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Posts Tagged ‘General Electric’

TODD WOODY @ Fortune Magazine, November 12, 2008

windfarmAbout 60 miles north of San Francisco, the strip malls of Solano County give way to gently rolling hills where, as far as the eye can see, wind turbines sprout from the golden bluffs overlooking the Sacramento delta. Construction on Solano’s newest turbine farm, Shiloh II, began this summer, part of a wind rush that has transformed the U.S. into the world’s biggest wind market.

An estimated 8,000 megawatts of new capacity will be installed in the U.S. in 2008. That’s enough electricity for nearly three million homes, and it represents a jump of 50% on the heels of last year’s 45% increase. Among the forces driving growth: Congress’s extension last month of a key tax credit and state mandates requiring utilities to tap renewable energy. “Utilities are going to take wind and run with it,” Jeff Immelt, CEO of General Electric, the nation’s biggest turbine maker, said recently. Global growth remains strong as well, with generation capacity continuing to increase at a 30% annual clip, although the credit crunch could slow expansion in the near future.

And it is a truly global business. Take a closer look, for instance, at Shiloh II.

The 150-megawatt project is being developed by enXco, the U.S. subsidiary of French energy giant EDF. The turbines that lie scattered around the construction site like giant Tinkertoys were made by Germany’s REpower, itself acquired last year by Suzlon, an Indian wind-machine manufacturer that has relocated its global headquarters – to Denmark. “If you want to invest in wind, you’re generally looking at overseas stock markets,” says Ethan Zindler, head of North American research for New Energy Finance, a London-based research firm.

Moreover, while wind power has attracted some big names like GE and FPL Group, the business plays only a minor role in their portfolios. Most pure wind outfits are far smaller and can be very volatile – and they tend to sport high price/earnings ratios, despite recent stock drops. With that caution in mind, and after talking to industry insiders and poring over financial reports, we came up with the four intriguing wind stocks discussed below. They are speculative bets, so intrepid investors should check them out carefully before putting any money at risk.

Four ways to bet on wind power

Wind stocks generally come in two varieties: equipment makers, which produce turbines and other hardware, and developers, which build power plants. Among developers, Iberdrola Renewables (IBR.MC), traded on the Madrid stock exchange, is the name to know. Spun out from the big Spanish power company Iberdrola last year, it is the world’s largest wind-power developer, with sales of $1.4 billion in 2007, expected to rise to $2.8 billion this year.

The U.S. is Iberdrola’s largest market outside Spain and will drive its expansion. Terry Hudgens, CEO of Iberdrola Renewables’ North American operations, says the company plans to install 1,000 megawatts of new wind capacity a year in the U.S. “We secured this pipeline years ago, before these other companies decided to get into the U.S.,” he says. The company is growing fast: In its most recent quarter Iberdrola saw sales of $698 million, up nearly 200% from the same quarter a year ago, while pretax profit rose nearly 600%, to $153 million. And the stock has a highfliers’ P/E of nearly 40.

Iberdrola buys turbines from Suzlon, Mitsubishi, Siemens, Vestas, and GE. But its biggest supplier is Spanish company Gamesa (GAM.MC). In fact, Iberdrola just placed the largest turbine order on record with Gamesa, which is now the No. 2 turbine maker in the world. Gamesa’s P/E of 18 is double the industry average, but its profits are expected to grow 30% this year.

The No. 1 windmill maker, with 23% of the world market, is Vestas (VWS.CO), traded on the Copenhagen exchange. It saw revenues grow 26% in 2007, to $7.2 billion, and it has a market cap of nearly $11 billion. The appeal of the stock for wind investors, says London-based Citigroup analyst Mark Fielding, is that “its market-leading positions make it a proxy for the overall strength of the market.”

