Lassoing Panhandle Wind - Oilman
Plans Huge Complex Gary Stern
January, 2008 - Gary Stern - energycentral.com
T. Boone Pickens is nobody's fool. Pickens, who has
a net worth of $2.5 billion and is ranked as the 131st
wealthiest person in the United States by Forbes,
is not prone to invest in pipe dreams. Then why is
Pickens, who runs BP Capital Management, a private
equity firm, and Mesa Power, building a 4,000-megawatt
wind energy facility in Pampa, Texas, in the Panhandle
section about 70 miles from Amarillo, which could
cost as much as $10 billon?
In 2006, wind power facilities totaling 2,500 megawatts
were built nationally, making them the second largest
source of new generating capacity in the United States,
according to Randall Swisher, executive director of
the American Wind Energy Association. Pickens' wind-power
facility would be 60 percent larger than all the wind
power projects introduced in the United States in
Wind power, however, hasn't been considered an instant
moneymaker or hasn't generated enough payback to warrant
its major capital expenditures. Does Pickens, who
is often one step ahead of the curve, know something
that the rest of us don't? Is Pickens' 4,000-megawatt
new facility a sign that wind power has come of age?
In its planning stages, Mesa Power hired leading
consultants to investigate the cost effectiveness
of wind power, conduct reviews of existing facilities
and wind farms, and become acquainted with state-of-the-art
generating equipment and transmission. After completing
the research, Mesa Power concluded, "It was feasible,
viable and profitable," said Mike Boswell, a vice
president at BP Capital Management based in Dallas.
Currently, wind power provides about 2 percent of
the power consumed in Texas, but Boswell expects that
by 2020 it will furnish about 20 percent of Texas'
energy needs. And Pickens will command a large slice
of that market. Wind power "has become a much more
important segment as the price of petroleum and natural
gas has increased," Boswell said.
The genesis of the project springs from a previous
water project in which Mesa Power agreed to deliver
200,000 acre-feet of water a year to the northeastern
portion of Texas, explained Boswell. That same acreage
will be used as the site for construction of the turbines.
Will Take 8 Years to Complete
If the wind project reaches its full size, it will
have 1,500 wind turbines, each generating from 1.5
to 3 megawatts of power. Construction is scheduled
to begin in 2009. The initial turbines will begin
generating power in 2011, while construction takes
about eight years to complete. The project will have
four phases and cost about $1.7 million to $1.85 million
per megawatt for generating equipment and another
$500 million to $800 million for transmission lines.
If economic factors change, its scale could be reduced,
Once completed, Mesa Power expects to "enter into
power purchase agreements with a single entity at
a fixed price for a number of years and in off-take
agreements, which are more of spot marker concepts.
We anticipate getting more money for the power than
what it takes to put in the facility," Boswell said.
The primary audience for wind power will be consumers
throughout Texas, though commercial businesses will
also be targeted. Boswell acknowledged that the current
cost of wind power is more expensive than electric-generated
or nuclear power by about 10 percent and is more comparable
to natural gas prices.
Pickens is betting that as demand intensifies to
reduce carbon dioxide emissions, the need for clean,
environmentally sound energy will increase. Wind power
will therefore play a more important role in meeting
our energy needs, Boswell suggested. Furthermore,
Boswell envisions a "blended price for the cost of
nuclear, coal, gas and wind to meet air quality standards."
New wind power facilities are good for Texas, explained
Bill Bojorquez, a vice president of system planning
at the Electric Reliability Council of Texas, based
in Austin. "We don't have a lot of hydro-generation,
but we're blessed with wind. Renewables are good for
Texas," he said. Pickens' project provides consumers
with additional choice beyond coal and natural gas.
Yet Bojorquez also noted that wind power has its
limitations. Wind doesn't blow much in the summer
in Texas, and summers can last from May through September.
Wind provides "good energy sources but not good capacity,"
Because of wind power's subsiding in the summer,
Mesa Power is building a baseload of 500 to 600 megawatts
of solid-fuel capacity and a separate 300 megawatts
of peaking capacity.
Wind Becoming Cheaper Than Fossil Fuels
Mike Sloan, a consultant at Vertus Energy Research
Associates, based in Austin, Texas, said Pickens is
developing wind power facilities because "fossil fuel
costs are significantly higher and likely will continue
to rise." Moreover, carbon taxes are likely around
the corner, and wind power "is a domestic resource
with no fuel costs and no emissions issues," he said.
Sloan said that the cost of wind power is actually
quite predictable. The front-end costs are known,
and wind blowing in Texas is steady; thus, Sloan said
when the project is completed, Pickens can "lock in
long-term purchase power agreements." Moreover, if
the energy environment were to change, he could easily
scale back the project from a $10 billion venture
into a smaller facility.
Many utilities have eschewed investing the major
bucks to build wind power on a speculative basis.
Sloan said that most utility executives operate "in
a more conservative culture that grew out of governmental
regulatory rates. Pickens is a risk taker and an entrepreneur,
and if he guesses right, he will be rewarded."
Asked how Pickens will make money on the project
when investing so many billions of dollars, Bojorquez
replied that German utilities and entrepreneurs have
harnessed wind and made money. He recently met a German
entrepreneur at a conference who told him, "I put
100 turbines in the field. For five years the turbines
spin for the bank, but after five years the turbines
spin for me."
Many wind power developers build a project and then
flip it for a quick profit to recoup their start-up
costs. But Boswell said, "I don't expect that we will
sell it. We already own most of the land."
What does Pickens' proposed project say about wind
energy's future? "It tells us that this is where energy's
future is going, and smart players recognize that
dollars are following that direction," said American
Wind Energy Association's Randall Swisher.