Tuesday, November 13, 2007

Power Plays - Heading Into the Wind

November 12, 2007

If you follow the money in the alternative-energy world, it often leads to wind-power projects.

European utilities have been snapping up wind assets in the U.S., which they see as one of the top wind sources in the world. In October, Germany's E.On AG announced the acquisition of $1.4 billion of North American wind assets from Airtricity, an Ireland-based wind-farm operator.

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The deal will make E.On one of the world's largest wind-power producers, increasing its global installed capacity to 850 megawatts from 640 megawatts, E.On says.

Among U.S. utilities recently locking in supplies is American Electric Power Co. It signed a 75-megawatt, long-term power-purchase agreement for new wind power for its Appalachian Power Co. subsidiary with the Camp Grove Wind Farm being built near Camp Grove, Ill., operated by Orion Energy LLC. American Electric Power, based in Columbus, Ohio, has been acquiring wind power in response to plans by Ohio to require utilities to derive 25% of their power needs from renewable sources.

With such demand, companies are rushing to enter the wind market. One wind-development firm, MMA Renewable Ventures, aims to help small developers prosper in what is a market of increasingly large players.

Investing in projects at a preconstruction stage, MMA, which is a subsidiary of MuniMae LLC of Baltimore, provides debt, usually from third parties, to sponsor construction and turbine procurement. Before projects become operational, MMA lines up investors who specialize in making "tax equity" investments, collecting the federal tax credits on the income from the project.

Here's a look at other recent deals reported by Clean Technology Investor:
* GridPoint Inc. of Washington, D.C., raised $16.5 million to close its Series D round of venture capital with $48.5 million. The company has developed an operating system to manage the disparate technologies needed to control and automate utility networks.
* Genencor, a division of food- and feed-ingredient producer Danisco A/S of Denmark, made its biomass enzyme for the production of cellulosic ethanol commercially available for the first time. The technology is aimed at helping large-scale ethanol production.
* Ciralight Inc. of Park City, Utah, raised $1.5 million from angel investors ahead of planned institutional funding. The company develops "daylighting" technology that makes more effective use of sunlight to save on the use of electric light. It is targeting the retail market.

Running on Less

Utilities have been looking for ways to trim energy use by customers. That mission underlies several recent deals utilities have made with "demand-response" companies, which recruit business customers to join demand-reduction programs run by the utilities, and help the companies go into energy-saving mode at peak hours.

In one such deal, Comverge Inc. signed a contract with Connecticut Light & Power of Hartford, Conn., to reduce electricity consumption by 130 megawatts during peak demand hours over a 10-year period.

"It's a sign of the times that utilities are feeling pressure all over to deliver to their customers," says Arthur Vos, vice president of marketing, products and strategy at Comverge, East Hanover, N.J. "Their reserve margins are getting squished, they can't build new power plants, and they've got to do something to keep the lights on."

Southern California Edison made three recent demand-response deals, with Comverge, EnerNOC Inc. of Boston and privately owned Energy Curtailment Specialists Inc. of Buffalo, N.Y. EnerNOC's deal to manage approximately 160 megawatts of capacity for SoCal Edison was its largest to date, valued at $50 million to $75 million. Comverge and Energy Curtailment each struck deals to manage 50 megawatts of SoCal Edison's power.

Sun Spots

Among competing solar-power technologies, solar-thermal technology, which relies on heat rather than light to generate electricity, has been reviving after a federal tax credit was restored in 2006.

Ausra Inc., of Palo Alto, Calif., plans to build at least 1,000 megawatts of solar thermal power plants at a cost of roughly $3 billion, says David Mills, the company's chairman and chief scientific officer. Ausra is benefiting from ambitious solar-thermal investment plans on the part of electric power provider FPL Group Inc., which said recently it plans to invest $2.4 billion over several years in solar-thermal and renewable energy projects.

Development of solar-thermal power in California also is likely to be helped by a regulatory change. The California Independent System Operator Corp., the agency that governs transmission planning, has proposed allowing utilities to borrow money to build out transmission lines to areas rich in renewable-energy potential and then get reimbursed by new developers as they start using the capacity. Currently, the first developer to need transmission has to pay the cost for building it and then let others use it without paying for the development, a significant barrier for developers of wind and solar-thermal energy, which is often in remote places.

"You can't transport the wind or the sun," says a spokeswoman for the California ISO. "That's why we feel this is needed."

--Ms. Chernova and Mr. Shieber are reporters in Jersey City, N.J., for Clean Technology Investor, a newsletter published by Dow Jones & Co.

Write to Yuliya Chernova at mailto:yuliya%20Chernova@dowjones.com and Jonathan Shieber at jonathan.shieber@dowjones.com

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