Windbiz

UK Hits Energy Panic Button

Blair's reaching for the red phone as the UK is up in arms over its energy supply situation.  The country is floundering for a clear path forward.  The nukes vs. renewables debate, in my opinion a bad argument from both sides, rages on while old BP's set to spend $1.8 billion on clean energy.  Meanwhile, part of the solution, a huge 700 MW wind farm on Lewis Island (to name one of many) is continually being struck down by environmentalists. 

Sadly, in a crisis situation the environment starts to sound like a luxury as power supply of any sort becomes a necessity for economic activity, and heating in the cold winter expected for this year.  What is also unfortunate is that permitting and grid connection challenges facing renewables boosts the argument for nuclear power.  Well-lobbied nuclear is set up as a quick fix. 

Crisis conditions call for crisis solutions--but this does not sound like the right approach, as taxpayers and the environment (nuclear waste vs. CO2 vs. bird nesting/visual impact) pay in the long term.  But then again, I have the luxury of not living in the UK.   

UPDATE

Nice column in the Guardian here taking a look at both sides of the nuclear/renewables debate - which seems to encourage more productive discussion.  He draws from UK Energy Policy to say 26,000 MW of wind can replace just 5,000 MW of fossil fuel - but not clear what kind of capacity factors you'd be using here (offshore can get up to 40%). The important thing though is talking about complementarity and a mix - and properly weighing the good and evil of both. 

Nordex Deals with Component Shortage While Putting Books in Order

No major news here with Nordex results - returning to profitability, developing in France to boost the order book. Again the gearbox shortage came up as a problem, they also mentioned driveshafts.  To deal with orders, they've reserved components through 2006, while they are applying 'strict contract criteria' including grid connections and downpayments.  The CEO claims he's not aware of Nordex on a list of acquisition targets - but that they seek to be 'a leader among the mid-size players'.  That, in the end, would make them the most attractive target.

CDM / JI Pipeline Stacking Up

Just received a list of CDM (Clean Development Mechanism) and JI (Joint Implementation) projects which is a rough indicator of developing country wind energy activity. There is over 2,500 MW of wind capacity up for consideration to receive CO2 reduction credits. 

The project list can be considered a rough measure of wind energy market environment attractiveness, and is a more concrete metric than other indexes out there.  Consequently, India tops the list with over 40% registered at 1,100 MW, followed way behind by China at around 350 MW. Interestingly, six countries spread over the globe have around the same amount in the pipeline.  CDM and JI are not the foundation for a wind farm business model, but an extra 3-5% on the top line can make or break bankability.      

American Consumers Going for Wind

This is the type of news  you'd expect in Europe, not the US, and it shows signs of a serious shift inside the world's largest fossil fuel consumer. It's not the tree-hugging arguments that are driving up wind power demand, but rather the soaring oil prices.  Bringing wind power to the US electricity consumer as Xcel has done with its Windsource product will probably become the norm among utilities in states with RPS requirements, if it's not already. 

Now, the bad news: unfortunately, the firm states in the article that it's not sure about adding more wind power to its portfolio because of soaring turbine prices.  We've heard this before - and it's the old US energy policy chicken-or-egg quandary.  Turbines are expensive because of raw material (steel) costs, yes, but also because there is a lack of competition in the market.  There is a lack of competition in the market because it's risky for European suppliers to set up shop in the US.  That risk is due to sporadic tax incentive support for wind.   

There will be more and more consumers clamoring for cheaper, cleaner renewable energy over the next 2-3 years as oil and gas remain expensive.  Turbine suppliers seeing this demand should, to some degree, factor it into their risk assessment when deciding whether or not to enter the US - popular and political momentum is building for a long term renewable incentive.  As is, wind loses out on an early opportunity here to leverage its cost advantage.

Should/would/could Goldman Sachs Draw Gamesa and Nordex Together?

Not to start up the rumor mill (well just a little bit) but perhaps the 600 MW Gamesa-Horizon Energy contract in the US could be something much bigger. See, Horizon Energy is owned by Goldman Sachs.   Goldman owns around 20% of Nordex.  And - this is the new part - a Goldman Sachs fund just bought 5% of Gamesa.  So the links between Nordex and Gamesa are tightening via Goldman.

