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ALLETE Arm to Expand Thunder Spirit, Adds Green Energy

Zacks Equity Research

ALLETE, Inc. ALE announced its unit, ALLETE Clean Energy, has entered into an agreement with Montana-Dakota Utilities, a division of MDU Resources Group MDU to expand the generation capacity of the Thunder Spirit wind farm, located in North Dakota to 150 megawatts (MW) from its current capacity of 107.5 MW. The expansion initiative was undertaken by MDU Resources to generate higher volumes of energy to meet rising customer demand.

In 2014, ALLETE Clean Energy acquired the rights to build the 107.5 MW first phase of Thunder Spirit, which comprises 43 turbines. The wind farm generates enough electricity to power nearly 30,000 homes. After the project was completed in 2015, MDU Resources bought Thunder Spirit from ALLETE Clean Energy for $200 million and currently operates the same for meeting customer power requirement.

Second Phase of Expansion

For the second phase of expansion, ALLETE Clean Energy will develop another 13 to 16 turbines at the Thunder Spirit site. Construction work on the $85 million project is expected to begin in May 2018.

ALLETE Clean Energy has a 25-year power purchase agreement with MDU Resources to purchase the energy produced by the expansion of Thunder Spirit.

MDU Resources also has the option to purchase the second phase of expansion of the wind farm, when it is completed.

Prospects of Alternate Energy

Given the limited reserves of fossil fuels, it is clear that sooner or later, we will have to shift our focus to alternative sources for meeting energy requirements. In such a scenario, solar, wind and water based plants will have bright prospects.

In Dec 2015, to promote wind generation, U.S. authorities extended the Production Tax Credit (PTC) by five years.

The American Wind Energy Association (“AWEA”) projects that more wind energy capacity will be added to the generation system to replace coal-fired units. In the first nine months of 2016, 1,725 MW of wind power units were installed in the U.S. The AWEA also estimates that over 20 gigawatts (GW) of wind power projects are now under construction or in advanced stages of development.

The Thunder Spirit expansion projects will enjoy the benefits of the PTC.

Price Movement

Over the last three months, ALLETE has outperformed the Zacks categorized Utility-Electric Power industry. During this period, the company’s shares have gained 12.4%, compared with the industry’s return of 0.6%.

During the fourth quarter of 2016, ALLETE Clean Energy secured a contract to supply electricity to U.S. Steel through at least Dec 2021. Another unit of the company expanded operations in the southwestern U.S. water market with the acquisition of Water & Energy Systems Technology (WEST) Inc. These developments are likely to boost the performance of the company over the long run.

Zacks Rank & Key Picks

ALLETE Inc. currently has a Zacks Rank #4 (Sell). A couple of better-ranked stocks in the same space are Ameren Corporation AEE, and DTE Energy Co. DTE, both each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Ameren's earnings surpassed the Zacks Consensus Estimate by 10.1% in the last reported quarter. For 2016, estimates improved 6.3% to $2.70 over the last 60 days.

DTE Energy's earnings surpassed the Zacks Consensus Estimate by 27.3% in the last reported quarter. Its 2016 estimates improved by a penny to $5.27 over the last 60 days.

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AMEREN CORP (AEE): Free Stock Analysis Report
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ALLETE INC (ALE): Free Stock Analysis Report
MDU RESOURCES (MDU): Free Stock Analysis Report
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