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Taking wind power to the next level -- America's FPL gets set to expand its leadership role into Europe

FPL Energy, a giant of the American electricity industry, is considering expanding its business into Europe -- and it is choosing wind power as the stepping stone to get there. The company already operates a world leading $2.7 billion wind portfolio, but all of it is in the United States. With the US wind market regularly crippled by inconsistent federal energy policy, a strong presence in Europe would give FPL the opportunity to grow its wind business on a steady upward curve rather than in the leaps and bounds imposed on it at home by the on-off American approach.

It is early days, however. FPL's wind boss, Mike O'Sullivan, vice-president of development, says management still needs to introduce the idea of investing in European wind power to its board of directors -- and the company must walk before it runs. The strategy for Europe would be to start by acquiring wind capacity rather than building new projects, he says, a growth tactic it has used with success in the US. There are also rich European pickings to be had, with companies like Harpen, the wind development subsidiary of huge German utility RWE, building wind power stations with the express intent of selling them on. This has also been the business development model of Gamesa Energía in Spain.

FPL is not looking at the European offshore market, says O'Sullivan, a strong indication that the focus is on central mainland Europe rather than the United Kingdom or Scandinavia, where major energy companies are otherwise rushing to invest in massive offshore wind plant. Given its stated approach, markets ripe for FPL would seem to be France, Spain, Italy and Portugal.

Revelations

O'Sullivan's revelations mark the first time that FPL has publicly lifted the veil on its wind power plans. Indeed, O'Sullivan acknowledges that FPL's status as market leader -- a position it has achieved within six years of seriously entering wind power -- brings with it a new set of industry responsibilities. At the Global Windpower 2004 conference and exhibition in Chicago in late March, he made a first time appearance on the podium at a major wind power event. The company was also present with a booth on the exhibition floor, again a first.

By any standard, FPL Energy's mark on the US wind industry is huge. A diversified company with gas and nuclear generating facilities, it added 975 MW of wind capacity in 2003, over half of the total new capacity added in the country last year. Its wind holdings now total about 6500 wind turbines with a generating capacity of 2719 MW.

Speaking to delegates, O'Sullivan left no room for doubt that FPL is in wind power to make money. He describes wind power as a "superior investment" for the company, not least because the FPL balance sheet allows the company to take full advantage of the federal production pax credit (PTC). Because wind offers long term power purchase contracts of 15-25 years with attractive returns, it makes good business sense.

But the idea that wind has environmental and other advantages that allow the industry to ignore market realities holds no sway at FPL. Coal and nuclear provide the "price point" the industry needs to keep its eye on. They should be treated with respect. "What we need to focus on is the competitor," he says.

"In the US we're not going to change the dynamic that 50% of our energy comes from coal. It is not going to change very quickly," O'Sullivan says. "It may trend down over time. And 20% of our energy comes from nuclear power. When you add that 70% together, that's some tremendous low cost power."

Identifying what the customer wants and fitting a project to the customer's needs is an overriding philosophy at FPL, says O'Sullivan. The right price, timing, and fit with the power system are key competitive parameters that will make customers choose FPL for power supply. Now and in the long run, the wind industry must continue to lower the price of its product, even as gas prices rise and even though wind is competitive today with other wholesale choices.

Make it cheaper

"The more we can make it cost competitive, the more it fits with our customers," O'Sullivan says, pointing to the price from FPL's High Winds project completed last year in Solano County, California. With the PTC, generation cost comes in as low as $0.02/kWh. But the lack of firm capacity hurts wind's competitiveness. "Customers often can't buy as much wind as they want," he says.

One way to lower the price is through cheaper finance, continues O'Sullivan. That requires convincing the financial market that wind is an attractive development. FPL's success last year in persuading the bond markets to invest in an FPL wind project portfolio substantially lowered wind production costs (Windpower Monthly, November 2004). Acknowledging that only the big players can do this, O'Sullivan says the bond portfolio brings certainty and leadership to the US market.

"Our challenge is to take wind to the next level," O'Sullivan says. "We believe wind development is good for our shareholders and we look for good public policy decisions."

Maintaining a consistent federal policy on renewables is one of the wind industry's greatest challenges, he stresses. As a diversified company, it can withstand the on-off nature of the American wind market.

PROFIT FOR ALL

But smaller businesses are not able to weather the down cycles well and tend to leave the industry. O'Sullivan stresses the importance of sustaining the value chain. From early site prospecting through development and operations to the final owner of the wind station there has to be profit and room for growth for all involved. "We need to somehow keep and maintain all parts of the development chain in order to have a healthy business," he says.

FPL's aim is to bring a wind project to market within three to six months. In sizing up project potential, the company looks for specific success factors: it must not have environmental and wildlife issues nor not-in-my-backyard opposition; the site has to be right and it has to have "good financials," says O'Sullivan.

In a plea to turbine manufacturers, he warns against the continual up-scaling in size of individual turbines, asking them to "remember the logistical constraints that sometimes limit the size of onshore turbines. Bigger is not always better. He would like to see manufacturers continue offering wind turbines in a variety of sizes, including smaller machines like the 660 kW Vestas turbines FPL used at its 300 MW Stateline Wind Energy Center in the US Northwest.

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