Market scan: Europe is gone with the wind 

Earlier this week, Goldman Sachs more than doubled its money by selling Horizon Wind Energy, a developer and operator of wind power generation, for at least $2.15 billion to Energias de Portugal. Goldman had bought Horizon in 2005 for less than $1 billion.

The deal will help diversify the renewables portfolio of state-controlled EDP, which transmits electricity to around 5.9 million customers in Portugal and 3 million in Brazil, and it will bring the company’s wind operations up to 3,800 megawatts of power.

The deal will make EDP the second- or third-biggest wind-power generator, Keith Hays, the head of global wind and energy advisory at Emerging Energy Research in Barcelona, told Forbes.com.

Shares in EDP were up 8 cents, or 0.2%, at $54.17 in New York on Thursday afternoon.

EDP, which gets around 15% of its power from wind energy, seems to have recently been eyeing the sector hungrily–it spent over a billion euros last year on wind-energy related acquisitions in Spain, Belgium and France.

Europe is already the world’s biggest wind market, according to the Global Wind Energy Council, but the Horizon deal also highlights the growing market for wind energy in the region of Southern Europe, where one might expect solar power to be the biggest renewables player. “Wind power has become a profitable business in Southern Europe within the last five years,” said Hays. “It’s become a more mature market.”

Iberdrola, the second-biggest electricity company in Spain, is also now the world’s biggest wind power provider, having recently bought wind-focused Scottish Power for $22.5 billion.

German wind turbine manufacturer REpower Systems has also seen its market valuation more than triple in the last year, to 150 euros ($200) a share, and in recent weeks has received takeover bids of around $1.7 billion from French nuclear power company Areva and India’s Suzlon Energy. In the fourth quarter of 2006, the Hamburg-based windmill maker had a return on equity of 13.7%, and in March raised its 2008 sales target by 6%.

There’s also been a tussle between Germany’s E.ON and Italy’s Enel for Spanish utility Endesa, which is building up a wind energy capacity of 2,224 megawatts (about two-thirds of EDP’s capacity with the Horizon acquisition) by 2009.

One of the driving forces for the growth in wind in the region are incentives like feed-in tariffs and so-called green certificates being brought into force by EU member states. Grid operators are, for example, obliged to “feed in” electricity produced from renewable energy and buy it at a minimum price within their supply area. As of August 2006, 18 out of the 25 EU countries used feed-in tariffs, and a study by the European Commission has found it to be the most effective incentive system in use.

Such government incentives are driven in part by the EU’s Renewables Directive, in place since 2001, which aims to increase the share of electricity produced from renewable energy sources in the region to 21% by 2010.

Apart from that, there’s also plenty of money to be made. Wind energy is one of the fastest-growing energy industries in the world, and wind energy capacity rose 30% in the U.S. in 2006. EU directives are “a factor the growing market for wind, but it’s not the driving factor,” said Hays. “Right now, EDP is investing in wind power because it makes money as a business.”

The top five European wind energy markets in 2005 were Germany, Spain, Portugal, Italy and the U.K., according to the Global Wind Energy Council.

The uptake of solar power in Europe is also growing fast, and the region accounts for more than 24% of global photovoltaic production, according to Euractiv.com. It’s topped only by Japan (44%), while the U.S. accounts for a 22% market share. Germany is one of the strongest promoters of solar power–and it’s home to the largest solar power station in the world, Bavaria Solarpark, for which Siemens supplies all electrical equipment.

By Parmy Olson

forbes.com

29 March 2007