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The challenges of growth

No sooner had we decided to preach a lesson to the industry about the need to build its financial muscle than news flooded in to demonstrate that it was doing just that. Siemens' purchase of Bonus is the clearest example yet. The entry of Siemens promises to secure Bonus a seat at the table right alongside GE Energy and Vestas. The financial world has woken up to wind because the sector got big enough to be interesting. But continued growth is not a foregone conclusion. It is highly dependent on energy market politics -- and on the development of a modernised and fully integrated transmission and grid infrastructure.

No sooner had this magazine decided to preach a lesson to the industry about the need to build its financial muscle (pages 60-64) than news flooded in to demonstrate that it was doing just that. Siemens' purchase of Bonus is the clearest example yet (page 27).

With wind projects rapidly getting bigger, the small Danish wind turbine manufacturer had found itself getting shut out of the grown up world. Technology expertise built up over a quarter of a century, particularly offshore, was going to waste. The entry of Siemens promises to secure Bonus a seat at the table right alongside GE Energy and Vestas. Indeed, two sets of powerful elbows jostling Vestas' position in the top chair has it under more than a little pressure (page 28), despite its recent muscle strengthening rights issue. There can be no doubt that Siemens, the largest equipment supplier in the entire global power industry, has the market strength to lift any turnkey wind project out of the water that it chooses to.

Bonus epitomised the historical development of the wind sector -- dispersed, entrepreneurial and independent. As a model for getting a new technology launched in an entrenched electricity business -- that wanted nothing to do with an irritating upstart demanding all manner of new thinking -- it was astoundingly successful. And not just in the area of turbine supply. The same pioneering spirit drove demand for wind turbines in Europe, home to three-quarters of all operating plant. Hundreds of thousands of private investors grouped together to propel a fledgling industry around the massive barrier to market entry represented by the conventional power industry. These limited partnerships have been a huge success as an investment vehicle for wind development in Denmark, Sweden, the Netherlands and, above all, Germany.

So successful, in fact, that they have done themselves out of a job. In Germany a financing revolution is taking place (pages 55-58). The wind power business has outgrown the closed-end wind funds model as its primary source of equity. The funds still have a role to play, but today it is big money taking the lead. For the first time, major private equity companies and institutional investors are stalking the German market. They are being welcomed with open arms by wind developers. What's more, the European wind sector has seen its first serious bond market financing. A developer, by no co-incidence a German developer, successfully took an internationally mixed bag of wind plant to the bond market in a transaction with the inspired name of Max Two/Breeze One. It's an interesting story (page 58).

Financing of such project portfolios brings with it the ability to finance larger deals. What makes that possible is that bigger deals are opening up the financial markets to wind: the bond market, the stock exchanges, and the private equity business. This issue of Windpower Monthly contains a veritable rush of financing news, see investment digest (page 46). Investment by the big boys makes the banks happier, so they are prepared to offer longer loans and require less equity in each deal. More debt, means lower financial cost. Keeping the cost of wind financing down is vital. Unlike its fossil fuel competitors, who have to buy fuel over a plant's entire operating life, wind power's costs are a known quantity, but nearly all of it has to be found up front. So the cost of financing has a far greater relative impact on the cost of wind.

It all boils down to facilitating the growth of the wind sector. Cheaper finance means cheaper wind power and faster growth -- and with growth will come lower costs and greater efficiencies. Provided, that is, that GE and Siemens do not get too cosy and stifle all competition. But that's a story for another time.

Europe on a knife edge

The financial world woke up to wind because the sector got big enough to be interesting. Continued growth is not a foregone conclusion. It is highly dependent on energy market politics -- and on the development of a modernised and fully integrated transmission and grid infrastructure.

Particularly in Europe, the electricity market is a creature of political control. Wind is no exception. Over the past decade or so, EU politics have been largely supportive of renewable energy. As Corin Millais, head of the European Wind Energy Association says, the EU renewables directive "is the single most important piece of legislation for wind power worldwide." But with a new EU Commission and a new parliament, Brussels is no longer the safe haven it was. Our scene-setting article on the eve of this month's European Wind Energy Conference in London is titled, Policy Upheaval Threatens in Europe (page 47). Seen from on high, the problem lies in the evolution of a plethora of individual national support policies for wind, which directly contravene EU policy for a single and fully competitive European energy market. Our article provides a lucid walk through the complexities.

The greater threat, however, could still come from the power establishment, particularly in Germany. What seems to be the game plan of the powerful incumbents is to pretend that all future investment in the electricity network is made entirely necessary by the awkward demands of wind power (page 52). By casting wind as grid villain, Europe's transmission system operators clearly think they have found a way of braking wind's growth by exaggerating its cost. Now there's a challenge waiting to be taken up if ever there was one.

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