Operating as one of the world's most recognisable brands, Royal Dutch Shell has long played a major role in satisfying the planet's ever-growing need for petroleum, with operations in nearly 150 countries. Now the company plans to extend that global recognition to encompass wind power, at least in the United States. In December, Shell's wind energy division, based in the Netherlands, connected its 264 MW NedPower Mount Storm wind project in West Virginia to the grid, bringing its operational wind power plant in America to 900 MW and its grand total worldwide to 1100 MW.
Shell's heavily American-weighted portfolio was originally not likely to have been a deliberate strategy, given the north European location of it wind power operations, but today there is no doubt that it considers the US its prime wind market. Explaining its unexpected withdrawal in spring 2008 from the high profile 1000 MW London Array offshore wind farm project off Britain's south-east coast, Shell stated firmly at the time that it saw its wind energy future in the US (Windpower Monthly, June 2008).
In addition to Mount Storm, Shell's portfolio of operational projects in America consists of wind farms in Colorado, Iowa, Wyoming and two each in California and Texas -- eight developments, 722 turbines and 898.5 MW in all (table). In Europe, it has a major stake in the 108 MW Egmond aan Zee wind station off the Netherlands coast, built in 2006, 99 MW in Spain, and a pair of 1.8 MW turbines in Germany. But that seems to be the end of its investments outside of America, at least for the time being.
For the next two or three years, most of the action is to come from its Texas-based wind operation. The company's business plan is both ambitious and deceptively simple: focus on the wide midsection of North America that stretches from the Canadian province of Alberta to Texas, build massive projects and team up with solid investment partners.
"We have a fair number of projects under development," says Shell WindEnergy president Dick Williams. He emphasises, however, that the year or two ahead are unlikely to see Shell's developments brought online as the company works behind the scenes to set the stage for its next big plays. "All the ones we have are about halfway through their development," he says.
Williams shies away from specifics and quotas, but says Shell is currently targeting a number of sites in Alberta, New Mexico, Wyoming and Texas -- and planning for projects upwards of 1 GW each. "What we have found, except for the amount of dollars and the amount of land it takes, the efforts and the resources to develop a 20 to 50 MW project are about the same as a 1 GW project," Williams says. "We're going to concentrate on probably a good handful of larger projects in that big swath."
Shell prefers to share financing, risk and success with fifty-fifty partners, whether they be electric utilities or money providers -- the continuation of a model the company has used for most of its existing wind plant. In addition to a partnership with Virginia-based power-producing giant Dominion on Mount Storm, Shell has completed joint developments with major players that include Spanish utility Iberdrola and Goldman Sachs, among others. "We have partners that range everywhere from utilities to operators to banks," Williams says. "They run the whole gamut. I think as these projects get larger, in the 1 GW range, you're talking $2 billion projects, and having partners is going to be a natural fit."
Williams believes the wind industry is morphing into a new ownership phase, whereby developers hold on to the projects they build. "We see it going from a developer-flipper industry, which it's been the last 20 years, to a developer-operator industry," he says. "The operators are probably people who are in it for the long haul versus just developing, flipping it off, getting their money and running."
These days, perhaps the biggest plan on Shell's plate is Briscoe, a Texas Panhandle project being pencilled out at 1-1.5 GW or more. Briscoe is also expected to include an innovative underground compressed-air storage facility that will allow banking the project's power for use during times of low wind (box).
While Briscoe and other of its projects are likely to be a few years in development, Shell may add to its portfolio in the near term by partnering with smaller developers unable to complete projects in coming months due to unfriendly market forces. And, although Williams won't discuss plans for acquiring smaller developers as they struggle in the market, the company line is that such transactions are never out of the question.
"We've seen the tax equity markets dry up," Williams says. "We just don't quite know where it's going from here. I can tell you that we are getting many, many calls from smaller, distressed projects that can't convert their financing from construction to long term and are asking us to look at their projects. And our portfolio people are unbelievably busy."
Shell feels strongly about the need for the newly formed Barack Obama administration to follow through on its pledge to build a transmission network that caters to wind projects far removed from load centres, a need that Williams believes supersedes the requirement for a long term extension of wind's federal production tax credit (PTC). "We see the success of transmission projects as being the success of our projects," Williams says. "We're for PTCs. They obviously help the project. But if you have a project and you don't have the PTC, you turn an 8% project into a 6% project. If you don't have transmission, you turn an 8% project into a 0% project."
Shell's hope is that Obama's transmission projects, whether they involve new capacity or upgrades of existing wires, concentrate on the Alberta to Texas corridor that defines the company's wheelhouse. That way wind power could be sent to major load centres in the east or to the southwest and Los Angeles. "We're hoping that Mr Obama and some of his policies will address that," Williams says. "Whether it's easier permitting or it's fast-track land acquisition or it's financing, any one of those things, I think, would be a big positive for the industry."
Without such innovative thinking, Williams believes the industry faces a tricky paradox. "The US has a lot of good wind left, but unfortunately it's all 100 or 150 miles from a transmission grid," he says. "That's about $1.5 million a mile, probably, so you're adding another $150-$200 million on your project. Well, you have to amortise it over a larger wind farm. So, okay, you build a larger wind farm. Then, suddenly, the utility says: Whoop, time out, I can't take the variability on a larger chunk.'"
Another area of concern for Williams is in dealing with utilities and traditional power purchase agreements (PPAs) in turbulent markets. "At the end of the day, the long term PPA might not maximise the value of a project," Williams says. "So it's going to be very interesting to see how the next year or 18 months evolves. My guess is that there's going to be a number of new methods of doing them."
As for turbines, Shell has a tradition of equal opportunity shopping, employing a wide array of machines, including those from Vestas, GE, Mitsubishi, Gamesa and Enercon in its 11 projects. As the recession in America takes hold and ever growing demand for more electricity eases off, the company sees increasing availability of most brands. "We're seeing that market loosen up a little bit," Williams says. "We're also, I think in a positive way, seeing a little more emphasis on customer service. We're hoping that the turbine manufacturers will get longer warranties so that their skin's in the game for a longer time with us."
Williams feels that project prices have not necessarily come down as the size of turbines has gone up. As a result, he has mixed views on increasing turbine sizes. "We're finding a real trade-off because, of course, with a larger machine you can have fewer machines, which means less balance of plant," he says. Larger machines raise the availability of man-lifts and there are fewer units to service. "Yet, at the same time, on the larger ones you need larger cranes and you have the higher voltage up tower," Williams says. "And we're finding with that, there's a whole host of training and safety opportunities there that we're working through."
Shell maintains three health and safety representatives who handle a lot of company training. The company is also becoming increasingly involved with the new collegiate program at Texas Tech, which is developing a worker training component that includes everything from two-year degrees to a wind PhD and beyond. Shell is helping to fund the program while insisting on an emphasis in safety. "We ask that, if the money is given, that as a part of this development program there be a safety curriculum -- not just a safety class, but a safety curriculum," Williams says. "And we're hoping that the safety training becomes a part of the regular curriculum as these folks come through the program."
Shell's background preparations for a future of gigawatt scale wind power is to continue unchanged for the next year or so. "Right now, we're really concentrating on three things: transmission solutions, turbine selection and permitting," says Williams. All of which is in keeping with the low-key approach that has garnered the company little stateside notice within the industry, from the population at large, or even among co-workers. "Half of our employees don't know we have a wind business," laughs Williams.