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United States

Gas giant Sempra explodes into wind world

US: What began as a brief dalliance has become a passionate affair. After dabbling in the wind sector, Sempra Generation, a major US independent power producer (IPP), has jumped full force into wind with a number of recent investments. The largest was last autumn when it partnered 50/50 with BP Alternative Energy to build a 200MW expansion at a BP wind project in Indiana.

At 600Mw capacity Fowler Ridge I and II will comprise the Mid-West's largest wind farm
At 600Mw capacity Fowler Ridge I and II will comprise the Mid-West's largest wind farm

The project, Fowler Ridge II, went online this winter and represents Sempra's first operational wind assets. The company plans for many more throughout North America, including Hawaii and Mexico, a rich untapped resource.

With the post-financial-crisis economy and the downturn in the wind market, it is not generally considered a good time for companies to rush into wind, but for some the time may be right. "Times are a bit precarious and we're indeed in a tight credit market, but that hasn't had nearly as big an impact on Sempra Energy as it has on others," says Jeff Martin, president and CEO of Sempra Generation. "We don't have the volatility of cash flows and earnings that some other companies have. We weren't caught like the banks. We have strong cash flow and a conservative management culture."

Sempra's push into wind comes partly because it is a major player in California, where electric utilities are required by a Renewables Portfolio Standard law to source 20% of their power from renewables by 2010. Much utility power is contracted from IPPs such as Sempra Generation. "The need for renewables has not diminished. The California utilities in particular are still under the 20% mandate and it increasingly looks like none of them will meet the deadline," says Martin. California Governor Arnold Schwarzenegger is proposing to increase the target to 33% by 2020 so the market remains very robust and should favour developers who can deliver utility-scale projects, Martin adds.

The firm's California wind strategy is based on tapping into the strong and undeveloped winds in Baja, Mexico, just south of the California border. The geography there is similar to the mountain passes in California such as San Gorgonio and Tehachapi, which host most of the state's installed wind capacity. Sempra originally bought out early development efforts there led by the Cannon Power Group.

The project site, Energia Sierra Juarez, is near La Rumorosa in Baja. It will be developed in phases, with a first 100-125MW phase complete by 2012. Sempra has full land control, most of the construction permissions and a power purchase agreement to sell the power to Southern California Edison.

Martin believes there is room for up to one thousand megawatts in the area. The company is in discussions with potential customers to take the energy produced from the first-phase development. Future phases will be developed and built as capacity is sold.

The 2012 timeline is aimed to coincide with transmission upgrades under construction on the US side of the border. The northernmost turbines are within five kilometres of the border, so Sempra will have to build a 230kV tie line connecting over the border. Other companies are hoping to develop in Baja Mexico (Windpower Monthly, April 2009) but Sempra is considered the most progressed.

Another push into wind for Sempra Generation was its recent acquisition of a 22MW project under development in Maui, Hawaii, from Shell WindEnergy. At the same time that Sempra has been moving into wind, Shell has been pulling back on its investments in renewables.

The Auwahi Wind project is unique because it has a battery system that could store up to 28MWh of electricity. In most areas in North America, variable generation resources like wind are accommodated by balancing with other generation and the sheer size of the power grid. There is not a large energy load in Maui, particularly at night. Martin says: "When we bring on what we expect to be 22MW of wind generation, it may end up being curtailed from time to time and when you have to turn off a free resource when capital is already sunk, then there's an economic cost."

The wind project will charge up the battery when the wind resource is strong but power demand is not, which is typically at night and in the early morning. Sempra Generation recently submitted a proposal to the US Department of Energy to co-fund costs to expand the battery energy storage facility to 72MWh.

Battery storage can be a controversial topic in wind power circles because in nearly all cases, typical power systems can handle variable wind without a battery, which adds considerable cost. On bigger grids, like the mainland US, Sempra's vast natural gas assets and experience have served to reinforce the view that natural gas power plants are the best option for smoothing out variable renewables.

But smaller grids like Hawaii, which has no natural gas plants, makes battery storage an option. The state has to rely on oil imports to generate the vast majority of its electricity because there is no indigenous natural gas or coal. When the cost of oil rises to $140 a barrel, as it did in 2008, it puts the state at a disadvantage economically and environmentally. Indeed, the 2008 oil prices were a shock to the state and it responded by establishing a goal to source at least 70% of its electricity from renewable energy.

Regardless of geography, the market will always be where there are good opportunities to partner. At Fowler Ridge II in Indiana, Martin says Sempra had a good opportunity to partner with BP, a company Sempra has done business with before. BP was looking for a partner on the expansion and Sempra was looking for an opportunity to jump quickly into building a large wind project and using it as a learning experience for its own efforts. Sempra, however, prefers to develop, build, own and operate projects and is less interested in buying operational wind projects.

Developers with deep pockets can find good deals on wind turbines in today's market, Martin believes. "It's a buyers' market for wind turbines but how long that's going last to I don't know," he says. "I think if you have a wind project ready to place an order for turbines, this is a pretty good time to be in that position."

This is the case not only in the primary market in buying from manufacturers, but perhaps taking a place in the purchasing queue from a developer who cannot follow through on a commitment, he says.

Since entering wind, Sempra Generation has not encountered any major surprises, but Martin says the development process can be starkly different between generation sources. "We knew it was a tough business and doing things right from the development standpoint takes a while. In contrast, we were able to design, permit, build and complete a solar project in under a year. With wind, I think it takes a little longer than other technology choices to do it properly."

Energy giant

- Sempra Generation is part a family of energy companies under the Sempra Energy parent, which features in Fortune magazine's annual list of the top 500 US firms ranked by gross revenue. It had revenues of $11 billion in 2008. Sempra Energy owns two major California energy utilities

- San Diego Gas & Electric and Southern California Gas - under its utility division, and under its generation and services division, owns Sempra LNG, Sempra Pipelines and Storage, and Sempra Generation - its IPP with development in the renewables sector.

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