By Pacific Coast Business Times Staff Monday, November 23rd, 2009

Continental Wind Power has made big promises to the people of Santa Paula, but there are signs that the young company is struggling to meet its self-imposed deadline for a new assembly plant.

On June 30, Continental President and Chief Executive Officer Jim Winsayer stood before a crowd at Santa Paula’s City Hall. He said Santa Barbara-based Continental had a new design for a mid-sized wind turbine and would establish an assembly plant in the Heritage Valley, creating as many as 500 jobs in an area that’s seen its share of economic troubles.

Continental would work closely with Santa Paula officials to name a specific site for the factory within three months, Winsayer said. But more than four months later, Continental hasn’t secured a location for the assembly plant or made any formal submissions to city officials for approval of one, despite eyeing a former orange packing plant on Tenth Street.

“We haven’t had communication with them in a while,” said Elisabeth Amador, assistant to the city manager for Santa Paula.

Although Continental seems to be making headway in producing a prototype, questions about its longer-term prospects remain. The company said that one of its vendors has offered a $1 million investment, but that investment could not be confirmed. One former consultant to Continental says he was not paid as promised for $31,000 of work he did for the firm, but Continental disputes the claim.

Starting up any business is a challenge, and the frozen credit markets and sour economy over the past year have proved tough for even well-established wind turbine makers. Carpinteria-based Clipper Windpower, one of the only American companies to successfully make large turbines in the United States, laid off 11 percent of its workers earlier this year and turned in a $313 million loss in 2008 — even as revenue exploded to $737 million from $24 million.

For its part, Continental has designed a much smaller wind turbine aimed at letting big electricity users such as farms harvest wind energy the way some farms now use solar power. Winsayer said that despite some difficulties, the company is on track to build three prototype turbines and three production turbines, with the first units scheduled to go up by the middle of 2010.

“These initial units are going to be built in our R&D facility and at the facilities of our partners,” Winsayer told the Business Times. “Once we’ve got all the kinks worked out, that production will be moved to Santa Paula. Our goal is to start up the serial production in the fourth quarter of next year.”

Knight & Carver Wind Group, a firm located near San Diego that has agreed to develop and build the 60-foot blades used in Continental’s design, said its work is progressing as planned, though a spokesman said the firm hasn’t heard from Continental for “several weeks.”

“We’re still in the development and design phase, and it’s certainly moving forward,” said John Freeman, director of communications at Knight & Carver. “These things take time.”

But questions remain about when Continental might deliver its first turbines. Winsayer concedes that he has not yet secured a location near Santa Barbara in which to build prototypes, though he said he is looking at spaces in Carpinteria.

Winsayer said the first units would be paid for with a combination of funding from investors and financial commitments from suppliers. Winsayer said his business partners have committed to provide $4.2  million.

One investor-partner that Winsayer has identified is DRS Power & Control Technologies. In a Nov. 16 press release, Continental said DRS Power & Control Technologies will provide power converters for Continental’s turbines and has committed to invest more than $1 million in the Santa Barbara company.

But Brian Gallagher, a spokesman for DRS Power & Control’s parent firm, would confirm only that his company has a contract to supply converters and would not confirm any investment in Continental.

Winsayer said that despite Gallagher’s comments, Continental’s press release had been approved by DRS. “We already received a sizable portion of the $1 million,” Winsayer wrote in an e-mail to the Business Times.

Winsayer would not disclose what his suppliers would get in exchange for their investments. He did say that only a “small amount” of the money was in exchange for ownership in Continental.

“In this business, a supply chain is very critical, and we have to stay close to our partners,” Winsayer said.
One consultant who says he performed work for Continental said he was not paid as promised.

“I’m owed $31,000 by Continental,” said Tam Hunt, owner of Santa Barbara-based Community Renewable Solutions, which offers policy and technical advice to renewable energy companies. “We were in settlement talks, but they have broken down.”

Continental said Hunt’s claims are false.

“We dispute we owe him the money he claims,” Winsayer wrote in an e-mail. “I can’t comment further until the issue is resolved.”

Since its founding in 2007, Continental has provided few details about its finances. Winsayer has said only that initial funding came from angel investors and that he is seeking a second round of funding. He now says he is close to securing that round.

“It has gone quite well and looks like we’ll be closing at the end of this month or the end of this year,” Winsayer said. “We’re pretty pleased with the response given what happened last year.”

But Winsayer has worked on the second round of funding for more than a year. In September 2008, he told the Business Times in an interview that he expected to close a $2 million to $3 million Series B round of funding within “months.”
Winsayer has not disclosed whom he has approached for investments. But Harold Edwards, chief executive of Santa Paula-based citrus grower Limoneira, said Winsayer met with him to pitch Continental.

Edwards said the details of the conversation are confidential. But he said it became clear to him that Continental was facing headwinds in raising money.

“It appears they’ve been challenged with the capital raise,” Edwards told the Business Times. “They’re still out there trying to establish the initial capitalization for what appears to be an interesting and viable space in the alternative energy market.”

But even though Edwards has declined to invest in Continental thus far, he is pulling for the young firm.

“It’s too bad because they made these commitments to the community with their press release about jobs that would be created,” said Edwards, a Santa Paula native who has advocated for strengthening the Heritage Valley economy. “We’re very interested in their success.”

Winsayer says business is still on track at Continental and that he may even enter a new line of business — licensing the firm’s design to other companies. He said several companies have signaled interest, though he would not name them.

“We weren’t really thinking about [licensing] at this stage, but after a number of companies approached us, we decided to move forward with it,” Winsayer said.

The full version of this article is only available in the print edition. To view everything the Business Times offers, see this week’s print version or SUBSCRIBE to the print edition for $49.99 today.