The Holistic Energy Company
I had the opportunity to spend some quality time with Dick Williams, the President of Shell Wind, discussing a range of topics including the current state of the wind industry and how Shell is positioning itself to be the energy company of the future.
Dick has been a longtime employee of Shell, and has led the wind business for more than five years. He has also joined on as a member of the executive committee for Total Energy USA, which is a new conference being held next week (November 27-29, 2012) in Houston with a goal of nothing less than tying the whole of the energy industry together in a single event.
We started out by talking about the Total Energy USA conference, and my opening question was why get involved in a new energy conference (it’s not as though there aren’t countless other energy events to spend time with). Dick said that the draw to the event was the scope and location.
Houston is the oil and gas capital of the world but there is so much more here. And if you look at the future of the industry – we all believe that at some point fossil fuels wind down. The question is just when: Is it now, 50 years, 100 years 200 years. It is going to take this energy mix going forward and why can’t Houston become the capital of that energy world – not just oil and gas.
You have solar, biomass, wind, clean natural gas, carbon capture and all these offshoots. This is another stage in Houston’s evolution, we want to be more, we want to set ourselves up for the future. At Shell we are doing a lot of work looking at the year 2025. We have a group called Future Energy Technologies. We are really doing some very interesting forward thinking stuff, and part of what we are coming up with is that it’s going to take a very diverse energy mix going forward.
This is a great idea, for the City of Houston to showcase what it can do, and for Shell to get involved and show that we have this wide range of energy options that we are looking at.
That theme, the broader vision for energy, a holistic view of technology now and in the future was consistent throughout our discussion. Working with a portfolio of technologies has been a core part of Shell’s strategy for nearly a decade.
We have our wind business. We have a little hydrogen business. We are working on some of the second and third generation biofuels concepts. We’ve owned solar manufacturing. If you truly believe that in the year 2015 or 2025 that it is going to take all kinds of energy sources, then you have to pitch your tent in several different arenas.
He explained that an important part of the value of the wind business for Shell has been the compatibility with the company’s core hydrocarbon business.
We can tie our wind business or our potential wind business in as a facilitator for other projects. So, for example, up in Canada we can do a wind project that will offset carbon for the oil sand projects or the other unconventional energies up there.
Down here in the U.S. we look [at whether we can we use] power or use credits towards production projects under development in locations like California and Wyoming. Can we provide the green electron for drilling operations? We did this huge portfolio review when we got here and one of our folks mapped all of our projects on a map and then we went and got the potential Shell projects and we laid them over and they fit really nicely.
From there we moved into Shell Wind’s focus and his market outlook. (Read More: Does Obama’s Re-Election Save the Wind Power Industry?)
While Shell Wind’s recent focus in North America has been on green-field project development, Dick acknowledged this market was challenging and that they had begun looking more regularly to other projects “opportunistically”.
To develop a wind farm is about a 7 to 9 year process. With the uncertainties of power markets and transmission, doing green-field projects are getting tough. We have looked at a fair number of opportunistic projects where developers have gotten into trouble and can’t get financing. They call us. We are looking at several of these. We did last year too.
Policy, Production Tax Credit and a Price on Carbon
I asked about 2013, and Dick said that there were no projects in development slated for new operation, but they were reviewing several distressed projects. That was part of a broader discussion of the Production Tax Credit and the role of policy more generally. (Read More: 5 Ways that Wind Power Can Survive Without a PTC Extension)
On the potential for an extension of the PTC (on which Shell has a competitive advantage in the market with because the company has a significant appetite for tax credits) he had this to say:
We of course would like to see an extension. Everybody is worried about the production tax credit. It has been used as the villain for job layoffs and shutting down factories and things like that, but you know, you’ve done the calculations and looked at the models of these projects, and the PTC changes a 5% product to a 6% product. It does not have that huge of an effect.
His follow on comment to this was a key point:
It does have a huge psychological effect in that in order to keep these products going, you need some policies. The one thing I will advocate for is policy certainty – policy with PTC, or the whole valuation of carbon question.
Which brought us to a very interesting part of the discussion.
That’s a big thing that our society still has to grapple with. How do you equate the life cycle cost of a natural gas plant to an unscrubbed coal plant, to a scrubbed coal plant, to a wind project, to hydro, to nuclear to solar while taking into account the price of carbon. I actually think that if you worked on either long-term power policy or long-term renewable portfolio standards or long-term transmission, especially if you had more highways for electrons to move around we would see some positive things happen with power prices [for wind projects].
We turned from there to the global marketplace, and where he thought the exciting markets for wind were over the next couple of years.
I actually think that North America is still pretty viable to be honest with you. There are still some good opportunities here. To really solidify that, you have to figure out the transmission equation. A lot of wind is in Texas, some is in California, but that’s the not near the load center. You are going to have to figure out how to transport it. You still need the highway to get it out.
There are parts of South America that are looking promising. Brazil has tried. They are in the infancy stage. Mexico has a very progressive view on building transmission. Down there are a lot of the majors like Walmart and Procter & Gamble, and they have all contracted for very long term renewable purchase agreements with these wind installations [which are supported by] the transmission lines. They are doing some very interesting things. You do have security issues down there, but they are very progressive.
There [are projects] up in Alberta. They are still trying to sort out carbon offsets and carbon policies. When they sort that out, they have capacity that is real.
I followed up by asking about Shell’s offshore wind business, I knew they had exited a few years back, but had since returned and I wanted to know if he thought the offshore market in the U.S. might also become a viable opportunity.
I still believe it is a tough road to hoe. I think where they want to put it on the East Coast makes sense – close to the load centers. And I believe that it’s technically doable, but the construction cost is 2-1/2 to 3 times onshore installation [and so is] the maintenance. You have to look for a power price that will support those costs.
You also have the environmentalists. They worry about the birds, fish, etc. On our offshore wind farm in Holland we just finished a 5-year $3 million euro environmental study that was a part of our permitting process that was to study the effects of our wind farm on the fish community. And then you still have the FAA and the Department of Defense. They are still very concerned about the offshore wind farms and radar synergies.
If you look at the subsidies here in the US, we get a PTC of $22 [per MWH]. Our incentive for our Dutch [offshore] farm is somewhere around $92 euros [per MWH]. Europe is willing to step up. It comes down to a political and emotional decision that our society has to grapple with.
Overall I came away very impressed with his clear vision on the role of wind integrated into the larger energy company and an upbeat, if measured view of the wind industry in the coming years.