With first big wind purchase, Southern Co. continues steady march toward renewables 

Source: Kristi E. Swartz, E&E reporter • Posted: Tuesday, April 7, 2015

Southern Co.’s first foray into buying large wind energy projects is just one more example of the energy giant’s conservative approach toward renewables, one analyst said.

The Atlanta-based utility’s wholesale power unit, Southern Power, said last week it will buy a 299-megawatt wind operation in Oklahoma. Southern will not build, operate or maintain the project, nor will the company use any of the electricity generated from it.But the project is significant because it’s now Southern’s largest renewable energy-generating operation and the utility’s first major wind purchase. Buying the Kay Wind facility now — long after other utilities have jumped into wind — also demonstrates Southern’s desire not to go after something just because Wall Street likes it, analysts say.

“Southern has consistently said, ‘We’re not chasing the new, sexy strategy just because the market is excited about it,'” said Mark Barnett, a utility analyst with Morningstar Inc. “That’s one of the reasons they’ve been slow in developing renewables. They want to do it in tandem with the tax appetite that they have.”

Apex Clean Energy will build, operate and maintain the 130-turbine project. The wind generated from the turbines is expected to power roughly 100,000 homes.

The wind that will be generated is already under contract. Westar Energy Inc., Kansas’ largest electric utility, has entered into a long-term contract to buy 199 MW. Grand River Dam Authority, a state-owned utility in Oklahoma, has an agreement to buy 100 MW.

The utilities have the option to keep or sell the renewable energy credits (RECs).

A Southern spokesman made it clear that the company bought the Kay Wind operation because it makes good business sense.

“This acquisition fits Southern Power’s business strategy of growing its wholesale business through acquiring and building generating assets substantially covered by long-term contracts,” said Southern spokesman Jack Bonnikson in an email.

Buying wind farms and other large-scale renewable operations is one way a utility can manage a transforming business model, add clean power to the grid and be comfortable doing so. Those assets are the most like large, centralized power plants that provide baseload generation.

“These are companies that definitely feel the eye is upon them with these issues,” Barnett said. “They’re just trying to address people’s needs for power, and they want to be a company that’s doing that in a way that makes sense.”

Other major utilities already have surged into wind power, and two — NRG Energy Inc. and NextEra Energy Inc. — have formed yieldcos for some of those investments. A key aspect of the assets in the yieldco is that they hold long-term power purchase agreements (PPAs) with utilities or other customers that ensure consistent cash flow for the company and its investors (EnergyWire, June 25, 2014).

Yieldcos also are trading at a really high valuation, and companies constantly have to add assets to grow dividends for their investors, Barnett said.

He sees Southern continuing with its conservative approach toward adding more renewable assets.

“I don’t think [buying the Kay Wind project] is indicative of any big change,” Barnett said. “I think it’s taken them time to do a wind deal because most wind deals aren’t worth the time.”

Following in solar’s path

Southern Power’s methodical strategy mirrors the one it used for entering the solar market. Southern Power teamed up with Ted Turner’s Turner Renewable Energy starting in 2010 to buy utility-scale solar farms (EnergyWire, April 23, 2014).

For renewable energy, the Southern-Turner partnership looked to the desert Southwest for opportunities. At the time, the Southwest was deemed the sweet spot for solar because of the amount of direct sunlight it gets. The region also had a political environment that created tax breaks and subsidies for the solar industry to grow.

The projects are utility-scale, fitting in with Southern Power’s strategy as a wholesale power provider to other investor-owned utilities, electricity cooperatives and municipalities.

Southern Power recently expanded its solar portfolio to include a 50 MW Solar Gen 2 array in California with First Solar Inc. It had previously bought seven other solar operations as part of its partnership with Turner Renewable Energy.

Southern Power recently announced the first project in its home state. The company will develop a 131 MW utility-scale solar project in Taylor County, between Columbus and Macon. It plans to sell the electricity to three Georgia electric cooperatives as part of a 25-year agreement (EnergyWire, Dec. 18, 2014).

Gaining confidence

Barnett said Southern Power’s first solar project with Turner was a way to get comfortable with how solar worked. He sees the same thing happening with the Kay Wind project.

“This is a very comfortable situation because it already has a [PPA],” he said. “If they are comfortable with this, then maybe they will be comfortable in another jurisdiction.”

Clean energy advocates in Georgia already are hoping that Southern or its Georgia Power subsidiary gets comfortable enough with wind to add more to its portfolio. Renewable boosters such as GreenLaw, the Sierra Club and the Southern Alliance for Clean Energy have slowly shifted their focus away from pushing Georgia Power to add more solar to the grid now that the utility has roughly 900 MW of it under contract.

The new focus is wind now that the cost has come down and turbine technology has evolved.

“Wind is a win for Southern Co., confirmed by the Kay Wind purchase and the recent Georgia Power Wind Report. We hope that Southern Co. will gain confidence from this purchase and will begin to develop projects in Georgia Power’s service territory, as they have with solar,” said Ashten Bailey, a staff attorney with GreenLaw.

Georgia Power has agreed to buy wind power from Houston-based EDP Renewables North America. Southern’s Alabama Power, Georgia Power and Gulf Power have more than 800 MW of wind under contract in some way.

But after putting out a request for information for other potential wind projects, the utility said its review of those projects shows they were too risky, uneconomical or unrealistic (EnergyWire, March 4).