Few companies have managed to make the business of green work for them quite as successfully as Babcock & Brown Wind Partners, a publicly listed investment fund based in Australia.
After four years in the business, the fund is now the world’s fourth-largest owner of wind farms and plans to triple its size again in the next three years. Rising oil prices, falling cost of wind-power technology, and growing public and political concern about the environment have combined to create a perfect wave for such funds. Competitors include the Irish fund Trinergy and Horizon Wind Energy, which was recently bought by the Portuguese electric utility Energias de Portugal for $2.15 billion.
When Babcock & Brown Wind Partners was listed on the Australian Securities Exchange in October 2005, it had three wind farms with an installed capacity of 150MW. Today the fund has a market capitalization of A$1.2 billion, or $981 billion, with interests in 33 wind farms accounting for an installed capacity of more than 1,200MW; and an additional 4,000MW of generation capacity is being planned.
The fund expects to generate a dividend return of close to 8% for shareholders this year.
Although the fund is a fairly recent incorporation, the parent company, Babcock & Brown, has been involved in the financing of wind farms for almost two decades. Wind Partners does not involve itself in the development of the farms themselves: It either takes over assets that have already been developed by the parent company or buys them in the market.
Babcock & Brown Wind Partners is hoping to cash in on the economies of scale.
The fund’s chief executive, Miles George, says that apart from the bargaining power the company derives from its size, it has taken a significant amount of the routine maintenance in-house. “The industry at the moment is very fragmented,” George said.
“The top four or five players”—companies such as FPL Energy in the United States, which own over 4,000MW of generating capacity, and Iberdrola and Acciona in Spain—“account for about 20% of the installed capacity around the world, but longer term we don’t see that as an efficient ownership structure for the industry. You are seeing more corporatization of the industry and we are a much more efficient owner of wind turbines than someone who owns half a dozen turbines.”
George said the fund was watching developing markets with interest, particularly India and China, both of which have been aggressively expanding their wind generation sector. Between them, the two countries accounted for more than 20% of the wind power capacity installed in 2006, according to the Global Wind Energy Council.
“They are markets which we are interested in the longer term, but not in the short term,” George said.
“We have such a strong pipeline of development projects already available to us that we don’t see the need to go into what we would see as higher-risk markets like India and China, even though they are strong growth markets.”
India’s Suzlon Energy Ltd is among the top five wind energy companies in the world.
Babcock & Brown, with operations in the US, Europe and Australia, derives most of its income from selling the power that the wind farms generate. But it also benefits from substantial government incentives. Though wind power is becoming more competitive in its own right, public concern over carbon-based generation is driving politicians to offer greater incentives rather than cutting them.
“The trend around the world is that the subsidies, or the market mechanisms, are becoming more favourable rather than less favourable for the wind power industry,” George said. “It’s hard to open a paper without reading about climate change, and all those things tend to influence politicians to improve legislation that encourages renewables.”
If global warming has presented an unprecedented opportunity to operations like Babcock & Brown, it could also pose a threat.
George said that the data so far showed no sign that long-term wind patterns were changing as the climate heated up but that they were not conclusive. INTERNATIONAL HERALD TRIBUNE