Infigen Energy

Clutching at straws is rarely wise investment counsel. But Infigen Energy’s share price, up 6% yesterday, is probably rationally responding to an announcement that superficially might seem unrelated. A day earlier, Origin Energy announced its ‘largest ever wind offtake agreement’, agreeing to buy electricity for the next 15 years from a large (270MW) wind farm to be developed in Snowtown, South Australia by TrustPower.

The link with Infigen—uninvolved in this transaction—relates to general wind farm valuations. For some years now, the combined price of electricity and renewable energy certificates has been too low to justify the development of large new wind farms. And when new farms weren’t being built, one might reckon that the fair value for older wind farms should be well below replacement cost. This new build suggests otherwise. While the details of the electricity contract are confidential, unless TrustPower’s management has rocks in its head, it will have been struck at a price that justifies the building of this new farm. And building new wind farms doesn’t make sense if older ones are available for purchase substantially below replacement cost. This news, while indirect, is good nonetheless and broadly supportive of the Infigen wind farm valuations outlined in recent reviews, such as Downdraught prompts Infigen upgrade of 30 Nov 11 (Speculative Buy – $0.22). With the share price back over 25 cents, we’re sticking with HOLD for now.

Note: The model Growth portfolio owns Infigen shares.