July 6, 2009

Santee Cooper Needs to Catch-Up

So where is Santee Cooper in the renewable and sustainable energy arena? What's your status Santee Cooper? Duke Energy is boosting itself into the renewable market. The utility will have 7 wind-farm projects by next week while Santee Cooper intends to build another coal plant that will further suppress South Carolina's natural resources and extend our dependency on coal. Santee Cooper has the ability to build coal plants, but Santee Cooper cannot rebuild our rivers, creeks, sky, marshland, wildlife, and human lives. Can the utility rebuild your Pee Dee River? Currently, the only construction Santee Cooper has in mind is the coal plant and nothing else. The utility, yes has begun investing in alternatives...gradually. For instance, only testing our Carolina's winds, not using them as alternatives. Get this, with Santee Cooper's recent mini-bond sale, the utility projects to build at least 2 coal plants by 2017, which Santee Cooper stated in its "Resource Plan/Mini Bond Information" publication on October 8th 2008. Why can't Santee Cooper lead like Duke? The utility is misleading the public, claiming on its website, "Our company's mission is to be the state's leading resource for improving the quality of life for the people of South Carolina. One of the chief ways we do that is by protecting our environment. Our environmental efforts are core to our company's vision and beliefs" (Santee Cooper). Yet Santee Cooper is allocating its mini-bonds to at least two coal plants by 2017? Duke Energy is clearly ahead in the game and we have a lot of catch-up and I'm not talking about tomato sauce.
Next week, Duke Energy Generation Services will announce its seventh wind-farm construction project in less than two years.
By year end, the Duke Energy Corp. subsidiary will have gone from no wind assets in 2006 to being among the nation’s top 10 wind-power producers.
And next week’s announcement keeps DEGS on pace to add at least 250 megawatts of capacity in 2010, says President Wouter van Kempen.
“We will have 700 to 800 megawatts of capacity by the end of this year,” he says.
“We have about $1.25 billion by now in wind assets. We will easily have $5 billion within a few years.”
DEGS is the heart of Duke’s commercial line of business. The unregulated commercial unit sells power to large users and other utilities. It isn’t connected with
Duke Energy’s traditional utilities in the Carolinas and the Midwest. That means it can look nationally for opportunities, van Kempen says.
He says his preference is to build generation capacity rather than buy it. DEGS has bought two wind developers — Tierra Energy and Catamount Energy. Neither had completed construction of any facilities when DEGS bought them. But they had more than 5,000 megawatts of potential projects in the pipeline, and DEGS has been building those out.
By contrast, Duke has bought only one already-built project, the 70-megawatt North Allegheny project in Pennsylvania.
But to reach 800 megawatts, DEGS will likely have to make another acquisition.
Duke has 522 megawatts of wind capacity producing power on windmill farms in Texas and Wyoming. Lynn Good, Duke Energy’s new chief financial officer, says two projects in Wyoming and the Pennsylvania purchase will add 211 megawatts. That will total 733 megawatts. And no new construction project announced this late in the year could be finished by January.
Speaking to analysts in Boston last week, Good said changes in the industry favor large, well-capitalized companies over traditional wind developers in consolidating the industry.
“We are looking at various opportunities to capitalize on the current business environment,” she said. “We will also pursue joint-venture and partnership structures to accelerate growth and balance capital requirements as we go forward.”
Van Kempen says Duke’s ability to take advantage of either production tax credits or new investment tax credits — temporarily available from the Obama administration’s stimulus package — gives it an upper hand over undercapitalized developers.
But he says acquisitions will be opportunistic. The Pennsylvania purchase is a good example. The developer, Gamesa Energy USA, had built the project to sell to an Australian company. But that company went under, and Gamesa did not want to operate the wind facilities.
“We got that project at a very attractive price,” van Kempen says.
A key for DEGS was that the project already has long-term customers. Duke found itself burned in the 1990s when its Duke Energy North America built commercial gas-powered plants on speculation. The bottom fell out of that market and caused much of the company’s financial woes in the late 1990s and the start of this decade.
DEGS has contracts for the sale of the power from all its wind projects. It won’t proceed with a new venture until a long-term contract is in hand. Next week’s announcement — for a midsized development likely in the 30- to 50-megawatt range — will include such a contract.
Even having 800 megawatts of capacity would leave Duke well behind the industry leader, NextEra Energy Resources. That subsidiary of Florida’s FPL Group has 6,290 megawatts of wind capacity in operation.
But van Kempen says DEGS should easily be able to grow at a pace of at least 250 megawatts per year for the foreseeable future. And he is looking beyond wind for renewable energy. DEGS’ initiatives include the Adage partnership with Areva SA of France to produce commercial biomass energy. Van Kempen thinks he can build that into a $2 billion business within five years.
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