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.   

   

Xcel-ing Wind: Show Us the Turbines

Xcel's announced it's adding another 775 MW of wind onto its Colorado system, to become the country's largest wind energy user.  To put this in perspective, my colleague just put out an excellent study of the North American market. Xcel has ramped up its wind purchasing big time to become second in the US over the past two years, behind Southern California Edison. 

But, despite the big wind announcement (actually outweighed by its 1,300 MW of CCGT capacity planned through 2012), Xcel has had to stall one of its own developments this year due to climbing turbine prices despite booming demand for its retail wind power offering.  The firm is heavily reliant on development partners like Invenergy, Cielo and Padoma to get that capacity up and running - do these guys all have turbines lined up?  Looks like Invenergy will come through in 2006 with 60 MW at least, though reaching 775 MW by 2007 will be challenging - as Xcel mentions with a heavy disclaimer at the end of the press release. 

Still, hats off to Xcel for putting wind at the center of its supply strategy next to gas, and reaping its value on the retail side.  These are the type of utility moves that fulfill state RPS quotas and keep up momentum for a long term PTC. 

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.

Endesa Snags Huaneng Wind CO2 Credits

This agreement puts Endesa in China buying CO2 credits, a far cry from their Southern Europe/Latin America traditional target space. But then again, global warming is, well, global.  The Spaniards making serious headway in China in the wind business include Gamesa and EHN/Ingetur, that are strategically focused on their core businesses.  Endesa launched a Climate Initiative in October inviting firms to present CO2 reduction projects.  It almost resembles a ploy to find investments - Endesa offers everything from offtake to development funding, while positioning it as an innovative offer to cover their emissions obligations.  Endesa would most likely prefer to own 195 MW of wind that will produce these CO2 credits, however establishing this relationship in China allows it to gain some experience there without going beyond its core market focus. Not a bad step - surely other Spanish utilities facing emissions liabilities will follow suit.   

Nuon Sells DESA

Nuon is clearly pulling up stakes in its international renewables portfolio. Apart from Spanish subsidiary DESA, the firm's developer arms in France and the UK are likely to be sold.  DESA is the jewel in the crown of Nuon's international wind strategy, bought in 2001 for €110 million from Abengoa, and now expected to fetch over €400 million from the likes of Iberdrola, Endesa, or AES.  DESA is one of few remaining acquisition targets left in Spain.  Is it a perfect buy? Not really. The firm has hundreds of legacy 300 kw turbines installed that would need to be ripped down, and then re-powered.  Its pipeline in Andalucía (500 MW +) is probably the most interesting - this region will do about 250 MW/year for the next 5 years or so. 

The Spanish wind market is now being reduced to 5 tier 1 players of 500 MW+: Iberdrola, Endesa, Enel Union Fenosa, CESA, and Acciona.  There is a tier 2 in there of 200-400 MW players including Molinos del Ebro, Gas Natural/DERSA, Energi E2, and NEO Energía (EDP+Hidrocantábrico). 

Now for some blatant speculation:  If DESA is acquired as an entry strategy by a foreign player, ie AES, they will have a tough time defending/improving their position beyond existing pipeline.  If Iberdrola gets DESA the market will remain status quo, more or less, with Iberdrola widening its leadership gap to over 2,000 MW as it remains the world's largest wind farm owner.  CESA, Acciona, and Enel UF could use DESA to their best advantage, filling a hole in their national footprint with Andalucía and tightening the competition among the top 5. 

Acciona looks like the top bidder to me, next to Iberdrola.  They almost spent over €400 million on Pacific Hydro in March and could put that money to good use here- the question is how much Andalucía and Spain is still a priority for them, weighed against their projects in the US and elsewhere.