Wind Power Finance and Investment Summit, Feb. 7, 2008, San Diego, Calif.
Session: Independent Wind Developers' Perspectives on Wind Financing and Development Moderator:Lee Goodwin, Partner and Co-Chair, Energy, Utility and Infrastructure, Thelen Reid Brown Raysman & Steiner LLP
Panelists: John Calaway, Chief Development Officer, Wind North America, Babcock & Brown
Doug Carter, Vice President of Development, Invenergy
Craig Mataczynski, President, Renewable Energy Systems
Jan Paulin, President and CEO, Padoma Wind Power, LLC/an NRG Energy, Inc. company
Niels Rydder, Chairman and CEO, Oak Creek Energy Systems, Inc.
Florian Zerhusen, Managing Director, Windkraft Nord USA, Inc.
The U.S. has 200,000 MWs of potential wind energy. Within ten years we will reach 100,000 MW of development "as long as there are adequate policies in place". The industry is consolidating at light speed. Major capital risk is being spread out over large portfolios. It is all about the economies of scale. The dominant players will be the bigger guys. Transition to utility ownership is just starting.
As the technology advances and taller turbines become available sites in Ohio and Indiana will become more desirable. No breakthroughs in technology are anticipated, just incremental advances.
Up until now the industry has done everything by tax incentives. How do we think long term? We copy the Spanish model and price in external costs of burning coal to make wind look better. We need both an RPS and a PTC.
One panelist said that they have established minimum setbacks; they want to be a long-term owner on good terms with their communities. They will not 'flip' their projects (like some he could mention). They advocate responsible development. He advises not to try to put too many turbines in a project at the expense of neighbors.
More states are developing guidelines for wildlife protection.
Is the FAA another hump to overcome? "One guy out of Pennsylvania is now in charge of all the work with turbines at the FAA. He is reasonable and easy to work with." The Department of Defense is another story.
An audience member asked whether turbines built in waterfowl flyways were causing fatalities. A panelist answered saying that, "it was not a problem in Iowa because waterfowl are daytime flyers and they don't get into trouble." "A few nocturnal migrants will get clipped." As towers get higher this could become a problem.
Another question from the audience was if the oil industry felt threatened by the wind industry. There was a murmur of laughter and apparently the answer was "no". A panelist said that real estate agents and well heeled neighbors were a bigger problem.
Another question, "was the uncertainty of the PTC affecting business?" The answer, "It affects my sleep more than the business, we need some other value driver or we will be looking for work. We will start loosing qualified people if we don't see some change soon. People will move to other industries."
A panelist said that the PTC was "getting old" and another questioned "the prudence of continuing with a one trick pony". Cap and trade, carbon tax, federal RPS, being able to trade across state lines were all mentioned as ways to get away from the PTC. The problem is "all or nothing".
On the financial side, new players are now bound by the bottom line of quarterly reports not the long-term view. The risk is now on the balance sheet. Equity must now sponsor the risk not turbine manufacturers. Turbines for 2011 must be ordered now with a capital outlay, while projects may not be firmly set.
Florian Zerhusen said that his company has determined it isn't feasible to propose projects east of the Mississippi River. In reference to all the talk about getting beyond the PTC, he said that the industry must put their costs on consumers; they must pay to make wind projects work. He pointed to the fact that in Italy wind receives 12 cents per KW. He said that state RPSs are driving the market at the moment.
The cost of raw materials (copper, steel, transformers etc.) for turbines has increased substantially.
Transportation is now 10% to 15% of the total cost of a project.
Oklahoma is building a turbine manufacturing facility. No one wants to invest in manufacturing because of the uncertainty of the industry.
"Wind will never become competitive unless it is recognized that coal has other costs -- it's not possible."
Turbine warranties have been cut because it is a sellers' market. "We can only hope that there will not be massive failures as in the past." Machines are new and have not been tested in the field. Will they perform for twenty years? Most warranties are for two to five years.
Manufacturers are walking off site sooner and sooner. No one knows how much maintenance will cost over twenty years. Consumers must assume these risks.
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