“uåX˜äŠÊ˜·³Ç

The purchase of America's largest remaining wind company by an established giant of independent power marketing was an event without parallel in wind energy history. In one quick gulp in January, Enron Corporation consumed Zond Systems, smacking its lips over the tasty green snack. Since then wind industry observers have been watching and waiting. This is not the first time a mega company has announced its entry into the wind business. Enron joins a list which includes such names as Westinghouse, Boeing, MBB, and British Aerospace -- all of whom faded from the wind scene along with their grand promises. Will it be different this time?

For some, the Enron-Zond deal was proof that wind power had indeed come of age and that even companies who made a great deal of money from oil and natural gas were now seeing the light when it comes to the bright future of renewable energy. For others, the purchase was a cynical attempt by a company spending $200 million in national advertising to cloak itself in the virtues of green energy, while continuing to peddle more polluting forms of electricity to the majority of its customers. The recent decision to change Zond's company name to Enron Wind Corp could support both arguments.

Which view is the truth? The jury is still out. Nevertheless, there is no denying that since Enron Renewable Energy Corp bought Zond the wind company has had a streak of good luck. The firm has signed a contract in Iowa widely touted as the largest single buy of wind power and has secured rights to a number of projects once being developed by its arch rival, the now bankrupt Kenetech.

Ken Karas, CEO of Zond Corporation, claims not much has changed since the Enron takeover. "And the changes that have happened have been for the better," he assures. "Enron has huge capital reserves and is well positioned in key power generation markets around the world. They have been feeding us leads and opportunities we would not know about otherwise. We can now also get access to capital fairly quickly."

Karas characterises Enron as "very aggressive" and points out that it has been chosen as America's most innovative company by the well regarded Fortune magazine for two years in a row. "Sure, they were a gas company. But they want to be a diversified energy company now. Their primary goal is be the largest seller of electricity in the world. We fit pretty well into their product diversification and differentiation strategies," says Karas.

These comments are echoed by Bob Kelly, chairman and CEO of Enron Renewable Energy Corp: "Our purchase of Zond is part of a broader strategy, a vision. We believe that renewable energy resources will be capturing a larger and larger share of the power market within the next 20 to 25 years." Kelly says Enron's prediction is based on demand and supply side considerations. "On the demand side, consumers are becoming more concerned about global warming and air pollution issues. They are interested in sustainable development. On the supply side, the costs of renewables, particularly wind, have come down. Today, wind is literally competitively priced with fossil fuels."

Kelly points out that Enron Renewable Energy Corp is also the second largest provider of photovoltaic technology in the world, having formed partnerships with Japanese companies to install PV on rooftops in Japan. The company is also very active in the PV market in the US and India. In addition, Enron is pushing hydro and geothermal technologies.

On the seriousness with which Enron regards wind, Kelly responds: "We don't put capital into projects for window dressing. This is a major effort." He refuses, though, to divulge any specific financial numbers, citing the need to keep investments in Zond and Amoco/Enron Solar under a tight lid "to protect our negotiating position" in talks with other renewable energy companies it might want to purchase. Enron doesn't want to reveal how much -- "or how little" -- it paid for Zond, Kelly says. Although he failed to provide any long term investment figures, Kelly says that Zond is budgeted to add up to 200 MW of new wind generation installations this year and between 200 and 400 MW of new wind capacity next year.

Installed so far

According to senior vice president Bob Gates, Zond has so far installed 14.5 MW of Z-series turbines in the US (6.6 MW in Texas, 6 MW in Vermont -- where gearboxes are currently being retrofitted -- and the rest in Tehachapi) and 5.5 MW internationally (ten turbines in northern Ireland). All of these -- save a single installation in Tehachapi -- are 550 kW machines. This summer will see ten 550 kW Zond turbines going in the ground in Wales, continues Gates, followed by installation of 40 of the same model in Greece. Zond is also in the process of shipping 30 of the 550 kW turbines to three different utilities in China. And the first installations of the Z-750 in Europe will occur in conjunction with Zond winning 45 MW of contracts in the United Kingdom.

Gates notes that Zond has had to add a 50,000 square foot assembly plant adjacent to its existing headquarters and facilities in the Tehachapi to keep up with the orders. "It will be an expandable facility," says Gates. "It will be easy to add manufacturing capacity," he remarks.

Just a year ago, Zond's view on the future of wind in the US was grim. The company had seen 155 MW of new projects authorised by California's Biennial Resource Plan Update (BRPU) go down the tubes following a ruling by the Federal Energy Regulatory Commission (FERC). Another 80 MW or so of projects in Iowa were also in jeopardy due to utilities dragging their feet, voicing complaints about the high rates they were being asked to pay for renewables such as wind. "We saw a quarter of a billion dollars of projects go out the door," reminisces Karas.

Rebirth of the US Market

While the BRPU projects will likely never be built, the US market suddenly looks a lot rosier in the summer of 1997 and Zond has been the primary beneficiary. A 112.5 MW project to be installed in Iowa by Mid-American Energy Co was the plum project. "We've been working very hard for the last three or four years dealing with all sorts of legislative issues, with federal and state regulators. We've also had a number of meetings with utilities and political figures," says Karas. Apparently all the hand shaking paid off. Despite claims by green activists to the contrary (“uåX˜äŠÊ˜·³Ç, February 1997), Zond is confident that Mid-American means business. "We get the sense the utility -- Mid-American -- is genuinely excited about the project," says Karas.

