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United States

Profits too low says Shell -- No more wind investment

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Shell may have said that further investments in wind power by the company are not to be expected, but its head of wind power in the US is not yet out of a job. "There are no current plans to exit our existing assets," says Dick Williams. "I would not describe this as a pullback but rather a focus on our existing assets and our plans to operate them reliably and efficiently. We expect to continue development of some of our proposed projects, but do not plan to make any major new investments."

In late March, Shell corporate executives at its European headquarters indicated the company was pulling out of its project development activities in the wind sector, which by then were limited to the US following its exit from the London Array 1000 MW offshore wind project in the UK last summer.

The company's current operating wind farm assets include involvement in 11 wind facilities in the US and Europe with a combined capacity of 1100 MW, in which it has a 550 MW stake. Almost 900 MW of the total is in the US. Last year saw Shell bring 264 MW online in its two-phase NedPower Mt Storm project in West Virginia using Gamesa turbines. The project is half owned by utility Dominion. Shell has no additional turbines under order or delivery.

Thin returns

There had been speculation in the wind industry that in today's difficult financial markets, cash-laden and credit-worthy oil conglomerates such as Shell would be well positioned to accelerate investments in the renewable energy sectors. "Shell could have been one of those companies," says Andrew Redinger of KeyBanc Capital Markets, a market observer. But with the thin returns in the US wind business -- he says they are sometimes down to single digits -- Redinger is not surprised that Shell feels it can make more money elsewhere.

Even modest but stable returns in today's market are little consolation to a company such as Shell that has other proven alternatives. "They're good at finding oil and natural gas. Shell likely has a lot of projects that probably have a higher return than wind and that's their business," says Redinger.

Shell's Williams does not deny it. "Even with the current subsidies, our wind projects struggle to compete for capital investment compared to other opportunities. So, while the subsidies are important, they cannot help us grow the wind business to one that creates a material alternative energy business," says Williams.

Shell describes its decision as a turning point in its business, when it moves from an exploratory phase in multiple renewable energy technologies to a focus in clean technology that offers the best fit with the company. "We said that we planned to focus down, once we have identified where Shell ought to be in alternatives. The one that makes the most sense for Shell -- that is closest to our core business -- is biofuels," says the company.

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