One of the most obvious technical diversification of recent years has been to develop projects, components and turbines for offshore wind. Now an increasing trend appears to be emerging to combine the business of wind power with solar, hydroelectric, biomass or other power sources.
Diversification as a business strategy is nothing new. Companies with a broader technological footprint say they have been better able to withstand the economic and regulatory bumps that have hit the wind industry in the past few years and cite the benefits a multi-technology strategy has brought. As wind-energy companies are reaching a turning point in their own development cycle, more are finding that technical diversification is becoming a practical solution.
"With diversification you have more levelised earnings, which is what investors and shareholders are looking for," says Bruce Hamilton, a director in consultancy Navigant's energy practice. "You can diversify both in terms of product line and geographically, and by balancing newer products against older ones."
Niche players may decide to remain in one technology, but bigger companies with long-term ambitions in a market may need to explore different technologies in order to meet growth goals, says Jean-Francois Petit, development director at French developer and operator Eole-RES. Eole-RES, a subsidiary of UK renewables group RES, has its roots in onshore wind, with 427MW of installed capacity in France. It also has a small amount of solar photovoltaic capacity. The company considers itself a pure renewable-energy player, but has been eyeing other technologies within that framework.
Through a joint venture with Iberdrola in which Eole-RES owns a 30% stake, the company is developing a 500MW offshore wind project within France's San Brieuc development zone. "More recently, we have begun to work on tidal projects, and we are also looking at biomass, biogas and storage. We are looking in many directions but we will not develop these technologies unless the market is there," says Petit.
The technologies that make a good business case may change over time as technology evolves and costs come down, notes Petit. "Tidal power today is not attractive, mainly because of the cost, but ten years ago PV (solar photovoltaics) was very expensive." As it looks to diversify, Eole-RES is not planning to abandon onshore wind. "If you talk about an attractive technology today, it is onshore wind, which will be at grid parity shortly in a number of markets."
Enel Green Power, the renewable arm of Italian utility Enel, sees a combination of geographical and technological diversification as key to maximising growth opportunities and minimising production risks.
"We will continue to diversify our assets, both geographically and technologically," EGP chief executive Francesco Starace (now CEO of Enel Group) told investors at the presentation of the group's 2014-2018 business plan. "Our business model has proved to be a resilient one, improving our resistance to adverse conditions."
While it is continuing to invest in onshore wind - the largest share of its capacity and production - EGP also has a well-balanced presence in other renewable assets (see charts, below). The company now has about 5.1GW in wind; more than 2.6GW in hydroelectric power; 800MW in geothermal and 300MW from other technologies such as solar photovoltaics and biomass. Its production portfolio is also well divided. Of its nearly 29.5TWh of power generation, 12.2TWh comes from wind, more than 10.9TWh from hydro and around 5.6TWh from geothermal. The company only targets new countries where it sees potential for at least two renewable sources.
A diversified power production portfolio helps to limit volatility. "Diversification not only reduces risk of variation of yearly output," says Rafael Gonzales, head of operations and maintenance for EGP, "but it also reduces deviations from forecasts at a daily and hourly level, hence supporting balancing services and helping avoid unbalancing penalties." A diversified portfolio allows adjustment between output variations that occur between day and night - for example, in the absence of storage capabilities, solar power is a daytime power source - and variations driven by weather conditions.
Some of EGP's peers have also been pursuing diversification strategies. Spanish wind giant Iberdrola, German utilities RWE and E.on and France's EDF are among those who have looked to offshore wind for growth, although RWE's decision earlier this year to scale back its offshore ambitions is just one indication that this is not always an easy path to follow. These firms are also developing solar, biomass and other renewables to complement traditional power portfolios.
An increasing number of companies are also looking at energy storage. While this may not yet be economically viable, it is being eyed in places where the penetration of wind and other intermittent renewable sources is relatively high. In some cases, a push towards storage — which may take the form of batteries, pump storage, or other solutions — is being led by regulators.
Last year, for example, the California Public Utilities Commission set a combined target of 1.325GW of energy storage capacity for state utilities Pacific Gas & Electric, Edison and SDG&E by end-2024. The motivation is to avoid or defer the installation of additional traditional fossil-fuel plants and better provide for the integration of wind and other renewable source.
Regulators are also likely to continue to influence diversification decisions in other ways. Just as feed-in-tariffs may assign different tariffs depending on the renewable power source, renewable portfolio standards (RPS) in some US states, such as Maryland, come with so-called "carve-outs" mandating that a certain amount of capacity must come from offshore wind and solar.
Diversification may be a matter of survival. While turbine suppliers such as GE and Siemens - as part of much larger industrial conglomerates - have a natural hedge against sector-specific woes, smaller manufacturers have in some cases had to rethink strategy. One example is provided by wind-tower producer Trinity Structural Towers, which shifted excess wind-tower manufacturing capacity into the production of rail cars for the transport of crude oil. With markets going up and down, it has made even more sense for these companies to be diverse, says Navigant senior consultant Jesse Broehl.
HYBRID TECHNOLOGIES — COMBINING TWO ENERGY SOURCES IN ONE LOCATION
One way to implement technological diversification is through the use of more than one power source at the same site. "Hybridisation is one key element to increase availability and mitigate intermittency by combining generation technologies of different profiles, such as baseload geothermal and peak solar, in only one production site, leveraging on existing infrastructures such as substations and grid connections," says Rafael Gonzales, head of operations and maintenance at Enel Green Power.
While its hybrid power initiatives — which include the world's first hybrid geothermalsolar PV project at the Stillwater site in Nevada along with small-scale project in Chile involving a mini-wind turbine generator, photovoltaic power and a co-generation system for producing both electricity and hot water — are at an early stage, EGP says they are key to its strategy. "We are planning to carry on along this path to maximise the benefits of hybrid generation," says Gonzales.
EDF Renewable Energy lays claim to what it calls one of the largest wind/solar hybrid projects. Its 140MW Pacific Wind and 143MW Catalina solar project in California, completed in 2012 and 2013 respectively, were developed and contracted independently. But their geographic proximity allows the plants to share infrastructure and maximise use of the transmission lines. This also helps prevent major power fluctuations in an area known for sunny days and windy nights.