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ALLETE Unveils EnergyForward Plan - Analyst Blog

Posted
1/31/2013 6:40:00 PM
By: Zacks.com
Referenced Stocks:ALE;D;EIA;NEE;SRE

ALLETE Inc. 's ( ALE ) Minnesota Power division divulged its plans for a balanced energy portfolio to meet the rising demand for power in the U.S. The strategy known as Energy Forward will focus on delivering clean, sustainable, affordable and reliable energy services to the residents of Minnesota.

The driving factor behind the Energy Forward scheme is the gradual shift in the U.S. energy policy which is expected to lean towards eco-friendly power generation in the years ahead. Other motivations include technological upgrades, broad economic fundamentals as well as stakeholders' attention.

Under the plan, ALLETE will engage in renewable investments, energy conservation projects and modernization of existing facilities to make them emission-free. In addition, the company will take upon the task of converting its small coal units to natural gas fired parks thereby making more room for natural gas resources in its asset basket. Its energy mix will comprise of one-third renewables and one-third coal as well as natural gas.

Current Renewable Activities

ALLETE's ongoing renewable projects are expected to provide a significant jumpstart to its Energy Forward plan. Chief among these is the Bison Wind project in North Dakota which completed three phases and is supplying over 400 megawatts ("MW") of wind energy. In addition, the company inked a deal with Manitoba Hydro for the development of a 250 MW Hydroelectric project to be concluded in 2020.

ALLETE intends to supply carbon-free energy through a proposed 500-Kilovolt transmission line spanning from the Canadian border to northeastern Minnesota. The line is expected to be operational by 2020. Other activities lined up are plans for upgrading the company's largest hydro systems which include the Thomson and Fond du Lac units as well as the continuation of its Power of One initiative, which proved successful in providing lower energy usage to customers.

The prospects from wind energy look encouraging given ALLETE's 20% growth in wind generation in 2012 compared with a 5% increase in 2005. Furthermore, the extension of the wind production tax credits will give an impetus to the company to participate more in wind initiatives.

Coal and Natural Gas Ventures

With increasing pressure from the environmental body, ALLETE was compelled to arrive at a decision to refuel and replace one-third of its coal-fired units. These include the transition of the Laskin Energy Center in Hoyt Lakes to a natural gas peaking unit which involves investment of $15 million and the retirement of one of the units at Minnesota Power's 225 MW Taconite Harbor facility in Schroeder.

The total changeover for the Laskin park is expected to be completed by 2015 and will become ALLETE's first all-natural gas fired facility. Units 1 and 2 of the Taconite plant will keep running as these fulfilled environmental requisites. The measures are anticipated to contribute to cost effectiveness for the company. ALLETE aims to make further additions to natural gas resources by 2020.

However, the company's proposals are subject to regulatory approvals by the Minnesota Public Utilities Commission. It plans to file a tender for the Integrated Resource Plan, which is a part of Energy Forward , on Mar 1, 2013. The company expects a ruling by the end of the year.

Technological Investments

In response to the Mercury Air Toxics Standard (MATS) and Mercury Emission Reduction Act, Minnesota Power will make investments of $350 million for the purpose of upgrading its Boswell Energy Center Unit 4 to meet environmental standards. This will lead to cutback in mercury emissions by 90% and system-wide emission reduction of 85% by 2016.

We appreciate ALLETE's concerted initiatives in boosting its renewable business. With an estimated 3.6% rise in renewable consumption in 2013 in the U.S. as per Energy Information Administration (EIA), we believe these strategic endeavors will keep the growth momentum strong for ALLETE.

However, unplanned outages and price sensitivities are risks that could thwart development opportunities. Presently, ALLETE carries a Zacks Rank #3 (Hold).

Other utility stocks aggressively pushing for green energy expansion are NextEra Energy Inc. ( NEE ), Dominion Resources Inc. ( D ) and Sempra Energy ( SRE ).

Based in Duluth, MN, ALLETE through its subsidiaries primarily engages in the generation, transmission, and distribution of coal-fired, hydro, wind, and biomass co-fired power in the United States.



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