U.S. Winds Morph into a European
EU Firms Are Attracted to Open
Space and Generous Subsidies for Green Energy
Nov 8, 2007 - International Herald Tribune
The European Union has taken the lead on many climate
change issues - from ratifying the Kyoto Protocol
to passing laws to require and encourage the development
of renewable energy. Why, then, are so many European
energy companies looking to invest in the United
For Antonio Mexia, the chief executive of Energias
de Portugal, the answer is simple. "The United States
is the fastest-growing market in the world for wind
power," he said. "If we want to be a leader, we
have to be here."
In July, Energias paid nearly $3 billion to buy
Horizon Wind Energy from Goldman Sachs. The purchase,
Mexia's first foray into the United States, doubled
the amount of wind power in Energias's portfolio,
giving the once sleepy Portuguese utility the fourth-
largest wind-farm capacity in the world, behind
Iberdrola of Spain, FPL Energy - an affiliate of
Florida Power and & Light in the United States -
and another Spanish company, Acciona Energia.
All the biggest players in wind power are focused
on the United States.
This year, Acciona bought the wind farm development
rights of EcoEnergy of Elgin, Illinois, and Iberdrola
bought CPV Wind Ventures of Silver Spring, Maryland.
Iberdrola also added the wind development company
PPM Energy of Portland, Oregon, to its business
through its acquisition of a British company, ScottishPower,
in April, and in 2006 it bought Community Energy
of Radnor, Pennsylvania.
BP, based in Britain, also added to its green
portfolio in 2006, buying two U.S. wind developers,
Greenlight Energy and Orion Energy. In October,
the German company E.On bought the North American
wind farms of Airtricity of Dublin for $1.4 billion.
"In America you can put up a 200- or 300-megawatt
wind park," Mexia said. "You can't do that in Europe"
because of the lack of open space for such large
There is also more potential for growth in the
United States, where wind farms account for barely
1 percent of installed generating capacity. In some
EU countries, that figure is as high as 10 percent.
The biggest incentive, however, is not the strength
and speed of the wind blowing across some states,
but a number of laws put in place in about half
of the states to encourage the development of renewable
At the national level, energy legislation calls
for subsidies for wind power producers, in the form
of a tax credit. Meanwhile, 25 states now have laws
that require utilities to obtain a certain amount
of power from renewable resources. This puts the
United States at the top of a ranking of countries
by Ernst & Young on the best renewable energy markets.
For many U.S. companies, however, the patchwork
of laws and regulations adds up to a headache. Things
are much simpler in Europe.
Spain, for instance, sets electric rates once a
year, and many European Union countries have simple
"feed-in tariffs," under which producers are paid
at fixed rates for electricity generated from renewable
resources. But in the United States, "regulation
is a daily event," said Edward Tirello, a senior
strategist at Berenson, a consulting firm.
Until recently, Tirello said, many European energy
companies were state-owned, and they still enjoy
the legacy of their monopoly positions, including
rich cash flows.
For Mexia, the mix of state and national laws in
the United States provides Energias de Portugal
with "regulatory diversity." It also provides an
investment field unfettered by legacy issues. It
does not hurt that European utilities are used to
lower margins. They are usually happy to receive
a 9 percent return on equity, whereas utilities
in the United States commonly receive rates of return
of about 11 percent, and unregulated power-generation
assets, including many wind farms, have no caps
on their profit.
European power companies are not just looking at
the United States. They are considering projects
in Asia and in Europe as well.
"The U.S. is a bridgehead in a global market for
renewable assets," said Jonathan Johns, head of
renewable energy at Ernst & Young.
Bolstered by the bulk and visibility of its U.S.
acquisitions, Iberdrola plans to spin off its renewable
energy business in an initial public offering before
the year end of this year.
Energias de Portugal, which has already demonstrated
a willingness to pay up to stay in the game, is
unlikely to be far behind.
"We are studying an IPO of our worldwide wind business
in 2008," Mexia said.
Originally published by The New York Times Media
(c) 2007 International Herald Tribune. Provided
by ProQuest Information and Learning. All rights