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By Elias Hinckley on Nov 19, 2012 with 3 responses

State of the Wind Industry — Interview with Dick Williams, President of Shell Wind

The Holistic Energy Company

Richard “Dick” Williams, President, Shell WindEnergy.

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.

I think that the North Sea and the waters off of Germany and Holland and Belgium – Europe has put in some policies that are making a statement.

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.

Offshore Wind

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.

  1. By notKit P on November 19, 2012 at 9:34 pm

    When conducting an interview of a power industry manager the first question should be what is your generation capacity or what is your backlog of orders if you produce equipment and services?

     

    The answer is 500 MWe. This is called window dressing.

     

    Why is Shell in the wind energy business? For the PTC.

     

    The reason to be in the power industry is to provide a public service to your customers. Shell will fail because the do not understand and can not compete with the likes of Duke Energy (1627 MWe) or FPL (aka NextEra)(8,569 MWe) when it comes to make power.

     

    To be fair, Duke Energy learned it could not compete with on the natural gas gathering end.

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  2. By mac on November 20, 2012 at 6:24 pm

    The critical  energy problem for the U.S. and many other nations is not how to produce  electrical energy, but is a liquid fuels crisis.  The U.S. has more than adequate means to produce all the electrical energy it will ever need:

    1. Hydro
    2. Nuclear
    3. OTEC
    4. Natural Gas
    5. Solar PV
    6. Wind
    7. Waste water conversion to methane
    8. Biomass
    9. Solar Thermal
    10. Wave and Tidal
    11. Small wind
    12. River run hydro
    13. Waste heat recovery
    14. Geo-thermal
    15. and of course the Big Daddy – Coal
    • We have numerous ways to produce electrical energy and we have a divesified portfolio of options
    • In the case of oil, needed for the critical transportation sector, we have very limited options
    • Who cares if Shell is invested in Wind Energy.  That’s not the problem.
    • The problem is Oil and the transportation sector. Whether Shell invests in Wind or does not is basically irrelevant and merely a feel good Public Relations exercise on the part of Shell.
    • When Shell finally says they are completely giving up on the oil exploration business to concentrate solely on making liquid fuels exclusively from algae,  then I will listen.
    • Until then,  Shell’s little foray into the wind business is  pointless and will not solve the liquid fuels problem.
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  3. By mac on November 24, 2012 at 1:34 pm

    Shell and BP (British Petroleum) were significantly involved in Solar for years, but about late 2006/early 2007 they both began a retreat from solar, that continues to this day.

    The idea that present day oil companies might morph into more generalized “energy companies” is an alluring thought, perhaps not born out by actual experience.

    An example of this is the John Deere (tractors and heavy equipment ) purchase of a number of windmill farms and their subsequent sale to Exelon, the largest Nuke provider in the U.S. 

    A spokesman for John Deere said basically that Deere was going to go back to what they do best, building heavy equipment.

    Exelon is an electrical energy provider and windmill farms are no doubt  a better fit for them than they were for John Deere.  The same goes for Duke Energy. Duke is no doubt a better fit for windmills than Shell could ever hope to be.

    Shell needs to begin to develop a natural gas infrastructure for the transportation sector and stop messing with windmills.  If Shell wants some “green” credentials. then let them invest in renewable alternatives to oil such as algae and leave the electrical production to the folks that know how to do it best.

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