When Wind Is Not Green

Bill Warner Friday, February 20, 2009

Although wind generated power technology has made great progress over the last decade, and comes the closest to being a cost competitive alternative to fossil fuel generated power, it is still basically a subsidized business that is inherently not profitable. This is because of the capital expense for the equipment that has only a 20 year life, construction expense to install turbines and power lines, and low utilization because the wind doesn’t always blow.

Investors are cautious

Investors are very cautious about investing in technologies that require government regulation and incentives to make them worthwhile, knowing that those regulations and incentives can be terminated at the change of an administration. I have yet to find an investor or proponent of wind power that can explain how wind generated power would ever be profitable without taxpayer money paying for it.

Investors also realize that wind generated power is a nit in the overall landscape of power generation alternatives, representing a potential of 1-2% of the overall supply of electrical power in the US. This is mainly caused by the massive amounts of land that is required to deploy wind turbines and the fact that wind doesn’t blow that much in major portions of the US. Even in areas that do have substantial wind, it doesn’t blow all the time, leaving huge gaps in turbine utilization. The killer is that another power generation facility is needed to handle peak periods when the wind is not blowing, making the investment in wind generated power a net add to the overall power generating complex of a community. Most proponents of this idea don’t like to admit that and don’t count it in their economic analysis. Wind is really not an alternate power source. It is an additional power source that provides intermittent power as the wind blows. I suggest you Google on “wind power cost” and read what people think about this. Start with Ernest Istook’s article on Hot Air About Wind Power.

Entrepreneur attitude is important

Considering other sources of power, investors shy away from solar because it is so wildly not profitable. The cost efficiency barrier has yet to be broken by technological advancements. Yet, hundreds of entrepreneurs are pursuing wind and solar power businesses. I went to an Ignite Clean Energy (ICE) meeting a few weeks ago to see what new news they had. I was floored when they presented a slide that led by saying that the wind in their face was low oil prices. These people have to cheer for high oil prices in order for their ideas to make sense. They said it with a straight and serious face. I was stunned by the unbelievable position taken by smart people in that they are in favor of high oil costs which has shown to be so detrimental to our economy. Yet, this is what the cap and trade movement is all about, so I shouldn’t be too surprised.

Investors don’t appreciate unrealistic zealots

This is the kind of attitude that makes investors nervous. Entrepreneurs that do not have a realistic view of their business and are not forthright and honest about the economic underpinnings of their business cause investors to shy away and find lower risk investments.

In this economic climate and the current state of private equity, businesses that are built on voodoo economics are going to be ignored. Businesses that have solid market need and strong value propositions, and are easy to get into and rapidly reach profitability are the ones that will get investment dollars.

Filed Under: Angel Investment, Financing a Company, Starting a Business



Bill Warner is the Managing Partner of Paladin and Associates, a business consulting firm in the Research Triangle Park area of central North Carolina, and is the Chairman of the Triangle Accredited Capital Forum, an angel investor network with over one hundred members throughout the southeast.

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