Finally, an upstart to watch is Clipper Windpower (CWP), which is based in California but trades in London. Customers for its 2.5-megawatt Liberty turbine include FPL, BP – which is developing the world’s largest wind farm with the company – and Queen Elizabeth II, who bought the prototype of a ten-megawatt offshore windmill. Its shares dropped 78% this year over quality issues, but those glitches have been fixed, says CEO Doug Pertz. Clipper lost money in 2007 and will do so again in 2008. Still, analysts and industry insiders say that its innovative technology and the strong demand for turbines could make it a winner in the long run.

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KATE GALBRAITH, The New York Times, September 23, 2008

For years, technological visionaries have painted a seductive vision of using ocean tides and waves to produce power. They foresee large installations off the coast and in tidal estuaries that could provide as much as 10% of the nation’s electricity.

But the technical difficulties of making such systems work are proving formidable. Last year, a wave-power machine sank off the Oregon coast. Blades have broken off experimental tidal turbines in New York’s turbulent East River. Problems with offshore moorings have slowed the deployment of snakelike generating machines in the ocean off Portugal.

Years of such problems have discouraged ocean-power visionaries, but have not stopped them. Lately, spurred by rising costs for electricity and for the coal and other fossil fuels used to produce it, they are making a new push to overcome the barriers blocking this type of renewable energy.

The Scottish company Pelamis Wave Power plans to turn on a small wave-energy farm — the world’s first — off the coast of Portugal by year’s end, after fixing the broken moorings. Finavera Renewables, a Canadian company that recently salvaged its sunken, $2.5 million Oregon wave-power machine, has signed an agreement with Pacific Gas & Electric to produce power off the California coast by 2012. And in the East River, just off Manhattan, two newly placed turbines with tougher blades and rotors are feeding electricity into a grocery store and parking garage on Roosevelt Island.

“It’s frustrating sometimes as an ocean energy company to say, yeah, your device sank,” said Jason Bak, chief executive of Finavera. “But that is technology development.”

Roughly 100 small companies around the world are working on converting the sea’s power to electricity. Many operate in Europe, where governments have pumped money into the industry. Companies and governments alike are betting that over time, costs will come down. Right now, however, little electricity is being generated from the ocean except at scattered test sites around the world.

The East River — despite its name, it is really a tidal strait with powerful currents — is the site of the most advanced test project in the United States.

Verdant Power, the company that operates it, was forced to spend several years and millions of dollars mired in a slow permit process, even before its turbine blades broke off in the currents. The company believes it is getting a handle on the problems. Verdant is trying to perfect its turbines and then install 30 of them in the East River, starting no later than spring 2010, and to develop other sites in Canada and on the West Coast.

Plenty of other start-ups also plan commercial ocean-power plants, at offshore sites such as Portugal, Oregon and Wales, but none have been built.

Ocean-power technology splits into two broad categories, tidal and wave power. Wave power, of the sort Finavera is pursuing, entails using the up and down motions of the waves to generate electricity. Tidal power — Verdant’s province — involves harnessing the action of the tides with underwater turbines, which twirl like wind machines.

(Decades-old tidal technologies in France and Canada use barrage systems that trap water at high tide; they are far larger and more obtrusive than the new, below-waterline technologies.)

A third type of power, called ocean thermal, aims to exploit temperature differences between the surface and deep ocean, mainly applicable in the tropics.

Ocean power has more potential than wind power because water is about 850 times denser than air, and therefore packs far more energy. The ocean’s waves, tides and currents are also more predictable than the wind.

The drawback is that seawater can batter and corrode machinery, and costly undersea cables may be needed to bring the power to shore. And the machines are expensive to build: Pelamis has had to raise the equivalent of $77 million.

Many solar start-ups, by contrast, need as little as $5 million to build a prototype, said Martin Lagod, co-founder of Firelake Capital Management, a Silicon Valley investment firm. Mr. Lagod looked at investing in ocean power a few years ago and decided against it because of the long time horizons and large capital requirements.

