Wind Investments Pick Up In Q2, US Prospects Brighter

Although long-term prospects remain strong, most people have expected this to be a slow year for the wind industry, with about 42 gigawatts (GW) projected worldwide versus the 46 GW installed last year.

There are many reasons: US policy uncertainty, European economic conditions and increasing competition from the solar energy sector, to name a few.

But the second quarter brought a breath of fresh air for the industry, according to two separate industry reports.

Investment Climate Improves

Exhibit A: Wind sector venture capital funding was up significantly in the second quarter, reaching $210 million, up from a scant $16 million in Q1 2013, reports Mercom Capital Group.

The biggest single deal was $135 million for ReNew Power, an Indian wind project developer. The money came from Goldman Sachs, which so far has invested $385 million in the company.

However, large-scale project funding was down in Q2. It amounted to $3.2 billion in 24 deals, compared to $6.2 billion in 29 deals in Q1. (See chart below.)

Wind Chart

But there were a significant number of project acquisitions during the quarter: 36 deals took place, bringing the total for the first half to 53. That compares with 72 for all of last year.

“The strong project acquisition activity shows how wind has evolved into a mature and mainstream energy source and an attractive investment for both private and public firms alike,” says Raj Prabhu, CEO of Mercom Capital.

Most of the acquirers were investment funds: Allianz Capital Partners acquired three projects, followed by Enel Green Power, John Laing and Lukerg Renew with two each.

The largest project acquisition by amount was in the US: PG&E’s $538 million buyout of Puget Sound Energy’s 267 megawatt (MW) Lower Snake River Phase II Wind Project.

Other significant deals are listed below. The seller’s name is listed in parentheses.

  • $305 million: Scottish and Southern Energy bought the 99 MW Dunmaglass Wind Project (Renewable Energy Systems)
  • $227 million: Palisade Investment Partners and Northleaf Capital Partners bought 75% of the 111 MW Waterloo Wind Project (EnergyAustralia)
  • $144 million: Romania’s Lukerg Renew bought the 70 MW Gebeleisis Wind Project (Vestas)
  • $133 million: SE, a Danish energy company, and Denmark’s Pension Fund Administrator bought 196 MW in Danish onshore wind assets (Dong Energy)

US Utilities Sign Up For Wind

This robust project acquisition deal stream reported by Mercom dovetails with a trend noted by the American Wind Energy Association (AWEA) in its second-quarter market report: Extremely competitive prices are driving utilities to seek more wind generation capacity for their portfolios than previously expected. In Michigan, the cost for wind is a third less than from a new coal plant, for example. 

But in terms of new wind projects coming online, this year is extremely weak – just 1.6 MW has been commissioned and none during the second quarter.

That will soon change with more than 20 requests for proposals (RFPs) issued, says AWEA. About 1.3 GW are under construction and more than 3.6 GW of power purchase agreements have been secured. 

The reason for all that activity? It makes economic sense for utilities looking to diversify their generation resources.

The price per megawatt-hour of energy generated at wind facilities will be less than the per-megawatt-hour price of most of the company’s natural gas-fueled generation facilities, notes Riley Hill, president and CEO of Southwestern Public Service Company, an Xcel Energy company.

Over the 20-year terms of these PPAs, that could save Xcel Energy $590.4 million in fuel costs. 

"We started shopping for more wind energy in March after seeing some very good prices on the market," says Hill. "We are making these acquisitions purely on economics and the savings we can deliver to our customers."

Arkansas Electric Cooperative Corp, which just signed a PPA with RES Americas for a 150 MW project in Oklahoma, and Xcel Energy’s Northern States Power, which is adding 600 MW, cite similar rationales for their wind investments.

"Wind prices are extremely competitive right now, offering lower costs than other possible resources, like natural gas plants," says David Sparby, CEO of Northern States Power. "These projects offer a great hedge against rising and often volatile fuel prices."

Wind farms benefitting from this activity are mostly located from North Dakota down through Texas, but projects in states including California, Michigan and New York are also benefiting, says AWEA.

“What we are seeing now,” says AWEA CEO Tom Kiernan, “is a testament to the willingness of utilities to sign long-term contracts for wind energy offered at competitive prices. But the late [production tax credit] extension caused serious harm, and we urgently need policy stability going forward for the American wind energy industry to reach its full potential.”

The pipeline for new projects dried up dramatically in 2012, as the industry waited to see whether or not Congress would extend the federal PTC for wind, geothermal and biofuels projects through 2013. The damage was felt across both developers and equipment manufacturers.

An extension came as part of the "fiscal cliff" deal early this year, but since wind projects typically have 18-24 month timelines, the impact of that decision is likely to be felt for a long time, especially if it isn’t renewed at the end of this year when it expires again. 

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