Insights from the Wind Business

The wind power business provides valuable insights about prospective opportunities in sustainable energy. So says Ted Noble, vice president of Wintec Energy, a renewable energy and real estate company with headquarters in Palm Springs. Wintec has been in the renewable energy business for over twenty years as a developer, owner and operator of wind energy projects in Northern and Southern California. Ted provided the following thoughts about opportunities in the renewable energy business: 

Utility scale solar power generation is a huge opportunity.
The demand for utility scale solar power generation is truly astounding. There are 24,000 megawatts of such projects in the queue with 2,400 megawatts of announced projects and only 2,000 megawatts in production. Sites for utility scale solar projects are in demand. There is a lot of opportunity here because no one has deployed utility scale projects on a mass scale. The time of reckoning will be from 2010 to 2013. No one knows what the prevailing end product will be or who can build it. See Ausra as well as SunPower. It’s now a race to see who can design it. Big players are coming into this market, including Lockheed Martin’s recent announcement of a joint venture with Starwood Energy. These giants see a large market, but there is a long way between now and successfully deploying utility scale projects.  

It’s a $50-$100B market. It’s a race to see who can be the top two in mass scale, utility grade solar. Looking forward, solar power is a better opportunity than wind and will most likely eclipse wind over the next decade. Utility scale solar power is a great place to be. Solar will be a big part of developing energy independence. 

Improving power transmission infrastructure creates a huge opportunity. 
The lack of transmission capacity is a huge impediment to integrating renewable energy resources into the grid. The current power line infrastructure constrains the growth of renewable energy; we simply can’t run power lines to many suitable solar power generation sites and there is little or no additional capacity on existing lines. 

Wind power faces the same problem. Unfortunately, it’s virtually impossible to create more power lines. The opportunity is in the transmission lines. Can we increase the power carrying capacity of the existing infrastructure?  The Holy Grail would be to make existing power lines more efficient. Will it be a new type of wire? Can we install a second set of lines and or poles?  It would be tremendous to make existing lines more efficient to carry more load without installing new wires and lines. Improving the power transmission infrastructure would open up many more applications and make more sites accessible to the grid.

Improving support infrastructure is a huge opportunity.  
Support infrastructure for solar and wind power is lacking in the young renewable energy industry. For example, there is a good opportunity for those who service wind turbines. Most large scale operators of wind projects can’t get enough people to work on their wind turbines.  They don’t have people to manage or devote to operations and maintenance. There are simply not enough skilled workers to maintain and operate wind turbines or enough crane operators to operate the cranes needed to access the gear boxes. We need steeple jacks for the wind business.   Some cranes need to remain for ongoing operations and maintenance on larger projects.  In addition, this shortage will become worse due to recent reductions in turbine warranties. Older turbines from 2-4 years ago had typically had 5 year warranties from the manufacturer. Newer turbines have only 1-2 year warranties. The magnitude of this problem will hit the wind power business by 2010. Some turbines may need to shut down due to lack of qualified service personnel. Daily operations and management will become a severe problem. 

Opportunities abound for rollups.
There are lots of business opportunities on the margins where value can be had. There is an opportunity for private equity to roll up old wind power projects to streamline operations and maintenance by packaging several projects together. 

Installed wind turbines are cash cows. Such a strategy would have no permitting risk or grid access risk and might cost 25 cents on the dollar compared to a new project.  There is also an opportunity to roll up service companies or expand existing ones like Upwind Solutions. Wind turbines have many complex moving parts that are hard to access. As the utility scale and distributed solar power businesses expand, similar service business opportunities arise.  

