Much like the wind itself, the business of harnessing its power comes and goes in great gusts. The US is now in one of the painfully quiet periods – wind power installations in the first half of the year were down 71 per cent versus a year ago and 57 per cent from the same period in 2008 with further declines expected next year – but it has become an opportune time to go green for big, dirty utilities.
Exelon’s $900m purchase of Deere & Co’s wind development unit for a little more than $1,200 a kilowatt plus some juicy tax credits and projects under development seems to be a wise move and may presage more deals.
All sorts of power plants, not just wind, now sell for below replacement cost due to low wholesale power demand. But many existing wind projects are a far safer bet than buying more traditional assets since project financing was usually only made available on the basis of long-term power offtake agreements that remove market risk.
Even though the urgency to develop renewable power has faded for the time being as climate legislation has been delayed indefinitely, power companies that think in the long term crave a meaningful “renewable footprint” for when the regulatory winds shift. This could come in the form of a federal renewable portfolio standard, coming on top of existing state rules that will in effect make existing wind projects more valuable.
For a huge generator such as Exelon, with 25,000 megawatts of capacity, it takes big deals to move the needle in terms of its mix anyway. Taking advantage of a bear market in renewable assets to get a head start, and doing so in a way that enhances earnings with little market risk, is more than just whistling in the wind.