Another transatlantic shuffle of wind assets -- Airtricity withdraws to Europe and E.ON heads for gold in America

In the latest European utility conquest of American wind power development, German giant E.ON is heading across the Atlantic Ocean to pick up all the assets of Irish Airtricity's North American wind division. The portfolio of 210 MW installed projects and 335 MW under construction will nearly double E.ON's current 645 MW of operating wind plant, all of which are in Europe. The Airtricity purchase also includes a development pipeline quoted at 5000 MW.

"The American market is the most attractive world-wide for wind energy and is only at the beginning of its development," says E.ON's Christian Drepper. "We anticipate high growth rates over the coming years." Other key drivers for E.ON's move into the US include an attractive regulatory regime, the prospect of income from sale of renewable energy certificates, wind's federal production tax credit and other tax concessions, and the quality of the wind resource at the Airtricity sites when compared with those in Germany, says Drepper.

Until five years ago, German E.ON, with a home base in the world's largest wind market, had been conspicuous by its absence from the wind industry. Its first venture in Germany was a modest 16.5 MW wind farm as late as 2002. Even today it owns no more than 185 MW of wind capacity in its domestic market, out of a national wind total of more than 21 GW. Having missed that boat, the company's focus has been on offshore wind power, with 60 MW online and another 180 MW project building in UK waters, plus interests in several hundred megawatt under development in both Britain in Germany. It is also launching a renewables division at the beginning of 2008. "Expanding renewables internationally will be one of the key tasks," says the company.

Sudden exit

For its part, Airtricity -- which arrived in America as recently as 2004 with the stated intention of becoming a major player -- was just getting into its stride in the US when E.ON proposed. The company connected its first US wind plant last year, the 124 MW Forest Creek project in West Texas. Early next year when the 90 MW Sand Bluff wind plant, the 209 MW Roscoe project, and the 126 MW Champion wind plant are complete, Airtricity will have 550 MW of wind capacity connected to the Texas grid. The company's heavy focus on Texas, where wind plant capacity factors run high, was a draw, says Drepper.

E.ON's purchase price for the Airtricity portfolio was $1.373 billion, split between an equity value of $820 million and $553 million in net debt and shareholder loans. E.ON says it must inject another $3.5 billion in capital expenditure between now and 2011 to bring Airtricity's undeveloped assets online.

Airtricity's sudden exit from the North American market after just three years has much to do with the company's rapid growth. "We were a bit of a victim of our own success," says CEO Mark Ennis. Airtricity found itself moving towards a 600 MW a year build cycle in the US and then found itself doing the same in Europe. A very aggressive strategy in America also coincided with both the on and offshore markets in Europe moving forward faster than Airtricity had anticipated. "We had to make a move," says Ennis.

"We found ourselves wondering how we could fund it all," he adds. "The original intention was to sell fifty per cent of the business in the US. But it became apparent very quickly that that would not be enough." The rising size of wind projects was an added cost pressure. "The scale of projects has moved in the past year or so from twenty to fifty megawatt to plus one hundred megawatt and moving to five hundred megawatt. The scale of everything has increased significantly -- and it all takes money."

On top of that, the worldwide shortage of wind turbines played a role. Ennis points out that turbines have to be ordered two years in advance, requiring a 20% deposit. "That's a big call on equity capital."

Lock and load

For Airtricity, the sale will not derail ongoing efforts at bringing up to 880 MW online by end 2008 for E.ON to tap into to meet its goals. "When the deal closes we'll see," says Declan Flanagan, head of the company's North American division. "To a large extent, it's business as usual. We have a large build program we're engaged in and we'll continuing building out those projects. So the main focus for me and the team is a continued focus on the projects we have right now and to continue to build up the pipeline."

Flanagan says the company has many more projects that could be built than the number that will actually be built. Texas will be the focus in 2008. "We've got six locations we can build in Texas and we'll probably pick the best three or four of those. That's the way this business works. Around this time towards Thanksgiving is when you finally lock and load and it's a matter of accelerating projects between 08 and 09," says Flanagan.

Airtricity's push extends beyond Texas. The company has just begun building a 35 MW wind plant in Munnsville, New York, while another in Stueben, New York, is close to construction. One Airtricity project in Pennsylvania is also in advanced stages.

A new role for E.ON

E.ON's bid for Airtricity comes only weeks after it bought Energi E2 Renovables Ibéricas in Spain and Portugal from Danish utility Dong Energy at a price of EUR 722 million (Windpower Monthly, September 2007). This added 225 MW to E.ON's operating wind portfolio. E.ON reports total global ownership of renewables, mostly hydro, at 6612 MW, about 12% of its 53.5 GW of capacity at the end of 2006. More than half of that is coal and natural gas, with wind at less than 1%.

The company has pledged to halve the specific CO2 emissions of its global power station fleet by 2030 compared with 1990. Offsetting the emissions from its ageing American coal plant -- some of which are more than 50 years old -- will go some way to meeting that goal.

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