“I think in our business, meeting higher customer expectations and staying focused on that all of the time will ultimately serve your shareholders.”
The Ultimate CEOs: Lewis Hay III, FPL Group
The CEO Power Forum: Not all utility CEOs are created equal...
will have new environmental laws passed. I think that will be a positive for renewables. ... There's a lot of reasons to be bullish on the renewables front.
Fortnightly There is much discussion among energy technology specialists over when solar will become economic. FPL Group purchased some significant solar assets in California recently. Can you tell us of the economics of solar currently and where you feel it is headed?
Hay First of all, there are different forms of solar. ... Photovoltaics are still very, very expensive and will only apply to niche-type situations. The technology we employ is, simply put, very large mirrors that focus the sun's rays on to a thermal collector. Basically, we heat a fluid that then goes through a heat exchanger and makes steam, and from there on it's the conventional way of generating electricity by running steam through a turbine generator set. The economics for new solar, even though that type of solar is more economical than photovoltaics, I would say it is a fairly expensive technology. One of the advantages of solar is that it really operates as a peaker. For instance, our plants are in the Mohave desert. They produce power from roughly 8 o'clock in the morning to 7 or 8 o'clock at night. That is usually when demand is the highest. It is, frankly, far more reliable than the wind energy. Again, it's intermittent in that you don't get any power at night, but relative to peakers the economics are not that bad.
Fortnightly What kind of returns do you think you can get from a solar array?
Hay Well, keep in mind that the ones that we just bought were existing operations. They are adjacent to the ones we were already operating. So, we believe there were a lot of operational synergies associated with those. I think it is fair to say we are not paying replacement prices for the assets that we are buying. So, I think the returns are going to be very attractive... They are double digit returns for sure. But remember that is buying an existing asset at a discount to its replacement price. If you created a brand new facility using the same technology, I'm not sure the returns would ever be satisfactory.
Fortnightly How do you think greater consolidation will affect FPL Group? Are you concerned that such consolidation will affect the competitiveness of energy markets in which FPL Group participates?
Hay First of all, I hear a lot of talk about accelerated consolidation. I am a big believer that this industry will ultimately consolidate. But I am a little skeptical that just because of the Exelon-PSEG merger, that it is going to rapidly consolidate. In fact, the administrative law judge the other day for the SEC's ruling on AEP's merger with CSW five years ago is going to cause a lot of people to at least pause and think before they go forward with the merger until that whole thing gets sorted out.
That answers one part of your question. The second part is