For NextEra, North Dakota Wind is the New Fracking
Renewable wind energy has been an unsung hero in North Dakota's energy growth over the past decade. Can NextEra Energy Resources lead North Dakota market share in the highly competitive wind space?
NextEra Energy Resources, LLC (“NextEra”) knows something that you probably don’t: Chicago may be the Windy City, but North Dakota is the Windy State. As the world’s largest generator of renewable wind and solar energy, NextEra is wrapping up the $500 million Brady Wind Farm, which will bring its North Dakota presence to 13 wind farms by the end of 2016. [1,2,3] To capitalize on the effects of climate change, Next Era should solidify its presence in the North Dakota wind market by pursuing a number of community, technology and regulatory initiatives.
North Dakota is a prime location for wind; it ranks sixth in the nation for wind energy potential, and has high energy consumption needs per capita due to its cold climate and reliance on energy-intensive industries. [4,5] The state met its prior commitment to generate 10% of electricity from renewable energy by 2015, but still uses coal-fired power for 75% of its electricity needs. Given recent downturns in North Dakota’s oil and natural gas industry, renewable energy provides a valuable revenue stream. [7,8] In fact, North Dakota has experienced nearly 250% growth in renewable energy generation over the past eight years, and the state’s oldest coal-based power plant faces a likely shutdown. [9,10]
North Dakota devotes 90% of available land to agriculture, and placing wind farms on farmland has multiple benefits:
- Given the small footprint of turbines, wind farms do not impede usage of land for normal farming and ranching operations;
- Wind farms provide lease income to North Dakota landowners, an important revenue stream given increasing problems with crop yields, flooding, and pest control due to climate change; [11]
- The presence of wind turbines has been shown to improve crop yields; and [12]
- Wind has created 3,300 jobs in North Dakota—the fourth highest in the Midwest— counteracting significant unemployment levels in the oil and gas industry due to low energy prices. [13]
NextEra must surmount significant obstacles to sustain success and grow its North Dakota footprint. First, competitors such as Glacier Ridge Wind Farm LLC, Xcel Energy, and Acciona are racing to expand regional wind infrastructure. [14,15,16] Lease contracts for land on which to establish wind turbines often exceed 20 years, with inconvenient switching costs for landowners; hence, it is crucial the NextEra generate and win new lease opportunities. [17]
Second, the impact of wind farms on the local climate is not conclusive, and some research indicates that climate change could cause decreased wind volume in the future, increasing uncertainty regarding the net present value of investments. [18,19] Lastly, even renewable energy sources such as wind carry environmental concerns. Nationwide, wind turbines have killed hundreds of thousands of birds, a particular issue for North Dakota, which lies within a major avian migratory route. [20,21]
To mitigate these concerns, NextEra should undertake a number of actions. First, NextEra should prioritize the development of new farms, and build out its existing locations. For example, NextEra is currently expanding its Oliver Wind Farm. NextEra should also work to execute more long-term contracts with electricity cooperatives that purchase its electricity, such as MinnKota Cooperative and Xcel Energy. [22,23]
NextEra should increase local outreach, such as expanding its Career Development Partnership to North Dakota State University, thereby creating trust and jobs in area communities. [24] Consistent, widespread education on the net benefits of wind may reduce fears and resistance to more wind farms, such as the protests surrounding the Brady Wind Farm. [25] Otherwise, more local governments may imitate Stark County’s recent decision to slow project growth vis-á-vis a two-year moratorium. [26]
Operationally, NextEra should focus R&D on innovative technology to develop consistent, safe wind energy. Statistical modeling of potential site locations, “smart” turbines, and taller turbines may provide NextEra access to a steadier, stronger wind source. [27,28] Radar can reduce bird and bat deaths. [29] Lastly, improvements to the generation, transmission and storage of wind energy could decrease costs from current averages of USD 0.075/kWh. [30]
Finally, NextEra should adjust financial forecasting for the political climate. Historically, wind projects relied heavily on government subsidies, such as the Production Tax Credit (“PTC”). PTC offsets income tax based on kilowatt hours of renewable energy produced. Republican opposition may jeopardize continued availability of the PTC, particularly if Trump becomes president. [31,32] NextEra must consider this in determining the viability of current and proposed wind farms starting in 2020, after the PTC’s planned expiration. [33]
North Dakota is the ideal place to focus wind generation efforts, and NextEra knows it. To capture and retain strong market share, however, NextEra needs to execute a variety of strategies concerning the communities in which it operates; technology to improve the long-term supply and safety of wind generation; and forecasting considerations for the political and regulatory climate to which it must conform.
