Dec 9 - McClatchy-Tribune Business News Formerly Knight Ridder/Tribune Business News - Tom Fowler Houston Chronicle

The possible sale of Houston-based Horizon Wind Energy less than two years after it was purchased by Goldman Sachs reflects the booming outlook for the renewable energy business, industry observers say.

The investment bank bought Horizon, formerly known as Zilkha Renewable Energy, for an undisclosed sum in March 2005. Industry sources have said Goldman is now looking to sell the company and has sent information to potential buyers.

The companies declined comment.

At the time of the purchase, the wind company had interests in two operating projects in Oklahoma and Costa Rica and other projects in various stages of development.

Since then Horizon has moved forward on a number of projects, today having 1,300 megawatts of projects in operation and under construction in New York, Oklahoma, Texas, Illinois, Oregon and Minnesota.

The business environment for renewable power has also improved, as technology advancements continue to drive down the cost to generate power from the wind and as global demand for energy drives up the cost of competing energy sources.

Tax credit helps

Including a government tax credit, wind power costs about 4.6 cents per kilowatt hour to produce, or 6 cents without the credit, according to Platts Energy Advantage. Coal fired power costs about 4.2 cents per kilowatt to produce while natural gas fired power costs about 6.8 cents per kilowatt.

"The mindset of 'Sure, crude's at $50 now but don't worry, it will fall back to $20' has melted away," said John Berger, CEO of Houston's Standard Renewable Energy Group.

This has attracted some of the deepest pockets in the business to the renewable arena.

For example, GE Energy Financial Services, an arm of the giant GE Corp., has about $1.5 billion invested in renewables, 70 percent of that in wind.

Tim Howell, managing director of renewable energy for the group, said the company hopes to increase its renewable port- folio to $3 billion by the end of 2007.

"Renewables have seen pretty dramatic growth in recent years," Howell said.

Only about 1 percent of all U.S. power, or 10,400 megawatts, comes from wind. That's enough to power between 4 million and 9 million homes for a year.

Wind has been the second-largest source of new energy generation for two years in a row behind natural gas fired plants, said Christine Real de Azua with the American Wind Energy Association.

More than 2,400 megawatts of new wind power were built in 2005, another 2,700 megawatts will come online by the end of this year and some 3,000 megawatts are expected in 2007, Real de Azua said.

Texas has seen some of the heaviest wind development activity in the country. Just this year it passed California as the state with the most wind power generation, with 2,631 megawatts of capacity.

The Lone Star State is home to the largest single development in the world, the 735 megawatt Horse Hollow Wind Energy Center in Taylor and Nolan counties in West Texas, and hundreds of megawatts of new projects are expected to come online in the coming years.

The Legislature even decided to increase its renewable energy goals, from 2,880 megawatts by January 2009 to 5,880 megawatts by 2015. Texas also adopted a long-range goal of having 10 percent of the state's energy come from renewable sources by 2025.

Upside looks good

The upside for the business continues to look good, but just how good depends in large part on government policy and the ease with which wind farms can be linked to the power grid, Howell said.

Wind farms are generally built in remote parts of the county where the wind is strong but the population low, so stretching high-voltage transmission lines to bring that power to market can be costly and difficult.

The wind power business has also been the beneficiary of an $18 per megawatt-hour federal tax credit for many years, but Congress lets the credit expire on a regular basis, effectively putting a damper on pro- jects.

The credit is set to expire at the end of 2007, but there appears to be support for renewing it.

"There is actually bipartisan support for the credit," Real de Azua said.

The skyrocketing costs of building new wind turbines are also proving to be a barrier for the industry.

The high price of copper and steel used in the turbines, combined with stiff competition for workers to build facilities, has slowed projects in some cases.

"It's essentially impossible to get a turbine for 2007 unless someone cancels an existing order, and a 2008 turbine is scarce," Howell said. "For a product that only has a six-month construction cycle, that says supply is very tight."

Has business peaked?

The possible sale of Horizon could be seen by some as a sign that Goldman Sachs believes the renewable power business has peaked, but Berger said that may not be the case.

Wind power is a relatively mature business compared with other renewables, Berger said, but that doesn't mean it will only go down from here.

"Goldman could be looking to put more money in other renewables that are still developing, like biofuels," Berger said.

Even if Goldman were taking a negative outlook on wind power, there's no shortage of companies that hope to expand their U.S. wind assets.

Spain's Iberdrola, the world's largest wind power generator by capacity, is one that is looking to increase its U.S. footprint. It recently announced plans to buy Scottish Power, which owns wind assets in the U.S.

BP Alternative Energy and Shell WindEnergy, units of the two global energy giants, are also looking to grow here.

Smaller companies, such as Ireland's Airtricity, might also be drawn to at least some of Horizon's assets if Goldman considers selling parts of the business.

tom.fowler@chron.com