Future Energy

Who Wouldn't Want Wind Power?

                        

                         Source: Wash. Dept. of Fish & Wildlife

The New York Times has filed an interesting story on wind energy development under an usual heading.  In Sunday's Travel Section, writer Janna Kikissis looks at the concerns facing wind power turbines and wind power development in some of Europe's most popular tourist destinations (see Debating the Merits of Energy From the Air, NYTimes, November 25th, 2007).  Quoting the mayor of one Greek island that may be on the receiving end of a new wind farm:

"... when a mining and energy company floated a plan earlier this year to build 87 industrial wind turbines on more than a third of the island, the Serifos major, Angeliki Synodinou called it her "worst nightmare"."

Ms. Kikissis highlights an issue that faces anyone wanting to construct energy facilities almost everywhere in the world today.  At least some of the same concerns were expressed by British Columbia NGO's looking at that province's hydro power development plans (see previous post, Sustainable Hydro Power (or Not), November 19th, 2007).  And ask anyone trying to drill oil or gas well in the western half of North America about their experiences with local landowners and the permitting processes in this regard.

While many will dismiss the concerns as rampant NIMBY'ism, in most cases those whose backyards are being dug up have legitimate fears about how energy facilities that benefit all of us will impact their lives.

Smart renewable power developers are wise to pay attention to these concerns and to work closely with their neignbours to address them.  Smart governments will ensure that regulatory approval processes are in place to ensure landowners and other stakeholders can be heard in a fair, transparent forum.

Anything less will make the energy transition we are just staring far more painful than it might otherwise need be.

Wind - A European Goldrush?

                                    

High Valuations for European Wind Power Generators

Iberdrola (MCE: IBE) announced yesterday the price range for its IPO of its renewable electricity generation assets, scheduled for December 13^th.  The Wall Street Journal (among others) reported that Iberdrola had established a price of € 22.4 to 29.6 billion, with the final price to be announced December 11^th (see Show Me The Money, WSJ Online, November 20, 2007).  Once spun off, the new company, to be called Iberdrola Renovables (Spanish for renewables), will become the world’s largest renewable power company.

Iberdrola’s renewables business achieved revenues of € 695.6 million in 2006.  Assuming the assets to be spun off match those in the current Renewables business, the announced price would establish a value for the new company that was approximately 32 times 2006 earnings.  At this level, the Wall Street Journal comments that the new company, which accounts for less than 1% of U.S. electricity generation, would be worth more than such utilities as Duke Energy or the FPL Group.

Iberdrola isn’t the only utility to see gold when it looks at renewable energy.  Earlier this month, the Europe’s Suez Group (EPA: SZE) outbid 30 other groups for the right to purchase 50% of the wind power company Compagnie du Vent (see High Winds Make Some Energy Investors Giddy, Financial Times, November 13^th, 2007). 

When first announced, it was reported that Suez had offered to pay about € 325 million, placing a value of € 750 million on the company, or 65 times its 2006 revenues (€ 11.3 million) (see High Winds Make Some Energy Investors Giddy, Financial Times, November 13th, 2007).  A more recent report indicated that the final agreed price was € 321 million for 50.1% of the company, still a hefty 57 times 2006 earnings (see Suez Acquires Majority Stake in Compagnie du Vent, Energy Business Review, November 19^th, 2007).

Valuations like these suggest there is more than a bit of froth in the market for wind power assets in Europe and I’m sure there are some that are wishing it would cross the water to affect North American wind power generators.  For example, applied to Canadian Hydro Developers (TSX: KHD), an independent wind power developer and operator, 30 times 2006 revenues would almost double its current share price to $12.09 (currently $6.20).  They can but dream.

Developing US Wind Power

4,000 MW's of U.S. Wind Power in 2007

Yesterday in the Energy Roundup, a Wall Street Journal blog that reviews energy news from the WSJ and other media, Keith Johnson provided two posts looking at the pace of wind energy development in the U.S.

Ask a Wind-Power Lawyer, is an interview with Benjamin Israeli, head of the renewable energy group at Bracewell & Giuliani in Washington.  Mr. Israeli has an optimistic outlook for the U.S. wind energy sector over the coming five years, pointing to three key factors, including:

·         The current shortage of turbine components, which he sees primarily affecting the smaller project developers;

·         Potential expiry of the federal Production Tax Credit (PTC) at the end of 2008;

·         Growing influence of state regulations, particularly state renewable energy standards (renewable portfolio standards or RPS).

Blowing in the Wind gives a brief look at the pace of U.S. wind power development.  American Wind Energy Association (AWEA) data indicates that 2,300 megawatts of wind generating capacity were added through September this year and a total of up to 4,000 megawatts could be added by year-end as developers rush to get wind farms installed before the PTC expires at the end of 2008. 

While this expansion comes on top of 2,454 megawatts added in 2006, Mr. Johnson notes that wind power still only amounts to 0.7% of U.S. electrical generating capacity. 

Overall, the two posts suggest a rapidly expanding industry sector that still suffers from a boom and bust cycle based on the U.S. federal government’s failure to put in place a predictable, long-term incentive package for wind energy. 

Interestingly, the posts also paint a picture of the industry structure shifting in favour of a smaller number of large project developer/operators, at least partly in response to project development difficulties and the turbine supply issues noted above.

Leading wind power developers cited by Mr. Johnson include John Deere Wind, a division of John Deere (NYSE: DE), FPL Energy, a division of the FPL Group (NYSE: FPL), enXco (a division of Électricité de France) and PPM Energy, a division of Iberdrola S.A. (MCE: IBE).

Reinforcing the need for predictable, long-term policies, is a post by Carl Levesque in Renewable Energy Access (see Industry Leaders Explore 20% Wind Penetration Scenario, November 7^th, 2007).  Writing about the AWEA’s soon-to-be-released vision for a 20% penetration of the U.S. electrical generating market by 2030, Mr. Levesque quotes the Association’s Policy Director, Rob Gramlich, in saying that this vision would require deployment of up to 16,000 megawatts of wind power per year.  (All of a sudden a record breaking addition of 4,000 megawatts doesn’t look like so much.) 

While a number of changes including improved transmission infrastructure and siting policies are noted, it’s clear that this vision is based on the presumption of stable, long-term policy (i.e. incentives). 

Whatever else may be said about wind energy and renewable power development today, favourable government policy and incentives remain the bedrock on which this sector is being built.  With $100 dollar oil, climate change, air quality concerns and energy security needs it’s hard to imagine governments turning away from such support.  However, stranger things have happened, and with current wrangling over a U.S. energy bill, not out of the question. 

Overall, in the transition to a sustainable energy system, how government policies and incentives are provided (i.e. are they predictable and long-term relative to project development cycles?) may well prove as critical as what is provided.  Time will tell whether that is a lesson governments can act on.