Wind, Solar to Dominate Growth of Energy Generation: Q&A

By Richard Stubbe, Bloomberg New Energy Finance editor. This article first appeared on the Bloomberg Terminal and is available to clients here.

Texas is the leading U.S. state for wind energy, and Dallas-based Tri Global Energy LLC is the state’s leading developer, according to the American Wind Energy Association.

Tri Global had 3.1 gigawatts under construction or in advanced development in the fourth quarter of 2017, AWEA reported. The trade group’s fourth-quarter market report showed Tri Global completed two utility-scale wind projects, the 155-megawatt Fluvanna I and the 197-megawatt Bearkat I, both in Texas.

John Billingsley, who started the company in 2009 after a varied business career and started a solar company two years ago, said renewable power is poised to provide an ever-growing share of national demand as it gets cheaper every year.

Billingsley answered questions from Bloomberg New Energy Finance in a phone interview on Feb. 28.

Q: Tri Global Energy has the most wind energy under development in the state that leads the nation in wind power with about 21 gigawatts. How big can wind get?
A: Illustrations that I’ve read and projections I’ve seen recently show wind and solar could double over the next 10 to 15 years. Gas-fired generators are still going to be dominant, but wind and solar will be the vast majority of new installations. Coal and nuclear are going to go down, coal especially.

Q: Are there any obstacles?
A: As long as the offtake is available, the cost seems to be coming down every year. They’re more technically efficient so the capacity gets a little bit better. Right now sponsor and tax equity money are available if you’ve got the right offtake.

Q: The federal production tax credit for wind and solar is scheduled to expire at the end of 2020. What happens then?
A: I think that will be the end of it. I think we’ll be able to compete without it by then. It is becoming more and more a level playing field every year. The costs just keep coming down.

Q: How did you get into this business?
A: I was semi-retired. I started Tri Global when I was 69 years old; I’m now 78. I did a lot of research on wind farms and turbines because I have a cotton farm about 40 miles south of Lubbock. I would see all those turbines coming up, and people around my hometown of O’Donnell had different theories as to what they were doing and what it was going to generate and how much they cost. It was a big, big topic of discussion.

So I started trying to figure out how it was making money. My land out there is mainly in the Ogallala Aquifer, and it was drying up. Everybody was looking for ways to supplement income.

I started trying to put together a group of landowners around my land, but a developer out of Dallas beat me to the punch and called a community meeting. He put a wind farm up around the land that I had. Whenever I started talking to him about leasing my land, he was offering an agreement that was very oriented toward the developer and the landowners. I tried to get them to change it and they wouldn’t.

I didn’t lease my land and decided I would put together one of my own. I created a business plan where each wind farm would be a separate LLC. And instead of trying to go out and lease a bunch of land and get as much as possible contiguous, I would start with a defined land area, usually in a rectangle. In that block, and it was usually 30,000 to 40,000 acres, I would start leasing land from the landowners. Anybody included in the area, whether they got a turbine on their land or not, would get a pro rata share of the royalty. It was similar to oil and gas unitization.

I gave the landowners a piece of the equity in the LLC. Then I found investors to put up $4 million to $5 million for construction. For that group I carved out a percentage of the royalties that would be paid to the landowners. The investors and the landowners both got a piece of the royalties and a piece of the equity.

It just went over like crazy. Within about 2 1/2 years, we had 650,000 to 670,000 acres under lease out there. A group of ranchers or farmers would have heard about it and start seeking me out instead of the other way around. We had to curtail it for a while.

Q: You said you would establish a tract of land, but who owned it?
A: I would pick a block of land, and our landmen would start trying to lease within that. We’d call a meeting of landowners and explain what we were doing. It was very similar to a co-op. A lot of those farmers and ranchers in the Panhandle and West Texas are used to cotton, grain elevator co-ops, so that was nothing new to them.

Q: How do you account for the land where the turbine has to be placed?
A: In a typical lease, the electricity generated by that turbine is calculated and royalties paid to the owner on whose land the turbine sits. If you’ve leased your land for 50 years and you’re right in the middle of it and it’s not feasible to put a turbine on your property, that farmer is landlocked and gets no royalty at all.

In my business plan, everything produced in that rectangle goes into a pool. If you own 1,000 acres out of 30,000, you get 1/30th of the income produced there.

Q: They don’t know when they sign the leases where the turbines will go?
A: Right. If it hits on their property under my competitors’ plan, they get royalties off that turbine. If it misses their land, they get zero. They’re running a pretty good risk. That didn’t make sense to me. We called our plan the Wind Force Plan. We have developed an awful lot of land using it.

Q: You recently went outside of Texas for the first time with a 100-megawatt project in Nebraska. Is that a one-time thing?
A: We’re going to expand all over the United States. Right now we are negotiating and will close a deal of 500-plus megawatts here in Texas and two in New Mexico totaling 600 megawatts.

We’re trying to add 400 to 1,200 megawatts a year. I hope we’ll continue growing like that until it’s not logical to do that, and I don’t see that happening soon. I see the industry continuing in a huge growth curve for the next 10 to 15 years.

Q: How’s your newer company, Sunfinity Solar, doing?
A: We started Sunfinity in January 2016. Solar may be a more interesting business than wind. The business is completely different even though they’re both renewable energy. There’s rooftop solar, commercial and industrial solar, utility-scale — any good solar company should be in all three of them, whereas with Tri Global it’s all utility-scale. And we’re in all three.

Q: What are you seeing?
A: Each segment is different. With rooftop, within 45 days you’ve built it and collected the money. Very quick turnaround, almost like a retail business. The commercial and industrial demand is increasing all the time. Corporations, especially if they have visibility, look at it as kind of a calling card in the community that tells everybody they’re environmentally friendly, but also they’re saving money off of it. Utility-scale is more competitive because the competitors are major corporations.

We’re operating in Texas and California. Within six months we’ll be in at least six other states in residential and C&I. For solar we’ve got two projects that we will have inked within the next three to five weeks out in West Texas, each one about 300 megawatts. In New Mexico, we’ve got two of them totaling 675 megawatts that we’ll have under way in June.

Q: What made you decide to get into solar?
A: It’s a natural expansion from the wind business. Purchases of wind and solar complement each other. Solar’s peak hours are during the day, wind’s are during the night. Solar is probably going to be more profitable than wind for us, and wind has been very profitable.

Q: What about batteries?
A: We’re doing an awful lot of research on them. They’ll probably get more immediate implementation in the residential and the smaller commercial and industrial. In California, we are pricing batteries right now with residential. It makes sense because of the market and the pricing.

Electric cars are coming, and whenever you install solar panels on your house and you include a battery pack, that naturally creates a refilling station. Within a year or two, nearly every solar package will have a battery attached to it. The possibilities are limited only by the imagination.


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