WIND GIANTS BUYING

What to expect from New Energy in the present credit-compromised financial circumstances is the question.

Part of the answer could be this: The U.S, wind industry may find itself taken over by the wind industry powers of the Iberian peninsula.

For the geographically challenged: The Iberian peninsula is the southwest extension of the European continent occupied by Spain and Portugal.

The EU fight against global climate change led to mandates to build New Energy and government incentives to subsidize the development.

It was costly – and it put European nations into world leadership in wind and solar energy development.

Result: Spain’s Iberdrola Renovables (Iberdrola) and Portugal’s EDP Renovaveis (EDP) are cash-rich and have plans for billion-dollar expansions into U.S. wind.

Analysts predict Iberdrola and EDP will be aggressively buying cash-poor independent wind developers that own ~ 40% of the U.S. wind production.

The Iberdrola plan: $23.4 billion investment from 2008 to 2012 to increase capacity from 7,700 megawatts to 18,000 MW, ~ 40% of the investment in the U.S.

The EDP plan: 1,400 MW annual increase, 2008 to 2012, tripling existing 3,000 MW capacity to 10,000 MW from total capital expenditure of $12.5+ billion, 67% in the U.S.

Plans aside, the global financial meltdown HAS left the Iberian powers compromised. More than half their market capitalization vaporized in market drops. Investors are questioning New Energy bets.

Eduard Sala, senior analyst, EER: "Investors are facing hard times, because they either can't find project financing or the economics just doesn't add up on current energy prices…"

But EDP’s future capital expenditure remains “on track” and Iberdrola's 2008 debt was "lower than expected." Both companies are well positioned for acquisitions as other investors bail.

Javier Suarez, analyst, Dresdner Kleinwort: "There's significant buying potential, because wind generation is a stable, long-term business model…Both Iberdrola Renovables and EDP Renovaveis could buy up a bunch of small operators."

Is all this good or bad for U.S. wind? In the face of limited credit availability, the market will benefit enoprmously from the economies of scale that come with consolidation.

Analysts consensus: Strong mid-to-long-term prospects. Emissions constraints virutally assure the increasing value of New Energy capacity.

Raimundo Fernández-Cuesta , analyst, Credit Suisse: "The medium-term outlook for the renewable-energy developers remains bright."

Wind is big on the Iberian peninsula. (click to enlarge)

The Iberian Giants of U.S. Wind Energy; Backed by their parents' capital, Spain's Iberdrola Renovables and Portugal's EDP Renovaveis can exploit the downturn and snap up smaller rivals
Mark Scott, October 28, 2008 (BusinessWeek)

WHO
Iberdrola Renovables (José Ignacio Sánchez Galán, chairman ) (majority-controlled spin-off of European utility Iberdrola); EDP Renovaveis (subsidiary of utility Energias de Portugal); Florida Power & Light; Eduard Sala, senior analyst, Emerging Energy Research (EER)

WHAT
Despite the financial turmoil and economic meltdown, the wind industry is expected to continue growing, led by world power wind developers from the Iberian peninsula.

click to enlarge

WHEN
- The 133-wind turbine Big Horn Wind Project, now operated by Iberdrola, was built in 2006.
- 2007: EDP started its U.S. acquisitons with the purchase of Horizon Wind Energy from Goldman Sachs for $2.2 billion.
- 2008: Iberdrola Renovables total revenue of $2.9 billion with a net profit of $458.8 million.
- 2008: EDP Renovaveis total revenue of $787.9 million with net profit of $108.1 million.
Iberdrola and EDP plan to more than double their U.S. capacity by 2012.

WHERE
- Iberdrola’s Big Horn Wind Project is in Washington State's Klickitat County near the town of Bickleton.
- Iberdrola Renovables is based in Spain.
- EDP Renovaveis is based Portugal.
- EER is based in Barcelona and Cambridge, Mass.

WHY
- Iberdrola Renovables is the world’s biggest wind farm operator
- Florida Power & Light is the biggest in U.S. Iberdrola Renovables is the 2nd biggest wind farm operator in U.S. EDP Renovaveis is the 3rd biggest in U.S.
- Iberdrola Renovables operates 25 U.S. wind installations.
- Iberdrola Renovables and EDP Renovaveis, unlike most U.S. rivals struggling for financing, are highly capitalized.
- To guarantee supply and offset rising prices in overburdened markets, both companies have long-term discounted deals with big turbine manufacturers (Denmark's Vestas and Spain's Gamesa).

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QUOTES
Eduard Sala, senior analyst, EER: "Under current market conditions, the big players such as Iberdrola Renovables and EDP Renovaveis will consolidate in the booming U.S. market…Players without finance could be forced to sell, with the large, experienced companies filling the void."