Wind power developments
Not enough turbines to go round1 October 2006
The US wind market is enjoying record installation levels fuelled by a swell of private equity from new investors. Yet a shortage of turbines and higher prices are threatening returns, and NIMBY activism remains an issue in certain markets. Details in this report from the American Wind Energy Association (AWEA) conference in Pittsburgh this past June.
How things change in a year. The delegate clamour at the 2005 AWEA conference debated uncertainty over the on-again/off-again production tax credit so important to the US wind industry.
A year later that discussion was merely a footnote. Of greater concern at the 2006 AWEA conference was the robust market and shortage of turbines that is changing the very structure of how the business is being done.
Meanwhile, the industry appears to be setting a record installation pace to exceed 3000 MW in 2006, an increase of 25% over 2005’s record installation of 2400 MW… and the numbers just keep on getting bigger. Wind is now the second-largest source of new power generation in the USA, second only to new natural gas plants. Installed capacity of wind in the USA, according to AWEA, saves an estimated half billion cubic feet of natural gas per day, or roughly five percent of natural gas use for power generation.
A growing market
The growing and future importance of wind has already been highlighted by president George Bush who noted that wind energy could contribute up to 20% of the US electricity supply, nearly equivalent to the share of power generated by nuclear in the country. AWEA anticipates that by 2020 wind will generate 100 GW of capacity – more than fifteen times total installed capacity in the US at the end of 2004.
Responding to questions about US government policy for support of a long-term wind policy that alleviates manufacturer and developer concerns about the past on-again/off-again production tax credits, Alexander Karsner, Assistant Secretary for Energy Efficiency and Renewable Energy, US DoE, said that government wants to “help the scrum move forward”. Referring to Bush, Karsner said he is a leader who is willing to make current policy, which is good, become a long-term stable policy that helps the industry thrive.
“The government is going to encourage this dialogue. More renewable wind means less pressure on natural gas” Karsner added. “Wind makes sense just from a diversity point of view. Consumers do benefit from improvements to the national infrastructure, and we can use wind to improve the national infrastructure.”
Positive investor response
Investors seem to be responding. Alan Waxman, (managing director, Goldman Sachs) for example, said at the AWEA Conference that his company has already committed over $1 billion in the renewable industry. “We expect this to grow exponentially. We apply the same requirements for risk-adjusted returns for wind as we do elsewhere when investing capital. We believe this country will be increasingly committed to a renewable portfolio and we are creating strategic partnerships. Wind is the most scalable of all the renewable technologies.”
Michael O’Sullivan, senior vice president of FPL Energy LLC, echoed those sentiments, adding that by the end of next year his company will have invested over $5 billion in renewable energy. “We are thrilled others are here, it is a growing sand-box. We are in wind because it is good for our shareholders and it is good public policy,” he said. “Also it is a global business, and a core business for us. We are in wind for a long time. We have a vested interested in the success of all the players in the room.”
FPL expects its wind portfolio to exceed 4000 MW by the end of 2006, representing an investment of nearly $4 billion. The company, through its subsidiaries, already has 47 wind projects in operation in 15 states. The company anticipates that 760 MW of new wind projects will come online in the current year, bringing an anticipated new build of 1250 to 1500 MW over the course of 2006/2007.
FPL remains the largest owner of wind energy facilities in the U.S. maintaining a wide margin over PPM Energy which owns more than 500 MW, and several firms – MidAmerican Energy, Caithness Energy, Edison Mission Group and Shell Wind Energy – with installed capacities ranging from 360 to 315 MW.
According to AWEA, 2005 witnessed a shift among the largest utility customers for wind. Xcel, with operations in Minnesota, Colorado and Texas, was purchasing 1048 MW of wind power output at the end of last year, displacing Southern California Edison which purchases the output from 1021 MW of wind power, as the largest wholesale wind purchaser.
GE Energy continues to dominate among the manufacturers with 1433 MW installed in 2005, followed by Vestas with 700 MW, Mitsubishi with 190, and Suzlon and Gamesa with 55 and 50 MW respectively. According to GE, sales of its turbines for 2006 and 2007 are sold out, and with orders for 2008 – a year presently not covered by the production tax credits – filling up rapidly. One indication of the “bullishness” of the market can be seen in GE’s signing of a $500 million 334 turbine order for its 1.5 MW turbines with Irish developer Airtricity, units destined for the US in 2008.
Recently formed Clipper Windpower, which has a pipeline of wind energy projects in New York, Texas and South Dakota with an anticipated total generating capacity of 2015 MW, has formed a strategic alliance with BP Alternative Energy. The long-term turbine supply agreement with BP provides a mix of firm and contingent orders of up to 2250 MW of additional Clipper turbines in its global wind portfolio.
As part of the agreement, BP Alternative Energy will purchase 100 MW of Clipper’s Liberty turbines in 2007 and 200 MW in 2008, which it will use on other projects in BP's global wind business. These orders represent the initial deliveries under the long-term supply agreement for up to 900 Liberty turbines over the next five years. According to Clipper Windpower CEO, James Dehlsen, the alliance provides both Clipper and BP an unparalleled opportunity to capture a major foothold in the US wind energy market.
Challenges for the industry
There are some issues for the industry, however, not the least of which are higher turbine prices, and in some states, primarily in the northeast, NIMBY concerns. In some cases, turbine prices have increased by 50 % over the last few years, a development that is eroding returns for financiers and developers of projects.
And some developers appear bogged down, or wrestling with local opposition, in Maryland, New York and Massachusetts. One developer at the conference stated that it is dangerous to develop a project “within a 100 miles of a Starbucks” referring to the upscale coffee shops that are sprouting all over urban and trendy towns throughout the US.
The proposed location of the 435 MW, 130-turbine, offshore Cape Wind project in Nantucket Sound, a summer playground of the east coast establishment in Massachusetts, is certainly within 100 miles of a Starbucks, and the controversial project has become a lightning rod for NIMBY activism. In a process that began in 2001, it is being reviewed by 17 Federal and State agencies, though the developer is reportedly confident that the project will clear regulatory review after negotiating several obstacles in Washington.
Proponents point to the project’s ability to power 75 % of Cape Cod, Martha's Vineyard and Nantucket. At its peak, the wind farm could generate more than 400 MW while saving millions in energy costs and fossil fuels. Opponents argue that the 247-foot-tall turbines would disrupt tourism and threaten wildlife.
For the time being, Goldman Sach’s Waxman said his company prefers to focus on the onshore opportunities. “Given the available onshore resource, and a variety of logistical issues, we are not a big believer in offshore wind,” he said. “Over time when there is a market saturation onshore, then we will look offshore. We are at one percent onshore capacity: once the onshore capacity is depleted, then the opportunities may warrant further interest.”