As they reach retirement age, wind farms become prime investments

  • Wind turbines at sunset in Germany.

    Wind turbines at sunset in Germany. Bloomberg photo by Krisztian Bocsi.

 
 
Posted6/28/2020 6:00 AM

One of the world's iconic energy technology sites is soon to become an energy technology artifact.

The Mesa Wind project, built on federal land not far from Palm Springs, is one of the first major wind power projects in the U.S., and its 460 turbines have been whirring away on either side of Interstate 10 for almost four decades. Right now, the U.S. Bureau of Land Management is considering a proposal to replace all the old turbines on the site. The issues under consideration are important, but the opportunities are even more important for energy's future.

                                                                                                                                                                                                                       
 

Mesa Wind, installed in 1983, is tiny by today's standards; at all of 30 megawatts of output, it's less than 3% the size of the largest project currently under construction in the U.S. The replacement math for those 30 megawatts isn't complicated, but it is striking: 460 old turbines will give way to, at most, 11 new ones.

Another striking thing about the new Mesa Wind: If built, it'll have the same peak generating capacity as the old Mesa Wind, but on nonpeak days will almost certainly outperform its predecessor thanks to vastly improved hardware, software, and adaptability to different wind conditions. Plus, it'll do so with a smaller overall footprint. While each individual turbine will take up more land area than the one it's replacing, there will be so few of them that the entire configuration will shrink by 10 acres.

Projects like Mesa Wind are the sharp end of a soon-to-be very large wedge. Renewable energy assets all over Europe and the U.S. are about to reach retirement age, and are therefore ready to be reborn or otherwise transformed. By mid-decade, multiple gigawatts of wind capacity will start reaching the end of their 25-year financial lives. Old solar projects are rarer, but that won't be true for long. As of last year, there were nearly equal amounts of installed wind and solar power generation.

As an example of how much solar has improved over time, the largest photovoltaic project built in the U.S. in 2007 cost more than $100 million (just over $7 million per megawatt), has a peak output of 14.2 megawatts, and uses a single-axis tracking system to enable its 200-Watt modules to follow the sun. By comparison, BloombergNEF's benchmark cost for a single-axis tracking system in 2020 is $960,000 per megawatt. As with Mesa Wind, it would use more efficient, lower-cost hardware and software than anything built in the first decade of this century, which would mean increased output at lower cost. Today's biggest PV modules for utility-scale applications are rated at 580 Watts each, almost three times the size of the state of the art modules 13 years ago.

Renewable energy projects are obviously generators of electrons, but they're also financial creatures. As developers and investors look at acquiring these aging assets, they'd do well to keep both facets in mind. An old project isn't so much a discounted future cash flow as it is an embedded option-a right to do something else in the future. That could mean running an asset at minimal operational expense until the equipment fails, which is a relatively typical course of action and exactly what happened with dozens of Mesa Wind's old turbines. It could mean replacing the old equipment at a fraction of the initial cost to achieve vastly improved performance, which is what the new Mesa Wind project aims for. Or it could mean something completely different.

Most of the world's installed clean energy capacity is still well within its useful life. But every new year will bring with it an ever-larger crop of old assets potentially ready for something new. What will smart people, given a connection to the grid and permission to build, do with tomorrow's technology? They might build far more than they would have two decades ago, or add significant energy storage, or build a new electricity-intensive source of demand near their newly repowered generating capability. Wind and sun are resources. Optionality is, too.

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