Selling the promise of windpower

Cover Story: Selling the promise of wind power

Aug 19, 2016, 5:00am CDT

James Dornbrook

Reporter

Kansas City Business Journal

 

On a breezy tract of Kansas farmland carefully selected by a team of meteorologists and engineers, a crew erects a small instrument tower that will gauge wind speed, direction, barometric pressure and other information for the next few years.

Data from this site, and hundreds like it, flows to Tradewind Energy Inc.’s headquarters in Lenexa. If models show a site is financially viable for wind turbines, Tradewind sends in a real estate team to negotiate long-term leases, a process that can take years for a utility-scale wind farm. It also takes years to study the capacity of the power transmission grid, conduct environmental impact studies, start the permitting process and find buyers for the power generated by the project.

 

After jumping through all those hoops, the project is “derisked,” and Tradewind can sell it to a developer and operator and, finally, get paid.

“After founding Tradewind in 2002, we spent the first four years trying to grow this business with a few million dollars,” CEO Rob Freeman said.

“We used to focus mainly on regulatory and policy risk, but now it’s also about creating well-sited projects that manage grid issues and pricing issues.

It’s more about the long-term market prices. So now it’s a business that takes hundreds of millions of dollars. It’s super capital-intensive.”

 

Against these headwinds, Tradewind has grown. The company has more than 3,000 megawatts of wind projects built or in construction — enough to power 1 million homes. Its portfolio of wind projects in the planning and development stages now sits around 6,000 megawatts.

 

Tradewind also has 135 megawatts of utility-scale solar projects built or in construction, with another 3,000 megawatts in development.

 

The company, one of the nation’s top five utility-grade wind and solar developers, employs 101. And with a growing number of buyers for renewable energy, Tradewind’s future looks bright.

 

Avoiding an early stall

 

Tradewind was founded by what its website refers to as “a technology entrepreneur, a former musician turned engineer and a reformed lawyer with an energy background.” That would be (in order) COO Geoff Coventry, who also co-founded early e-commerce company NetSales Inc.; Chief Development Officer Matt Gilhousen, a former drummer for Lawrence group Kill Creek; and CEO Freeman, a former senior vice president of Aquila Inc.

 

While the promise of wind power was evident when the company started, the business of putting together wind projects was no breeze.

 

There was a shortage of wind turbines in those early years, and project buyers wanted manufacturing commitments and deposits on the equipment before signing deals. Steep capital requirements quickly began to outstrip the capacity of local and regional investors and, on several occasions, nearly sent Tradewind into bankruptcy.

 

In 2006, Tradewind got a big boost in the form of a partnership with Enel. The Italian company is one of the largest conglomerates of regulated utilities and independent power owners in the world. Enel fronts most of the money for Tradewind’s projects and, in return, gets first crack at acquiring them.

 

The partnership came at a time when most of Tradewind’s peers were being gobbled up by large corporations. It is one of the few independent players left.

 

The financial partnership remains a big ingredient in Tradewind’s growth, with $5 billion of investments in the pipeline.

 

“Tradewind acts very similarly to other development firms out there, such as EDF Energy, Nexterra and others,” said Andrew Ferris, director of electric supply planning for the Kansas City Board of Public Utilities.

 

“Tradewind is a local partner, and that never hurts because we get to see them face to face. But the reason we entered into an agreement with Tradewind was strictly based on price and performance measures. They were as competitive, or more competitive, on the price front and the structure of the contract than anyone else we were dealing with as we looked for renewable energy options.”

 

BPU, which serves Kansas City, Kan., is a repeat customer for Tradewind. In April, it announced a 20-year deal to buy half the power produced by Tradewind’s 400 megawatt Cimarron Bend project in Clark County, Kan.

 

Not just for utilities

 

The Cimarron Bend project attracted attention because of the buyer for the other half of the project’s power — Google Inc. The deal was Tradewind’s first with a nonutility corporate customer, further bolstering its future business prospects.

 

Google is a pioneer in the corporate renewable energy space, signing its first deal in 2010 for power from an Iowa wind farm. It remains the largest corporate purchaser of renewable energy, with about 2.5 gigawatts (2,500 megawatts) under contract.

 

“Our goal as a company is to be 100 percent renewable energy powered,” said Sam Arons, manager of Google Energy and Infrastructure. “First, it’s the right thing for our company, our customers and the planet. Secondly, it provides a price hedge against long-term potential fuel price increases, giving us long-term price stability and predictability. Finally, it helps us get ahead of the game for any environmental regulations that may come into effect, and we’re already starting to see that with the Paris Climate Agreement.”

 

There have been more than 75 nonutility investments in wind production, most coming in the past two or three years, said Hannah Hunt of theAmerican Wind Energy Association’s industry data team. She said nonutility buyers are generating demand that complements demand from utilities, which also is growing.

 

“When companies first started to invest in wind around 2009-2010, it was because they had sustainability targets they wanted to reach as companies,” Hunt said. “They had customers who valued renewable energy and lower carbon emissions. But they also had a second motivating factor, which is the low cost of wind energy.”

 

Rising prospects

 

The cost of constructing and maintaining wind energy projects has dropped by about two-thirds in the past six years, thanks to new and improved technology that can generate more electricity with less down time. Corporate buyers also like wind because there are no fuel costs, making it an effective hedge against potential future electricity price instability. That’s a major incentive for tech companies like Google that run huge, energy-guzzling server farms and large retailers like Wal-Mart and Target.

 

“It’s incredible how much change has happened in the last 15 years and how much more is going to have to happen because of market forces,” Tradewind’s Gilhousen said. “There are going to be drivers for adding more and more zero-fuel energy sources.

 

“There are physical challenges associated with that. The wind doesn’t always blow, the sun doesn’t always shine, so you need to have other sources of power, as well. But when you look at a real-time view of what portion of the load is being served by which type of generation, we’re seeing more and more wind. It’s growing yearly and becoming a bigger piece of the pie in large steps. It’s going to require more transmission lines and rethinking how the grid operators run the system.”

 

Wind power capacity has grown from 4,147 megawatts in 2001 to 74,821 megawatts in the second quarter of 2016, according to a report by the American Wind Energy Association. As the wind industry grows, so do Tradewind’s future prospects.

 

“Renewable energy development is definitely economically driven, but there is no question that across the board it has also become fundamental, accepted among all the constituents in this industry,” Freeman said. “This thing about renewables, sustainability and decarbonization is here to stay. You just can’t avoid it anymore from an economic and risk perspective.”

 

WIND POWER REVS UP

 

830 megawatts – U.S. wind power capacity installations in 2016

74,821 megawatts – Current wind power capacity in the U.S.

49,000 – Wind turbines operating in 40 U.S. states, Guam and Puerto Rico

169 – Wind turbines added in Texas, Kansas, Nebraska and Iowa during the second quarter of 2016

12,450 megawatts – Wind capacity currently under construction in the U.S.

780 megawatts – New wind project construction announced in Kansas in the second quarter of 2016, the most in any state for that period

81 percent – Wind power capacity contracted by electric utilities and cooperatives during the second quarter of 2016. Corporate and other customers, such as Google Energy and Dow Chemical, contracted for the remaining 19 percent.

 

Source: U.S. wind industry second quarter market report, American Wind Energy Association