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WINDPOWER IS NOW COST-EFFECTIVE

Windpower is poised for a relaunch in the United States, where regulators, investors and utilities, following Europe's lead, are tilting toward improved technology that now makes windpower cost-effective, experts say.

Long-tainted by failures that burned early U.S. backers and by critics who saw windmills as an eyesore and as a danger to birds, windpower still only provides the United States with less than 1 percent of its energy.

"But now there is a perceived shortage of power that wasn't there 5 to 10 years ago," said Maurice Miller, an independent renewable energy consultant in California, where a bungled attempt at deregulation and a host of other factors has made rolling electricity blackouts part of life in the state.

"Wind energy companies are now perceived as viable, competitive businesses," said Miller, who, as former chief financial officer of U.S. Windpower, the wind industry's most notorious failure would know.

Nowadays, windpower is a viable business by nearly any standard, and is growing at 25 percent a year worldwide.

Led by Denmark, which gets 10 percent of its electricity from wind, and by widespread wind development in Germany and Spain, well-placed windfarms in spots such as the American plains states are estimated to be capable of producing three times the total electricity now generated in the entire nation.

Wind turbine technology, vastly improved in recent years, is ideal for flatlands where hot air rises - off the plains of the Dakotas, Kansas and Texas, for instance - and where cool winds are drawn off bodies of water such as the Great Lakes, the Gulf of Mexico or the Pacific Ocean off California's coast.

SLOW TO SHIFT

But Merrill Lynch analyst Steven Fleishman said wind is still a "minute factor" for the two biggest players in the U.S. windpower market, giant utility Florida Power and Light , and Enron Corp. , the largest U.S. maker of wind turbines.

Still, spurred by prices that make windpower as affordable as natural gas or coal as well as by tax subsidies for developers and government mandates requiring utilities to buy more power from renewable energy sources, both companies are now involved in big windpower projects.

And now a handful of other U.S. fund managers say wind has huge potential to make money. So much so, that Jack Robinson's Winslow Green Growth and Green Century Balanced mutual funds have twice the weighting in renewable energy companies as the S&P 500 index .

"Wind is at an inflection point where it doesn't need subsidies to be competitive with traditional power sources," Robinson said.

THE COST OF WIND

While governor of Texas, President George W. Bush signed a law mandating utilities to buy more power from alternative energy sources. Texas now has the fourth largest installed windpower capacity in the United States, and can deliver wind power at a competitive 5 cents per megawatt hour.

But Robert Beningson, chief executive of York Research Corp., an alternative energy developer based in New York City, said wind only achieves such competitive prices with the crutch of tax subsidies for developers.

What the U.S. wind industry needs now to catch up with Europe's wind power craze, Beningson said, is an extension of the Production Tax Credit (PTC), a move mentioned but not mandated in the Bush administration's new proposed energy policy.

Lyn Harrison, editor of industry magazine Windpower Monthly agrees.

"Wind is Bush's chance to marry his big business stance and the environmental messages in his proposed energy plan," said Harrison, whose magazine has offices in wind-rich Denmark and California.

Long term forecasts in the early 1990s by Pacific Gas & Electric and the Electric Power Research Institute (EPRI) said wind would ultimately become the least expensive electricity source.

Current data shows those forecasts are no longer pipe dreams. Based on its knowledge of current market conditions, the Washington, D.C.-based American Wind Energy Association (AWEA) estimates that the cost of tax-subsidzed wind energy at good sites ranges from 3 cents to 6 cents per kilowatt-hour (kWh).

Without the tax subsidies, or PTCs, wind generated electricity still sells at a low cost between 4 cents and 6 cents per kWh, comparable with the 4.8 cent to 5.5 cent per kWh cost of coal and the 3.9 cent to 4.4 cent per kWh cost of gas.

WIND'S TROUBLED PAST

But experts note that wind still suffers from its early bad reputation with U.S. investors.

Since its inception in the United States the late 1970s, the American wind power industry faced an uphill battle against bigger and more established oil and gas companies.

In September 1993, a California company called U.S. Windpower, then the only U.S. maker of wind turbines, raised $90 million in an initial public offering underwritten by Merrill Lynch, hoping to use the money to improve its turbine technology.

By May 1996, U.S. Windpower filed for bankruptcy after a series of mechanical failures proved windpower too expensive.

"There isn't a major institutional investor who wasn't burned by U.S. Windpower," said Jan Paulin, chief executive of Sea West, a private wind developer based in San Diego. "Their efforts were noble but they miscalculated."

Because wind development's cost reflects the time and money needed for making better equipment, scouting the windiest sties, and getting permits to build wind farms, the economics of the wind turbine business are highly sensitive to the interest rate banks charge developers, experts say.

"It's a shame that U.S. institutional investors have such an outdated view of the industry and the technology," Paulin said. "To this day, most of the U.S. wind power developments were initially funded by European banks."

Also, governmental commitment to windpower in Europe helped jump-start the industry before it became self sufficient.

WINDPOWER IN EUROPE

If wind farms were financed on the same terms as natural gas plants, their cost would drop by nearly 40 percent, according to an AWEA study.

Technological improvements that enable turbines to generate steady streams of power no matter what the wind's speed means that it is just a matter of time before U.S. investors, like Europeans, head straight into the wind business, fund manager Robinson said.

"American investors will come to wind, but they may not be investing in U.S. companies at this point in time as there are very few pure plays," said Robinson, whose funds hold the shares of Denmark's two biggest publicly listed wind turbine makers, Vestas Wind Systems, the largest wind turbine maker in the world, and NEG Micron, the No. 4 wind turbine company in the world.

Shares of Vestas and NEG Micron - both part of the Copenhagen Bourse's top-20 index, KFX - soared on May 1 after a Danish government researcher forecast that wind turbines would supply 10 percent of the world's electricity in 20 years.

Soon after, Merrill Lynch started coverage of Vestas with a "neutral" rating in the intermediate term and a "buy" rating in the long term, citing a belief that the wind power companies were on course for a sustained period of strong growth.

Denmark already gets 10 percent of its power from wind, and Vestas and NEG Micron share prices have doubled in a year.

Vestas also holds a 40 percent stake in world's No. 2 wind turbine maker, Gamesa Eolica, which is part of Spain's Gamesa Group.

Written by: Jonathan Landreth, Planet Ark


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