Sempra, BP in Wind Energy JV

A subsidiary of Sempra Energy (SRE - Analyst Report) recently became an equal partner of a BP Plc. (BP - Snapshot Report) unit for developing a 200MW Fowler Ridge II Wind Farm in Benton County, Indiana. 

The Fowler Ridge joint venture is currently under construction on a 17,000-acre site, about 90 miles northwest of Indianapolis and is expected to be operational in the first quarter of fiscal 2010. The 200MW facility will produce enough electricity for nearly 60,000 homes.

The project's entire power output has already been sold under four, long-term 50-MW contracts. Three of these deals were signed with units of American Electric Power (AEP - Analyst Report) and one with Vectren Energy Delivery (VVC - Snapshot Report) of Indiana for 20-year terms each. The project will use 133 wind turbines, each with the ability to generate 1.5 MW.

The Fowler Ridge II development is an expansion of Fowler Ridge I, a 400-MW wind farm that commenced operations in March this year. Together, the projects will form the largest wind farm in the Midwest, generating 600 MW, or enough clean energy to power about 180,000 homes.

Sempra Energy is a southern California-based energy services holding company involved in the sale, distribution, storage and transportation of natural gas. The company’s businesses are broadly divided into Sempra Utilities, Sempra Global and parent. Sempra Utilities consist of two California regulated public utilities Southern California Gas Co. and San Diego Gas & Electric. They service 6.2 million natural gas customers and 1.4 million electricity customers. These two businesses, together known as the California Utilities, serve customers throughout parts of central California, most of southern California, San Diego and southern Orange counties.

Sempra Global and parent consist of unregulated subsidiaries engaged in providing energy products and services Sempra Commodities, Sempra Generation, Sempra Pipelines & Storage and Sempra LNG. Sempra Pipelines & Storage operates global energy projects and serves 2.8 million power and gas customers, Sempra Commodities reflects 49% stake in the JV RBS Sempra Commodities with Royal Bank of Scotland Group (RBS - Analyst Report), which trades and markets wholesale energy commodities in Asia, Europe, and North America, Sempra Generation operates power plants and provides energy related services and Sempra LNG develops, owns and operates receipt terminals for importing liquefied natural gas.

We are positive about Sempra Energy’s stable base of utility earnings along with expansion in its LNG terminals and renewable power projects in the Pacific Southwest. However, on account of volatility of the commodity business, tightening credit markets and pending regulatory issues, we reiterate our Neutral recommendation on the stock.