An independent wind producer -- Venture capital start-up

The remnants of part of Capgen, Clipper Windpower's abandoned wind power development business -- announced with much celebration just a year ago -- are being relaunched under a new name by Hudson Clean Energy Partners, a group of businessmen with past experience in wind and renewables development who have decided to strike out on their own from a base north of New York close to the Hudson River. Hudson picked up Spanish Helium Energy after Clipper severed its relationship with the company when it dropped the Capgen initiative.

Through the acquisition of Helium, Hudson is launching a privately owned global independent power producer (IPP) called Element Power. It intends to develop wind and solar projects, primarily in southern Europe, central Europe and Latin America, using private equity financing. Given the global financial crisis, it is a model that may have inbuilt advantages, according to some.

During Helium's short marriage with Clipper, however, nothing tangible emerged on the wind front, although Helium boasted a 4 GW portfolio of wind and solar projects and has built solar projects in Europe. "At the end of the day, that partnership never transpired. It sort of fell by the wayside," says Hudson's Joe Slamm. Hudson's purchase of Helium gains it Pedro Barriuso, former head of renewables at Spanish utility Iberdrola. On leaving Iberdrola, Barriuso formed Helium in 2006 and says he has built-up a 400 MW wind development portfolio since then, now in Hudson's hands.

Hudson Clean Energy Partners was founded a year ago by Neil Auerbach, who was part of the Goldman Sachs team behind the acquisition of private American wind project developer Zilkha Renewable Energy. The team grew Zilkha into Horizon Energy before selling the company to Portuguese utility Energías de Portugal for a huge profit (Windpower Monthly, May 2007). Slamm was also a member of the Goldman Sachs team.

Other names from the wind business to have joined Hudson in recent weeks are Mike O'Neill, a former commercial director at Renewable Energy Systems, a global wind power developer based in Britain, and Shaun Kingsbury, who will head up European operations from London. Kingsbury has experience of a similar start-up in 2001, Windforce, which failed to get off the ground (Windpower Monthly, March 2003).

Capital available

Element Power is being launched without any operational wind power, but all except 600 MW of Helium's 4 GW of projects in development are wind projects, according to the firm. Slamm likens the situation to the predicament faced by Zilkha, where capital was needed to move projects into construction. Goldman Sachs provided the needed cash. This time, Slamm says, Hudson will find the money.

"There's a tremendous amount of capital available, not least from large utilities, but there is still a lot of room in a high growth market globally for more players who are developing and owning wind and solar generation," says Slamm.

He admits the overall business cycle could be better. "We don't have rose-coloured glasses, we're not sitting in a vacuum. We do realise the financial stresses in the world." In the US, he notes the sudden reduction in companies with tax burdens to offset through use of instruments such as wind power's federal production tax credit. But Slamm compares the tax equity squeeze to other supply disruptions such as turbine availability, which are temporary phenomena that rapidly growing markets go through. "No one will know exactly how long that will last as financial institutions who are the primary tax payers in the US try to figure out exactly what their balance sheets look like, let alone what tax capacity looks like," he comments.

Private equity

A lacklustre tax equity market may play to Element's advantage, says Richard Homich of wind finance consultancy Advantage for Analysts. With tax equity less available and costing more to secure, cash laden private-equity-backed developer outfits are well positioned. "When the tax equity rate goes up...that's when private equity can exercise its muscle. As long as there is cash in the fund, they are more likely to get their projects off the ground," says Homich.

The other strong pillar to Hudson and Element is its strong team, adds Homich. Hudson may or may not have the cash to bankroll Element's projects right away. But they have an experienced team in place to bring on limited partners to inject cash into the operations, he argues. He cites Hudson's recent appointment of John Cavalier, a former vice chairman of Credit Suisse's investment banking division, as a partner. Cavalier headed Credit Suisse's renewable energy efforts worldwide.

Growth capital

"The opportunities for the small developers are coming to an end. If you don't have lots of capital and clout in your management team, you're not going to be able to attract capital from either private equity or from tax equity. Tax equity is limited, so they are going to give it to folks they have the most confidence in," says Homich.

With confidence lacking in the overall market, renewables projects are seen as safe investments, says Slamm. Banks are still making asset based loans. And what renewables need are secured loans based on power purchase agreements or fixed tariff payments. "At Hudson, we're providing growth capital through this Element Power platform to put bricks and mortar projects up that produce cash flows. Banks are still lending to that. If they don't lend to that, they're not going to lend anywhere because there would be nothing left."