General Electric, which builds wind turbines, solar panels and other equipment for virtually every other type of energy, has stayed clear of ocean energy. “At this time, these sources do not appear to be competitive with more scalable alternatives like wind and solar,” said Daniel Nelson, a G.E. spokesman, in an e-mail message. (An arm of G.E. has made a small investment in Pelamis.)

Worldwide, venture capital going to ocean-power companies has risen from $8 million in 2005 to $82 million last year, according to the Cleantech Group, a research firm. However, that is a tiny fraction of the money pouring into solar energy and biofuels.

This month the Energy Department doled out its first major Congressionally-funded grants since 1992 to ocean-power companies, including Verdant and Lockheed Martin, which is studying ocean thermal approaches.

Assuming that commercial ocean-power farms are eventually built, the power is likely to be costly, especially in the near term. A recent study commissioned by the San Francisco Public Utility Commission put the cost of harnessing the Golden Gate’s tides at 85 cents to $1.40 a kilowatt-hour, or roughly 10 times the cost of wind power. San Francisco plans to forge ahead regardless.

Other hurdles abound, including sticky environmental and aesthetic questions. In Oregon, crabbers worry that the wave farm proposed by Ocean Power Technologies, a New Jersey company, would interfere with their prime crabbing grounds.

“It’s right where every year we deploy 115,000 to 120,000 crab pots off the coast for an eight-month period to harvest crab,” said Nick Furman, executive director of the Oregon Dungeness Crab Commission. The commission wants to support renewable energy, but “we’re kind of struggling with that,” Mr. Furman said

George Taylor, chief executive of Ocean Power Technologies, said he did not expect “there will be a problem with the crabs.”

In Washington State, where a utility is studying the possibility of installing tidal power at the Admiralty Inlet entrance to Puget Sound, scuba divers are worried, even as they recognize the need for clean power.

Said Mike Racine, president of the Washington Scuba Alliance: “We don’t want to be dodging turbine blades, right?”

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JENNIFER YOUSFI, Money Morning on Seeking Alpha, May 16, 2008

T. Boone Pickens made his fortune in oil. But now the Dallas oilman and famed former corporate raider is betting $2 billion that he can have the same success with a new source of energy – wind.

Pickens’ Mesa Power LLP yesterday (05/14/08) unveiled the first phase of an eventual $10 billion alternative energy project that has the potential to become the world’s largest wind farm.

“You find an oilfield, it peaks and starts declining, and you’ve got to find another one to replace it,” says Pickens. “It can drive you crazy. With wind, there’s no decline curve.”

Mesa Power will purchase 667 wind turbines from General Electric Co. Each turbine can produce 1.5 megawatts of electricity. The first phase of the project will produce 1,000 megawatts, enough energy to power 300,000 homes. GE will begin delivering the turbines in 2010, and current plans call for the project to start producing power in 2011.

“T. Boone Pickens’ commitment underscores the ability of wind technology to help meet the country’s need for diverse sources of energy,” said Jeffrey R. Immelt, GE’s chairman and CEO. “As America’s demand for energy escalates, it is clear that wind can and will play a bigger part in meeting that need. We’re excited to partner with an energy visionary like T. Boone Pickens to bring our wind technology to the marketplace.”

Ultimately, Mesa Power plans to have enough turbines to produce 4,000 megawatts of energy, the overall project is expected to cost $10 billion and be completed in 2014.

Mesa Power has leased sparsely populated land in the Texas panhandle, where the wind often blows during daylight hours when energy needs are highest. Texas’ Competitive Renewable Energy Zones [CREZ] transmission lines will deliver what Pickens hopes will be “cost effective and reliable electricity generated by renewable energy power projects.”

“We have had a great response to this project,” Pickens said. “We are making Pampa the wind capital of the world. It’s clear that landowners and local officials understand the economic benefits that this renewable energy can bring not only to landowners who are involved with the project, but also in revitalizing an area that has struggled in recent years.”

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