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Seeing Green

Wind deals promise brisk business for years to come.

Fortnightly Magazine - May 2008

you see investment banks like Lehman, Morgan Stanley and Goldman Sachs, but the current trend is more strategic investors, including utility companies. Some are looking to acquire, and others to joint venture.

This is the typical trend. In any new industry you get the private equity guys first, then the likes of Lehman and Goldman, and then the strategic guys follow.

Fortnightly: Are utilities following FPL’s example?

Redinger: Absolutely they all look at FPL, and also Xcel Energy, but not necessarily as examples. FPL’s strategy is to be a wind developer, but utilities’ strategies run the gamut. Some are investing for political reasons, to show they are trying to reduce their carbon footprint. They don’t necessarily want to be a developer, but they want to have enough wind to show they’re being a good corporate citizen. And they see it as a hedge, with carbon regulation coming down the pike. Interest in windpower is definitely moving in parallel with talk about climate-change legislation.

Fortnightly: Does windpower’s current growth rate depend completely on production tax credits (PTC) being extended by Congress?

Redinger: In the near term, for the wind industry to continue its torrid pace, the PTC is very important. But look at the renewable portfolio standards (RPS) that are now in place. Recently Standard & Poor’s said if you add up what’s required between now and 2015 under the existing RPS in 29 states—24 of them mandatory—then 6,000 MW of new renewable energy capacity has to come online each year. Last year was a record year for wind, and it was just over 5,000 MW. So absolutely, unless the laws change, this industry will continue growing fast, and there will be a large amount of capital to be spent on windpower.

In the short term it’s important to get the PTC renewed. But in the longer term I have a different view. The wind industry needs to stand on its own. Given where power prices are going in this country, I don’t think the PTC will be necessary further down the road. There isn’t a lot of baseload power construction going on, so I see an energy shortage coming. Between now and 2015, we’ll see a fairly hefty increase in power prices. Eventually these projects will be profitable without the PTC.

Fortnightly: Would the windpower industry be better off without the PTC, than it is in the current on-again, off-again situation?

Redinger: Yes, absolutely the industry will be better off without the PTC—but only if it is able to finance itself without it. The reality is that’s not the case today. But what’s interesting is the money is coming from somewhere. Either we’re paying the higher price through our tax dollars, or we’re paying higher power prices. The PTC is just camouflage. It’s not free.

Fortnightly: Windpower advocates would argue fossil power has enjoyed even more deeply camouflaged subsidies for decades. Do we need to eliminate those subsidies before we can have a truly level playing field?

Redinger: That’ll happen when climate-change legislation gets enacted, and we figure out how much we’re