Enbridge Inc.'s deal to acquire two wind farms not only shows its hunger for new power sources, but also hints at recent challenges facing global energy producers.
The Calgary-based company said Friday that it would buy an 80 per cent interest in two wind farms in Texas and Indiana worth about $520-million (U.S.). The vendor is E.ON SA, a German power and gas giant, which is keeping a 20 per cent stake in these businesses.
While Enbridge may be known best for pipelines and crude, it's also the second-largest generator of both solar and wind power in Canada. Enbridge has invested $3-billion in these renewable sources in the past five years, and the company has a bright view of the opportunities for power generators in North America.
Increased demand for electricity is forecast across North America in the next 15 years as more coal refineries are retired on both sides of the border, and governments put more emphasis on reducing carbon emissions, the company says. Enbridge sees this as a $500-billion investment opportunity, based on calculations from the U.S. Energy Information Administration.
To adapt to these changes, Enbridge is seeking power investments, but it has a careful list of criteria for each investment. The company wants to buy in regions that need new generation, are supportive of business and have reliable transmission grids, according to a statement made in its annual investor conference in late September. And when it comes to renewable power, Enbridge doesn't want risk – it wants to tap markets with solid resources.
Texas, for one, already has the company's stamp of approval. Enbridge is preparing to launch its $200-million Keechi Wind Project there in early 2015. The state is considered the "national leader in wind energy," with more turbines and industry professionals at work than any other, according to the American Wind Energy Association.
"Texas is a state that's very open to renewable generation, and it will provide significant investment opportunities for us," said Vern Yu, senior vice president of business and market development for Enbridge, at the investor conference. The company said at the time that it planned to be active in Texas. Enbridge also recently increased its investment in a couple of wind farms in Quebec, and sees investment opportunities in Alberta as some coal-fired facilities close.
E.ON's troubles could serve as a cautionary tale of the challenges ahead for carbon-based fuel producers and processors. As Enbridge invests, E.ON has been swiftly divesting some of its global assets. It is preparing to sell assets in Spain as part of an effort to back out of the electricity market in Southern Europe, where an increasing number of electricity providers has made some traditional power plants less profitable, according to the Wall Street Journal.
E.ON also needs to manage its debt level, which was €31-billion ($44.1-billion) as of the end of September when the company posted a steep drop in third quarter profits. E.ON is using capital to build new power units, such as offshore wind farms, but is offsetting those costs somewhat by selling off other facilities.
The company is under pressure as the German government pushes the country away from traditional coal and nuclear power plants, toward cleaner energy, at a time when Germany's energiewende clean energy policy has resulted in a glut of electricity, driving down prices and depressing profits.