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References:
- http://www.nexteraenergy.com/company/our_company.shtml
- http://bismarcktribune.com/bakken/western-north-dakota-in-the-midst-of-a-wind-boom/article_e32568d7-4fc3-5f66-babf-e8395fa7babb.html
- http://webtest.nexteraenergyresources.com/pdf_redesign/portfolio_by_fuel.pdf
- http://www.nrel.gov/gis/images/80m_wind/USwind300dpe4-11.jpg
- http://www.eia.gov/state/?sid=ND
- http://programs.dsireusa.org/system/program/detail/2697
- http://www.eia.gov/state/?sid=ND
- http://www.nytimes.com/2016/02/08/us/built-up-by-oil-boom-north-dakota-now-has-an-emptier-feeling.html?_r=0
- https://www.whitehouse.gov/sites/default/files/docs/state-reports/NORTHDAKOTA_NCA_2014.pdf
- http://www.inforum.com/news/4077916-largest-ever-nd-wind-farm-planned-regulator-blames-coal-plant-closing-wind-power
- https://www.whitehouse.gov/sites/default/files/docs/state-reports/NORTHDAKOTA_NCA_2014.pdf
- http://news.nationalgeographic.com/news/energy/2011/12/111219-wind-turbines-help-crops-on-farms/
- http://www.e2.org/wp-content/uploads/2016/03/E2_CJM_ND_PressRelease_03.22.16.pdf
- http://www.inforum.com/news/4077916-largest-ever-nd-wind-farm-planned-regulator-blames-coal-plant-closing-wind-power
- http://www.geronimoenergy.com/wp-content/uploads/sites/4/2015/09/Pages-from-North-American-Windpower_-Xcel-Energys-Courtenay-Wind-Farm-Breaks-Ground-On-Construction.pdf
- http://www.acciona.us/projects/energy/wind-power/velva-wind-farm/
- https://www.ag.ndsu.edu/pubs/agecon/market/ec1394.pdf
- https://www.scientificamerican.com/article/wind-power-found-to-affect-local-climate/
- https://www.scientificamerican.com/article/climate-change-may-mean-slower-winds/
- http://www.audubon.org/news/will-wind-turbines-ever-be-safe-birds
- http://www.audubon.org/central-flyway
- http://news.prairiepublic.org/post/oliver-iii-wind-farm-approved-psc
- http://www.washingtontimes.com/news/2016/apr/21/minnkota-nextera-announce-wind-farm-expansion-near/
- http://www.nexteraenergyresources.com/partners/community_support.shtml
- http://www.thedickinsonpress.com/news/local/3909988-wind-farm-approved-stark-county-approves-87-turbine-wind-farm-despite-division
- http://www.thedickinsonpress.com/news/local/3913799-stark-co-places-moratorium-wind-farm-applications-permits-will-not-be-considered
- http://fortune.com/2015/05/19/ge-holograms-wind/
- http://www.energy.gov/eere/wind/wind-manufacturing-and-supply-chain
- http://grist.org/climate-energy/for-the-birds-and-the-bats-8-ways-wind-power-companies-are-trying-to-prevent-deadly-collisions/
- http://www.irena.org/DocumentDownloads/Publications/Renewable_Power_Generation_costs_2014/IRENA_RE_Power_Costs_2014_report_chapter4.pdf
- http://www.newsweek.com/whats-true-cost-wind-power-321480
- https://www.scientificamerican.com/article/does-trump-have-an-energy-policy/
- http://energy.gov/savings/renewable-electricity-production-tax-credit-ptc
Very interesting post and totally agree that we must continue to push wind energy but I have a couple considerations. First, building wind farms are only economical when companies receive hefty subsidies from the government (Warren Buffett has been outspoken on this view). You called out the political risk related to continued construction of wind farms but I also wonder whether as other forms of renewable energy are developed (particularly ones that require a lower initial capex) whether the government will still be willing to front the tax credit. If the government is no longer willing to do this, then will wind still remain a viable source of renewable energy? The other consideration I have is around reliability of wind energy. Because you need specific conditions for energy to be generated, turbines are often highly under-utilized. I wonder whether wind is perceived as reliable enough to justify the investment (especially without subsidies).
As the energy landscape evolves, it is clear that eco-friendly options must be adopted over traditional coal-fired power plants to reduce GHG emissions as we power the increasing power demands of our modern society. Economics aside, how do you balance the ecological impact of GHG emissions from coal plants compared to the emissions heavy mining processes that are required to mine and extract the rare earth metals necessary to produce wind turbines with high enough efficiency to viably produce energy from wind driven motion? As the economy of the world evolves and power demands continue to increase, decisions will have to be made on the trade offs of different ecological impacts and the minimization of GHG emissions vs the minimization of overall environmental impact. While these eco impacts are typically localized to mining regions (currently concentrated in Asian countries), we have seen the problems with an “out of sight, out of mind” mentality when it comes to consumption habits and their impacts on global resources.
As oil, coal, and gas become difficult to manage with environmental regulations, wind farms and renewable enrgy are the way to go! It is nice to see that the field products are not harmed and crop yields are actually higher where the turbines are. My question would be: as more farms integrate turbines into their fields, how is North Dakota going to connect their renewable resource to the east and west coast grids? It is possible N.Dakota will exceed their energy needs, so the state needs to prepare infrastucture to put that exccess energy on the grid. The east and west coast evergy grid systems are antiquated and are in need of a dire update to reduce inefficiencies. It could be a great opprotunity for N.Dakota to invest in their own infrastructure and to make it with efficiency in mind.
Great overview here. With much of the low hanging fruit farms and other customers already locked in 20 year contracts, I’d be interested in seeing how much more the sales and R&D efforts turn away from economics and start to focus on behavioral and emotional items such as safety, bird death, and aesthetics. While these are all mostly valid arguments against wind, it would likely take a different type of sales person and team to overcome these issues than one of ROI and I wonder how Nextera reorganizes their team to tackle these issues.
Separately, it would be highly concerning if any studies indicated that wind volume could decrease. With so many turbines situated in one area, how does Nextera de-risk this?
Great insights. This is a very good example of sustainable green growth. I believe harvesting the wind and the sun is the future for our planet. I also think you did a great job talking about what they should do next. It would be useful to understand how historically the level of wind activity has changed over the years and if this trend continues, how could it potentially impact the ROI of the investment. On top of that, it would make sense to clarify if there is any environmental impact of wind generators to the environment.
I totally agree with one of the comments above that it is a low-hanging fruit and definitely as humanity we should look more into it.