What Up with Wind?

There is a funk underway in the wind energy segment of the market.  Some analysts blame the recession others say private equity sees better opportunities in solar energy since consolidation in the wind sector has given the big players more control over the wind business.

The American Wind Energy Association said in an April 29, 2010 press release that while the industry had installed more than 10,000MW of wind projects in 2009 only 530 MW had been installed in the first quarter of 2010.[1] Separately industry analysts say wind installations could be down to about 7,000 MW in 2010.

In a press statement and then again in its earnings conference call with analysts FPL Group said its Next Era Resources unit would reduce its own wind projects for 2010 by as much as 40% due to low electricity prices and the uncertainties in the market caused by the failure of climate change legislation[2].   FPL told analysts it would shift investment into its regulated utility for awhile until the market for new merchant projects improved.[3]

But that did not stop Next Era from striking a deal with Google announced May 3rd for two wind farm projects in North Dakota that can generate 169.5 MW.  Google was crowing about this $38.8 million investment as a way” to accelerate the deployment of renewable energy — in a way that makes good business sense, too.”[4] Maybe Google just didn’t “google” FPL to hear its latest thinking on why the wind energy business is slowing down.  Or maybe it got a ‘buyers market deal’ for its projects in North Dakota.

Why is Wind not Blowing Harder?

Consolidation and Wind Sector Maturity. As the first renewable energy technologies to go mainstream wind is ahead of the rest in its evolution.  Consolidation has replaced the frenzied wildcatters with major players with deep pockets who see wind as a business not a passion.  GE, FPL and others invest capital where it can make the best return. They cherry pick acquisitions and harvest projects to keep their portfolio vibrant and profitable. This is not necessarily bad news for the wind sector but rather a sign of maturity and reality.  Mainstream resources are expected to perform.  Subsidies and investment tax credits help but are not sufficient for mainstream resources—or investors.

Recession and Slow Recovery of Demand. There are also several tactical reasons for this fall off in wind projects including the impact of the recession and with it reduced power demand, lack of attractive access to capital, and lack of new interest from utilities.  As the recovery takes hold these recession-driven factors will fade which is essentially FPL’s message to its shareholders—be patient and we’ll focus on growth in the regulated business until the unregulated markets come back.

State RPS Targets are Nearing Goal Achievement. Ironically, many utilities in states with RPS requirements are nearing compliance levels and wind has captured a large share of the RPS portfolio.  Some states like California are pushing the goal higher for renewable energy, but doing so risks ratepayer revolts as the costs pancake on top of other cost drivers like smart grid.

Other states and utilities are taking a wait-and-see attitude before signing additional wind purchase power agreements and using the changing market conditions to step up their own utility-owned renewable energy projects.  Let’s face it, this is a great time for utilities to boost their future earnings potential by investing their own capital in renewable energy and other power supply projects if regulators will permit it.

The utility must show that doing so is a better deal for ratepayers than the cost and risk of relying on riskier merchant projects.  This is a tough sell but not impossible.  There is also a positioning dance at work for some utilities and regulators who see investment in cleaner supply sources now in the early build-up stage of the power business cycle as prudent especially if it enables a phase out older, dirtier, less efficient plants especially coal plants.

NIMBY, Radar and Other Issues Still Slow Things Down. For wind and other mainstream resources the NIMBY factors are still alive and well even in recession and recovery.  Ambitious new wind development projects that require expensive and time consuming transmission investment to get the power to market are still hard.

Even US DOE which is charged by Congress with advancing the market potential of renewable energy took months beyond its September 2009 statutory deadline to release its 2009 Congestion Study and comments are not due until the end of June 2010.  This snails pace does not suggest that getting transmission access for renewable energy is a high priority to the Administration.

By some estimates, as much as 10,000 MW of wind projects are currently being held up by U.S. Government agencies because of concerns about how the turbines could interfere with military and civilian radar.  General Wesley Clark speaking at a recent conference called Creating Climate Wealth responded to these frustrations urging both wind and solar developers to hire K Street lobbyists to improve their success rate on Capitol Hill.[5] Guess what business the General is now in since that global warming thing isn’t working out so well.

In short, what’s up with wind is a rude welcome to the real world where stuff happens to nice guys and good projects—even wind.

So what?

  • Wind has been the dominant force in the renewable energy space because of its early success and faster path toward grid parity prices.  But as wind became a mainstream resources it has encountered hurdles that are slowing its growth rate.  Some of these are temporary but meanwhile, solar market momentum is accelerating and its costs are coming down making it more of a competitive threat.
  • Down markets always accelerate consolidation in the sector weeding out weak players and improving market conditions for the survivors.  Other factors in this downturn include lower natural gas prices, lack of transmission access and the growing interest in solar including the solar carve-outs.  This too shall pass and analysts expect to see a rebound in wind in 2011, at least better than expected 2010 levels, as wind developers seek to take advantage of expiring US Treasury financing support and weaker demand provides bargains in turbine prices. But in 2010 solar is going to be the installed capacity winner.

AWEA used the event to again call for a national renewable portfolio standard, but that seems unlikely at least in this election year.  The cold hard truth for both wind and solar is that both are going to have to learn to live and prosper at grid parity prices without subsidies if they are going to be sustainable.  Whining to Congress and hiring lobbyists may delay the day that reality hits home but it’s coming.

NOTE:  This posting was updated and revised May 4th to include the Google announcement of its first wind energy investment as cited above and further discussion of the FPL analysts’ call.


[1] http://www.renewablesbiz.com/article/10/04/us-wind-energy-industry-installs-530-mw-q1

[2] http://www.bloomberg.com/apps/news?pid=20601072&sid=a75cjccfVlNg

[3] http://seekingalpha.com/article/201327-fpl-group-posts-solid-q1-results

[4] http://googleblog.blogspot.com/2010/05/not-merely-tilting-at-windmills.html

[5] http://www.greentechmedia.com/articles/read/what-ails-solar-and-wind-not-enough-lobbyists/

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s