Brawn with balance

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Hit by no fewer than ten significant mergers and acquisitions in 2002, the wind power development sector reeled its way into the New Year in a state of punch-drunk disorientation. Sector players woke up blinking in the bright light of a radically reshaped business: all the merger and aquisition deals involved utility affiliates writing the cheques. Gone are the days of wind development dominated by scores of visionary entrepreneurs. Today, the wind turbine customer is far more likely to be a big name energy company with a big strategic plan. As the sector gets bigger, it is clearly also getting smaller.

Big company brawn is essential if wind energy is to realise its full potential. Gordon Gekko in the movie Wall Street famously says that "greed is good." For the wind industry, "size is sensible." Wind developers have been too weak for too long. Scattered and autonomous, the sector has been great for generating entrepreneurial drive, but it has been highly inefficient. Wind, in other words, is more expensive than it needs be. Large customers with purchasing power will drive down product prices. And while manufacturers will feel the squeeze, larger customers will also bring benefits the survivors will thrive on -- as Vestas' Svend Sigaard notes (page 41). Larger, more stable orders with creditworthy companies will allow manufacturers to scale up their businesses with more confidence. Critically, more production and more research will lower costs.

Giants of the energy world, such as BP, ChevronTexaco, and Shell, are entering wind as project developers and wind plant owners. Greater change still is being wrought by the scrapping and fighting for wind development assets among electric utilities. Their sudden realisation that wind is a serious option is manifesting itself in a spate of mergers and acquisitions: EDF, the French state utility, bought American/Danish wind developer EnXco; Canada's TransAlta Corp bought Vision Quest Wind Electric; Spain's Iberdrola assumed control of Gamesa's development pipeline; and the recent acquisition by Dutch utility Essent of German wind developer Winkra (page 29) and the takeover of wind projects in Italy and Portugal by Belgium's Electrabel (page 28), has added still more brawn to the wind development business.

No wonder the New Year champagne is flowing -- and no wonder wind is showing signs of disorientation and uncertainty. From being a niche sector surviving on energy markets plugged into subsidy-support machines, it is being swiftly sucked into the mainline power business, itself rocketing pell-mell on a course of revolutionary change. And while wind's leap aboard the train is rightly cause for celebration, warning signals are flashing -- signals that risk being missed in the blur. Only a few short months ago, the traditional energy sector was doing all it could to hinder the rise of independent renewables, publicly dismissing even wind as limited and of uncertain potential. Now it is hell bent on buying and bidding. The danger lies in the loss of an independent wind sector as a counterweight to utility and energy company dominance. Take the counterweight away and the express train of wind's progress loses its balance. It could fly off the rails.

While the size and deep pockets of the utility and traditional energy industries are needed to keep wind costs falling, the established energy sector has no interest in fighting regulators and politicians to the bitter end for structures that hurt their core businesses of coal, gas or nuclear. Regulation that values the benefits of distributed and clean power generation does just that. Wind needs its own strong lobbying voice. Niche wind developers, the surviving independents, cannot provide the crucial balance needed. That can only come from the formation of a strongly independent and sizeable wind business.

A golden opportunity

Fortunately, what has made wind attractive to the utilities also makes it a golden opportunity for brave new investment in a brave new business. In a world where the future of nuclear is shaky, where natural gas price risk is real, where wind costs are falling (page 35), and where a natural hedge against greenhouse gas penalties is the acquisition of green power certificates or tags, wind is a good bet. Indeed, a US utility is saying just that (page 23). Yet so far only the energy majors have spotted the opportunities of wind's 30% growth rate. And with their new training in mergers and acquisitions (M&A), they are not about to repeat the slow-footed lumbering of a decade ago that allowed the meteoric rise of the Independent Power Producer (IPP).

But no matter how fleet-of-foot the energy giants believe they have become, the opportunity is still there for a thrusting Independent Wind Power Producer (IWPP). The early bird with financial muscle and wind experience catches the worm -- and there are still plenty in the ground. Ironically, some of the fattest new assets are being offered by two Spanish utilities (page 29). Contenders for the lucrative position of IWPP top bird include the unsuccessful bidders in recent M&A auctions. Like their IPP cousins did with gas, they need the vision to put their capital behind talented wind management teams. For their part, wind plant owners and managers must be realistic on the valuation of their businesses and be proactive in looking to build them -- losing or sharing control is preferable to being stubborn and sidelined.

The brawn of the energy giants can be matched to give healthy balance. Without it wind risks being caught in a Catch 22 nightmare, with no independent industry to fight for the policy details that will attract the big time investment essential for providing the world with a sustainable and affordable energy supply.

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