Alterra Power(TSX:AXY) CEO John Carsonis bullish on the renewable power market despite investor pullback, a battered stock price and questions surrounding the future of independent power in B.C.
The company, which was formed six months ago via a friendly takeover between Magma Energy and Plutonic Power, operates wind, run-of-river hydro and geothermal power plants throughout North America and Europe.
Carson, 50, replaced resource industry tycoon Ross Beaty as CEO in September (Beaty remains executive chairman), but held senior financial roles with U.S.-based renewable-energy companies in New York before joining Magma earlier this year.
Business in Vancouver sat down with Carson recently to chat about his company?s stock value, how it has dealt with social backlash in Iceland, the ongoing crisis in the Euro zone and the future of independent power in B.C.
What benefits did the merger between Magma Energy and Plutonic power create?
Number 1: we get to be – surprise – a bigger company. That?s important because bigger companies have a lower cost of capital. It?s just easier to get money.
Your stock value has suffered somewhat since the merger. What are you doing to improve the situation for shareholders?
We?ve faced a lot of challenges this year; renewable-energy companies on the whole have not been rewarded by equity markets this year. We believe now is the time to prepare ourselves for a growth streak, and we hope to turn a corner in the near future to where the growth not being rewarded by the stock market today will be rewarded tomorrow.
How has access to capital for renewable-energy projects changed in recent years?
Five years ago it was a very frothy time for renewable-energy companies, call it the salad days, but people were throwing capital at it and couldn?t get enough of renewable-energy projects. Fast-forward to late 2008 when the financial crisis hit, all of those capital sources basically shrivelled up and became a very small shadow of what they used to be. As we came out of that financial crisis, we?ve really developed and come a long way. In the last three or four months all this has begun to reverse. We?ve begun to take steps backward again. We?re not all the way back to 2009 again, but [loan] tenures have come back and compression spreads have come back up. I?m bullish that banks are better capitalized today than they were in 2008 and 2009, and the shockwaves we?re going to see from Greece and other European hot spots will be somewhat contained.
Some of your largest assets are in Iceland, which suffered major financial upheavals in recent years. What have you learned about operating a green energy project in the Euro zone amid so much financial unrest?
The contracts we have for those projects are with global entities that have commodity-based aspects to some contracts, which remove them from Iceland and its unique political and social aspects. So even though one might think it?s a unique part of the world, a deal is a deal. Our next highest focal point is Italy, and Italy has been beset by some recent wobbles, but in our view it?s a long-term, very attractive place to do business.
Controversy has surrounded Magma?s ownership of the HS Orka geothermal plant in Iceland. What have you done to improve the company?s relationship with the Icelandic people?
We gave a substantial piece of ownership back to the people, but we?ve also maintained that company?s social DNA. There?s a theme today of, ?Gee here come these Canadian business people disrupting our Icelandic ways?; it really is not the case. The CEO of the company who was there before we ever thought about the place is still CEO. The COO is still the exact same person. The team is almost entirely unchanged from before. I think we?re a very organically, healthily joined set of companies.
The recent BC Hydro review has caused many to speculate that the provincial government could change its rules around electricity self-sufficiency, potentially reducing the need for new private power projects in B.C. Are you concerned about this situation?
Truly, we?re not. We think arguments about how much reserve margin we need in our electricity market are going to pale in comparison to the demand this province is going to see.
Independent power producers have taken a thrashing in the media recently for contracts labelled ?pricey.? What?s your response to that?
I suppose that they are pricey. In the end, we all recognize we want to cut back on fossil fuels and utilize fuels that are absolutely clean such as wind, solar and geothermal energy. It is true that they cost a little bit more. Well, I?d like to emphasize that it?s a little bit more.
If I didn?t think renewable power was going to continue to have a place, I wouldn?t be doing this. There has been backlash about the pricing, but I think its temporary, and part of that discussion will be swept away when we start to see significant increases in load demand in B.C., for example, if LNG (liquefied natural gas) facilities are advanced past the drawing board and there?s mining growth, which has tremendous power needs.
What are Alterra?s growth prospects in B.C.?
Our prospects here in B.C. are manifold. First of all, we?ve really talked up our next hydro asset, the Upper Toba Valley project.
Secondly, our next wind asset in the province is the Dokie 2 expansion.
Beyond those assets, we?re looking for assets that may be currently constrained because smaller companies have a lack of capital.
One further component to our growth here is geothermal.
We just announced recently that we acquired geothermal concessions here in B.C.
We believe and hope we will be nimble enough to do what needs to happen to finally affect geothermal production here in a big way, which we think will be a game changer for renewable power here in B.C. ?
