Something Missing at Windpower 2009

We attended American Wind Energy Association’s WINDPOWER 2009 conference in Chicago last week.  It was an impressive show at the cavernous McCormick Place, with 1,200 exhibits and almost 23,000 people in attendance - 10,000 more than last year!  2008 was a huge year across the globe for new sources of wind energy .  Wind capacity in the U.S. increased by 50 percent over 2007, and wind power now generates about 1% of the total US electricity needs, up from 0.1% in 1997.  In order to meet an aggressive 20% goal by the year 2030 (set by the AWEA), US wind generating capacity will need to increase at a compound annual growth rate of 12% for the next 22 years!  It is certain that the U.S. industry will get a substantial boost in from the American Recovery and Reinvestment Act that was passed in February.  In addition, momentum is building for the eventual passage of some type of carbon tax, and wind power will be a major beneficiary.  Despite the current low prices of oil and natural gas, it is clear that wind will eventually have a significant impact on the U.S. energy supply. 

There seemed to us, however, to be something missing at this year’s show – investors.  Sure, there were some great capital – focused conference sessions headed up by knowledgeable investment and industry experts during the week.  But out on the exhibitor floor the lack of investors walking around and interacting with the attendees was noticeable.  Virtually every developer we talked to asked if we could help them find financing to finish projects in the pipeline. The floor was filled with every imaginable manufacturer, construction company, maintenance service provider, and even state development agencies. We did not see, however, many private equity groups or investment bankers, and just a few consultants that could assist developers in finding capital for their projects. Today, foreign developers and utilities control 85% of the U.S. wind capacity, while independent developers own the rest. Obviously, low oil and natural gas prices, along with the current credit crisis have played a huge role in reducing U.S. based, independant investment in new projects. But it is more complicated than that, as there are other long-term challenges keeping these investors watching from the sidelines. 

First, the industry has been driven by constantly shifting tax credits, production subsidies, and alternative energy quotas – not the ability to leverage cash flows.  This has made it difficult to find equity investors, and even harder to secure debt commitments for development projects.  Many in the industry are pointing to the development of a stable long-term US energy policy  as the way to entice more traditional investors.  As with any politically derived solution, however, the phrases “stable” and “long-term” may be the issue here.     

Another key challenge is an aging and inadequate transmission system. Although a lot of funding is headed towards smart grid technology, the industry says it needs 19,000 miles of new high voltage transmission lines (at a $100 billion price tag) to get the power from the best places to erect capacity, to the places it is actually needed.  Where will this infrastructure funding come from, and will Americans be willing to stretch additional high transmission lines across the country – perhaps in their backyards?   

We believe there should be no doubt that this is a new era for alternative energy, and wind power in particular.  The Obama administration is pushing a “wind friendly” agenda, and Americans seem more ready than ever to embrace alternative energy sources.  Few expect that oil prices will remain at this level indefinately, and a carbon tax will change the playing field for all energy sources.  In the meantime, these other critical pieces need to come together – a stable, long-term energy policy and transmission infrastructure improvements – for the industry to attract the capital it needs to attain the tremendous growth that many are predicting. 

When that happens, investors will take up a lot more of the floor space at future Windpower conferences.