WINGATE, Texas: Don Quixote would have fallen off his horse if he could have seen FPL Group’s new wind farm here – by far the biggest in the world – a 121-square-mile track of 421 wind turbines scraping the big West Texas sky with blades well over 100 feet long.
As if to say there is nothing quixotic about wind power any more, FPL Group is now building a second giant wind farm right next door. And just as the cows are lining up in the shade of the FPL Group turbines to escape the hot Texas sun, a growing number of American power companies are imitating the Juno Beach, Florida company’s bet that wind power can work as well for shareholders as it does for environmentalists.
The American wind energy industry last year built up the nation’s wind energy capacity by 27 percent, investing $4 billion to install more than 2,400 megawatts of power – enough to service an estimated 650,000 homes. The American Wind Energy Association is predicting another 26 percent increase in wind power this year, with Wall Street increasingly willing to finance the investment.
Across the Atlantic, Europeans have long paid more than Americans for their energy as a result of higher taxes, a factor that helped spur research and development in wind and solar technologies after energy ran short in the 1970s.
More than half of the world’s 22 most valuable publicly traded wind and solar companies are based in Europe and listed there, according to Jefferies Group, an investment bank. Among the most prominent companies in Europe is Vestas of Denmark, which supplies turbines that generate 35 percent of all the electricity that comes from wind power.
But even as a torrent of directives, initiatives and mandatory targets to cut carbon emissions has poured from the European Commission in recent months that stand to help the wind energy industry, America faces a challenging trial in the marketplace: It is ultimately dependent on tax benefits expiring next year that could be voted down by whimsical Congressmen.
Environmentalists love wind power and there is increasing bipartisan support for it among Republicans and Democrats concerned about energy security and global warming. But as wind power grows more prevalent the tax benefits from a production tax credit for wind is becoming increasingly expensive – now about $2.75 billion annually by one estimate – for an energy source produced by rich utilities that still generates less than one percent of the country’s power.
But first the tax provision that got the wind power boom going in the first place is due to lapse at the end of next year.
“There is always the risk the tax credits aren’t renewed,” said Brian Youngberg, an Edward Jones analyst, “and the business essentially stops growing.”
A decade ago, when most other utilities viewed wind as a half-baked idea for tree-huggers, FPL Group executives cast an accountant’s eye on wind power. The tax credit lapsed three times since then, and despite the stops and starts, FPL Group has persevered and appears to be the company best positioned if the tax benefit lapses a fourth time.
FPL’s national wholesale power supplier, FPL Energy, slowly began amassing a small wind farm empire in the late 1990s, gradually reaching nearly 50 wind farms in 15 states. Their 6,400 wind turbines are now capable of providing electricity for 1.2 million homes.
“You have to look at the fundamentals and take a bet,” said Moray Dewhurst, FPL Group’s chief financial officer. “The bet now is that public policy will continue to support those forms of energy production that can help address the climate change problem.”
Wind represents 12 percent of FPL Group’s diversified energy portfolio, and it is growing along with natural gas and nuclear. The company was responsible for a third of the new construction of wind power installations around the country last year, by far more than anyone else.
By the end of this year FPL will have $6 billion invested in wind energy production, including three of the nation’s five biggest wind farms. FPL is the world’s second biggest wind generating utility, after Iberdrola of Spain.
With popular concern over global warming growing, coal out of favor with many politicians and regulators, and prices for natural gas historically high, wind looks to many experts like an increasingly profitable, or at least promising, venture.
More than 20 U.S. states have legislated requirements that utilities use some percentage of renewable power, and talk is increasing in Washington of enacting a federal renewable portfolio standard for utilities and perhaps eventually even some kind of carbon tax to penalize the use of dirty energy.
“FPL is looking pretty smart right now,” said Brandon Owens, at Cambridge Energy Research Associates, a consulting firm. “They have been instrumental in helping the industry mature and be viewed as legitimate, particularly with the financial community.”
But it only takes a brief visit to the office of Michael O’Sullivan, a senior vice president at FPL Energy, to see that the market experiment in renewable energy is far from settled. Amid maps detailing wind speeds and transmission lines around the country, a large protest placard rests on O’Sullivan’s windowsill that proclaims “NO WIND FARM.”
It is a sardonic trophy from an unsuccessful FPL Energy effort to build a wind farm in Illinois five years ago.
“I keep this here to keep my development group humble,” O’Sullivan said of his poster. “We don’t drink our own whisky. We don’t believe this stuff should be put on every street corner.”
Wind doesn’t blow on every street corner, of course, and O’Sullivan readily acknowledged that in some of the places where wind does blow hardest, transmission lines to carry its energy are scarce and expensive to build.
People are not always enthusiastic about having 400-foot high, or 122-meter, wind behemoths that sometimes kill lots of birds and bats as neighbors, as he conceded with his poster.
O’Sullivan said he was worried about the spiraling increase in cost of wind turbines by 60 to 80 percent in the last three years due to commodity inflation and the hike of euro-denominated European equipment.
The biggest immediate concern is the survival of the production tax credit, which provides a 1.9 cent per kilowatt hour tax credit for electricity from wind over the first 10 years of a project.
The provision has lapsed three times since it was enacted in 1992, repeatedly grounding wind development to a halt for months at a time and creating long-term uncertainty. Since over half of the typical wind’s projects value comes from tax incentives, FPL Group executives concede their wind energy development program would stop if the tax credit lapses again at the end of 2008.
Lewis Hay 3rd, who had been FPL Group’s chief financial officer, took the reins of FPL Energy in 2000. He said that to his chagrin, the wind development business had been dropped in favor of natural gas.
Hay, who is now the chairman and chief executive officer of FPL Group, said the company had made a disastrous bet with a multi-billion order of gas turbines from General Electric at a time when a gas generation glut was building. Looking for a way out, he scrambled and convinced GE to switch the order to wind turbines instead.
“Wind was the first thing we came across and thank God we did,” he said.
By Clifford Krauss
31 May 2007
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