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By: Ross Marowits, Canadian Business
MONTREAL – AAER Inc., Canada’s lone manufacturer of large wind turbines, is facing growing headwinds as the alternative energy industry finds it increasingly difficult to finance new energy projects.
In a bid to preserve cash, the Bromont, Que.-based company said Wednesday it will temporarily lay off 28 employees, its second round of job cuts in five months. That follows 34 layoffs among operational and administrative employees announced the end of October.
AAER (TSXV:AAE) did not provide financial details on why it was necessary to lay off the workers, how long it expects them to be out of work, or whether these are new positions being put on layoff.
Company officials didn’t return calls seeking comment.
AAER said it will continue to service its existing customers and will go ahead with planning for the manufacture and erection of new wind turbines currently under contract.
Industry observers say the company is suffering a hangover from being passed over by developers for Hydro-Quebec’s massive 2,000-megawatt wind project in May 2008.
That decision prompted the company’s shares to plummet from a peak of $1.92. They were unchanged at three cents Wednesday on the Toronto Stock Exchange.
AAER has not been able to gain much sales traction since that defeat. On top of that, weak credit markets and falling energy prices have caused several developers to kibosh plans.
“They’re stuck between a rock and a hard place. I don’t know what’s going to happen to them but it doesn’t look all that great,” said an analyst who didn’t want to be named.
There has been a significant drop-off in interest among power utilities for wind turbines amid a decrease in North American energy prices over the past 18 months and a depressed outlook over the next two to three years.
Travis Miller, a Chicago-based utility analyst for Morningstar, said lower demand caused by the recession and energy efficiency initiatives have hurt power developers because utilities no longer need to sign as many power-purchase agreements.
The agreements provide fixed prices per unit of power produced that make projects attractive to investors and debt providers.
“In tight credit markets it puts a premium on the developers’ ability to sign power purchase agreements … and when the utilities aren’t as willing to sign those contracts, it’s tougher to get financing,” Miller said in an interview.
Lower energy prices have also forced many developers who were looking to build in the U.S. without fixed pricing to put their projects on the back burner.
MacMurray Whale of Cormark Securities said in January that AAER could still benefit from a series of opportunities. These include next fall’s awarding of contracts for two Quebec municipal wind projects totalling 250 megawatts of power, local content rules for Hydro-Quebec projects, and the possibility for more orders from the 100-megawatt Mont Louis Wind project in Quebec.
The industry is reliant on government initiatives, including minimum renewable energy production targets adopted by U.S. states like California and Nevada.
In Canada, the Nova Scotia government agreed earlier this month to participate in a joint venture with South Korean shipbuilder Daewoo to build wind turbines in the abandoned Trenton Works rail car plant.
AAER makes high-capacity power-generating wind turbines principally for the North American market.
In December, AAER said it plans to complete an equity offering of at least $5 million. That’s on top of a $5-million loan from Investissement Quebec, of which $1.25 million has been disbursed to date.
The company lost $5.5 million in the third quarter despite an increase in revenues to $5.4 million.