Investing Offshore in Onshore Wind

By Catherine Lacoursiere
March 29, 2006

Strong political support and subsidies are tipping the scales in favor of wind energy. Wind energy associations are reporting growth rates far in excess of earlier projections. The British Wind Energy Association (BWEA), in a report released this week, says it expects 6,000 megawatts of onshore wind to come online by 2010, meeting five percent of the island’s electricity needs and half of its 10 percent renewables target by 2010. The forecast doubles BWEA’s earlier projections. Globally, 11,789 MWs were installed in 2005, or $14 billion in wind generation equipment, up 43 percent from 2004, according to the Global Wind Energy Council (GWEC). A 50 percent increase is expected in 2006.

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The best barometer of wind growth, and investment potential, is a supportive regulatory regime. The American Wind Energy Association attributes its record installations in 2006, 2,500 MWs, to Congress’ extension of the wind energy production credit to 2007. The UK has seen a steady pickup in wind turbine sales since its enactment of a renewables obligation market mechanism in 2002. “Mass market wind, being the most economic and technologically advanced, moved the quickest and expanded the most,” says Chris Tomlinson, head of onshore wind with the British Wind Energy Association.

The market mechanism recognized as the most successful enabler of renewable energy projects is the standard offer contract. Standard offer contracts guaranty fixed tariffs for renewable energy fed into the electricity grid. Joyce McLean, director of environmental affairs for Toronto Hydro, says the standard offer contract and a community investment vehicle were key to the development of a 750kw turbine on Toronto’s high profile harbor front. In a presentation to British Columbia’s Sustainable Energy Association (BSEA) this week, Mclean points to the success of Germany’s renewable energy sector. Germany’s guarantee of fixed renewable tariffs for 20 years has been behind its boom in solar and wind installations.

More regions around the world, hoping to imitate Germany’s success, are implementing similar off-take agreements.

This week, the province of British Columbia has announced its intention to implement a standard offer contract. Mclean, who spent 10 years with Greenpeace, says she met with some resistance from Toronto’s staid business community when she introduced new tariff and wind project financing models. Similar to wind projects in Europe, the Toronto wind turbine was financed through a wind cooperative.

Without enabling policy in place, some of the regions of the world with the highest wind potential have failed to exploit it. The UK lagged many European countries in wind policy. However, BWEA’s Tomlinson says that the UK’s large wind resources will help it catch up with the rest of Europe. The UK has 40 percent of Europe’s wind energy resources, with 25 percent of that capacity in Scotland. “It’s a windy place.” The world has more than 70 terawatts of wind capacity to source, far in excess of its electricity demand. In the United States, North Dakota, Texas and Kansas are the windiest states. Texas, however, is leading the way with close to 2,000 MWs of wind energy installed, and is quickly gaining on California in wind installations. The Lone Star state has some of the most progressive renewable energy subsidies in the nation, attracting FPL Energy, a subsidiary of Florida’s largest electricity provider and the largest US wind project developer. FPL has made over $1 billion in investments in eight wind farms in Texas.

Favorable regulatory regimes are only one factor that will encourage investors to seek out global opportunities to invest in wind. Despite wind’s clean image, David Shoenwald, president of the New Alternatives Fund has gone offshore to invest in wind projects. He says he likes utility-backed projects, citing Canadian Hydro and Trust Power in New Zealand as two of his clean portfolio holdings. Both utilities own hydro and wind assets. “The two complement each other. Sometimes there are poor hydro conditions and other times there are poor wind conditions. Hopefully, it balances out,” he says. In contrast, he says two of the world’s largest utility-backed wind project developers do not pass his screens. FPL Energy has investments in nuclear. Scottish Power has large coal reserves.

Disclaimer

Catherine Lacoursiere is an independent columnist for this web site. Catherine Lacoursiere may hold long or short positions in any of the stocks mentioned in this article and those positions can change at any moment.

InvestorIdeas.com Disclaimer: www.InvestorIdeas.com/About/Disclaimer.asp, InvestorIdeas is not affiliated or compensated by the companies mentioned in this article. Catherine Lacoursiere is a freelance writer. Nothing in the articles should be construed as an offer or solicitation or recommendation to buy or sell any specific products or securities. Past performance does not guarantee future results.

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