Wind's Clip

Wind's Clip

January 14, 2009

Ken Silverstein
EnergyBiz Insider
Editor-in-Chief

Despite the economic downturn, wind energy has the potential to grow at quite a clip. To do so, though, the in-coming Obama administration must commit to a policy foundation that will allow such expansion to occur.

That's the position of E.ON Climate & Renewables North America's chief executive, who says that the German-based conglomerate that he represents is committed to increasing its wind base around the world and specifically in the United States. Because of its size -- $100 billion in annual revenues and 67,000 megawatts of total generation capacity -- E.ON has the wherewithal to advance the industry, even when times are bad.

"There is uncertainty for any business right now," says Declan Flanagan, CEO of E.ON's North American offices. "All companies are proceeding with a large degree of caution. That said, we continue to move forward with our business plan. We are able to continue on course because of the financial strength of E.ON. We continue to execute our business plan," he adds, noting that in the coming weeks, the company will extend its U.S. base of wind generating assets to 1,000 megawatts.

According to the American Wind Energy Association, this country has, as of year-end 2007, an installed wind capacity of about 17,000 megawatts. Worldwide that number is roughly 94,000 megawatts. In 2007 the U.S. sector grew by more than 45 percent and attracted $9 billion in capital -- the third year in a row of such record-breaking growth.

While wind power now provides about one percent of the country's electricity mix, a study performed by the U.S. Department of Energy in conjunction with private industry says that wind alone could top 20 percent of the nation's generation portfolio by 2030. That would have the effect of creating 500,000 jobs and more than $400 billion in economic benefits. It would also reduce greenhouse emissions and other pollution by 25 percent than otherwise.

But what is holding back the industry? Skeptics will argue that wind will always have a small place because of its natural limitations -- the wind does not blow on demand. But those in the wind business say that the tenuous policies of previous presidents and the reluctance of Congress to extend for long periods the production tax credit given to wind producers creates too much uncertainty. Those same advocates say that a national renewable portfolio standard is needed to spur things along.

"If things remain as is, the industry will oscillate between 4,000 and 8,000 megawatts of added capacity a year in the United States," says Flanagan. "With a clearer policy, this industry will continue on this trajectory. That seems unlikely because of the credit crunch. However, with a clearer national energy policy and a renewable portfolio standard, that could be overcome. That growth could then become 10,000-15,000 of additional wind capacity each year."

Substantial Players

According to Flanagan, a handful of "substantial players" will always comprise the biggest roles in the wind sector both in the United States and abroad. The simple reality is that the business requires massive financial resources and at least a 25-year dedication to each project. Smaller companies can develop products and projects and then sell them to the big guys. But it would be difficult for them to "build out" beyond that -- even in a world where debt markets function normally.

Foreign conglomerates are the most active with Denmark's Vestas, Spain's Iberdrola and Portugal's Energias leading the charge. E.ON, which is the world's seventh biggest producer of wind power, has in this country only a capital expenditure budget of $1.2 billion for both 2008 and 2009. Its most recent deal involves a 15-year power purchase agreement with CPS Energy, the nation's largest municipally-owned energy company.

The company entered the North American market in October 2007 with the purchase of Airtricity's domestic business. At the time, it had 215 megawatts of operational wind power plants and 370 megawatts under construction in this part of the world. Since the acquisition, E.ON has completed those projects and started the construction of other facilities. E.ON says that it will also bring down its costs of production by growing its business volume.

The company's exuberance, however, is tempered by its stated recognition that wind will always be a supplemental energy form. Simply, wind is an intermittent natural resource and that back-up fossil fuel sources must still be made available. The industry, meantime, is working to extend the nation's transmission system from rural locations where wind is bountiful into densely populated urban regions. That's a difficult hurdle because like other power projects, permitting issues are still rigorous.

The good news is that wind turbines are getting better and cheaper while storage technologies to allow wind to be used during calm days are in the offing. Federal tax breaks and state mandates, furthermore, are offsetting some of the initial start-up costs.

"For a company like us, which is the largest investor-owned utility in the world, we are looking at this industry long term," says Flanagan. "Renewables need to become a significant part of the mix. We ultimately see 100,000 megawatts of installed capacity on the horizon in this country. We have done acquisitions but we see more opportunity in development. It is the bedrock of our approach and we have the will to do it."

Hard times are ahead for all industries. But in due course, the wind sector will emerge with a promising future. It's not just because President-elect Obama is committed to increasing its stock but also because the larger enterprises are vowing to pony up. Obstacles are ahead but the wind industry is determined, saying that it stands ready to meet tomorrow's energy challenges and to increase its market position.

More information is available from Energy Central:

Building Wind Manufacturing - Industry Gears Up, EnergyBiz, Nov/Dec 2008

Waning Tax Credits - Managing Renewable Energy Projects, EnergyBiz, July/Aug 2008

Renewables Are Doable - Fed Study Touts Wind, EnergyBiz, July/Aug 2008

The Future of Global Energy Emerges Out of the Box - Expect the Unexpected, EnergyBiz, May/June 2008