NEW YORK Nov. 6, 2006

The answer, as far as U.S. energy needs are concerned, may indeed be blowin' in the wind. At the Standard & Poor's 2006 Project Finance Hot Topic Conference, held in New York on Nov. 2, renewable energy projects were among the projects generating the most interest among the investors and issuers in attendance.

The combination of high gas and oil prices, federal tax credits, technological advances, and the push by the states to boost electricity output from alternative sources have created a tailwind for new wind-powered generation plants. "The outlook is good for these facilities," said Terry A. Pratt, project finance analyst at Standard & Poor's. "There are risks for investors but these projects have become big in the past five years as natural gas and oil prices have risen."

The interest in these alternative projects comes at a time when some of the dynamics of project finance are changing rapidly. Once used mainly as a mechanism for power plants, project finance is quickly spreading into other sectors. Large private equity groups have become major players, and that includes not only independent groups, but also the private equity arms of Wall Street houses such as Credit Suisse and Goldman Sachs.

And investors now change their investment focus with lightning speed. Less than a year ago, for instance, ethanol production facilities were hot. Now, with fears of an oversupply in the next two years, interest in ethanol, a corn-based additive used to stretch gasoline supplies, has cooled dramatically. Ethanol's lifethread is a federal subsidy that's available until 2010. But the government's minimum ethanol use through 2012, laid out in the Energy Policy Act of 2005, will cost taxpayers $21 billion--a price which might eventually prove to be politically untenable. "Politics and renewable energy go together," said Mr. Pratt. "But not always for the better." So now, wind is the hot thing in the renewable energy resource arena.

Wind farms have been attracting investments in record amounts. The industry estimates that in the U.S., $3.3 billion will flow into these facilities in 2006. At year-end, total installed capacity will be nearly 12,000 MW, or roughly three times the level only five years ago. Moreover, the investment in new wind power next year is expected to top the 2006 numbers.

There is no assurance, however, that the boom will continue into 2008. The federal tax credits that have supported much of the industry's recent growth expire in 2007. Those tax credits have made it far less expensive to build wind generation that it would be otherwise. "The federal tax credits can account for as much as 30% to 50% of capital costs," said Mr. Pratt.

It seems likely, however, that wind power will continue to receive support form the states. Twenty-two states and the District of Columbia currently mandate that renewable resources generate some portion of the electricity sold within their borders. Many of these states also provide builders with renewable energy credits, another source of cash that is a strength for these issuers.

Although Standard & Poor's foresees increasing interest in wind-generated electricity, there are risks involved in the financing of these projects. Not only can the wind die down, of course, reducing the output that can be sold, but there are also operational risks--which Standard & Poor's measures by undertaking stress modeling--construction risks, the uncertainty of using unproven technologies, and counterparty credit risk.

Standard & Poor's currently rates five wind power projects and two related holding companies. All five projects--which are actually portfolios of wind projects--have stable outlooks and carry investment-grade ratings of 'BBB-'or 'BBB'. The portfolio approach, says Mr. Pratt, gives these projects a lot of diversity to help reduce the risk inherent in wind variability and wind turbine technology.