A lack of wind is making the US clean energy sector sweat, with consequences for investors from yield-hungry pensioners to Goldman Sachs.
Electricity generated by US wind farms fell 6 per cent in the first half of the year even as the nation expanded wind generation capacity by 9 per cent, Energy Information Administration records show.
The reason was some of the softest air currents in 40 years, cutting power sales from wind farms to utilities. The feeble breezes come as the White House is promoting renewable energy, including wind, as part of its Clean Power Plan to counter greenhouse gas emissions.
“We never anticipated a drop-off in the wind resource as we have witnessed over the past six months,” David Crane, chief executive of power producer NRG Energy, told analysts last month.
The situation is likely to intensify into the first quarter of 2016 as the El Niño weather phenomenon holds back wind speeds around much of the US, according to Vaisala, a Helsinki-based weather measurement company.
“We do know that the strong El Niño cycle that we are now in tends to be correlated with below-average continental wind resource, and we also know that meteorological expectations are for the El Niño phase to continue,” Moray Dewhurst, chief financial officer of NextEra Energy, said on a recent conference call.
US wind farms are increasingly owned by so-called yieldcos, spinoffs from power producers that promise steady payments based on contracted electricity sales. Shares of wind-exposed yieldcos such as NextEra Energy Partners, Pattern Energy Group and NRG Yield, controlled by NRG Energy, have declined this year. NRG Yield reduced its earnings forecast due to what it called “unusually low wind production across the fleet”.
Wall Street banks are passive investors in wind farms, often through tax-advantaged financing structures. Goldman Sachs’s holdings include a stake in Cabazon Wind Partners in California, where generation fell 16 per cent in the first half, EIA data show. JPMorgan Chase recently acquired an interest in California’s Alta Wind X facility, which suffered an 18 per cent decline in electricity output.
Standard and Poor’s put a negative outlook on bonds issued by two wind farm companies as their revenues tracked wind speeds lower.
“Although our current expectation is that the wind resource will revert back to historical averages, at this time it is unclear when that will happen,” the rating agency said.
Wind generated 4.4 per cent of US electricity last year, up from 0.4 per cent a decade earlier. But this year US wind plants’ “capacity factor” has averaged just a third of their total generating capacity, down from 38 per cent in 2014. EIA noted that slightly slower wind speeds can reduce output by a disproportionately large amount.
Investors and analysts said the lighter wind compels renewable energy investors to own wind farms and solar plants in diverse places.
Pascal Storck, Vaisala’s global manager of energy services, said: “You don’t want to have all your eggs in one basket. You don’t want to be all in Texas and not have some mitigation strategy for when wind speeds are below average.”