Allco Finance Plans $2.5 Billion U.S. Wind Project
By Angela Macdonald-Smith and Joyce Moullakis
Dec. 22 (Bloomberg) -- Allco Finance Group Ltd., an Australian manager of ships, property and aircraft,
plans to build a $2.5 billion wind energy project in California to take advantage of rising institutional
demand for wind investments.
The project will be as much as 75 percent debt funded and Allco is in the process of inviting financial
partners to join the venture, Nick Bain, global head of Allco's infrastructure business, said today. Edison
International's Southern California Edison unit will buy the power produced by the plant.
Wind power is gaining in popularity among utilities as the most cost-competitive form of renewable
energy. Institutional investors like putting funds into wind energy projects because of the long-term and
steady cash flows provided by the power sales contracts, Bain said.
"Allco have identified renewable energy as a space they want to be, that's where the world's got to go
in terms of energy," said Peter Warnes, a fund manager at Sydney-based Huntley Investment Co.,
which holds more than 1 million Allco Finance shares. "This is another brick in the path of seeking
significant rates of return on their investment portfolio."
Shares in Allco Finance rose as much as 22 cents, or 1.8 percent, to A$12.59 on the exchange at 12:40
p.m. in Sydney.
Under the Edison deal, the largest wind energy contract ever signed by a U.S. utility, California's
second-biggest electric utility will buy 1,500 megawatts of power for 20 years. The contract equates to
proving power to as many as 1 million households in California, Allco said in a statement lodged today
with the Australian Stock Exchange.
Tehachapi
The project will be built in Tehachapi, a rural region northeast of Los Angeles where there have been
wind turbines since the 1980s. It will produce more than twice as much electricity as the biggest U.S.
wind farm today, Rosemead, California-based Edison said in a separate statement.
Allco currently owns 100 percent of the project and will probably progressively reduce its stake to no
more than 15 percent, Bain said in a telephone interview. The company has also secured rights to
develop wind energy projects in Australia and New Zealand and is in talks to buy wind farms being
developed in Europe, he said.
"We like wind because we think it's an asset class that is certainly in demand, especially in the U.S.,"
Bain said. "It's an asset that lends itself very well to introducing institutional investors because the
return characteristics are long and steady cash flows, so inviting co-investors into these sorts of projects
is something that should work pretty well for us."
Allco expects to develop more than 2,500 megawatts in Tehachapi, comprising several smaller projects
of about 100 megawatt capacity on average, the company said. The wind farms will start operating
between 2007 and 2012, it said. Oak Creek Energy Systems Inc. will help develop the projects, without
taking any equity, Bain said.
To contact the reporter on this story: Angela Macdonald-Smith in Sydney at
amacdonaldsm@bloomberg.net