Windbiz

Mega Mergers Carry Wind

As we head over to the big wind show next week in Athens, Europe is rife with gossip over big utility mergers.  After hanging up the phone with a journalist yesterday who asked about the impact on wind of an Endesa takeover, I got to thinking about the big consolidation game going on now - and more importantly - does wind matter?

It does - but not how you might think.  Most of the big consolidating utilities (EDF, E.ON, Enel) attribute just a fraction of their generation capacity, usually less than 2%, to wind energy.  But it is wind energy that shows up on the cover of their annual report, the sustainability report, and it is wind energy that helps sell their green energy programs on the distribution side.  It is also a growth story - capacity added is growing at a 10-20% annual clip, such that over €12 billion in investments have been announced by major European utilities over the next four years for wind.

Wind is not the base load.  It is not a 1 GW generation plant, but a clean complement to the utility portfolio that is gradually getting bigger. Dismantling Endesa will deliver some 800 MW of wind plant to its buyer - which probably doesn't amount to much in the overall fuel mix. But beyond that, it delivers green credentials, emissions credits, and an improved environmental record.  In a market like Spain, the subsidized power incentives also make it a strong profit center.  This may be the bane of an old school power exec's business model - but wind power has arrived, and it's here to stay.   

   

Investors Tilt to Windmills? Keep them Fastened to the Ground

The New York Times published a story underlining major investment in renewables, particularly by GE, on the heels of the State of the Union Address.  The article offers a snapshot of which big money (GE Financial Services, Goldman Sachs, JP Morgan Chase) is going where (wind, solar, bioenergy).  Unfortunately it omitted some key points that ought to be highlighted:

• Despite Bush's call for more alternative energy, the US lacks a renewable energy incentive lasting more than 3 years.  As a result, the wind industry suffers from high regulatory risk, causing a boom and bust market that inhibits long term development and investor confidence. We're in a boom period now so this is easy to overlook.    
• The cost of wind energy has actually increased in the past two years due to a run on steel and other turbine subcomponents, contrary to the author's statement that "The costs of turbines have come down even as their reliability and efficiency have increased".
• There is a major shortage of turbines in the US, attributed to the lack of steady regulation to set up more manufacturing.  Turbine suppliers GE and Vestas, which dominate the market, have hiked prices 20-30% according to several developers. Manufacturers attribute this to a lack of materials for turbines. 
• The article says GE Financial Services "recently bought a wind farm in Germany and is installing new turbines there at a rapid pace".  The fact is GE did four deals in 2005 and several of these farms come with REpower, not GE wind turbines.  GE is quickly building up a wind project portfolio, though it is still taking some of its first steps.

GE's new organizational structure in renewables brings technology and finance closer together, which the author does point out.  Bringing this kind of focus and resources from a firm of GE's caliber is key for wind's development.  But the pretty photos in the article, the linkage to Bush's speech, and the PR boost to GE's renewables efforts overlooks some key challenges that will not go away quickly.  Please Ms. Deutsch writing for the New York Times, give me a ring next time.

Asia: Dutch Out, Spanish In

Recent European moves into Asia show a clear shift as the Spanish step up their profile.  In the past six months, a string of deals involving Endesa, Acciona Energía, and Gamesa show wind energy is a major export for Spain into the region.  In the meantime, Nuon has recently sold its Chinese wind operations to refocus on the Benelux region.  While all the big technology providers zero in on Asia from Denmark and Germany, succeeding as project  developers will certainly be a trickier business.      

Chipping Away at the Big Guys: Exploiting Shortages for Market Share

A year ago it was all Vestas, Gamesa, and Enercon for combined global turbine market share of over 70%.  Besides the steady flow of projects for Siemens and GE, the order flow in the past month is showing strong competition from upstarts like Suzlon, REpower, and Nordex extending their reach into Europe, the US, and Asia.  You're also seeing the emergence of guys like WinWinD, MTorres, and Clipper pitching new turbine designs to build the order book.  Contracts for these smaller players relieve the turbine shortage to some degree, however most expect continued supply chain bottlenecks.  Having a gearless turbine, pouring concrete towers, and doing blades in-house are some strategies up their sleeves.  2006 will prove who can capitalize on shortages for market share - and it isn't necessarily going to be the big guys.       

US, Germany, India, Spain, Portugal Top '05

Not much time to post lately while the year-end '05 figures roll in.  US came in a solid first with over 2, 400 MW, while Germany managed to keep its lead on Spain.  Germany turned in a nice rally at 1,800 MW considering the political uncertainty and shift of funding model, along with weak wind sites.  Spain was expected to slow a bit this year with a grid bottleneck, no surprise there.  Portugal saw a huge spurt of projects - with government sources claiming 500 MW. That is to say, half of Portugal's entire wind MW installed was activated in 2005.  While my specific predictions will lie here, I will say '06 country rankings will see continued shifts to South Europe behind the US, and on the whole things look pretty upbeat around Europe.

UPDATE

My bad, I neglected India's solid 1,430 MW according to GWEC, which makes them number three worldwide for MW added in 2005.  As I said before, India's regulatory model is spurring on sector growth to emerge as the clear star of the Asia-Pacific region.