Windbiz

Credit Squeeze Bump in Road for Renewables

The recent credit crunch has sparked inquiry from several journalists on its impact concerning the renewables industry.  Evidently, it's frustrating working in the space to see financial engineering in an unrelated sector undermine confidence in renewables.  Analyzing the connection between unpaid subprime mortgages and project finance for a wind farm forces one to think more on macroeconomic terms and scrutinize the quality of creditors in wind energy.   

The positive side to this is that the underlying fundamentals of renewables investments - security of supply, emissions reduction, cost competitiveness - simply have not changed.  If anything, they've gotten more favorable as oil surpasses $100, gas supplies look geopolitically shaky, and more countries and states sign up for emissions reduction. We should be thinking of the key levers in renewables in terms of oil, gas, steel, silicon, and carbon prices rather than the knee-jerk project finance concerns from the banks. 

A key indicator of all this is European utilities' continued investment ramp-up in renewables.  Iberdrola, E.ON, RWE, EDP to name a few are all posting multi-billion CAPEX plans past 2010 with solidified pipelines in Europe and the US.  Yes, times are going to get tough for small players looking for project finance from sub-prime ravaged banks - but two to three years from now we'll be looking back at this as a bump in the road towards longer term, cleaner energy development.   

EWEC 06 - No Fuel, and No Turbines

The content of EWEA's 2006 wind conference program was a bit of a downer.  The Athens venue was agreeable, the house was packed, plenty of contact-making and deal-doing to be done.  But there was a damper on things because a) gearboxes are running excruciatingly short while demand is bursting and b) most of the turbine supplier CEOs didn't show up on the panel (Gamesa, GE, Siemens, Enercon all no-shows). 

There's a mixed optimism surrounding the industry with a potential storm brewing because there is no sign of a major component capacity ramp up, but at the same time the US and Asia Pacific markets put up record breaking numbers of MWs in 2005.  The worry is that if things aren't corrected now, the industry's ability to deliver will be wounded, and the technology's whole future will be discredited - making it difficult for already decreasing incentives to remain available while costs climb.  Then national energy policies will look to roll in more nukes, clean coal, more CCGT.  EWEA's marketing message for the conference was No Fuel.  But the word on the floor was No Turbines. 

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.

Financial Close Moves Brazilian Wind Forward

BNDES has given the nod to Iberdrola's 49.3 MW Rio do Fogo project up in Rio Grande do Norte, closing financing with 65% in loans, 35% in equity. The PROINFA plan was for 1,100 MW by 2006 - though in the end there will be 100 MW at the most.  One project may not be a big deal, however Brazil's enormous wind resource and future power demand cannot be overlooked.  Iberdrola's flagship project is key to open it up, and other utilities present may look to follow suit in the long term, project by project.

Ugly Side of Chinese Development

China's hunger for energy in the midst of its industrial boom has led the government to aggressively develop land for major hydro, thermal, and renewable energy projects.  While China can be applauded for taking steps to use cleaner energy, the ugly side to the development process should always be considered.  Recent 'negotiations' between villagers and the government over compensation for land use turned violent in Zhongshan, part of the industrial heartland Guangdong province (though - note - this was not directly linked to wind development). 

In the development business, stories of passing envelopes and unconventional lobbying methods are not uncommon.  But violent crackdowns of protests against land expropriation are symptomatic of a much larger political issue defining the development environment.  Just something to keep in mind if you're signing off on a power supply contract, or sitting in a well-lit new stadium in Beijing around 2008.          

UN: Plenty of Wind for Development

There's no substitute for site-specific met masts, but a resource study like this in 13 developing countries helps woo investors while putting together the other pieces of a project.  In terms of wind, the UN assembled data from satellites, balloons, met masts, and whatever else they could get their hands on.  The result is that the potential for wind energy is much higher than initially estimated (40,000 MW +), something we all probably suspected.  But that's always the rub in emerging markets - lots of potential, lots of questions about how to tap it.

Riding High - But Not a Smooth Ride

Conventional power media is picking up on the US wind energy story for '05.  While things look rosy in terms of price competitiveness and the rhythm of installations through '07, the industry is still facing key structural issues that I will continue to hammer away at: component shortages and policy instability. 

Right now there's a convenient convergence of spiking gas, PTC in force, and environmental consciousness that's driving demand.  For the wind industry to exploit this situation, it has had to weather years of a boom and bust market cycle and cheaper gas. US wind is riding high as it will lead the world this year, and probably next year, in MW added - but by no means is it a smooth ride.      

Big Boys Moving in on French Wind

So now Total and RWE are building a wind farm as part of France's tender allowing projects over 12 MW.  With Areva's acquisition of REpower, and EDF's looking more aggressive with a handful of projects this year, France is starting to shape up like a professional, more consolidated market.  As luck would have it, this is coinciding with the country's shift to zoning for wind projects in 2007. It's interesting that with all the chatter about bringing in more nuclear power around Europe, Europe's biggest nuclear country is quickly growing its wind market, at over 100% this year.   

US Wind - A Viable Hedge

A noble effort by mainstream press to briefly present the arguments for and against wind in the Pennsylvania context: energy cost transparency, emissions, increasing cost of turbines, intermittency, Gamesa job creation.

I might have added that it's not a question of either/or - wind is part of the solution, and sometimes it is/is not economically viable.  Also, wind need not be below the cost of gas or coal always - there is value in its constancy as a hedge vs. volatile fossil fuel prices.  No, it's not dispatchable, and needs back up, and that's where the complementarity comes in of hydro, gas, coal, nuclear, etc.  Wind is a discretionary form of power in that sense.  But it has also covered up to 30% of demand in Denmark and Spain on windy days - suggesting it can be an important, scalable option, particularly in markets that put a price on CO2 emissions.   

$30 Billion Renewables Market, Starring Wind and Solar

The hook of this new WorldWatch Institute study is that the renewables market was worth $30 billion of investment in 2004. This is a nice big round figure you don't see too often.  According to the study, wind is literally and figuratively blowing away other renewables in terms of MW added growth and investment, and falls a mere 13 GW behind mini-hydro as the world's largest source of renewable energy.  It's likely wind will surpass mini-hydro within 3 years, I'd say.  Interestingly, the NGO spin on the report compares the technologies by Developed/Undeveloped world MW installed.  Sadly, wind is still a rich country's technology  - only 9% of MW installed is located in the developing world.  China and India should help bump that number up significantly.  Developing countries have an opportunity to leapfrog from no power to clean power if energy policy is handled properly, and wind is a start.