Poor winds reduce revenues in America -- FPL Energy goes public on impact of wind resource variations

Wind strengths across Texas and the Midwest in the third quarter of the year were the lowest in 35 years, with wind plant operators across the region suffering an unexpected dip in revenues as a result. "The wind resource in virtually all of our regions was poor," says Armando Pimentel, chief financial officer of FPL Group, the corporate parent company of FPL Energy. "In fact, it was the lowest recorded wind resource in our database dating back to 1973."

The poor winds resulted in reduced quarterly earnings, down by about seven cents a share, the company says. In Texas, where FPL operates 2259 MW of its more than 5000 MW in the US, third quarter performance of its wind assets was just 72% of the projected long term average. In the first and second quarters, the same wind plants performed at 110% and 108% of projections.

The public release of the company's actual versus projected long term average performance of its wind plants on a quarterly basis is part of a new effort to share with investors the underlying resource-driven reasons for fluctuations in the financial performance of its wind plants. Around the world, wind plant performance projections are based on indices of the energy content of the wind, built up over a number of years for specific regions.

Poor correlation

"You may recall that we have said that the wind index was a reasonable approximation of the underlying resource available to our projects based on easily verifiable data from public reference towers, but that the correlation between the index and the actual output of the portfolio was not perfect," Pimentel says.

Pascal Storck, chief operating officer of meteorological consultancy 3tier, was watching the same public reference towers, which are mostly at airports. He confirms a "notable absence of wind" in the period. 3tier forecasts wind for about 7500 MW of wind plants, usually providing the data to both generators and to grid operators.

"It was less windy this year than in previous years. The takeaway from that is that wind has to be read as an energy resource, not a capacity resource. There will be fluctuations in wind energy output," says Storck. He admits it should be an obvious fact for an inherently variable energy resource, but explains that it is sometimes still a new concept to professionals from the thermal power markets or the financial markets dealing with wind for the first time.

Storck says that a big downturn in wind resources in a particular quarter or a certain year is part of normal seasonal fluctuations that have not always been taken as seriously as they should be by wind developers. "We started seeing this with our early wind work. People were basically trying to sweep it under the rug and say it wasn't a big deal, but we said, wait a second. It's a lot bigger deal than the industry as a whole is trying to portray. And we're now starting to see that realisation come around now," he insists.

Based in Washington State, 3tier has long seen the cycles of how high and low snowpack in the mountains affects the region's many hydropower plants. "We often tell clients that nobody would build a hydro facility for $500 million based on one year of precipitation measurements because they understand the impacts of more or less rain, but it's pretty much standard practice in the wind energy industry that, hey, one year of data is good enough, let's build the thing."

Proper due diligence

For a time now, production of electricity across America's fleet of wind projects has generally not lived up to expectations. The underperformance has been more marked in the United States than seen in Europe over the same timeframe, where wind indices contain more years of data and are thus more robust. Part of the reason for the poorer performance in America may be the result of hasty wind studies that did not fully account for seasonal fluctuations in wind, says Storck.

"There's an air of speculation to this, part of that was that the money was cheap and available so off we were building these wind projects. I think what we'll see now with the tightening of the capital markets is that there's going to be a lot more emphasis on proper due diligence and many more eyes on that due diligence," says Storck.