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Sempra, BP's Wind Farm in Operation

BP SI HE SRE

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Sempra U.S. Gas & Power, a subsidiary of Sempra Energy (SRE - Analyst Report) and BP Wind Energy, a unit of BP plc (BP - Analyst Report), announced that their Auwahi Wind facility on Maui has come online and has started to provide commercial operation. The project includes eight new Siemens AG (SI - Analyst Report) wind turbines.

Located on the southeast ridge of the Haleakala volcano at Ulupalakua Ranch, the power project has an electric generation capacity of 21 megawatt (“MW”). In May 2012, Sempra and BP Wind had teamed up to develop the wind farm. Post-completion, Sempra will operate the project.

An important feature of this project is its 10 MW battery with a capacity of storing 4.4 megawatt-hours of power. The battery allows MECO grid to regulate and sustain power even when the wind is low. Under a 20-year agreement, the power generated from the Auwahi Wind facility will be sold to Maui Electric Company (MECO), a subsidiary of Hawaiian Electric Industries Inc. (HE - Analyst Report). The clean electricity generated will be sufficient to power 10,000 homes.

Currently, under a strategic partnership between the two companies, more than 1GW of wind generating capacity is in operation or under construction in the U.S. Projects under construction include the 419MW Flat Ridge 2 wind farm in Kansas and the 141MW Mehoopany wind farm in Pennsylvania.

The project will help Hawaii to achieve its goal of securing 40% of its energy from renewable sources by 2030. Besides assisting other states in procuring renewable energy, the company itself is also moving toward more renewable energy resources. On one hand, the company is providing renewable energy with its wind farms while it is buying solar energy on the other. Recently, it clinched two deals with Diverse Business Enterprise (“DBE”) entities to purchase 40 MW of renewable power to supply its customers in Imperial Valley, California.

The first contract includes a 20-year deal to procure 20 MW of solar power from the Seville solar facility, a joint venture initiative with Sempra’s DBE associate Tallbear Seville and Regenerate Power. The facility is located northwest of Brawley in Imperial County and consists of photovoltaic single-axis modules.

The second 20-year agreement entails Sempra to purchase 20 MW of solar output generated from the Calipatria Solar Farm, which is a fixed-tilt photovoltaic facility also located in Imperial Valley. The project is a partnership between 8minutenergy Renewables' ancillary, 70SM1 8ME, LLC and Gestamp Solar. The twin projects are scheduled to be completed in 2015 and will deliver power via its 117-mile Sunrise Powerlink transmission line.

Sempra Energy is a southern California-based energy services holding company involved in the sale, distribution, storage, and transportation of electricity and natural gas. The company’s businesses are broadly divided into Sempra Utilities, Sempra International and Sempra U.S. Gas & Power.

Sempra’s geographic disparity in its assets frees the company from any region specific risk. Key growth drivers for the company include stable utility earnings, steady progress at its LNG terminals, renewable power projects in the Pacific Southwest, the Sunrise Powerlink transmission line and ongoing installations of smart meter.

However, we are concerned due to a lack of any near-term positive triggers, along with near-term trepidation in natural gas prices and pending regulatory cases. The company presently retains a short-term Zacks #3 Rank (Hold) that corresponds with our long-term Neutral recommendation on the stock.

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