United States

United States

Market appetite for wind grows -- Major independent drops gas price risks for wind only development

FPL Energy of the United States, a leading independent power producer, is abandoning new construction of conventional energy plant to focus solely on building wind projects. It aims to double its current wind power capacity of more than 1860 MW by the end of 2003, when wind's federal production tax credit expires. FPL's says its generation portfolio today is 48% gas and 28% wind, with hydro and oil making up most of the remainder.

"The wholesale energy sector has been facing difficult market conditions including reduced profit margins, decreased market liquidity and continued low price volatility," says FPL Group chief executive Lew Hay. "Our strategy going forward will be to focus on improved operating performance and profitable growth through added wind power facilities and highly selective asset acquisitions."

Pursuing those goals, the largest US wind developer made a huge commitment last month when it announced it will commission 635 MW of new wind plant in 2003. Together with the purchase of three US projects from the United Kingdom's National Wind Power, FPL's total wind power additions by the end of next year will be 758 MW. It is building wind plant in West Virginia, Oregon, Iowa and the Dakotas and will begin construction this year of wind farms in New Mexico and California. Today FPL's total generation portfolio of 7074 MW includes 1863 MW of wind capacity spread across 26 wind farms and nine states, over 1000 MW of which was built in 2001.

Going off gas

Disenchantment with gas generation is hitting the entire nation and is even showing up in the stock market, where the price for high flying energy developers like CalPine has crashed in past months. Since November 2001, developers have cancelled about 46,000 MW of natural gas-fired power projects, according to a June report by Michael Schaal of Virginia-based Energy Ventures Analysis Inc, leaving 100,000 MW under active construction. Schaal says the downturn is due to a lack of money as investors have become wary that developers could be overbuilding large power plants.

The American Wind Energy Association's Randy Swisher adds that the change in the power market is due to the level of risk in continuing to build new gas. "Risks associated with wind have less variation than with gas," he says. "Some risks with gas are almost unmanageable. Who knows what the price of natural gas will be in five years?" The continued push to develop wind projects also is a result of other factors, says Swisher, including the green power market, a broad concern about climate change, and state policies like the 13 state renewables portfolio standards which each mandate a minimum standard for the proportion of renewables in power supply portfolios.

It is in this atmosphere that FPL Energy is abandoning gas development work already underway and writing off those costs, resulting in a one-time non-cash after-tax charge to FPL Group, its parent, of $60-80 million. FPL Energy is one of three companies in the group, which includes Florida Power and Light.

The change in strategy will result in 50 lost jobs, says FPL Energy's Steve Stengel, including gas project development positions. Despite the downsizing, Hay still expects FPL to realise a 10-15% earnings growth in 2002 and is confident the company will continue to grow. FPL says it will bring 5556 MW online in 2003 and 2004, a combination of conventional projects now building and new wind.

Have you registered with us yet?

Register now to enjoy more articles
and free email bulletins.

Sign up now
Already registered?
Sign in