Source the underlying commodity.   
The single greatest play is for controlling the underlying commodity which gives you the opportunity to vertically integrate. Wind flow or sun flow are commodities. There is an abundance of appropriate solar sites from Arizona to Nevada and California.  Again, the problem is often access to the grid.  
.   The single greatest play is for controlling the underlying commodity which gives you the opportunity to vertically integrate. Wind flow or sun flow are commodities. There is an abundance of appropriate solar sites from Arizona to Nevada and California.  Again, the problem is often access to the grid.  In photovoltaics, the run on silicon will be huge. The commodity piece is the big question mark.  Manufacturers should go long on a commodity that everyone will need and get control of the manufacturing process. The issue is whether photovoltaic cell manufacturers can source enough silicon to build panels. 
.   The single greatest play is for controlling the underlying commodity which gives you the opportunity to vertically integrate. Wind flow or sun flow are commodities. There is an abundance of appropriate solar sites from Arizona to Nevada and California.  Again, the problem is often access to the grid.  In photovoltaics, the run on silicon will be huge. The commodity piece is the big question mark.  Manufacturers should go long on a commodity that everyone will need and get control of the manufacturing process. The issue is whether photovoltaic cell manufacturers can source enough silicon to build panels. Companies are buying manufacturing so that they can source their own cells. There are opportunities for vertical integration. On the wind side, gearbox manufacturers are being bought by turbine manufacturers. Synthetically, others are doing it by being long in the queue and reserving output. Most major turbine suppliers have sold out their production runs through 2009..   The single greatest play is for controlling the underlying commodity which gives you the opportunity to vertically integrate. Wind flow or sun flow are commodities. There is an abundance of appropriate solar sites from Arizona to Nevada and California.  Again, the problem is often access to the grid.  In photovoltaics, the run on silicon will be huge. The commodity piece is the big question mark.  Manufacturers should go long on a commodity that everyone will need and get control of the manufacturing process. The issue is whether photovoltaic cell manufacturers can source enough silicon to build panels. Companies are buying manufacturing so that they can source their own cells. There are opportunities for vertical integration. On the wind side, gearbox manufacturers are being bought by turbine manufacturers. Synthetically, others are doing it by being long in the queue and reserving output. Most major turbine suppliers have sold out their production runs through 2009.Storage provides another great opportunity
Storing off peak power on a utility scale would be a great way to provide load balancing for peak loads. There is also a distributed power opportunity for households which could buy off-peak power and store it for peak use. This would be a wonderful thing to figure out how to do. There is more demand for on peak power when it is hot. A utility would be willing to pay more for this power when needed. We’re in the early stages of battery technology. Good storage technology would enable us to capture and store when needed. Storage would allow you to provide clean power when you need it when power is cheaper.
.   The single greatest play is for controlling the underlying commodity which gives you the opportunity to vertically integrate. Wind flow or sun flow are commodities. There is an abundance of appropriate solar sites from Arizona to Nevada and California.  Again, the problem is often access to the grid.  In photovoltaics, the run on silicon will be huge. The commodity piece is the big question mark.  Manufacturers should go long on a commodity that everyone will need and get control of the manufacturing process. The issue is whether photovoltaic cell manufacturers can source enough silicon to build panels. Companies are buying manufacturing so that they can source their own cells. There are opportunities for vertical integration. On the wind side, gearbox manufacturers are being bought by turbine manufacturers. Synthetically, others are doing it by being long in the queue and reserving output. Most major turbine suppliers have sold out their production runs through 2009.. Storing off peak power on a utility scale would be a great way to provide load balancing for peak loads. There is also a distributed power opportunity for households which could buy off-peak power and store it for peak use. This would be a wonderful thing to figure out how to do. There is more demand for on peak power when it is hot. A utility would be willing to pay more for this power when needed. We’re in the early stages of battery technology. Good storage technology would enable us to capture and store when needed. Storage would allow you to provide clean power when you need it when power is cheaper.Biofuels will have limited utility.
While ethanol is a wonderful resource but it’s a question of demand versus practical reality. Ethanol won’t make a dent or make a major difference. It takes fuel and farmland to produce it, putting pressure on food prices. Natural gas could be a better solution. We have plenty of it. Ten percent of cars running on natural gas would reduce demand for petroleum based products. Why not go this route?
.   The single greatest play is for controlling the underlying commodity which gives you the opportunity to vertically integrate. Wind flow or sun flow are commodities. There is an abundance of appropriate solar sites from Arizona to Nevada and California.  Again, the problem is often access to the grid.  In photovoltaics, the run on silicon will be huge. The commodity piece is the big question mark.  Manufacturers should go long on a commodity that everyone will need and get control of the manufacturing process. The issue is whether photovoltaic cell manufacturers can source enough silicon to build panels. 

 

There will be infrastructure plays. 
How will we provide alternative fuels for transportation?  How do you fuel up? How do you capture and store hydrogen? What is the roadmap? We’ve already used wind power to create hydrogen for buses. Safe modern storage for hydrogen for cars is needed. Developing membranes for the storage of hydrogen might be a good investment.  Storage, transport and delivery are challenges for the hydrogen economy. 

Tax incentives should be stabilized
Wind power has been cursed by the constant stopping and starting of tax credits. All energy industries get subsidies.  We need a long term tax policy to eliminate some of the boom and bust cycles. A forward looking tax policy would be very helpful. Why should someone who develops wind power get a tax incentive while someone who develops storage technology doesn’t?  We need to provide consistent and intelligent tax incentives to stimulate the development of renewable and clean technologies.

Energy intelligence is another good area for investment. 
Smart meters, which can be managed from afar, allow utilities to manage power consumption in real time. This leads to better sense of energy usage and management of energy usage in the house. The early morning is the best time to use the washing machine. These meters can kill all non-essential stuff. How do I use my energy more efficiently?  Tracking how it is used, monitored and moved will help. Demand side reduction helps eliminate demand.  Demand side responses make more intelligent use of energy. 

We have two approaches: increase supply and reduce demand. On the margins is where it matters. We can reduce demand and invent technologies to reduce demand. Energy efficient light bulbs are a good example of this.

Where would you invest?  
There are significantly higher margins in early stage development work, including control of the real estate, than in long term ownership of the power generating assets.

Where would you advise a college student to start a career? 
The entire green tech space is seeing tremendous growth and my suggestion would be to focus on solar energy. There are many aspects of solar energy from the commodity sourcing component to site development that may fit your interest.

Full disclosure department:
Ted Noble is the brother of my partner Jon Noble. Upwind Solutions is a client of Montgomery & Hansen, LLP.  I am the trustee of a trust which owns 900 shares of SunPower common stock.

 

 

.   The single greatest play is for controlling the underlying commodity which gives you the opportunity to vertically integrate. Wind flow or sun flow are commodities. There is an abundance of appropriate solar sites from Arizona to Nevada and California.  Again, the problem is often access to the grid.  In photovoltaics, the run on silicon will be huge. The commodity piece is the big question mark.  Manufacturers should go long on a commodity that everyone will need and get control of the manufacturing process. The issue is whether photovoltaic cell manufacturers can source enough silicon to build panels. 

.   The single greatest play is for controlling the underlying commodity which gives you the opportunity to vertically integrate. Wind flow or sun flow are commodities. There is an abundance of appropriate solar sites from Arizona to Nevada and California.  Again, the problem is often access to the grid.  In photovoltaics, the run on silicon will be huge. The commodity piece is the big question mark.  Manufacturers should go long on a commodity that everyone will need and get control of the manufacturing process. The issue is whether photovoltaic cell manufacturers can source enough silicon to build panels.

John Montgomery is a partner with Silicon Valley law firm Montgomery & Hansen.