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Gas giant makes mark in global wind market

WORLDWIDE: Early last year the world's largest independent electricity producer to date was created through the merger of French energy giant GDF Suez and UK-based electricity-generation company International Power. The new entity boasts a combined generating capacity of 114.5GW and an energy mix dominated by natural gas (59%) and hydro (14%), with wind contributing just 3%.

GDF Suez  is the leading wind-power operator in France
GDF Suez is the leading wind-power operator in France

Despite wind’s minority position, GDF Suez has an installed wind capacity that already stands at 3.7GW (see map, below). This suggests that the group could take a spot in the global top ten of wind-energy producers at the end of the year, notes Magnus Dale, an analyst at global consultancy IHS Emerging Energy Research.

As well as being the leading wind-power operator in France, Belgium and Italy, GDF Suez is also active in the UK, North and Latin America, Australia and North Africa. The group’s wind activities have been expanding rapidly. During 2010 — prior to the merger with International Power — GDF Suez increased its capacity by more than 500MW. This represented the sixth-fastest growth rate globally among companies of equal size and the second-fastest outside the Chinese market, says Dale.

This healthy rate of growth was achieved through a mix of organic growth and strategic mergers and acquisitions, the latter often employed for tackling new markets. A core strategy of GDF Suez is to run a highly diversified portfolio in terms of both fuel type and geographic spread.

Strong European roots

GDF Suez is 36% owned by the French state and grew out of the 2008 merger of French and Belgian energy companies, Gaz de France (GDF) and Suez, both already active in wind power. In 2002, Suez subsidiary Electrabel installed its first wind turbines in Belgium, the same year that GDF launched a wind-development strategy in Portugal. This strategy led to a valuable long-term partnership with leading Portuguese wind developer Generg and to the direct acquisition of wind plant from 2005 onward, explains Eric Vincent, GDF Suez’s corporate vice president for renewable energies.

They both also grew their wind-energy activities through investment in French developers and operators. Suez took a majority stake in La Compagnie du Vent in 2007, while GDF bought Nass & Wind Technologie in 2008. They also diversified beyond Europe, acquiring assets in Canada, Costa Rica, Chile and Brazil.

Since the merger, the group has continued to develop its portfolio, most notably purchasing International Power in February 2011. The deal saw International Power hand over a 70% stake in exchange for a cash dividend as well as oversight of GDF Suez’s wind activities outside Europe and certain assets in the UK and Turkey. International Power obtained 477MW of wind capacity in operation or under construction in Canada, Brazil, Chile, Costa Rica and Britain. This was in addition to its own 1.35GW located in Canada, Germany, Italy, France, the Netherlands, Britain and Australia. International Power also gained a £3.1 billion (€3.8 billion) credit facility and cheaper access to capital.


"In terms of wind, [the merger] will impact GDF Suez very positively in ownership, assets and market presence," says Dale. International Power brings with it a considerable wind-energy presence in Germany and Italy and the company also offers GDF Suez entry into the Australian market and a stronger presence in the US. Meanwhile, International Power gains access to Latin America and capital to finance its planned expansion.

International Power now owns and operates assets on behalf of GDF Suez and although wind makes up only about 4% of International Power’s portfolio by fuel type, "wind and renewables are important", states the company’s chief executive, Philip Cox.

Canada has been an important market for International Power’s wind business over the last three years, and it currently owns 286MW of operating capacity there with another 400MW in development. Last August, International Power signed power purchase agreements for 198MW in Ontario and it will soon begin building a 99MW plant in British Columbia, scheduled for completion in 2013. "Canada is a key market for renewable energy, with high-quality projects supported by long-term feed-in tariffs," says Cox. Onshore wind in the UK is another of International Power’s markets, where it has 22MW in installed capacity.

In emerging markets, International Power is building a portfolio in Brazil. In Morocco, it is the preferred bidder, in partnership with local conglomerate Nareva, for 300MW of new capacity. Longer term, International Power is looking to South Africa, "but these are very early days", says Cox. In the meantime, GDF Suez and International Power are working hard to realise synergies across their full energy-generation portfolios, which they estimate to have a value of €215 million to 2016.

Although GDF Suez is developing its international assets through International Power, it retains control of its European heartland. "Europe still offers a large development potential," argues Vincent, referring both to new build and opportunities associated with repowering existing plant. In France, where GDF Suez is market leader with 16% of installed wind capacity, the group aims to double capacity to 2GW by 2016. This will be achieved through organic growth, explains Jean-Baptiste Séjourné, head of production in France.

The group also has offshore ambitions, which focus on France. Last year, it formed a consortium with Areva and Vinci to bid for up to 1.75GW in France’s forthcoming offshore tender. In addition, its subsidiaries, La Compagnie du Vent and Maia EoleMer, are both already active in the French offshore market. At the end of 2011, there were also rumours of a tie-up with Siemens and
E.on. "If [GDF Suez] wants to expand its activities in offshore wind, the French tender is going to be crucial in getting experience and a foothold," argues Dale.

The group will face stiff opposition, especially from the consortium established by EDF Energies Nouvelles and Dong Energy, one of the largest owners of operational offshore capacity.
For Vincent, offshore wind power is the "new frontier" of renewable energy, where the technology is only beginning to emerge. There is "large potential" for cost reductions over the next few years, he adds. It is important for the group "to be among the first movers in [the] new technology and to acquire a know-how and experience which will be key for ensuring our future competitiveness in this field", he says.

Complex structure

Another challenge for GDF Suez is the group’s complex corporate structure, with its multiple subsidiaries. This has an impact in terms of visibility and overall coordination, not to mention the risk of different arms of the group competing against each other. GDF Suez appears to acknowledge the problem. Last May, former general secretary Yves de Gaulle was tasked with examining the organisation of the group’s renewable-energy activities. One option could be to create a new and separate entity dedicated to renewables, perhaps along the lines of EDF Energies Nouvelles, the renewables arm of French utility EDF.

For now, GDF Suez will develop its wind portfolio by continuing to focus on countries offering a good wind resource and providing a stable regulatory framework, says Vincent, and drawing on the group’s "ten-year experience in wind project development, [its] worldwide purchasing capacity and growing expertise in the field of monitoring, remote controlling and servicing of wind parks". It is also interested in new markets, such as Poland and other east European countries, and intends to further develop its capacity in Canada and Latin America, provided local conditions meet its investment criteria.

Further acquisitions may also be on the cards. While organic growth is the group’s preferred path to create value in the long term, "the acquisition of developed portfolios is sometimes the most efficient way to seize opportunities", Vincent admits.

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