After a major restructuring program, Nordex is set to break even this year operationally, making it a more stable acquisition target.  Order book-wise, Nordex and Gamesa complement each other especially in the French and Portuguese markets, as well as Germany.  Nordex has also done some far flung projects (Colombia, Estonia) that may fit with Gamesa's expansion strategy. And in terms of product portfolio, Nordex has already made solid headway in the 2 MW + segment, and it has an offshore turbine (albeit small, at 2.5 MW), which Gamesa does not.

Yes, this rumor has been floated before, along with Caterpillar buying Nordex.  Gamesa is also in the process of selling two of its divisions and taking on new shareholders - which may postpone any big deal. What is clear is that there will be more consolidation, and this deal makes more sense than some others.  If I was a Goldman Sachs investment manager looking at the wind market, I would see an opportunity here.

Wind Energy Christmas List

Wind Energy EU Integration Christmas list:

• A harmonized EU-wide payment mechanism for renewable energy.
• Green certificates valid throughout the EU via a standardized guarantee of origin process.
• A common offshore wind energy policy.
• A permitting process template transposed from the EU into every municipality of the member states (or a least a nationally-applicable policy).

Now for a dose of reality:  The UK, Italy, and Sweden all have their own certificate programs for the time being, making an EU-wide policy a distant idea that will need a long transition period.  This postpones the possibility of a single payment mechanism as well.  As an indication of the 'unified policy' momentum, new member states have just recently split themselves among feed-in tariff systems, and quota models - showing a lack of coordination.  Permitting-wise, it is still hard to conceive of a unified international procedure that encompasses coordination across environmental, energy, transport, and industry policies for onshore projects, let alone offshore.   

Good show from the lobbyists - we'll keep waiting for Santa.  The objectives are the right ones, but the business models still need to deal with the highly localized market as is for the time being.   

Wind Shift in Power - Global Competition

This Business Week article doesn't quite dig deep enough for me as it tries to tackle the intriguing topic of global wind turbine supplier competition.

Going beyond Krogsgaard of BTM's comments, it is important to note the component supply challenges to turbine manufacturers.  Bottlenecks for key parts such as gearboxes and hub castings, because of boom-and-bust demand in markets like the US, challenge players to deliver globally.  This is a key underlying reason for Vestas's focus on profitability, its balking at the plant in Oregon, and a lack of competitors to GE in the US.

It is also questionable to say that top manufacturer turbines are "very similar".  GE still mainly relies on a turbine designed seven years ago, meanwhile there have been major advances in turbine efficiency that have helped drive windpower costs down significantly.

Sweden Wind, More than Current Oil Prices

Oil prices are just an eye-opener, but Sweden has been working on boosting wind for a while. Sweden's going to be a key market where alot of industry trends play out to the advantage of a larger, pan-European wind market.  You've got expanding utilities looking to build wind portfolios in a regional market with high offshore potential.  This is also happening in the UK and Germany.  The Nordic competition among E.ON, Vattenfall, DONG/Elsam/Energi E2, and Statkraft is an important example of experienced players looking to build scale in the greater Nordpool market. I wouldn't expect Sweden to put up big numbers in terms of MW installed until later in the decade when permitting gets sorted out - but it will be an important growth motor when that happens.    

Renewables for US Utilities - Wind and Biomass

Here's a decent broad look at renewables in the US that takes into account most of the key risks and opportunities for utility strategies.  Utilities are going to have to deal with renewables one way or another.  Like any industry, you have your early adopters and your laggards.   

The author loses some of his objectivity by making the case more for biomass than wind. I say, the more biomass the better.  However he sweeps a bit under the rug the lack of integrated energy/agricultural policy, the fuel idiosynchracies of biomass that complicate creating a template project replicated for scale, and the competitiveness of that fuel.  These are issues that do not dog wind energy.  Though it does have its own set of challenges in terms of grid compatibility and permitting, it is still, for now, the most scalable, fastest-growing, cost competitive  renewable solution around.  Now if we could get turbine prices to stabilize, and wind forecasting further along, it'll be even more evident.

Validating UK Wind with Good Hard Facts

This government study proves UK's wind resource is reliable and complementary to demand peaks over 34 years.  Building in the UK will continue to spark intense debate, while in the meantime the country will fall short of its Renewable Obligation due to the nature of its quota model and its struggles to permit projects and connect them to a congested grid.  But at least the facts are getting out there.