Wind-Power Producers Find Profits as Elusive as a Summer Breeze

Source: By Jim Polson Brian K Sullivan Mark Chediak, Bloomberg News • Posted: Wednesday, September 2, 2015

Power producers who invested billions in turbines are finding that making money off the wind can be as unpredictable as the energy source itself.

NextEra Energy Inc., NRG Yield Inc. and Duke Energy Corp. all said a lack of sufficiently windy days cut into second-quarter sales. And neither power generators nor forecasters seem to know exactly why.

“There was a definite trend with several utilities talking about weak wind resources,” said Shahriar Pourreza, a New York-based analyst for Guggenheim Partners LLC. “This isn’t something that has been major in the past so definitely a phenomena worth following to see if it’s sustainable or an anomaly.”

Wind, once a marginal resource for power suppliers, has begun to matter. Installations surged sevenfold in the U.S. last year, making it the largest market for the technology worldwide after China, according to Bloomberg New Energy Finance. Spurred by tax incentives and state clean energy standards, wind accounted for 4.4 percent of U.S. power generation in 2014, up from 1.9 percent five years ago, the Energy Department said.

Tax Credits

Tax credits for wind production are expected to more than double to $2.4 billion in the fiscal year ending Sept. 30, according to an August 2014 estimate, the latest available from Congress’s Joint Committee on Taxation. Wind credits may reach $3.6 billion annually by the fiscal year ending in 2018, the committee reported.

Developers have been installing turbines in the gusty plains of the Midwest and Texas as well along mountain passes in California and other western states. Wind provided nearly 10 percent of electricity production in Texas and 7 percent in California last year.

Modern turbines range in size from 80-foot structures that power a single home to utility-scale units that stand up to 325 feet tall. While conventional power plants produce electricity continually, wind power is intermittent, dependent on air flows.

While utilities have gotten better at predicting when the wind will blow, it’s not yet an exact science. One theory is that El Nino is responsible. That’s a condition when the surface of the equatorial Pacific Ocean warms and the atmosphere reacts, changing weather patterns around the world.

NextEra, the biggest wind-power producer in North America, agrees El Nino may be playing a role. While posting a profit of $1.59 a share in the second quarter, light winds cost the company 14 cents a share.

“Although we cannot draw any firm numerical conclusions, we do know the strong El Nino cycle that we are now in tends to be correlated with below-average continental wind resource,” NextEra Chief Financial Officer Moray Dewhurst said on an Aug. 3 earnings call.

Todd Crawford, a meteorologist with WSI in Andover, Massachusetts, said he can see evidence for that in the lack of wind.

“The anomalies are pretty small,” Crawford said. “But the pattern of anomalies does have the fingerprints of an El Nino signal.”

High Pressure

There may be more at play than just El Nino, said Matt Rogers, president of Commodity Weather Group LLC in Bethesda, Maryland.

High pressure dominated the weather maps from April through June, which meant fewer cold fronts and less variability in pressure, Rogers said. Such conditions mean less wind.

Whatever the reason, turbines aren’t turning as much as their owners would like. Companies that own wind get federal tax credits based on power production, so lower speeds mean reduced benefits.

For NRG Yield, formed by NRG Energy Inc. to hold renewable and conventional power plants, light breezes were one reason that it cut the forecast for 2015 earnings before interest, taxes, depreciation and amortization by $30 million.

“The majority of the wind resources west of the Mississippi were less than 80 percent of what would be deemed normal conditions,” NRG Chief Executive Officer David Crane said on the company’s Aug. 4 earnings call. “We never anticipated a drop off in the wind resource as we have witnessed over the past six months.”