These types of large projects are few and far between in today's wind energy markets. "All things considered, we would rather build one 100 MW wind farm rather than ten 10 MW deals," acknowledges Karas. "The development and legal expenses are the same for both. But the markets aren't really like that in many parts of the world," he accepts.

Zond's view of the US market has raised the hair on the necks of some members of the wind industry. For example, during the California debate over how best to spend state subsidies, the official position of the American Wind Energy Association (AWEA) was to earmark as much as possible to keep current operating capacity on-line. "Many people argued that if we did not put money into existing projects, they would go away. I'm not sure I agree with that," comments Karas. "If California ratepayers are going to put up the money, the money should be spent on new projects. That's a better deal." Is this Enron or Zond talking? "We've had that view long before Enron entered the picture," assures Karas.

There are several reasons for why Zond's view is different from that of the rest of the industry. Much of its California capacity came on line relatively late and is therefore still enjoying payment streams before the ten-year fixed energy payment portion of utility purchase contracts ends. Zond's 77 MW Sky River project, for example, did not come on-line until late 1991. The company's existing projects also feature the workhorses of the California wind industry: medium sized Danish Vestas turbines. They are projects which, generally speaking, stack up well against the smaller competition whose wind farms came on line earlier and often utilise less reliable and smaller turbines.

Those days of sprawling wind farms, built at breathtaking speed, now seemed to be numbered, though. The consensus among most observers in the US is that the recent rights secured by Zond to develop large wind farms -- in Iowa and Minnesota -- will be some of the last such projects to be built in the United States. The advent of green pricing -- and now green marketing as competition becomes everyday business in electricity supply -- would seem to imply a future of smaller, incremental projects.

Not so, says Karas. "There are some larger projects in the planning stages. I think there is a good chance to get much larger projects through green marketing." He also says, though, that smaller developments, such as those going up in Colorado, "are in places where we wouldn't otherwise see a project." Karas uses the following math to justify his rather optimistic outlook: 5% of the population in California is willing (it is safe to say) to pay a 5% premium for green electricity. That purchasing power represents 2000 MW of new wind generation. "I don't know where we would put all those turbines," he chuckles.

How much would this wind power cost if supplied by the new Z-750? Karas estimates a large project "in a pretty windy location that could plug into the grid at the fence" would cost roughly four to five cents a kilowatt hour. Add on the one-and-a-half-cent federal tax credit and prices then enter the ball park of the company's widely debated three-cents-a-kilowatt-hour bid to Northern States Power for a 100 MW project (“uåX˜äŠÊ˜·³Ç February 1997). The tax credit does not run for ever, though. Without reauthorisation, the wind industry will have to live without this public subsidy beyond 1999. Karas says extending the 1.5 cent production tax credit should be a priority for the wind industry.

Out in the world

Zond is apparently still trying to adjust to the needs of European markets. "In the US, we are pushing very hard to get costs down. Yet people are willing to pay quite a high premium in Europe," ruminates Karas. "There is a clear value to the environmental benefits of wind power. But our goal is still to generate the cheapest wind power."

While Zond has been scaling up its Z series turbines, Karas believes there is a limit to costs reductions associated with bigger and bigger turbines. "There is no economic advantage in just making bigger turbines of the same configuration." Such scale-ups only make sense in the growing offshore market in Europe, "where the foundation is so expensive," he says. Zond is still scratching its collective head about the economics of offshore projects. "The use of such big machines, cranes and the logistics themselves push the costs way up," Karas explains, estimating that power costs could reach $0.08-0.10/kWh for offshore projects. Yet what was once "a little hobby" has become a burgeoning market niche "of hundreds of megawatts" that Zond does not want to ignore.

While he fails to provide specifics, Karas claims that Zond is quite active in the international wind power markets. "We are investigating projects in six countries in Latin America -- if you include Mexico within that category." And, while it continues to ship turbines to China, Zond may yet jump into the controversial India market, a place where most US developers feel they have been burned.

Enron's Kelly acknowledges, however, that the focus right now is the US market. While there is a lot of surplus capacity throughout much of the US, the growing popularity of "green marketing" promises to jump-start near term opportunities for wind. "Many regions are also looking at policies such as the renewable portfolio standard as a way of getting more renewables such as wind into resource mixes," he adds, referring to AWEA's lobbying for fixed quotas of wind energy to be included in the national electricity supply mix.

Keys are choice and transmission

Not that Kelly is adverse to looking overseas. Far from it. "Out of our London office, we are in the process of developing the same kind of comprehensive power marketing operation as we have in the US. Today, wind power generated in Tehachapi can be sold to consumers in San Francisco because of our network. It is a brand new ball game with deregulation. We are now active in every major power market globally." He admits doing business in other countries carries "currency and political risks." For this reason, Enron wishes to "keep a balance" of US and international projects.

The overall impression is that Zond has rediscovered the virtues of the domestic market for wind. Places like Texas are quite promising. Of Enron's home state, Kelly says: "We have an excellent wind resource here. The key is deregulation of electricity markets. Consumers have not had a choice. Allowing them to choose represents a very powerful dynamic that should benefit wind power."

But there are obstacles in the US, too. It remains unclear if the transmission of power to urban markets can be facilitated by reasonable transmission pricing terms. "It is silly that the US is not one inter-connected grid. You really can't send power from New England to California," Karas observes. He feels the key to developing the potential for wind in Texas and the Great Plains region all rests on transmission issues, "on getting the power in and out of places like Texas," which has antiquated transport systems and is dominated by utilities who have not sent power outside of the Lone Star State to avoid regulation by FERC.