FPL to spend $2 billion on wind energy in 2010

Dec 6, 2009 - Steve Gelsi - Market Watch

NEW YORK (MarketWatch) -- Lewis Hay III, the chairman and chief executive of FPL Group Inc., plans to steer the electricity giant toward a $2 billion investment in wind energy in 2010, despite uncertainty surrounding a pending rate case involving the big power company.

It's easier and cheaper right now to build up the nation's infrastructure to tap into America's vast wind resources, largely because of the regulatory environment, Hay said.

FPL, which runs a Florida Power & Light as well as a portfolio of power plants in 27 states, is developing a phalanx of wind resources to the tune of $10 billion in recent years, including a combined $4 billion plus in 2009 and 2010.

On the state level, electric companies are under the thumb of renewable-portfolio standards in New York, California and elsewhere, he argues. Such rules require a greater use of power generation that doesn't produce carbon dioxide, such as solar and wind power.

The federal government also has sweetened incentives for alternative power as well, by renewing production tax credits and other incentives.

"The real impetus (for wind) has been rules at the state levels -- state renewable-portfolio standards," Hay said in an interview with MarketWatch. "That ratchets ups over the time, so that's driving demand."

At the same time, FPL may reduce spending plans on a natural-gas pipeline and new nuclear reactors in Florida if the company doesn't get a favorable decision from state regulators on an electric-rate proposal, Hay said in a separate interview with Dow Jones Newswires.

Florida Power & Light has asked to raise annual rates by about $1.3 billion, or 30%, but uncertainty about an approval from state regulators remains uncertain after allegations earlier this year that board members of Florida's Public Service Commission attended dinners and parties hosted by executives of the utilities the PSC regulates.

"I think there is fair amount uncertainty about how the commission is going to act (on the rate request)," Hay said.

FPL 56.19, +1.15, +2.09%

With FPL Group already maintaining the biggest wind power portfolio among the big electricity generators, the appeal of building turbines to generate electricity continues to improve as economies-of-scale kick in.

Twenty years ago, wind cost about 20 cent per kilowatt hour to install. Now it's as low as 3-to-4 cents per kilowatt hour. "The prices have come way down," Hay said.

An 'electron superhighway'

Besides wind, power companies remain extremely bullish on transmission lines, saying it could draw billions in investments, if the process is streamlined, Hay said.

"What we need today is an electron superhighway to move power from remote areas where we have wind farms and solar fields to population centers where people actually use the power," Hay said. "The way we build and site transmission today is frankly a very antiquated, archaic process."

Rather than state-by-state approvals now required for big transmission infrastructure projects, the federal government should site power lines the same way as interstate natural gas lines, Hay said.

"It can take decades to build transmission as opposed to how we deal with gas pipelines today," he said. "That's a model that works very well. We'd love to see that implemented for transmission. And there' s a lot of utilities including our own that could be investing a lot of money in transmission."

Turning to nuclear power -- which FPL Group supports as well, Hay said more generation is needed but it's still years away.

"Our industry needs streamlined rules and regulations and building these power plants, and we need certainty," he said. "We can't afford to make mistakes like we did with the last round of building nuclear power plants, so it's not surprising that people are going slow."

It may cost FPL Group $17 billion to $20 billion dollars to build the two nuclear units it has proposed in Florida. That's a big price tag, even for FPL Group, which ranks among the largest power companies with a market cap of $22 billion.

"We're one of the biggest in the industry, and it's almost a bet-your-company kind of proposition," he said.

While investments in renewable have slowed down with the recession, Hay said he's growing a bit more confident about the overall economy, after FPL Group's third-quarter profit fell by 28% in its latest earnings update on Oct. 27.

"Without a doubt, Florida is one of the epicenters of the housing meltdown," Hay said. "Normally we're growing by 100,000 customers a year and now we're down by 10,000 customers, so we're holding pretty flat. I think considering the housing troubles in Florida we're doing pretty well, and we're starting to see some upticks in housing sales so that's good."

Hay maintains that FPL Group has been wise to boost its renewable portfolio and that the alternative energy sector will avoid the big meltdown it saw in the 1970s and 1980s, when many projects were put into mothballs as tax incentive dried up.

"(Nowadays) there's a growing concern over energy security, energy independence if you will and nobody was focused on climate change back then," Hay said. "And there's a lot of focus and a lot of momentum on climate change issues -- wind solar, other renewable. We have an infinite supply...and they don't emit any carbon."

Steve Gelsi is a reporter for MarketWatch in New York.