First Wind's Gaynor discusses hurdles to expanding U.S. wind market

How will China's growing wind and solar industries affect the United States' push for renewables? Where does government and private-sector funding for renewable energy projects stand? During today's OnPoint, Paul Gaynor, CEO of First Wind, a leading U.S. wind power producer, discusses prospects for financing in the United States on the heels of the economic downturn. He also talks about the hurdles the country faces to expanding its wind power industry.


Monica Trauzzi: Welcome to the show. I'm Monica Trauzzi. Joining me today is Paul Gaynor, CEO of First Wind, a leading wind power producer in the U.S. Paul, thanks for coming on the show.

Paul Gaynor: Great to be here.

Monica Trauzzi: Paul, your company recently announced it has obtained almost $200 million in financing. Is this a positive sign that the renewable energy industry is sort of coming out of the financial crisis and that prospects for financing are improving?

Paul Gaynor: I certain think so. We closed a deal in July on a small portfolio of projects in the Northeast and brought in Alberta Investment Management Company for about $115 million, as well as we restructured some of our existing term loans there on those two projects. So, we have actually been relatively successful. In the industry the last 12 months we've raised over $1 billion all across the capital structure, the most recent being a grant. We were one in the first batch of companies to receive grant proceeds out of the 1603 program from the U.S. government and that was for our Stetson 1 and Cohocton projects. So we've been very active in this sector. I do think it's certainly a positive sign. It is by no means an indication that we're back to normal or that there's a robust credit or equity market out there.

Monica Trauzzi: In terms of private-sector investment specifically there's been so much concern that that is frozen. Do you see investors sort of starting to warm up and put money back into these types of projects?

Paul Gaynor: The biggest thing that happened over the last couple of weeks has been when the DOD announced the initial recipients of the grant program of which we were one as I mentioned, so yes. That is what everyone has been waiting for, has been the grant proceeds and what it does is it sends a signal to us and to other renewable energy companies in the sector that the government means what it says and is actually trying to get much of this Recovery Act money out the door.

Monica Trauzzi: One of the key hurdles to getting more wind energy online will be addressing transmission issues and those are going to be handled in the climate and energy package that's making its way through the Senate right now. But prospects for final passage of that package are looking dim at this point. Do you think that the Senate should move to separate the climate and energy and just focus on energy and trying to get those provisions passed through so things like an RES and transmission issues are addressed immediately?

Paul Gaynor: That would be ideal if that could happen. The transmission issue is a delicate one to balance. We have a business in the Northeast, we have a business in the West, and I can tell you that the transmission issues in those two parts of the country are very, very different. So, we're hopeful that the legislation can accommodate the uniqueness of each of those particular region's peculiarities. For example, in the West you do need vast amounts of transmission access to move large renewable energy projects to load centers and that's maybe not what you need in the Northeast. So we're hopeful that the policy makers will be amenable to looking at the transmission issue as kind of maybe a regional specific issue.

Monica Trauzzi: Do you think that at this point the regional issues are addressed adequately?

Paul Gaynor: We don't think that they are, but we think that the policy makers are listening and I think people are going to be constructive as the next round of legislation comes around.

Monica Trauzzi: Recently in California energy companies and Governor Schwarzenegger took issue with the language of the RPS that passed the state legislature there because they were saying that it would limit imports of renewables from other states. And that sort of brings to light a larger issue and that's the interplay between states once a renewable electricity standard is in place. How much of a disadvantage are certain states going to be put at and how much are they going to be depending on other states to get the right amount of renewables?

Paul Gaynor: The key principle that we have been professing over the last year or so has been when and if a renewable energy standard has enacted, make sure that the state level RPSs are not diluted. So for example, in some of the states we work in, Massachusetts, California, Hawaii have some of the most progressive and aggressive RPS standards in the country, you don't want the federal policy to kind of bring down all of the good work that the states have done. So we've been advocating if a federal renewable energy standard is going to be implemented let it bring up the other states that don't have any policy in place, don't let it bring down the states where you actually have very aggressive programs.

Monica Trauzzi: You mentioned the money that DOE has been doling out for renewables, the stimulus money, failure or a success for the renewable energy industry? Has it done enough?

Paul Gaynor: Well, first of all, it's certainly not a failure. I think it has to be viewed as a success, the Recovery Act, because if the Recovery Act were not there I think the renewable energy industry would be in a lot of trouble because, as you mentioned, capital is stuck on the sidelines. I think what people are a little bit frustrated about is just how long it's taking. The loan guarantee program for example, the rules are not out although we expect them to be out this week. So, as long as people recognize that we're in a very long marathon here, this is not a problem that's going to get solved in one year, two years, three years. This is a generational issue and the Recovery Act is really meant to just get a kick start to a credit market and to an equity market that was absolutely paralyzed, so to that extent a success, because it's starting to take hold.

Monica Trauzzi: How much is policy a driver for investments versus economics? What are investors looking at more, the economics of the situation or the policy that the government is trying to get through?

Paul Gaynor: It's almost a two-step analysis. I think you have to have the right policies in place. There has to be transparency. There has to be certainty around a federal renewable energy standard for example. What does that do to the states? So long as there's clarity and so long as there's time in order to let the market react because these renewable energy projects are not projects that you can bring online in six months. These are multiyear, multistage, complex projects. So long as you have those two things you're going to get some traction and that's what we firmly believe. And then when you go into the economics it's really just there's a lot of choices out there. There's a lot of technology companies, companies like ours that own development on wind farms, there's lenders and so forth, so there's a lot of choices out there, but I think the first thing that all private investors want to see is clarity on the policy.

Monica Trauzzi: The U.S. wind industry experienced record growth in 2008, surpassing Germany according to DOE, but China is moving quickly on wind production as well. How concerned are you about China's role in all of this and sort of this global race on renewables and who's going to be at the top? How closely are you watching China?

Paul Gaynor: We're watching China from the perspective of being a potential source of turbines. I mean I heard there's probably over 50 turbine companies or component manufacturers in China today and they have incredibly aggressive goals, the Chinese government does. But one of the things that we expect to come out of it, and probably in the medium term, is a real proliferation of Chinese technology in the U.S. wind industry. Now again, that's not going to happen in the next couple of years, but we think you're going to need a global and diverse set of suppliers in order for this country to meet its policy objectives. The DOE wants to get to 20 percent renewable energy by 2030. That's 300 gigawatts of installed base and that's a tenfold increase, a roughly tenfold increase of where we are today. So there's a long way to go and the Chinese will be definitely a part of it.

Monica Trauzzi: Okay, we'll end it right there. Thank you for coming on the show.

Paul Gaynor: Thanks Monica, nice to be here.

Monica Trauzzi: And thanks for watching. We'll see you back here tomorrow.

[End of Audio]



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