Magazine

Wind Power Has A Head Of Steam


The quaint town of Whitstable on England's southeastern coast is known for its fresh oysters, sandy beaches, and charming vacation cottages. But if a group of energy companies has its way, Whitstable will soon be known for something else -- wind power. In June, Shell WindEnergy, E.ON UK Renewables, and CORE, a joint venture of British and Danish wind power companies, unveiled a plan to build the world's largest wind farm 12 miles off the British coast, where the estuary of the Thames River flows into the North Sea. The ambitious $2.7 billion project will add 1,000 megawatts of capacity, enough to meet one-quarter of London's power needs, by 2010.

The venture is just the latest sign that wind power is becoming a serious business. No longer the purview of starry-eyed environmentalists, wind power has taken off in recent years. According to BTM Consult ApS, a Danish consultancy that specializes in renewable energy, wind power has been growing at an average annual rate of 28% since 1999 and now amounts to 48,000 megawatts of installed capacity worldwide. Nearly three-fourths of that is in Europe, where governments have made investment in renewable energy sources a priority. Europe gets 2.5% of its electricity from wind power, more than twice the proportion in the U.S. "The business has changed from the image of children with windmills on the beach. People are investing in wind for sound business reasons," says Jason Scagell, director of E.ON UK Renewables, a unit of Germany's E.ON Group.

Soaring demand for electricity, rising oil prices, and efforts to reduce carbon dioxide emissions as mandated under the Kyoto Protocol are among the factors driving investment. But since wind power remains a more expensive alternative than natural gas or nuclear power, government incentives play a big role, too. It costs 4 cents to produce one kilowatt hour from a gas-fired or nuclear power plant, compared with between 7 cents and 10 cents for wind, according to Britain's Royal Academy of Engineering. In Germany, which has the largest installed wind-power capacity on the globe, operators are guaranteed a fixed price for every kilowatt they produce. Siemens (SI), which acquired Danish wind turbine supplier Bonus Energy last year, is bullish on the business. Siemens Chief Executive Klaus Kleinfeld sees wind power as a "megatrend."

One big reason is that the economics have improved markedly. Take the advances in wind turbine technology. Britain's first wind farm consisted of 10 turbines, each producing 400 kilowatts of power. That was 14 years ago. Today, turbines have as much as 10 times that output, thanks to strides in engineering, design, and aerodynamics. Given such improvements, investment costs have been falling by some 3% to 5% a year since the 1980s, according to the European Wind Energy Assn., a trade group in Brussels.

The world's fastest-growing producer of wind power is Spain. Last year the country boosted capacity by 38%, to 8,529 Mw, equal to 6% of its overall power supply. Since Spain has low rainfall and is not an oil or gas producer, successive governments have resorted to subsidies to spur investment in renewable energy. Iberdrola, Spain's No. 2 utility, last year overtook FPL Energy (FPL) of Florida as the world's largest wind farm operator. Yet Miguel Martin, Iberdrola's deputy director for renewable energy, says oil prices would have to increase even further to make wind power competitive with other fuels.

Indeed, most analysts agree that the wind power industry is still not mature enough to stand on its own two feet. Investors confront several hurdles. In Britain, Europe's windiest country, it takes up to 30 months for a company to secure permits to set up a wind farm, according to Standard & Poor's (MHP). On Spain's Atlantic coast, bird lovers, fisherfolk, and tourism officials have joined forces to oppose the creation of offshore wind farms, claiming that they wreak havoc on birds' migratory patterns, obstruct navigation channels, and blight the coastline. The sleek white turbines will probably never replace the picturesque old wooden windmills on postcards. But as oil prices go ever higher, Europeans may grow to cherish them nonetheless.

By Laura Cohn in Whitstable, with Carlta Vitzhum in Madrid and Jack Ewing in Frankfurt


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