Energy Financial Services, a General Electric Co. investing arm, does not think small. “We look for the next billion-dollar industries,’’ says Kevin Skillern, managing director in charge of venture capital investments.
By all rights, then, Skillern should turn up his nose at the small-wind industry. Sales of wind turbines that generate 100 kilowatts or fewer topped out at $156 million globally in 2008. The biggest player, Flagstaff, Arizona’s Southwest Windpower, which makes a residential-scale three-kilowatt turbine called Skystream, will have revenue of less than
$25 million this year.
But Skillern, after conferring with specialists at GE’s research center, concluded that the small-wind market could hit $3 billion in five to ten years. “There are 14 million homes with adequate wind and enough land for this to make sense, and queries are coming in from schools, hospitals and small cities,” he notes. GE Energy Financial Services has participated in several rounds of financing for Southwest Windpower, which has raised $36 million.
“Small wind” refers to individual turbines used to power a house, a store or parking lot lights. Huge wind farms that feed power to entire towns make up the large-wind industry. Small wind is still a poor relation of solar. The Washington-based American Wind Energy Association reports that small-wind companies have attracted $160 million in equity capital during the past three years; the solar industry attracted $1.8 billion in 2008 alone.
Still, the small-wind business is picking up. In 2008 sales increased by 78 percent from the previous year, and early-2009 sales were running about 20 percent ahead of early 2008’s. In February 2009 small wind qualified for an uncapped 30 percent federal tax rebate; AWEA now predicts 30-fold revenue growth globally in as little as five years.
A three-blade, propeller-shaped windmill is still the predominant model, but manufacturers are tinkering to make the machines quieter, more efficient and less clunky-looking. “The industry has been around for at least 30 years, and the technology is pretty mature,” points out Ronald Stimmel, AWEA’s manager of legislative affairs and small systems. “But that doesn’t mean there aren’t a lot of innovators.”
Southwest Windpower is one of them. Its sleek-looking Skystream is selling not only for residential use, but also increasingly for commercial applications. “We’ve gotten six times bigger in the last five years,” says former CEO Frank Greco.
But investing in small wind is no breeze. Small-wind towers, which range in height from 30 to 120 feet, are more obtrusive than solar panels, and many zoning boards balk at permitting them. Getting access to the local electricity grid is a grueling process too. “Permitting thwarts one third to one half of all proposed installations,” Stimmel estimates.
Cost also remains an issue. At a typical price of $15,000, a small turbine takes at least five years to pay for itself in saved energy costs. And although consumers may talk a good game about wanting to curb global warming, many stop short of paying to do so. Forty percent of Americans responding to a 2008 Financial Times/Harris poll said they would not pay more for green energy, and only 17 percent would pay 5 percent extra. Among Britons, 54 percent said they would not pay more for renewable energy.
Still, optimism is at gale strength. Rockport Capital Partners general partner Alexander Ellis III projects that in the foreseeable future at least 1 million small turbines will be installed in the U.S. “That’s a $15 billion market, and that’s just domestic,” he says. He’s betting that Southwest Windpower will dominate that market, and he has put $10 million into the company.
For Southwest Windpower investors an exit strategy may soon be in place. In December then-CEO Greco recruited R. Dixon Thayer, who has extensive financial experience, to replace him. “My focus was on global expansion,” says Greco, who is now executive vice president of international operations. “Our goal now is an IPO.”
