Jenny Ruth: Backers see wind of change

Windflow Technology founder and chief executive Geoff Henderson does not quibble at the suggestion that investors in his company are driven more by ideological concerns than hard-nosed moneymaking.

"We've really got to take our hats off to the investors two years ago who put their hands in their pockets for an idea," he says.

"For the investors, it was really blue-sky stuff. It still is, to some extent.

"They're very committed, most of them for environmental reasons ...

"You can certainly say we're a non-traditional investment. We've got people on our register who have never bought shares in their lives before."

The company has certainly gathered an eclectic bunch of supporters. They range from former National Party stalwart Barrie Leay, a former executive director of the Electricity Supply Association, as chairman; former Christchurch Mayor Vicki Buck as deputy chairwoman; and Green Party co-leader Jeanette Fitzsimons as a major shareholder.

Christchurch-based Windflow struggled with its first capital raising back in 2001, taking six months to find $2.57 million of the $3 million it had sought, although that was a respectable effort considering market conditions at the time.

Now, with its prototype wind turbine built and running at Gebbies Pass on Banks Peninsula and with a 10-year contract to supply its output to the Christchurch City Council, the company is asking shareholders and the general public for a further $5.5 million. This is through a one-for-one rights issue priced at $2 a share.

The money will allow Windflow to build up to six more turbines and to start selling them, either to other companies in the electricity market or through a yet-to-be-floated windfarm. The company plans to raise up to $49 million over three years to establish New Zealand Windfarms.

Undoubtedly, there is still plenty of blue sky attached to an investment in Windflow.

The company says bluntly that it does not expect to pay dividends through to the year ending June 2007, and cannot say when its first dividend might be possible.

And it does not expect to make a bottomline profit until 2007 - the prospectus forecasts $3.4 million. But that assumes NZ Windfarms is successfully established and pays Windflow $20.25 million for turbines, and that third parties will buy $20.25 million worth of turbines.

The prospectus notes that while electricity generators, lines companies and large electricity users are all potential customers, "so far they have been reluctant to support new technology when it has not been proven".

That said, it is not all that hard to find a basis for the leap of faith required for an investment in Windflow.

Certainly, with New Zealand acknowledged as the windiest country in the world, the resource is plentiful.

Henderson, who has worked in windpower engineering for 20 years, including seven years with firms in California and England, admits to a certain amount of bitterness that his key invention, "the torque-limiting gearbox", has failed to find any support among local power companies.

All the turbines in New Zealand windfarms are imported, mainly from Denmark, and their development has been heavily subsidised.

Windflow claims Henderson's gearbox allows its turbines to operate reliably, even in New Zealand's notoriously strong and gusting winds.

"The problem is still plaguing [other] wind turbines around the world, including in New Zealand."

Henderson's turbines also have two blades compared with the three of competitors, making them cheaper to produce.

"I was overly optimistic on how it would be received back in New Zealand," he says.

"From a career point of view, I probably would have made faster progress if I had stayed over there [Europe], but we wanted to come home. It was a quality-of-life thing."

Lloyd Morrison at Infratil, which owns 35.2 per cent of TrustPower, which announced a $60 million expansion of its Tararua windfarm in May, said recently that the expansion was marginal.

But Henderson says Windflow has a much more cost-effective design than the Danish turbines.

Power from Windflow's windmills costs about 6c a kilowatt hour. It has a 10-year contract with the Christchurch council to supply it with the existing turbine's output at 4.4c a kw/h and local lines company Orion pays Windflow an extra 1.5c a kw/h.

Henderson says that when the contract was drawn up, wholesale electricity was selling for about 3c a kw/h. It was thought that the council would subsidise the company in the first five years of the contract and benefit from cheaper-than-average power for the second five years.

As it happens, the council is benefiting from day one.

"A contract is a contract, so we will do it," says Henderson, agreeing that there is a good degree of comfort in having an assured income for 10 years.

Nevertheless, the company has brought down its expectations of pricing for its turbines in the short term.

While the long-term price expected is still $675,000 each, the first prospectus said the first four could sell for $950,000 apiece and the next 20 for $725,000 each.

Despite the shortfall in the initial share offer, Henderson is hopeful the full amount will be raised this time.

"There's a huge difference now that we've got a working windmill."

The hurdle of raising the money is all the greater because Henderson and his wife, Jenny, who own 24.7 per cent of the company, or 652,368 shares, can afford to exercise their rights in full. They will therefore be selling some of their rights to finance those they can afford to exercise.

At first glance, this seems a tall ask. There have only ever been nine trades in the company's shares, most of about 2000 share parcels.

Still, the evidence on the stock exchange's unofficial market, where the shares listed last April, is reasonably encouraging. Before the shareholders even received their entitlements, four separate parcels of rights totalling 3811 were traded on Tuesday and Wednesday at 95c each.

The original shares were issued at $1.50 and trading has ranged from $1.85 to $3.75 a share, but with so few trades, it is impossible to arrive at a theoretical rights price.

Alexandra Dalzell, at stockbroker Greenslades, which is sponsoring Windflow's rights issue, said that before the market opened yesterday, there were bids for a further 2500 rights at 95c each waiting in the wings and others priced below that.

She hopes the pace will pick up next week after all shareholders receive their entitlements.

If Fitzsimons decides to take up her Windflow rights, it will cost her $71,136.

She believes "it's absolutely essential" that New Zealand invests in windfarms and is pleased to support a local design.

But Fitzsimons is not carried away by the potential returns.

"It remains to be seen how successful he [Henderson] will be."

Fitzsimons' own farm just happens to use solar and wind power.

"We didn't set out to do that, but the grid wouldn't come to us unless we gave them $20,000 for their trouble."

Fitzsimons decided to spend that money on alternative power sources.

"It's very satisfying living without any wires or any power bills."