper oversight committee, giving it a strong voice for the size of its holding. Clipper also raised cash by selling its prototype 7.5 MW offshore turbine project to the UK's Crown Estate, which licences wind development in British offshore waters (page 60).

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